Court Upholds Retirement Board’s Discretionary Funding Calculation Decisions

CATEGORY: Fire Watch, Law Enforcement Briefing Room
CLIENT TYPE: Public Safety
DATE: May 03, 2024

Alameda Health System (AHS) disputed the method that Alameda County Employees’ Retirement Association (ACERA) used to calculate annual contributions that participating employers must make towards unfunded liabilities.  The calculation ensures that the retirement system will be able to fund the pensions the employers have promised.  AHS is one of seven public entities that are part of ACERA’s system.

Since its inception in 1948, ACERA used a method called the “Percentage of Payroll” for determining the annual contributions.  The Percentage of Payroll method involves pooling of actuarial risk to reduce volatility in contribution rates, reduce complexity in calculation of contributions, and ensure sufficient funds are timely contributed to the retirement system.

AHS first raised concerns about the Percentage of Payroll method in 2015, stating that AHS could have contributed less to ACERA in 2014 if ACERA used a different method known as the “Percentage of Liability.”  AHS further claimed that it had “subsidized” the cost of participation by other plan members in the retirement system without “measurable benefit.”  For these reasons, AHS requested that ACERA change its method to the Percentage of Liability, which could result in AHS paying $12 million less each year.

ACERA considered AHS’s request by: holding meetings with its participating employers, including AHS; reviewing presentations by ACERA’s actuary; considering objections received from the County to AHS’s demands; and considering the views that ACERA’s staff, advisors, and Committee and Board members articulated.  Ultimately, ACERA’s Board voted to deny AHS’s request.

AHS filed a petition for writ of mandate and complaint for declaratory relief challenging ACERA’s decisions.  In 2022, the trial court granted ACERA’s motion for summary judgment and AHS appealed.

The California Court of Appeal unanimously affirmed the trial court’s grant of summary judgment for ACERA.  First, AHS could not use a writ of mandate to force a public retirement board to take a discretionary action, even if that action implicated the board’s fiduciary responsibilities.  Instead, the writ of mandate can only be used to: require a public agency officer or board to complete a mandatory duty; or determine whether a public agency officer or board abused its discretion.  The writ of mandate cannot be used to direct a public agency officer to use its discretion to select a specific unfunded liability formula.  Second, there was no merit to AHS’s claim that ACERA abused its discretion.  Third, the trial court acted within its discretion to deny AHS’s request to pursue a cause of action for breach of fiduciary duty.

Alameda Health System v. Alameda County Employees Retirement Association, 100 Cal.App.5th 1159.

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