California’s highest court has settled a long-simmering dispute over how much unused vacation time public employees can convert into a bigger pension check, siding with county retirement systems that had capped the practice.
The California Supreme Court ruling stems from a case involving a small dollar amount — roughly one week’s pay for a retired Ventura County attorney — but the outcome carries much larger financial implications for public agencies and taxpayers across the state, including throughout the Inland Empire, where county governments manage their own retirement systems.
At issue was a provision of former Gov. Jerry Brown’s 2013 pension overhaul, a law designed to rein in retirement costs after California’s public pension funds were battered first by the dot-com collapse and then the Great Recession. Brown’s legislation cracked down on so-called pension spiking, including the practice of cashing out large blocks of unused vacation to inflate a worker’s final pension calculation.
The law allows retiring employees to count only the vacation hours they’re permitted to cash out “each 12-month period” toward their pension formula. The dispute that reached the state’s high court was over what exactly that phrase means.
The case centered on Leroy Smith, a former Ventura County counsel who structured his final year of employment to run from October 2019 to October 2020, allowing him to cash out 240 hours of accrued leave during that span. His employment contract, however, limited him to cashing out just 200 hours in a calendar year. The Ventura County Employees’ Retirement System refused to count the extra 40 hours toward his pension benefit.
Smith, along with other retirees and two public safety employee unions representing sheriff’s deputies and attorneys, argued that Brown’s law never explicitly mentioned a “calendar year” and instead used broader language about a 12-month period — meaning employees should be able to time cashouts across any 12-month stretch, not just Jan. 1 through Dec. 31.
A state appellate court rejected that argument two years ago, and the unions took their fight to the California Supreme Court. In their briefs, attorneys for the retirees contended that if lawmakers had intended to restrict cashouts strictly to the calendar year, they would have used that precise term.
The Supreme Court disagreed, ruling that the law’s reference to a 12-month period aligns with the common understanding of a calendar year and reflects the intent behind Brown’s broader pension reform effort. Justices acknowledged that Smith was only seeking credit for an additional 40 hours, but they warned that allowing employees to “straddle” calendar years could let some workers effectively double the amount of vacation cashout applied to their pension calculations — a outcome the court said lawmakers likely never intended.
The ruling reinforces earlier decisions upholding other components of Brown’s 2013 pension law, which also required public employees to work longer before qualifying for full retirement benefits and increased how much they must contribute from their paychecks toward their pensions.
The decision applies specifically to county-run retirement systems, such as those serving employees in Ventura, San Bernardino and other counties that operate independently from the state’s two major pension funds — CalPERS and CalSTRS.
A coalition of county pension systems had urged the court to uphold the calendar-year interpretation, warning that a different outcome would force them to unwind and recalculate benefits for many retirees, creating significant administrative costs. In their filing, they argued there was no justification for injecting that kind of uncertainty and expense into the system.
With the ruling now final, county retirement systems across California — including those serving public employees throughout the Inland Empire — can continue applying the calendar-year standard when calculating how vacation cashouts factor into retirement benefits, closing the door on what could have become a significantly more costly practice for local governments and the taxpayers who fund them.
Original source: CalMatters
