CalPERS Rules that Wrongfully Terminated Employees Are Entitled to Pension Service Credit and To Have a Back Pay Award Reported for Pension Purposes

The California Public Employees’ Retirement System (“CalPERS”) Board recently ruled in a rare precedential decision that make-whole remedies associated with the reinstatement of a wrongfully terminated employee are “reportable” for pension purposes, and wrongfully terminated employees are entitled to pension service credits for the period of their wrongful termination.

In re Kareemah Bradford, Precedential Decision No. 17-01, the City of Compton terminated Ms. Bradford in 2011.  In 2014, the City Personnel Board found that Ms. Bradford’s termination was without cause and issued a make-whole remedy.  Ms. Bradford filed an inquiry with CalPERS in April 2015 about the retroactive salary payments.  CalPERS initially responded that the retroactive salary payments were not reportable because the back-pay award was not for actual service rendered, which meant that Ms. Bradford would not earn service credit for the time she was absent due to her wrongful termination.  Ms. Bradford appealed the decision.

The CalPERS Board reversed course, looking to the plain language, the legislative scheme and its history of the public employees’ pension law to determine that retroactive salary payments as a result of a reinstatement order from a third-party neutral are reportable. 

Accordingly, wrongfully terminated employees are entitled to service credits for the period they were wrongfully terminated. 

This precedential decision does not affect the pensions of public employees who were terminated and then reinstated resulting from a settlement agreement with the employer.

This decisionis significant because it clarifies the law for employees wrongfully terminated before January 1, 2017.  In 2016, the California Legislature enacted AB 2028, which provided that CalPERS must count retroactive salary payments due to a wrongful termination as reportable for retirement purposes.  However, AB 2028 only applies to employees wrongfully terminated after January 1, 2017.  CalPERS’ decision In re Bradford resolves the question for employees wrongfully terminated before 2017. 

Both AB 2028 and In re Bardford only apply to employees reinstated by a third-party neutral, like an arbitrator or personnel commission.  Clarity is still needed on the question of how CalPERS will treat back pay and absences of wrongfully terminated employees who were reinstated due to a voluntary settlement agreement.

We will continue to update you on changes to the law of public employees’ pensions and retirement.

By Anthony Tucci | December 21, 2017

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