Case Clarifies PERS Regulations with Respect to Pay Deemed "Compensation Earnable"

November 1, 2007

Prentice v. Board of Administration, PERS, Case No. D049252, 4th Dist., Dec. 7, 2007. Glenn Prentice was the General Manager of the City of Corona's newly created Department of Water and Power. He was paid 10.49% higher than the range listed in the City's salary plan for his position because he was responsible for developing the city's new electric utility. After he retired, the City stopped paying the General Manager of the Department of Water and Power the additional 10.49% pay.

When Prentice retired, he claimed his final compensation included the 10.49% pay raise he received when hired as the General Manager. PERS concluded his final compensation did not include the pay raise. Prentice filed an administrative appeal which was heard by an administrative law judge whose decision against Prentice was adopted by the PERS Board. Prentice filed suit in the trial court, where he again lost and then appealed to the Court of Appeal. The Court of Appeal upheld PERS' determination that the salary increase was properly excluded from "compensation earnable."

After concluding that Prentice was a member of the Management Confidential group, the Court concluded that the salary increase was not includable in "compensation earnable" -- the payrate and special compensation of the member, as defined in Government Code section 20636 -- for calculating Prentice's retirement allowance for two reasons

The Court first concluded that the 10.49% salary increase was not reflected in the published salary range and, thus, was not part of Prentice's regular "payrate," relying on the definition of "payrate" in Government Code section 20636(b)1).

Prentice also argued that the increased pay was "special compensation" because it was premium pay for work in an upgraded position of limited duration. However, to be reported as "special compensation" such pay must be available to other members in the group or class and set forth in a written labor policy or agreement. (California Code of Regulations, Title 2, section 571, subdivisions (b)(1) and (b)(2).) Because the 10.29% salary increase was not available to all managers in the Management Confidential group and was not set forth in a written labor policy or agreement, the Court concluded it could not be included in Prentice's "compensation earnable" as "special compensation."

The Court began its decision by noting that both the Legislature and the Board of Administration of PERS have adopted limitations on the salary which may be considered in calculating a public employee's retirement allowance, noting that the limitations exclude payments which were not available to similarly situated public employees. This decision makes clear that if a public employer intends that a salary increase be includable in "compensation earnable" the employer must be careful to comply with the PERS law and with PERS' implementing regulations when establishing the salary increase.

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