This post was authored by Erin Kunze.

In a Fourth District appellate case, Krolikowski v. San Diego City Employees’ Retirement System,  issued in May 2018, the Court found that two overpaid retirees had no valid defense against the San Diego City Employees’ Retirement System (“SDCERS”) in recouping payments made to the retirees for 7 to 12 years.  The two former San Diego City employees began collecting pensions from SDCERS in 2001 and 2006.  At the time of retirement, SDCERS calculated the monthly payments due to each former employee as their SDCERS pension.  Unfortunately, at the time of calculation, SDCERS used incorrect retirement factors, corresponding with inaccurate retirement dates and, as to one retiree, the wrong annuity factor.  The incorrect calculation also relied on a mistaken assumption about individuals’ participation in social security.

In 2013, SDCERS conducted an audit and learned that it had made these mistakes. As a result of its mistakes, SDCERS concluded that it had overpaid the two retirees $17,049.48 and $18,783.99 between the dates the retirees began receiving pension benefits and the date of the audit (not accounting for interest).  Within months of discovering the error, SDCERS sought to recoup payments from the two retirees, with interest.  One retiree reimbursed the system under protest, while the other was subject to an involuntary monthly pension reduction to make the system whole.

The two retirees brought suit against SDCERS after failing to obtain favorable results through the System’s administrative process. In their lawsuit, the retirees brought a number of claims against SDCERS, including a claim of estoppel and a claim that the Code of Civil Procedure’s three-year statute of limitations should apply.  The retirees also argued that the System was not legally authorized to take unilateral action to recoup an overpayment of pension benefits.

Ultimately, the Court rejected these, and all claims made by the retirees. With respect to estoppel, the Court found that the retirees did not “meet their burden” of demonstrating that SDCERS was “apprised of the facts” at issue prior to 2013, nor that they sufficiently demonstrated that they had “sustained an injury” in reliance on SDCERS’s failure to earlier inform them of the calculation error.  The Court additionally noted the extra burden required to bring an equitable estoppel claim against a government entity.  Specifically, it explained that the government “may not be bound by an equitable estoppel…unless, ‘in the considered view of a court of equity, the injustice which would result from a failure to uphold an estoppel is of sufficient dimension to justify any effect upon public interest or policy which would result from the raising of an estoppel.’”  A high burden.

With respect to the Code of Civil Procedure’s three-year statute of limitations, the Court first noted that it did not apply to this matter because SDCERS sought recovery of overpayments through an administrative action, not through the Civil law system. Unlike other pension systems (such as CalPERS, STERS, and some County Retirement systems), nothing in City of San Diego’s law establishing the scope of SDCERS’s authority to administer the City’s pension system prevents SDCERS from seeking recoupment of overpayments through an administrative process in excess of three years.  Moreover, the Court explained, even if the Code of Civil Procedure statute of limitations were applicable, it would not help the retirees in this case.   Code of Civil Procedure section 338, subdivision (d) provides that “an action for relief on the grounds of fraud or mistake . . . is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.”  Here, the court determined that the 2013 audit would be the applicable point of discovery.  In short, even though the overpayments were the System’s mistake in 2001 and 2006, the statute of limitations would not have started until the System discovered the mistake it made.  This begs the question, if the System has not discovered the mistake in the 2013 audit, would any later audit be considered the point of “discovery,” initiating a statute of limitations?  The Court rejected the notion that the System’s initial duty to set a correct pension benefit would sufficiently trigger the Civil Code limitation.  It additionally upheld the trial court’s decision to exclude evidence that the System acted unreasonably in making the mistake, by failing to audit or double check its calculations in a prompt manner.

Finally, regarding the System’s unilateral authority to withhold pension payments from retirees, the Court found that SDCERS has this authority. While pension benefits may not be levied or attached by a “judgment creditor” under state law, the Court explained that the public pension system itself is not a judgment creditor. When it recoups overpayments, it is “not levying or attaching any funds to satisfy a money judgment.” On the contrary, the Court found that the System was required to take this action because it lacked the authority to provide benefits in excess of amounts authorized by the City.

While some portions of this holding will not relate to other retirement systems (e.g. where SDCERS law and CalPERS, STERS, and other City and County retirement system laws deviate), the decision reflects the strong position of pension systems in seeking, and retaining, reimbursements when they determine such reimbursements are owed.

Have you audited your agency’s pension payments and reporting? If not, doing so now – and acting affirmatively to correct errors – may help avoid the accrual of interest and overpayments (or underpayments of pension contributions prior to retirement) that may become substantial over time.

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Photo of Erin Kunze Erin Kunze

Erin provides advice and counsel to Liebert Cassidy Whitmore’s public sector and nonprofit organization clients in the areas of labor relations, governance, and employee pension and health benefits.  She regularly advises clients on a broad spectrum of employment law issues, including workplace policies…

Erin provides advice and counsel to Liebert Cassidy Whitmore’s public sector and nonprofit organization clients in the areas of labor relations, governance, and employee pension and health benefits.  She regularly advises clients on a broad spectrum of employment law issues, including workplace policies, disability accommodations, unlawful harassment, workplace investigations, and employee discipline.

In the area of labor relations, Erin regularly audits collective bargaining agreements and employee relations rules to advise clients on current legal standards and best practices.  She additionally represents clients in negotiations and labor disputes, providing legal counsel through mediation, arbitration and before administrative agencies.

As a member of the Retirement, Health and Disability Practice, Erin advises clients on CalPERS enrollment and retired annuitant issues, as well as issues pertaining to the Affordable Care Act (ACA) and Public Employees’ Medical Hospital Care Act (PEMHCA) compliance.

As a member of the firm’s Business & Facilities Practice, Erin assists academic institutions and nonprofit clients in complying with foundation, donation, and exempt organization requirements.  She provides advice and counsel on contractual obligations and vendor agreements, and she regularly advises clients on issues specific to community college district foundations, including those with auxiliary organization status.

Prior to joining the firm, Erin developed diverse legal experience through her work with various criminal justice and human rights organizations, including the International Criminal Tribunal for the Former Yugoslavia in the Netherlands; Hastings College of Law’s Center for Gender and Refugee Studies; and the Political Asylum/Immigration Representation Project (PAIR).  Erin has also worked with a number of nonprofit arts organizations including California Lawyers for the Arts, Volunteer Lawyers for the Arts of Massachusetts, and the New England Foundation for the Arts. With those agencies, Erin worked on programmatic matters as well as issues relating to nonprofit incorporation, governance, and development.