ATTACHMENT A

THE PROPOSED DECISION

L

BEFORE THE

BOARD OF ADMINISTRATION

CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM

STATE OF CALIFORNIA

In the Matter of the Calculation of Final

Compensation of:

SHERRY L. MATA,

Respondent,

and

CORONA-NORCO UNIFIED SCHOOL

DISTRICT,

Respondent.

Case No. 2017-0701

OAHNo. 2018010547

PROPOSED DECISION

Abraham M. Levy, Administrative Law Judge, Office of Administrative Hearings,State of California, heard this matter in San Bernardino, California, on July 12, 2018.

John Shipley, Senior Staff Counsel, represented Petitioner Renee Ostrander, Chief,Employer Account Services Division, California Public Employees' Retirement System(CalPERS), State of California.

Joshua E. Morrison, Attorney at Law, Atkinson, Andelson, Loya, Ruud & Romo,represented respondents Sherry L. Mata and the Corona-Norco Unified School District(district).

At the close of the hearing, in lieu of closing statements, the parties asked to brief theissues in the matter post-hearing. Their request was granted and the record was left openuntil August 11, 2018, for the parties to submit initial briefs and until August 24, 2018, forthe parties to submit reply briefs. Both parties submitted initial and reply briefs, which weremarked, considered and made part of the record. On August 24, 2018, the matter wassubmitted. '

Personal identifying information was redacted from the documents post-hearing.

PUBLIC EMPLOYEES RETmEMEMT 6YSTEU

FILED.

SUMMARY

Complainant disallowed, for purposes of the calculation of Ms. Mata's retirementallowance, the sum of $20,853 as health benefit conversion pay (the sum) Ms. Mata electedto receive in her reported payrate as final compensation. This sum was broken down intomonthly payments to Ms. Mata of $1,737.74 from July 1,2015, to June 30, 2016, and Ms.Mata retired effective July 1,2016. Ms. Mata and the district appealed and argued that thesum Ms. Mata received should be included in her final compensation calculation. For thereasons stated in this decision, respondents' appeal is denied, and the sum Ms. Mata receivedis disallowed for purposes of calculating her final compensation.

ISSUE

Should the health benefit conversion pay Ms. Mata received be included in her finalcompensation for purposes of calculating her service retirement allowance?

FACTUAL FINDINGS

Jurisdictional Matters and the Parties' Stipulation ofFacts

1. Ms. Mata was employed by the Corona-Norco Unified School District as aDeputy Superintendent. She became eligible to receive CalPERS retirement benefits as aresult of her employment with the district in accordance with the Public EmployeesRetirement Law (PERL).

On April 12,2016, Ms. Mata signed an application for a CalPERS service retirement.Effective July 1,2016, Ms. Mata retired with 33.809 years of public service.

2. From July 1,2015, to June 30,2016, as a result of Ms. Mata's election toreceive health benefit conversion pay, the district included monthly payments of $1,737.74 inher reported payrate. The disagreement at issue concerns the amount of Ms. Mata's "finalcompensation" for purposes of calculating her CalPERS service retirement allowance. Ms.Mata believes that sum of $20,853 she received should be included in her payrate forpurposes of calculating her final compensation.

Complainant disputes that the sum Ms. Mata elected to receive qualifies as part of herpayrate for purposes of calculating her fmal compensation pursuant to Government CodeSections 20630,20630.1, and California Code of Regulations (CCR), title 2, sections 570.5and 571.^

^ All references hereinafter are to the Government Code and title 2 of the CCR unlessstated otherwise.

Complainant identified several reasons for its decision: first, the sum was notadequately specified in publicly available pay schedules before April 19,2016, as requiredby CCR section 570.5, subdivision (b)(8); the sum was not paid to similarly situationmembers of Ms. Mata's group or class of employment, as required by Section 20636.1,subdivision (b)(1), and the sum qualified as "final settlement pay" as defined by CCR section570.

Complainant reached this conclusion after gathering information and documentationfrom Ms. Mata and the district.

3. On November 17, 2016, complainant provided Ms. Mata and the district withits decision with notice of the right to appeal. On December 16,2016, Ms. Mata and thedistrict timely appealed.

On December 18,2017, complainant signed the Statement of Issues in her officialcapacity. The matter was set for an administrative hearing and this hearing ensued.

At the hearing the parties submitted a signed a Stipulation of Facts and Issues, inwhich the parties stipulated to the following facts:

The $20,853 amount is equal to the district's maximum health benefitcontribution for management employees for the 2015-2016 fiscal year (July 1,2015, through June 30, 2016).

Ms. Mata was a member of a group or class of employment, which at aminimum, included the Deputy Superintendent, Associate Superintendent,Assistant Superintendent, and Assistant to the Superintendent (now Chief ofStaff) job classifications.

Effective the 2015-2016 fiscal year, the district ceased providing healthbenefits for the Deputy Superintendent and Associate Superintendent, and, atthe same time, added $20,853 to the salary for each of those positions. Thedistrict did not add $20,853 to the salary for the Assistant Superintendent andthe Assistant to the Superintendent (now Chief of Staff) job classifications, butinstead continued providing district-paid health benefits for those positions.

The parties agree the $20,853 amount is included as part of the payrate for Ms.Mata's position as Deputy Superintendent in a publically available payschedule adopted by the district's board on or about April 19,2016.Complainant disputes whether the $20,853 amount qualifies as payrate, eventhou^ it is listed on the publically available pay schedule. The parties agreethe district's board adopted publically available pay schedules applicable toMs. Mata on June 16,2015, August 18,2015, and December 7, 2015. Thesepay schedules reference a "health benefit conversion to additional basis

salary," but the parties dispute whether the $20,853 qualifies as payrate inthose pay schedules. Again, complainant disputes whether the $20,853qualifies as payrate, even if it is determined the amount was properly includedas part of a publicly available pay schedule.

• The $20,853 "health benefit conversion to additional basis salary" has beenconsistently maintained by the district as salary from the 2015-2016 fiscal yearto the present date for the Deputy Superintendent and AssociateSuperintendent positions.

Contracting Public Agencies and the CalPERS Retirement Program

4. The district contracted with CalPER5 to provide retirement benefits to itseligible employees. The contract between the district and CalPERS is subject to PERL,which provides a defined benefit plan to employees of contracting agencies.

The CalPERS retirement plan is funded by member and employer contributions. Theamount of an employee's contribution is determined by applying a fixed percentage of theemployee's compensation. A public agency's contribution is determined by applying a fixedrate to the agency's payroll. Using certain actuarial assumptions specified by law,CalPERS's Board of Administration sets employer contribution rates on an annual basis.

A member's service retirement allowance is calculated by applying a formula thatinvolves the member's age at retirement, the member's years of service with CalPERS, andthe member's "final compensation," which is defined as "the remuneration paid out of fundscontrolled by the employer in payment of the member's services performed during normalworking hours or for the time during which the member is excused...." (Govt. Code, §20630.) By statute, "fmal compensation" is the employee's "payrate" and any "specialcompensation." (Govt. Code, § 20636.1.)

The District's Employment Agreements with Ms. Mata

5. Four employment agreements Ms. Mata signed with the district were admittedas evidence.

On June 13,2012, for the term July 1,2013, to June 30,2014, Ms. Mata entered intoan employment agreement as Assistant Superintendent, Business Services. Under thisagreement Ms. Mata was to receive "[f]ringe and health benefits extended to all othermanagement employees of the District."

Subsequently, Ms. Mata was promoted to Deputy Superintendent, Business Services,and she entered into an employment agreement she signed on June 18,2014, for the July 1,2014, through June 30, 2016, term. Under this agreement Ms. Mata also was to receive"[Qringe and health benefits extended to all other management employees of the District."

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On June 22,2015, Ms. Mata entered into an employment agreement as DeputySuperintendent, Business Services, for the July 1,2015, through June 30,2018, period.However, in contrast to the two prior agreements, imder this agreement the district would"not cover the actual cost of the health and welfare benefits (medical, dental and vision) forthe Deputy Superintendent, Business Services," but would add $20,853 to her base salary.Ms. Mata's salary was $225,720, without the additional $20,853 being included.

On May 4, 2016, Ms. Mata signed an "Amended and Restated Agreementfor Employment" the same date she tendered her resignation and about threeweeks after she submitted a Service Retirement Application to CalPERS "on or about April12,2016," effective July 1,2016.^ This agreement deleted the reference to the districtadding $20,853 to Ms. Mata's base salary and stated that the district would not contributetoward the cost of health and welfare benefits. Ms. Mata could, however, purchase medical,dental and vision benefits at her own expense. Ms. Mata's salary was listed as $254,592,which is Ms. Mata's former salary of $225,720, plus an annual salary increase and the$20,853 conversion of health benefits amount.

Pay Schedules

6. The district's governing board adopted four salary schedules on June 16,2015,August 18, 2015, December 7, 2015, and April 19, 2016, which were received into evidence.

June 16. 2015. Salarv Schedule. The June 16, 2015, salary schedule listed the DeputySuperintendent salary as $225,720. In addition, next to each position on the salary schedulewas an At the bottom, next to "**" the salary schedule stated, "If provided byemployment contract:" "The health benefit conversion to additional base salary will becalculated based on the actual management cap allowance of $20,853.00."

August 18.2015. Salarv Schedule. The August 18, 2015, salary schedule listed theDeputy Superintendent salary as $233,739, which was an increase of $8,019 or 3.55 percent.Each of the positions on the salary schedule also received an increase of 3.55 percent to then-respective salaries. Next to each position on the salary schedule was an At the bottom,next to "**" the salary schedule stated, "If provided by employment contract:" "The healthbenefit conversion to additional base salary will be calculated based on the actualmanagement cap allowance of $20,853.00."

December 7.2015. Salarv Schedule. The December 7,2015, salary schedule wasnearly identical to the August 18,2015, salary schedule.

April 19.2016. Salarv Schedule. The April 19, 2016, salary schedule differed fromthe December 7,2015, salary schedule in several respects. First, the salary for the DeputySuperintendent was listed as $254,592. This is the amount of the salary from the December

^ The parties did not dispute that Ms. Mata signed the retirement application aboutthis time, with the effective date July 1,2016, as alleged in the Statement of Issues.

7.2015, salary schedule, $233,739, plus the $20,853 sum. Second, the April 19,2016, salaryschedule eliminated the reference to the health benefit conversion being provided, ifprovided in the employment contract. Third, only the salaries of the Deputy Superintendentand Associate Superintendent were adjusted. The salaries for the Assistant to theSuperintendent and the Assistant Superintendent were not adjusted. Testimony at thehearing established the salaries for these positions were not adjusted because they did notreceive the health benefit conversion. Only the Deputy Superintendent and the AssociateSuperintendent received the health benefit conversion.

Ms. Mata's employment contracts were not publically posted or adopted as part ofthese salary schedules.

Testimony of Superintendent Michael Lin, Ed.D.

7. Michael Lin, Ed.D., the District Superintendent, has held this position forseven years. He characterized Ms. Mata's Deputy Superintendent position as part of the"executive cabinet" that included the Superintendent, Deputy Superintendent, AssociateSuperintendent, Assistant Superintendent and Assistant to the Superintendent. He worksclosely with the persons in these positions on a daily and weekly basis to oversee themanagement of ihc district.

Dr. Lin recommended the sum to the governing board around 2015 in response to rulechanges in CalSTRS"^ that allowed the district to restructure health benefits and car mileageand convert these into base salary and because there was a window of time during which thedistrict could do this.^ The text of proposed changes to rules governing compensation underCalSTRS was submitted as evidence and indicated that this restructure needed to take placefor service performed on or after January 1,2015, and needed to be effective before January1.2016, within the employer's standard bargaining or employment negotiation time firames.^Dr. Lin testified that he thought this restructuring would make the executive cabinet positionsmore attractive for recruitment purposes. In recommending these changes to the board. Dr.Lin relied upon the advice of counsel, and to be as transparent as possible, the sum wasidentified in the public pay schedules. The sum was intended to be permanent and hasremained in effect.

^ CalSTRS is the acronym for the California State Teachers' Retirement System.

^ Complainant did not dispute that the district sought to restructure the sum aspermitted due to changes in CalSTRS's rules to allow it to convert the health benefitconversion pay to base salary or that the district did this to be transparent.

^ Sections firom the text of the regulation, which respondents submitted as evidence,are identified under Office of Administrative Law (GAL) file # Z-2013-1210-04. The textcited fi-om the GAL file appears to have been codified as Section 27600, subdivision (d).

Dr. Lin acknowledged that two of the four executive cabinet officers, Ms. Mata andthe Associate Superintendent, received the sum. When asked why only Ms. Mata and theAssociate Superintendent received it, he replied that was a "good question." Dr. Lin thenrepeated that he wanted better salary and benefits for recruitment purposes. When askedwhether Ms. Mata and the district engaged in any negotiations concerning her salary, he saidhe initiated the conversation with Ms. Mata about benefits and this occurred when she signedthe amended employment agreement on May 4,2016.

Ms. Mata's Testimony

8. Ms. Mata worked as Deputy Superintendent for the district for 33 years and isnow retired. She held the position of Deputy Superintendent from July 2013 until sheretired. She loved her job and her ability to make a contribution to the welfare of students inthe district and only retired when she could no longer give 100 percent.

In 2014 Ms. Mata contemplated retirement due to her mother's illness and in August2014 she completed and submitted two CalPERS Retirement Allowance Estimate Requestswith retirement dates of December 31,2014, and June 30,2015. Ms. Mata said that herdecision to retire at that time was premature because her mother passed away and she wantedto continue working.

Subsequently, however, in February 2016, Ms. Mata did decide to retire, effectiveJune 30,2016. She reached this decision because she was experiencing health problems anddue to a series of events involving members of her family that required her attention: herfather's serious medical problems after her mother passed away, and the financial andpersonal circumstances of her sister whose husband passed away on December 12,2015.

Ms. Mata testified the sum did not influence her decision to retire, but the sum was

"nice" because it increased her retirement allowance. She acknowledged that she purchasedhealth benefits after she elected to receive the sum.

Ms. Mata was asked why she signed the resignation letter and the amended agreementon the same date. May 4,2016. She said this was a coincidence because Dr. Lin was in theoffice the date she tendered her resignation.

LEGAL CONCLUSIONS

The Public Employees' Retirement Law

1. One of the benefits offered to many public employees in California ismembership in CalPERS. Members of CalPERS, once vested, participate in a definedbenefit retirement plan, which supplies a monthly retirement edlowance under a formulacomprising factors such as fmal compensation, service credit (i.e., the credited years ofemployment), and a per-service-year multiplier. The retirement allowance consists of an

annuity (which is funded by member contributions deducted from the member's paycheckand interest thereon) and a pension (which is funded by employer contributions and whichmust be sufficient, when added to the annuity, to satisfy the amount specified in the benefitformula). {In re Marriage ofSonne (2010) 185 Cal.App.4th 1564,1568.)

The determination of what benefits and items of pay constitute compensation iscrucial to the computation of an employee's ultimate pension benefits. {City of SacramentoV. Public Employees Retirement System (1991) 229 Cal.App.3d 1470,1478.)

Burden and Standard of Proof

2. Government Code section 20128 provides in part:

[T]he board may require a member... to provide information itdeems necessary to determine this system's liability with respectto, and an individual's entitlement to, benefits prescribed by thispart.

3. Respondents have the initial burden to establish that Ms. Mata was entitled toa CalPERS service retirement and the amount of the retirement allowance. (Evid. Code, §§500 and 550.) The standard of proof is a "preponderance of the evidence." (Evid. Code, §115.)

Relevant Statutory Authority

4. "Compensation" means the remuneration paid out of funds controlled by theemployer in payment for the member's services performed during normal working hours orfor time during which the member is excused from work for specified reasons. (Gov. Code,§ 20630, subd (a).) When compensation is reported, the employer must identify the payperiod in which the compensation was earned regardless of when reported or paid andcompensation cannot exceed "compensation eamable" as defmed. (Gov. Code, § 20630,subd. (b).)

5. Government Code section 20635 provides in part:

When the compensation of a member is a factor in anycomputation to be made under this part, there shall be excludedfrom those computations any compensation based on overtimeput in by a member whose service retirement allowance is afixed percentage of final compensation for each year of creditedservice. For the purposes of this part, overtime is the aggregateservice performed by an employee as a member for allemployers and in all categories of employment in excess of thehours of work considered normal for employees on a full-timebasis, and for which monetary compensation is paid.

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If a member concurrently renders service in two or morepositions, one or more of which is full time, service in the part-time position shall constitute overtime. If two or more positionsare permanent and full time, the position with the highestpayrate or base pay shall be reported to this system....

Section 20636.1 provides as follows:

(a) Notwithstanding Section 20636, and Section 45102 of theEducation Code, "compensation eamable" by a school membermeans the payrate and special compensation of the member, asdefined by subdivisions (b) and (c), and as limited by Section21752.5.

(b) (1) "Payrate" means the normal monthly rate of pay or basepay of the member paid in cash to similarly situated members ofthe same group or class of employment for services rendered ona full-time basis during normal working hours. For purposes ofthis part, for classified members, full-time employment is 40hours per week, and payments for services rendered, not toexceed 40 hours per week, shall be reported as compensationeamable for all months of the year in which work is performed."Payrate," for a member who is not in a group or class, meansthe monthly rate of pay or base pay of the member, paid in cashand pursuant to publicly available pay schedules, for servicesrendered on a full-time basis during normal working hours,subject to the limitations of paragraph (2) of subdivision (e).

(A) "Payrate" shall include an amount deducted from amember's salary for any of the following:

(i) Participation in a deferred compensation plan.

(ii) Payment for participation in a retirement plan that meets therequirements of Section 401(k) or 403(b) of Title 26 of theUnited States Code.

(iii) Payment into a money purchase pension plan and trust thatmeets Ae requirements of Section 401(a) of Title 26 of theUnited States Code.

(iv) Participation in a flexible benefits program.

(B) For the purposes of this section, "classified members" shallmean members who retain membership under this system while

employed with a school employer in positions not subject tocoverage under the Defined Benefit Program under the StateTeachers' Retirement System.

(C) For the purposes of this section, and Sections 20962 and20966, "certificated members" shall mean members who reteiinmembership under this system while employed in positionssubject to coverage under the Defined Benefit Program underthe State Teachers' Retirement System.

(2) The computation for any leave without pay of a membershall be based on the compensation eamable by him or her at thebeginning of the absence.

(3) The computation for time prior to entering state service shallbe based on the compensation eamable by him or her in theposition first held by him or her in state service.

(c) (1) Special compensation of a school member includes anypayment received for special skills, knowledge, abilities, workassignment, workdays or hours, or other work conditions.

(2) Special compensation shall be limited to that which isreceived by a member pursuant to a labor policy or agreement oras otherwise required by state or federal law, to similarlysituated members of a group or class of employment that is inaddition to payrate. If an individual is not part of a group orclass, special compensation shall be limited to that which theboard determines is received by similarly situated members inthe closest related group or class that is in addition to payrate,subject to the limitations of paragraph (2) of subdivision (e).

(3) Special compensation shall be for services rendered duringnormal working hours and, when reported to the board, theemployer shall:

(A) Identify the pay period in which the special compensationwas earned.

(B) Identify each item of special compensation and the categoryunder which that item is listed, as described in regulationspromulgated by the board pursuant to paragraph (6) ofsubdivision (c), for example, the item of Uniform Allowancewould be reported under the category of Statutory Items.

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(C) Report each item of special compensation separately frompayrate.

(4) Special compensation may include the full monetary valueof normal contributions paid to the board by the employer, onbehalf of the member and pursuant to Section 20691, providedthat the employer's labor policy or agreement specificallyprovides for the inclusion of the normal contribution payment incompensation eamable.

(5) The monetary value of any service or noncash advantagefurnished by the employer to the member, except as expresslyand specifically provided in this part, shall not be specialcompensation unless regulations promulgated by the boardspecifically determine that value to be "special compensation."

(6) The board shall promulgate regulations that delineate morespecifically and exclusively what constitutes "specialcompensation" as used in this section. A uniform allowance,the monetary value of employer-provided uniforms, holidaypay, and premium pay for hours worked within the normallyscheduled or regular working hours that are in excess of thestatutory maximum workweek or work period applicable to theemployee under Section 201 and following of Title 29 of theUnited States Code shall be included as special compensationand appropriately defined in those regulations.

(7) Special compensation does not include any of the following:

(A) Final settlement pay....

ra.-.ra

(f) As used in this part, "fmal settlement pay" means any pay orcash conversions of employee benefits that are in excess ofcompensation eamable, that are granted or awarded to a memberin connection with or in anticipation of a separation fromemployment. The board shall promulgate regulations thatdelineate more specifically what constitutes final settlement pay.

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Relevant Regulatory Authority

7. CCR section 570 provides in part:

"Final settlement pay" means any pay or cash conversions ofemployee benefits in excess of compensation eamable, that aregranted or awarded to a member in connection with or inanticipation of a separation from employment. Final settlementpay is excluded from payroll reporting to PERS, in eitherpayrate or compensation eamable.

For example, final settlement pay may consist of severance payor so-called "golden parachutes." It may be based on accruesover a period of prior service. It is generally, but not always,paid during the period of final compensation. It may be paid ineither lump-sum, or periodic payments.

Final settlement pay may take the form of any item of specialcompensation not listed in Section 571. It may also take theform of a bonus, retroactive adjustment to payrate, conversionof special compensation to payrate, or any other method ofpayroll reported to PERS.

8. CCR section 570.5 details the requirements for publicly available payschedules. This rule provides as follows:

(a) For purposes of determining the amount of "compensationeamable" pursuant to Government Code Sections 20630,20636,and 20636.1, payrate shall be limited to the amount listed on apay schedule that meets all of the following requirements:

(1) Has been duly approved and adopted by the employer'sgoverning body in accordance with requirements of applicablepublic meetings laws;

(2) Identifies the position title for every employee position;

(3) Shows the payrate for each identified position, which may bestated as a single amount or as multiple amounts within a range;

(4) Indicates the time base, including, but not limited to,whether the time base is hourly, daily, bi-weekly, monthly, bimonthly, or annually;

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(5) Is posted at the office of the employer or immediatelyaccessible and available for public review from the employerduring normal business hours or posted on the employer'sinternet website;

(6) Indicates an effective date and date of any revisions;

(7) Is retained by the employer and available for publicinspection for not less than five years; and

(8) Does not reference another document in lieu of disclosingthe payrate.

(b) Whenever an employer fails to meet the requirements ofsubdivision (a) above, the Board, in its sole discretion, maydetermine an amount that will be considered to be payrate,taking into consideration all information it deems relevantincluding, but not limited to, the following:

(1) Documents approved by the employer's governing body inaccordance with requirements of public meetings laws andmaintained by the employer;

(2) Last payrate listed on a pay schedule that conforms to therequirements of subdivision (a) with the same employer for theposition at issue;

(3) Last payrate for the member that is listed on a pay schedulethat conforms with the requirements of subdivision (a) with thesame employer for a different position;

(4) Last payrate for the member in a position that was held bythe member and that is listed on a pay schedule that conformswith the requirements of subdivision (a) of a former CalPERSemployer.

9. CCR section 571 exclusively identifies and defines special compensationitems for members employed by a contracting agency that must be reported to CalPERS ifthey are contained in a written labor policy or agreement. (Gal. Code Regs., tit. 2, § 571,subd. (a).)

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Cause Exists to Affirm CalPERS's Determination

10. Ms. Mata did not establish by a preponderance of the evidence that the$20,853 health benefit conversion pay should be included in the final calculation of herretirement compensation. This conclusion is reached for the following reasons:

The Sum Constitutes Final Settlement Pav

First, the $20,853 sum constitutes final settlement pay and must be excluded from thecalculation of Ms. Mata's retirement allowance accordingly. Final settlement pay is broadlydefined under CCR section 570. It may take the form of a bonus, retroactive adjustment topayrate, cash conversions of employee benefits, or any other method of payroll reported toCalPERS "in connection with or in anticipation of a separation from employment." (Cal.Code Regs., tit. 2, § 570.)

By this definition, the $20,853 sum was a cash conversion of an employee benefit inexcess of compensation eamable that the district granted Ms. Mata in anticipation of herseparation from employment from the district on July 1,2016, so she could obtain a higherretirement allowance. (Cal. Code Regs., tit. 2, § 570.)

The following evidence of record supports this conclusion: In three pay schedules,the district classified the $20,853 sum as a possible benefit to add to Ms. Mata's base salaryif her employment agreement allowed her to do this. Ms. Mata's June 22, 2015, employmentagreement, which was to be in effect through June 2018, allowed her to add the $20,853 sumto her base salary, per the pay schedules.^ At the hearing, Ms. Mata and the districtrecognized this as a benefit connected to her retirement because the sum increased herretirement allowance, as permitted under rule changes affecting compensation for CalSTRSmembers.

Ms. Mata's and the district's argument that the May 4, 2016, amended agreementqualified the sum as payrate because it was treated as part of Ms. Mata's base salary is notaccepted. The amended agreement Ms. Mata signed on May 4, 2016, did not change thenature of the $20,853 sum as final settlement pay. Before May 4, 2016, since July 1, 2015,Ms. Mata had been receiving monthly payments of $1,737.74 from the $20,853 sum,pursuant to the June 22,2015, agreement she signed. After May 4,2016, Ms. Mata receivedthese installments for two more months until she separated from the district on July 1,2016.On May 4, 2016, only the language in the amended agreement concerning how respondentsreferred to the sum changed, specifically, the reference in the June 22, 2015, agreement toadding the $20,853 sum to her base salary was deleted and the sum was included as part ofher total identified income of $254,592. Thus, to accept that this change in language in theamended agreement qualified the sum as payrate, and not as final settlement pay, wouldimpermissibly elevate form over substance, and the law does not respect form over

^ It is recognized that the April 19, 2016, pay schedule incorporated the sum as abenefit, as opposed to a possible benefit, by referencing her salary to include the sum.

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substance. {Dept. Veterans Affairs v. Superior Court (1999) 67 Cal.App.4th 743, at p. 758citing Civil Code section 3528; CalPERS Precedential Decision 12-01 {In the Matter oftheAppeal Regarding Calculation of Final Compensation of Craig F. Woods, Respondent andTahoe-Truckee Sanitation Agency, Respondent, CalPERS Case No. 8705; OAH Case No. N-2010040719; Designated Precedential October 17,2012, at p. 10, 13).)^

Due consideration was given to respondents' argument that "final settlement pay" isirrelevant because Section 20636.1 contains a restrictive definition of "final settlement pay"that pertains exclusively to reporting of special compensation, and the $20,853 sum was notspecial compensation. Respondents further argued that CalPERS exceeded its regulatoryauthority in promulgating CCR section 570 under Section 20636.1, subdivision (c)(7),because Section 20636.1 only excludes final settlement pay from special compensation.

Both arguments are not accepted. Section 20636.1, subdivision (f), authorizedCalPERS to promulgate rules to define "final settlement pay" more specially than defined inSection 20636.1, and it did not limit "final settlement pay" to relate only to "specialcompensation" under this section. (Govt. Code, § 20636.1, subd. (f).) In drafting Section20636.1, the Legislature could have stated that fmal settlement applied only to "specialcompensation," or it could have incorporated subdivision (f) into subdivision (c) of Section20631.1, which defines "special compensation." Since it did not, subdivision (f) of Section20636.1 is read to apply to Section 20636.1 in its entirety and not just to subdivision (c)(7).(See, for discussion of determining legislative intent, DaFonte v. Up-Right, Inc. (1992) 2Cal. 4th 593, 601.) As such, as complainant correctly asserts, subdivision (f) applies to payor cash conversations in excess of compensable earnings, which includes both payrate andspecial compensation under Section 20636.1.

CalPERS promulgated CCR section 570, accordingly, consistent with the authorityunder Section 20636.1, subdivision (f), and also, it is noted, consistent with PERL's principalpurpose to prevent "local agencies from artificially increasing a preferred employee'sretirement benefits by providing the employee with compensation increases which are notavailable to other similarly situated employees." {Prentice v. Board of Admin. (2007) 157Cal.App.4th 983, at p. 993; see, also, Hudson v. Board of Administration (1997) 59Cal.App.4th 1310, 1331-1332, citing Oden v. Board of Administration (1994) 23 Cal. App.4th 194,201citing former § 20020 (currently§20630)("[P]ublic agencies are not free todefine their employee contributions as compensation or not compensation under PERL - theLegislature makes those determinations.")) As discussed, the $20,853 sum falls under thedefinition of "final settlement pay.^''°

^ Civil Code section 3528 provides, as a maxim of jurisprudence, as follows: "Thelaw respects form less than substance."

^ In her reply brief, complainant made the important point that the district convertedthe sum in 2016 to meet CalSTRS's definition of "compensation eamable" and as such thesum was fashioned "in connection with or in anticipation of a separation from employment"per CCR section 570. Indeed, what other reason could there be to allow this conversion if

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The $20.853 Sum does not OuaiifV as Pavrate Under Any of the Pay Schedules

In addition, and contrary to respondents' assertion, the pay schedules, both theschedules before April 19,2016, and the April 19, 2016, schedule, did not make the $20,853sum part of Ms. Mata's payrate.

There are two basic reasons for this conclusion: First, the sum was not available to allmembers of Ms. Mata's similarly situated group or class of executive administrators inviolation of Section 20636.1, subdivision (b)(1). Of the executive staff administrativeservice members of Ms. Mata's group or class, she and an Associate Superintendent receivedthis sum while the Assistant Superintendent and the Assistant to the Superintendent did not.

The second reason for this conclusion is that the pay schedules before April 19,2016,did not meet the requirements for publicly available pay schedules because these payschedules referenced other documents, namely, Ms. Mata's "employment contract(s)" "inlieu of disclosing the payrate" in violation of CCR section 570.5, subdivision (b)(8). Ascomplainant correctly pointed out in her reply brief, to determine Ms. Mata's exact salary, itwould have been necessary to review the pay schedules and Ms. Mata's employmentcontracts.'' CCR section 570.5, subdivision (b)(8), prohibits such a practice.

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not to provide Ms. Mata a greater retirement allowance? That the sum was fashioned toallow Ms. Mata to obtain a greater retirement allowance is emphasized by the fact that Ms.Mata paid out of pocket for her health benefits in order to increase her payrate the final yearof her employment to increase her retirement allowance.

In its argument, respondents stressed that Section 20636.1, subdivision (f),authorizes CalPERS to promulgate rules to define more exactly what constitutes "finalsettlement pay" "(a)s used in this part." Respondents interpret "part" to refer only to Section20636.1 and die limiting definition of "final settlement pay" under this section. This isincorrect. "Part" appears to refer to "Part 3" of PERL, Sections 20000 to 21703. This ismentioned to point out that the Legislature could have used the word "section" in subdivision(f) to require diat only the definition of "final settlement pay" under Section 20636.1,subdivision (c)(7)(A) applies, but it did not. By not using the word "section," the Legislatureexpressed its intention that subdivision (f) is not limited to "special compensation."

The April 19, 2016, pay schedule, it is noted, appears to have been changed tocorrect the violation of CCR section 570.5, subdivision (b)(8), considering the previous payschedules.

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ORDER

The $20,853 health benefit conversion pay shall not be included in Ms, Mata's finalcompensation for purposes of calculating her service retirement allowance.

Dated: September 7, 2018

I HWJjim /U.. Ip/Hjy—OocuSigned by:

ABRAHAM M. LEVY

Administrative Law JudgeOffice of Administrative Hearings

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