CalPERS Must Include Cash Outs For Accrued Holiday Leave Credits In Pension Calculations For State Members

CATEGORY: Client Update for Public Agencies, Fire Watch, Public Education Matters
CLIENT TYPE: Public Education, Public Employers, Public Safety
DATE: Oct 06, 2022

Kenneth Hale and Robert Wolf were both firefighters with California’s Department of Forestry and Fire Protection (Cal Fire).  For the last ten years of their careers, they served as executive officers for the union that represented firefighters and fire captains.  In that position, they dealt with labor relations issues.  Part of their duties involved taking calls and dealing with labor issues 24 hours a day, 7 days a week.

In lieu of normal holidays, Cal Fire firefighters would receive a floating holiday with pay which would accrue on the day of the pre-existing holiday, and they could cash out some of those holidays in certain circumstances.  The labor agreement required that executive officers – like Hale and Wolf – could also cash out or pay some portion of unused holidays each year.

Upon Hale and Wolf’s retirement, the union asked the California Public Employees’ Retirement System (CalPERS) to include the money Hale and Wolf earned from the required cashouts in their pension calculations.   CalPERS refused, stating that such cashouts were not “compensation earnable” and were not to be included.  Hale and Wolf took the matter to an administrative hearing, and an administrative law judge sided with CalPERS.  Hale and Wolf appealed to the trial court and lost.  The Court of Appeal then took up the case.

Under the Public Employees’ Retirement Law (PERL), CalPERS calculates an employee’s pension upon retirement with a formula that takes into account the employee’s age at retirement, number of years of service, and amount of final compensation.

The items of pay that constitute “compensation” are crucial to compute retirement benefits. “Compensation” is defined as the employee’s pay rate and special compensation. The pay rate is generally the normal monthly rate of pay for the employee.

Hale and Wolf were state members of CalPERS.  For state members, special compensation specifically includes “compensation for performing normally required duties, such as holiday pay, bonuses (for duties performed on regular work shift),…” (emphasis added).  Special compensation is limited to amounts received by similarly situated members of a group or class of employment.

A group or class of employees is defined as “a number of employees considered together because they share similarities in job duties, work location, collective bargaining unit, or another logical work-related grouping.  A single employee is not a group or class.”

The Court of Appeal concluded that because Hale and Wolf received payments for cashing out their holiday leave, and the payments were compensation for performing their normal duties, which required working on holidays, these payments met the definition of “special compensation.”   As a result, the payments must be included in their pension calculations.

CalPERS argued that because the cashouts were not available to all members of the union, these payments could not be special compensation, as special compensation is limited to payments received by similarly situated members of a group.  The Court of Appeal explained that these two retirees were a class of two because they had such different duties from other firefighters in the Unit.   Because Hale and Wolf were a class of two and were similarly situated, they were able to receive special compensation in the form of holiday cashouts.

Hale v. California Pub. Employees Ret. Sys., 82 Cal.App.5th 764 (2022).


If it provides any solace to clients, the Court of Appeal noted in this case that it would not defer to CalPERS’ interpretation of a particular issue because the evidence showed that CalPERS failed to consistently evaluate that issue.


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