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PRESIDENT FECKNER: Okay. We're going to reconvene the meeting. We're on Agenda Item
10, the full Board hearing for Fred ***.
So good morning, everyone. Item 10 is an open record for the full Board hearing in case
number 9711. First order of business will be to please
call the roll
BOARD SECRETARY LUCAS: Rob Feckner? PRESIDENT FECKNER: Still here, thank you.
BOARD SECRETARY LUCAS: George Diehr? PRESIDENT FECKNER: Excused.
8BOARD SECRETARY LUCAS: Michael Bilbrey? BOARD MEMBER BILBREY: Here.
BOARD SECRETARY LUCAS: Ralph Cobb for Julie Chapman?
ACTING BOARD MEMBER COBB: Here. BOARD SECRETARY LUCAS: Terry McGuire for John
Chiang? ACTING BOARD MEMBER McGUIRE: Here.
BOARD SECRETARY LUCAS: Richard Costigan? BOARD MEMBER COSTIGAN: Here.
BOARD SECRETARY LUCAS: J.J. Jelincic? BOARD MEMBER JELINCIC: Here.
BOARD SECRETARY LUCAS: Henry Jones? BOARD MEMBER JONES: Here.
BOARD SECRETARY LUCAS: Ron Lind? BOARD MEMBER LIND: Here.
BOARD SECRETARY LUCAS: Grant Boyken for Bill Lockyer?
ACTING BOARD MEMBER BOYKEN: Here. BOARD SECRETARY LUCAS: Priya Mathur?
BOARD MEMBER MATHUR: Here. BOARD SECRETARY LUCAS: Bill Slaton?
BOARD MEMBER SLATON: Here. PRESIDENT FECKNER: Thank you.
The proposed decision in this case was originally 9considered by the Board at the October 2013
Board meeting. At that meeting, the Board rejected the proposed
decision and scheduled this matter for a full Board
hearing limited to the question of whether staff is estopped
from denying Mr. Fred *** reciprocity for the 12.25 years
that he served on a Cudahy City Council. No other
issues are before the Board, and so we do not have the
authority to hearing any other issue.
Would counsel please take a moment to introduce themselves for the record starting with staff
counsel and then Mr. ***'s counsel.
ASSISTANT CHIEF COUNSEL SEABOURN: Marguerite Seabourn Assistant Chief Counsel, CalPERS.
MR. RIEGER: Jeffrey Ryan Rieger -- PRESIDENT FECKNER: Microphone.
MR. RIEGER: Is it on now? PRESIDENT FECKNER: It is.
MR. RIEGER: Sorry about that. Jeffrey Ryan Rieger of the law firm Reed Smith, which was
counsel to CalPERS staff in this matter.
PRESIDENT FECKNER: Very good. Thank you. MR. JENSEN: Good morning, Mr. President, members
of the Board. John Michael Jensen for Fred ***.
PRESIDENT FECKNER: All right. Thank you. Thank you for the introductions and for attending
this important 0proceeding.
Let the record also reflect that Chirag Shah, from the Los Angeles based law firm of Shaw
and Associates, the Board's independent counsel
on full Board hearings and proposed decisions from the Office
of Administrative Hearings is here now and will
be in attendance throughout the hearing.
Mr. Shah will be advising the Board on this proceeding should Board members have questions.
Mr. Shah will also provide a brief summary of the case
before we begin oral arguments.
In today's proceeding, the record from the hearing before the administrative law judge
stands as is, but the parties have the opportunity to present
oral and written arguments. The Board's procedure does
not permit any other type of evidence to be submitted
in this full Board hearing.
Mr. *** and CalPERS staff have submitted written arguments, which are in the Board
packets. Now, I would like to provide a general outline of
the procedures that we will be following today.
I trust that all parties have received copies of
the Statement of Policy and Procedures for full Board
hearings before the Board, is that correct, Mr. Jensen?
MR. JENSEN: Yes, Mr. President. 1PRESIDENT EDGAR: Mr. Rieger?
MR. RIEGER: Yes, Mr. President. PRESIDENT FECKNER: Thank you.
As we do with all full Board hearings, we will
adhere to the Board's written procedures. First, as
previously indicated, Mr. Shah will provide a brief
summary of the case. Then we will address any preliminary
matters relating to evidentiary issues. After that, we
will proceed with argument. Each position will have 15
minutes for oral argument. Mr. Rieger will first have 15
minutes to present staff's argument. After that, Mr.
Jensen will have 15 minutes to present argument on behalf
of Mr. ***. Neither side is compelled to use the full
15 minutes. In other words, you may but do not
have to use the entire 15 minutes to present your argument.
However, if you conclude your argument in less than
that time allow, you do not get to roll-over any remaining
time for your rebuttal or any other portion of this
proceeding. So it's a use-it-or-lose-it basis.
After both sides have presented arguments, each
side will be given five minutes for rebuttal arguments in
the same order as the original presentation. First, Mr.
Rieger, then Mr. Jensen. Here, too, you may, but do not
have to use the entire time allotted to you for rebuttal.
2But if you decide to use less time, you will not have
another opportunity for the time remaining. There is a timer in the hearing room that
will be set for 15 minutes. It will begin when you
start to speak. Please pay close attention to the timer
as you make your presentation in order to avoid going
over your allotted time.
After all sides, arguments, and rebuttals are
concluded, the Board may ask questions of any of the
parties to this proceeding. The alternatives available to
the Board are set forth in Agenda Item number 10. At the
very end of these proceedings, the Board may go into
closed session to deliberate and vote on the matter.
Alternatively, the Board may vote on the matter in open session without closed session deliberations.
Any questions so far?
Do either -- do all parties understand the procedures?
Mr. Jensen. MR. JENSEN: Yes, I do.
PRESIDENT FECKNER: Mr. Rieger. MR. RIEGER: Yes.
PRESIDENT FECKNER: Thank you. So now then, Mr.
Shah will please give us a brief summary of the case.
MR. SHAH: Good morning, Mr. President, members 3of the Board. Happy Holidays to everyone.
PRESIDENT FECKNER: Morning. MR. SHAH: This matter involves an application
for retirement benefits and related dispute between Mr.
Fred *** and CalPERS staff. As you stated, Mr.
President, the central and sole issue in this case is
whether, under the doctrine of equitable estoppel, staff
is precluded from denying Mr. *** reciprocity for his
service of over 12 years on the Cudahy City Council.
Pursuant to CalPERS standard procedure for resolving disputes, Mr. ***'s appeal of
staff's denial determination was submitted to an administrative
law judge through the Office of Administrative Hearings.
The matter was heard by an administrative law
judge during three days of hearing in November 2012. The
record was closed on April 26th, and on August 6th of this
year, the administrative law judge issued a proposed
decision, which was considered by the Board at its October 013 Board meeting.
At that meeting, the Board declined to adopt the
proposed decision, instead set this matter for a full
Board hearing. All parties have received appropriate notice of these proceedings.
The most pertinent facts of the case are relatively straightforward. From 1970 to 1982,
Mr. ***
4served on the Cudahy City Council a part-time CalPERS
covered position for which he received $150 per month in
compensation. During that time from approximately 1973 to 977, he concurrently served in a position
with the Los Angeles County Sheriff, which is pensionable
under the Los Angeles County Employees' Retirement Association,
or LACERA.
Mr. *** left public service in 1977 and worked
in the private sector until 1996, when he resumed
LACERA-covered employment in a position as chief of staff
for a member of the Los Angeles County Board of
Supervisors. Mr. *** remained in that position until
his retirement in 2009. Mr. *** is currently a retired
member of CalPERS. The specific question before the Board is
whether Mr. *** is entitled to reciprocity for the
service credit that he accumulated while serving on
the Cudahy City Council, so that his highest compensation
with LACERA from LACERA-covered employment can be applied
to his CalPERS retirement allowance.
Mr. *** believes that he is entitled to reciprocity because staff misinformed him
in writing that he would be entitled to reciprocity such that
his LACERA covered position's highest compensation, which
was $11,775 per month, would be used in calculating his
CalPERS 5retirement allowance, instead of his compensation
from the City of Cudahy, which again was $150 per month.
Mr. *** further argues that he relied on the
inaccurate information provided by CalPERS staff in making
employment decisions that adversely affected his status
with CalPERS. Mr. ***'s position is that had he known
that he had not established reciprocity, he would have
taken a CalPERS covered job to protect his retirement
benefits and established the reciprocity at issue in this
case. In the proposed decision, the administrative
law
judge acknowledges that Mr. *** is not entitled to
reciprocity under the terms of the Public Employees'
Retirement Law, or PERL. Nevertheless, the ALJ finds that
Mr. *** has met all of the elements required for
establishing equitable estoppel by a preponderance of the
evidence, because he reasonably relied on staff's
inaccurate information to his detriment. The administrative law judge concludes that
staff must use Mr. ***'s highest compensation
from his LACERA based employment in calculating his retirement
allowance with CalPERS. Mr. *** agrees with the proposed
decision, and asks the Board to adopt it as its own
decision in its entirety. Staff's response is that the administrative
law 6judge makes a legal error in the proposed
decision, because equitable estoppel was not established
by a preponderance of the evidence in this case.
Staff also argues that equitable estoppel can never be
applied to expand the powers of the Board to provide
a benefit, right, or feature that is not authorized by
PERL. The details of each party's position are
presented in their written arguments and the administrative record before the Board at
Agenda Item 10. Mr. President, members of the Board, that
concludes my brief summary of the case. Thank you.
PRESIDENT FECKNER: Thank you. Let us now turn to preliminary evidentiary
issues. As all parties are aware, the Administrative Procedures Act and the Board's procedure governing
this hearing expressly provides the scope of the
Board's review in public and full Board hearings will normally
be limited to the administrative record of the hearing
before the administrative law judge as it stands.
In other words, we are not here to relitigate factual issues or resubmit evidence into the
administrative record. However, in rare circumstances, the interests of achieving a just result may
require a consideration of newly discovered relevant
documentary 7evidence, which could not, with reasonable
diligence, have been discovered and produced at the hearing
before the administrative law judge, and which therefore
is not part of the administrative record.
All of this applies only to newly discovered documentary evidence that is relevant to the
case. Under no circumstance may the Board accept new witness
testimony or any kind of examination or cross-examination
of Board members or anyone else in today's proceeding.
Under the Board's procedure, requests to introduce newly discovered documentary evidence
must be submitted in writing to the Board secretary
no later than the due date for written argument. In order
to avoid interruptions during each party's respective
time today, please let us know now if any of the parties
has any relevant newly discovered evidence which it
seeks to be admitted into the administrative record.
Mr. Rieger, do you have any newly discovered evidence to offer today as to which you have
submitted a prior written request by the due date for
the argument? MR. RIEGER: I do not, Mr. President.
PRESIDENT FECKNER: Thank you. Mr. Jensen, do you have a position or an
objection to Mr. Rieger's request? Seeing none.
8At this point, do you have anything that you are
going to add to today's proceeding? MR. JENSEN: Mr. President, I have no new
evidence to present today. PRESIDENT FECKNER: Thank you.
Seeing that there is no request to submit newly
discovered evidence, now let's begin with the oral
arguments. Mr. Rieger, you'll please present staff's
argument. We'll now set the clock for 15 minutes. MR. RIEGER: Thank you, Mr. President.
PRESIDENT FECKNER: Just a second. We're waiting for the clock.
There we go. Clock is set, now please begin. MR. RIEGER: Thank you, Mr. President.
I think you just heard a very good summary of the
basic facts of this case. I'm not going to repeat them
now. You also have the written arguments from both
parties, and I'm not going to repeat those now either.
What I'd like to do during this oral argument, which I hope will actually be less than 15
minutes is to just distill for the Board the essential questions
that are before the Board, because I think it's
-- there are three essential questions before this Board.
Two of them are of a factual evidentiary nature, 9one of them is of a legal nature. And I think
this Board is uniquely positioned to exercise its collective
judgment to answer these questions that are before
it, perhaps better than any administrative law judge or
perhaps even better than any court with the diversity of
experiences that the Board brings to the table.
The first question is of an evidentiary nature. And that question is, did Mr. *** meet his
burden of proof to show that he was not aware of the
correct rules of reciprocity?
The evidence, in this regard, is not terribly complicated or really disputed. It's more
a question of what's the impact of that evidence. The evidence
is that Mr. *** received numerous materials from
CalPERS and from the Los Angeles County Employees Retirement
Association that very clearly articulated the rules of
reciprocity. These were not materials that he received
in the mail and threw in some file somewhere and
never looked at again. The testimony from Mr. *** himself
is very clear that he reviewed these materials. He understood
these materials. He understood the rules of reciprocity.
He even understood that he did not qualify under
those rules of reciprocity. Based on his review of those
materials, based on his own understanding of his own
factual 0circumstances, he understood that.
So this was before he started making inquiries of
CalPERS. So later when he started making inquiries of
CalPERS, there was a flaw in the system. There was an
error in the CalPERS system. And that unfortunately did
result in him receiving inaccurate information. He requested retirement estimates based on
reciprocity, and he received those estimates with cover
letters, that were essentially form letters, that said
that he had established reciprocity when he had not
actually established it. So over the years, the record that you'll
see, is that he repeated that inquiry over time and
received the same response. He received the same response
orally from several staff members, and he received the
same form letter a couple times. And this happened because
once the error was embedded in the system, it's going
to produce the same incorrect outcome.
So I think the question before the Board on this
first evidentiary issue is in light of the information
that Mr. *** had, did he act reasonably in not trying to
reconcile that apparently conflicting information, because
one of the elements of estoppel is that the person
asserting it has the burden of proof to show that they
were ignorant of the true facts, and that they didn't have
1enough information that a reasonable person would have
been on notice that I need to further pursue this matter
and make sure that I don't have bad information. So I think the evidence is pretty clear. It's
just a question of what this Board believes is the
responsibility of CalPERS' members when faced with a
situation like this. Is it entirely -- again, there was a
mistake at the CalPERS staff level. So the question is
does the member have any responsibility when they have
these two conflicting sources of information to follow-up
and ask the question, now wait a minute. I got some
materials that seem to suggest that I don't have
reciprocity, so how could it be the case that you're
telling me I have it. Let's dig into this further.
Mr. *** didn't do that. He just kept asking for the same estimates. So I think that's
the first question before the Board.
If the Board decides that Mr. *** did have enough information and that he did not act
reasonably, then his appeal should be denied, because
that's an element of the claim and he needs to establish
all the elements.
But if on the other hand, the Board decides that
Mr. *** acted reasonably, then we would move on to the
next evidentiary issue. 2The next evidentiary issue is whether he
established whether he met his burden of proof to show
that he could have attained a different outcome, if he had
had the true facts. So now, at this point, we're assuming
that he received inaccurate information, that he
reasonably relied on it. And if that's the case, could he
have taken actions to reach the outcome he seeks, but for
that bad information? And on this point, this is purely a sufficiency
of the evidence issue. The question is does this Board
believe that Mr. *** brought enough evidence to bear to
satisfy his burden of proof showing that he could have
gotten that CalPERS job? In this case, Mr. *** did not put any documents
before the ALJ or this Board about that job that he claims
he could have taken. There were no documents explaining,
you know, the parameters of the job or why he was
qualified for it. He did not put on any witnesses with
hiring authority for that job. There was nobody that was
able to take the stand and say, yes, based on Mr. ***'s
qualifications, we would have hired him for that job.
What he did have was Mr. ***'s own testimony and the testimony of the human resources director
in Los Angeles County saying that Mr. *** had come
in, they had talked about his options, and the human resources
director 3had identified there's this one department
within the county that was actually covered by CalPERS.
And he had identified that there was an opening in that department, and that he thought Mr.
*** might be suited for that job. But that HR director
did not have hiring authority for that job. And this was
pretty much -- what I just described is pretty much
the extent of the evidence on this point.
So again, I think ultimately this is a question -- this is for the Board's collective
wisdom and judgment, what evidence is this Board going
to require. When members come before it, they have the
burden of proof. What level of evidence are you going
to require for the members to establish the elements
of their claims? If there was better evidence, it was Mr. ***'s
obligation to bring it forward. If there were documents
that would have shown us more about this job, if there was
somebody with hiring authority that could have testified
that he would have had this job, that was his burden to
do. He did not do that. And I submit that trials are not about
speculation or gut instincts, it's about evidence. And I
can't sit here today and tell you for sure that he
couldn't have gotten that job. It's entirely possible
that he could have, but it's not about what I might think
4or what might be possible, it's about evidence. And I
respectfully submit that he simply did not meet his
evidentiary burden in this case. Again, if the Board agrees that he did not
meet his evidentiary burden on that element, then
once again the Board should deny his appeal, because
he does have the burden on all of the elements. And if he fails
on any of them, the appeal should be denied.
I should note, at this point, those are the only
two elements that CalPERS staff is challenging. There's
four elements to estoppel, but two of them are uncontested
here. And basically, the point is is that staff
acknowledges that inaccurate information was provided. So
nobody's challenged that point. So if the Board gets through those evidentiary
issues, the next question is will this Board find estoppel
available at all to expand member's eligibility to
benefits under the Public Employees' Retirement Law?
This is largely a public policy issue. Public entities are subject to different rules on
estoppel than private entities. And there's good public
policy reasons behind that. And the idea is that when there's
public money at issue, you don't want people's benefits
to be determined by the extent of administrative
errors. You want their benefits to be determined by law
that the 5legislature has approved, not by an administrative
error. So we have -- there's the Medina case, which
we cite in our papers, which very clearly says
that you cannot apply estoppel to expand statutory
rights to retirement benefits. That's in the county
employees retirement law context.
And just last year, this Board's decision in the
City of Pleasanton matter was upheld by the court of
appeal, which followed the same rule specifically to the
Public Employees Retirement Law. So the court of appeal
said that you cannot expand rights to retirement benefits
by estoppel when the underlying law does not grant those
benefits. I think Mr. ***'s primary argument and the
ALJ's primary argument in response to this point is that
they -- is the argument that Mr. *** theoretically could
have gotten these benefits. In theory, if he had taken
another job, he could have obtained these benefits.
But I think the fundamental flaw with that argument is that that was true in Medina and
City of Pleasanton as well. In Medina, the members
for a decade received incorrect information stating that
they were safety members. And then when it turned out
they were not safety members, they said, you know, we relied
on this. We've got all these statements for 10 years.
We held our 6jobs. We had all these expectations. They
could have taken a safety job earlier. They could have
obtained safety benefits by taking different actions.
In the City of Pleasanton case, the employer was
on the member's side. The City of Pleasanton was
supporting the member's appeal on that case. And the City
of Pleasanton said, we misdescribed this in our labor
agreement. And if we had known that this was going to be
excluded -- and they argued that CalPERS should have told
them that it should be excluded. And they said if we had
known that it should have been excluded, we would have
described it differently in our labor agreement, and then
it would have been includable. So you see, even in the City of Pleasanton,
the member could have obtained the benefits the
member was seeking, but that didn't change the outcome.
The court
still held that the Public Employees' Retirement Law must
govern, not estoppel. I will just note that in the City of Pleasanton
case, the trial court actually ruled against this Board's
decision initially. The trial court thought estoppel
applied, and the -- that was one of the bases for the
trial court's decision. The court of appeal overturned
the trial court. So you can see this -- it is -- this ALJ,
this 7administrative law judge actually described
this area of law as choppy seas. And I think that was an
apt description, because the law is a bit muddled.
And I can understand why the ALJ would say that, but
I do think that the City of Pleasanton case gives an important
roadmap here.
The very last point here, and this is sort of a
subpart to what I was just describing, this legal
principle of whether estoppel can apply. Even if this
Board finds that estoppel can be applied to expand rights
under the Public Employees' Retirement Law, the last
question to ask is should it be applied in this case?
Because whenever you deal with the principle of equitable
estoppel, you have to consider the equities. And so this Board, if it finds estoppel is
available at all, should balance all the equities, take
into consideration all the facts before it. And I think,
as it does that, there's two issues to consider. Number one, even if the Board finds that Mr.
*** satisfied his elements on the estoppel, I think it's
undeniable that he did play some role. He did play at
least some role in the outcome here, in the sense that he
could have done more. He could have made more inquiries.
He could have brought the discrepancies to the attention
of staff and asked further questions. 8And then lastly, I think it's important to
focus on the nature of the benefit itself that he's
seeking. This aspect of the case is very unique. I've
never quite seen any case like this, to be honest, because
the benefit he's seeking was really a loophole that existed
in the Public Employees' Retirement Law. It's a very
complicated statutory scheme, and sometimes it has unintended
consequences. And what was happening was people who provided
part-time service on local boards would get full-time
service credit, which is fine. So Mr. *** was making
$150 a month. And if his pension is based on $150 a
month, then there's no problem with him getting full-time
service credit. But if his pension is based on 100,000
plus salary that he earns in another CalPERS covered job
or reciprocal job later, it really, I think, is fairly
described as a windfall. And that's not my word. That's
the legislature's words. When they -- they actually closed this loophole
in 1994. Now, technically, they left it open for people
who had provided service before 1994. And that was the
ALJ's position in this case, that you call -- you know,
one person's windfall is another person's benefit. And I
think the ALJ just felt like if Mr. *** was able to take
advantage of it, then he should be able to. 9I would just submit that this Board has the
authority and the ability to consider the nature of the
benefit, that even if the windfall, in theory, could have
been awarded under the PERL, that does not necessarily
mean that this Board should exercise equitable principles
to award it by equitable estoppel. And -- well, I did keep it under 15 minutes,
but only by 30 seconds. So with that, I'll turn
it over to counsel.
PRESIDENT FECKNER: Thank you, Mr. Rieger. Mr. Jensen, it is now your turn to present
Mr. ***'s argument. Please start the clock as
Mr. Jensen begins to speak.
MR. JENSEN: Thank you, Mr. President, Board members.
I think that Mr. Rieger just unfairly characterized the testimony that was in three
days of hearing. And he's picking and choosing specific
things that he believes represent his case, but we
had an ALJ in the room judging the credibility of these
witnesses. And Mr. Rieger makes statements that Mr. ***
was not ignorant of the true facts.
But, in fact, the ALJ in the hearing in all the
testimony said that he was ignorant of this -- that's
reciprocity was not -- was inappropriately granted to him.
0And I think that this Board should defer to the testimony
of the ALJ his credibility -- I'm sorry, maybe I misstated
that. That Mr. *** understood that he was entitled to
reciprocity and that he didn't know that Reciprocity was
inappropriately granted to him. He believed that
reciprocity was granted to him. And the reason he believed that is because
he received written communications from CalPERS
that granted him reciprocity. And then he when he received
these inquiries he called CalPERS and he asked them,
tell me about this, look into this. And then they
came back after a specific inquiry and a day later, they confirmed
that he was entitled to reciprocity.
And Mr. Rieger characterized that as inquiry notice that because he asked a question, he
knew he wasn't entitled to it, but that's not the case. He
was uncertain about it, maybe, and so he was motivated to
ask a question to CalPERS, and CalPERS, which has these fiduciary
duties, and which understands the PERL and this law
significantly better than the members, investigated it,
and then sent him a written confirmation of it. That's the
inquiry notice that Mr. Rieger is characterizing as,
it was -- you know, that he was questioned about whether
he had reciprocity.
So the issue here really is before you, are 1members entitled to rely on the communications
that CalPERS sends to them?
I mean, there's constitutional authority that requires the Board to be a fiduciary, and
there's statutory authority, and the duty to fully
inform. This Board has adopted precedential decisions that
says timely and accurately inform. And the question is,
if this Board and CalPERS has that duty to inform them,
are members to entitled to rely on that?
That's what this case is about. And the ALJ, after judging the credibility over three days,
believed that Mr. *** was entitled to rely on these
written representations, and that he didn't have any
-- you know, that he acted reasonably. And one of the issues
that Mr. Rieger says is that this error was embedded
in the system, but Mr. *** actually went and called CalPERS
staff specifically and asked well, is this correct?
And they apparently investigated, and sent back a
written confirmation. And they did this not just once,
but several times they confirmed this when he was seeking
retirement estimates. So it's -- you know, he had serial
representations that he was entitled to this benefit.
And I don't think there is any fact in the record
that Mr. *** has to keep asking questions over and over
again to the authority saying, "Well, wait a second, you
2told me I had reciprocity. I mean, how sure are you about
that?" What is the member's duty to get accurate
information? It's not the member's duty. It's the
Board's duty to provide it. You know, there was -- Mr. Rieger has also
represented that there's an evidentiary issue about the
sufficiency of the evidence about whether he would have
gotten another job, another CalPERS job, because we didn't
bring in someone who had the authority to give him the
job. And in fact, that's not really the standard that Mr.
Rieger arguing is, well, he had to actually take the job
in order to satisfy that standard of being able to get
reciprocity. But in the member's position, he's talking
to CalPERS, asking for information, thinks he
has reciprocity, so he doesn't go get another
job, because he believes he has reciprocity. The conversation
that Mr. Rieger mentioned between Michael Henry who's
the human resources officer of Los Angeles County brought
this specific question up between Mr. *** and
Mr. Henry. And Mr. Henry said, if you haven't established
reciprocity, there's this job available where you can establish
reciprocity. This is in the record. And both of them say, no, I've established
3reciprocity, so I'm not going to take that job. That's
where this idea about the value of information and
planning comes in, not that he could have -- that the
hiring authority would have hired him. He wasn't going to
take that position anyway, because he had already believed
that he had that benefit established. And so you can't hold Mr. *** to a standard
of what possibly could have happened had he been
informed, when really the standard is that he was wrongly
informed, and what we are trying to do here is establish
a standard where a member can rely on the information
received from CalPERS in order to plan their employment
history. And that's exactly what happened. Mr. *** didn't
take the CalPERS reciprocity job in like 1998, because
he already established -- he already believed that he
established reciprocity.
And I do want to address these public policy issues, because the Supreme Court, in a case
called Mansell, directly addressed some of the legal
issues involved in equitable estoppel. It is true
the government is held to a different standard than private
parties, but the standard is not that they can't provide
a benefit in excess of statute.
The legal standard is that it balances the public
policies involved. And if government would otherwise
4be -- made representations that allowed a member to make
reasonable reliance on the representations, then the
government is estopped from denying it. Mansell involved the case in Long Beach, where
people -- the government had led homeowners to build on
tidelands that were protected under the Constitution as
being preserved, and they weren't allowed to build on it.
So there was a constitutional right to have these
tidelands protected, and the government allowed them to
build on it. And then the homeowners said well wait a second.
You allowed us to billed on this. You can't take our
property away because you're asserting this constitutional
right. And the Supreme Court found in Mansell that the
private property owners were entitled to their property,
even though there was a constitutional right that could
deny them of it. That's very similar to what's in this case,
but there's one thing that's very different, is
that at the time that Mr. *** received these representations
from CalPERS that he established reciprocity, at
that time, he still had many different ways that he could
have sought jobs to be able to get reciprocity. He testified
that reciprocity was important to him.
And when he sought this information from CalPERS, 5we had the testimony of the person most knowledgeable
about reciprocity, who processes reinstatements. It's a
CalPERS employee. A very forthright woman named Ms. de
Flores. And she testified -- excuse me -- that CalPERS
was aware at the time they were sending out these letters
about retirement estimates that included reciprocity that
they were wrong. They sent them out to maybe thousands of
people, and CalPERS knew they were wrong. Ms. de Flores came in and tried to establish
new protocols, so that further bad information
wasn't given out. But those protocols didn't work. So Mr.
*** received, what would turn out to be incorrect
information, before those protocols were established and
then afterwards.
But the thing is, at that time, CalPERS knew, Ms.
de Flores knew that CalPERS was systematically misinforming members. They knew the people
that had sought benefit calculations for estimated
retirement benefits, and they had the opportunity to
go inform them that these individuals had been misinformed
about their reciprocity benefit, but CalPERS didn't take
any action. And so here you have this situation where
Mr. Rieger characterizes it as error embedded
in the system, but what's the obligation to accurately inform
them, once you know they're misinformed, and, you know,
people are 6relying on it?
She testified this is a very important benefit. And so here -- the situation is not just that,
oh, he received, you know, some ridiculous piece
of information that no one would rely on, and it was just
facially wrong? No, so this is a systematic representation
officially CalPERS knew was wrong and they didn't correct
it and they had the opportunity to.
This ALJ's opinion is really well written. It's
smart. It's -- you know, it takes these different balancing equations, different balancing policies
and applies it to a difficult situation. Mr. Rieger
characterizes it as a loophole, but, I mean, this is the
legislature provided. So when lawyers are characterizing
the legislature as making windfalls or loopholes, I mean,
I would expect more respectful for the laws that are
created and binding on our -- your members. So I guess I just want to -- I mean, in the
little bit that I have left, I would just ask you to look
at the decision, look at the facts from the position of a
member. And, you know, the facts are -- excuse me --
pretty clear. I mean, Mr. *** in 2003 began thinking of
his retirement, and so he was figuring out what was his
best options. He made inquiries. CalPERS represented to
him that he had reciprocity several times 2003, and then
7 007. And as he approached retirement, he went
-- he went into the CalPERS Member Office in Glendale
and he said, I'm about to retire. I want to make sure everything
is squared. And, you know, this is my LACERA
salary, because you have to retire simultaneously from the
Los Angeles County job and the -- from both systems at
the same time to establish reciprocity.
So he went into the member office and he asked them, okay, is this right? Am I doing this
right? Do I have reciprocity? Have I -- do I -- am I filing
these at the same time? And the member said yes, confirmed
reciprocity at the time that he filed the retirement
applications. Now, there's one little sort of additional
piece of information here that is kind of, I don't
know, maybe important for you guys to know, is that when
he filed his retirement application, CalPERS did another
review. And two weeks before he actually retired, CalPERS
discovered that, no, he wasn't entitled to reciprocity,
but did they tell him? They didn't tell him. He didn't
know. So he filed his retirement applications to retire.
And then three months after his retirement, CalPERS
said no, no reciprocity. No ability to, you know, join
these two things up. We're going to cut your benefit
basically by 5 percent on that part. 8And what equitable estoppel is is the other
side of fiduciary duties. It's the way of enforcing
the fiduciary duties to be accurately informed.
It's not a system of windfalls. We're not saying every
error generates a claim. It's more long-term reliance
on reasonable representations within the context
of CalPERS providing information the member is supposed
to rely on. That's what people should be able to benefit
from to plan their lives. That's what this case is about,
allowing people the reasonably opportunity to rely
on CalPERS information and not after retirement get some
kind of surprise that says, oh, you know, we're not
going to honor that.
I'm out of time. I could go on, but... PRESIDENT FECKNER: Thank you.
Mr. Rieger, would you like to offer rebuttal? MR. RIEGER: I would, Mr. President.
PRESIDENT FECKNER: All right. Then please proceed and let's start the clock at five
minutes. MR. RIEGER: Thank you. I want to briefly
address some of counsel's discussion about, you know, what
CalPERS knew and when they knew it or sort of the level of
culpability that you hear about. I think it's first of
all it's unfair characterization. I think the
administrative law judge mostly got the facts right in
9this case. I think the proposed decision generally does
get the facts right. I think there is one flaw in the ALJ's proposed
decision. And it's the same flaw that I think exists in
some of the arguments you just heard from counsel, and
it's this basic assumption that CalPERS is almost like a
single individual. Like CalPERS is this one entity that
has all of the information at all times, and can compare
the different information it has, you know, within its
brain, if you will, but that's just not the reality. It's
a very large organization. The people that Mr. ***
interfaced with over the years were numerous and they were
different people. Nobody had complete information. And I really think that the ALJ's failure
to recognize the institutional aspect of this
permeates some of the ALJ's views of this case, and some
of the comments you just heard from counsel. But at the end
of the day, it really doesn't matter, because none of
that argument you just heard about this -- the level of
culpability or, you know, who did what wrong, none of that's
contested. We're not contesting that element of estoppel.
We've never contested it.
I told the ALJ in opening arguments. I said I'm
not contesting it. We're contesting other elements of
this case. So I don't even think it -- it really does not
0make any difference to this Board's consideration, because
I think this Board's consideration is on the other
elements of estoppel, and then also the legal principle.
Counsel has framed this as are members entitled to rely on the representations of CalPERS
staff? I think what he's really saying is, are members allowed
to rely blindly on the information that they get that
they want to hear and ignore the information they don't
want to hear. Because, yes, Mr. *** did come in and make
inquiries of different people at different times over and
over again. He did all of that, but what you did not hear
in counsel's presentation, not once did he come in and
say, I don't get it. I have all these materials that
suggest I should not have reciprocity, how is it that I
have it? Now, if this -- again, this is not my decision
to make. This is the Board's decision to make.
If the Board thinks that Ms. Guide behaved reasonably,
then he passes that test. I just -- I submit that he does
have -- he does bear some responsibility here. He, unlike
CalPERS, is not a large organization with multiple
people. He doesn't have to administer benefits for 1.6
million people who all have different circumstances under
a very complex statutory scheme. He only has to worry about
himself. And I think that he had enough information
to at least ask 1these questions.
I don't think there's really a credibility issue
here. I mean we heard some discussion on that, but the
ALJ didn't identify any particular testimonial qualities
that turned on credibility. I think the ALJ just balanced
the evidence and came to the conclusions that he came to,
but ultimately it's this Board's job to determine, you
know, what is sufficient evidence to prove an element, and
whether a member acted reasonably or, you know, relied
reasonably on the information they received. On that point, I just want to -- I want to
read. This is in the argument that we submitted
in writing, but I just want to highlight here. In cross-examination
when we -- when I asked Mr. *** about why he
didn't make these inquiries, he said he just assumed that
he was grandfathered into some older set of rules.
He just assumed that there was some other set of rules
that applied to him.
But he never asked anybody where is that older set of rules? Is there an older set of rules.
He just made the assumption. When I asked him why
he didn't make that inquiry, he just said, this is quote,
"I was pleased that I had this letter". He meant the form
letter that said he had reciprocity. "I didn't feel I
had a duty to investigate to find how they came to that
conclusion". 2Now, he made that quote after he had received
all those other materials explaining to him what
the rules are. And I think the question before the Board,
is that reasonable?
The very last point I'd like to make is to respond to the arguments about Mansell. Counsel
already told you a little bit about Mansell, but the
bottom line is it was decades of reliance of homeowners
and businesses that settled on lands and established their
lives, and established their businesses. There was numerous
litigations and settlement agreements. And everybody
relied on it. I mean, we're talking everyone's livelihood
here over decades. And the Mansell case said that it was a very
narrow precedent. I submit this case, in all of its
totality, is not Mansell. It's not one of those rare
cases. And with that, I'll submit. Thank you, Mr.
President. PRESIDENT FECKNER: Thank you.
Mr. Jensen, would you like to offer rebuttal? MR. JENSEN: Yes, Mr. President.
PRESIDENT FECKNER: All right. Then please proceed, and let's se the clock for another
five minutes. Thank you.
3MR. JENSEN: Thank you, Mr. President, and Board
members. I think the question of whether Mr. ***
relied reasonably is really a question of the person
who heard the testimony in the OAH over three days.
And that would be the ALJ. The ALJ is the person who sits
there, as given authority by you, to determine the reasonableness
of somebody's character, and their reliance.
I mean, you can pick certain words out of the testimony over
three days and use it against them.
But what Mr. Rieger's real argument is you can't
rely on the information. If there's a certain piece of
information, you have to go in and investigate it
yourself. Now, I don't know if any of you know, but I
practice in this area. And we do a number of different
litigations. And it is very difficult to understand some
of the statutory law. And we don't expect individuals to
be lawyers and do statutory analysis and basically become
experts in the PERL in order to understand their benefit.
They should be able to make a reasonable inquiry. I have these two employments, am I entitled
to link them up? And CalPERS should be able to say to them,
yes, you're entitled to reciprocity and the member
should be able to rely on that. It shouldn't be like,
well, wait a second, you know, I actually am right handed
or left 4handed, does that make any difference? Or,
you know, I have a size ten and a half wide.
I mean, what is the standard of inquiry that is
presented by this case? How many questions do you have to
ask to be able to get a reasonable answer? And I think that what happens here is that
basically Mr. Rieger and -- he's a good lawyer, but he's
trying to transfer these fiduciary duties of information
onto the member, and he's trying to absolve the Board of
responsibility for breaches of its fiduciary duty to
timely and accurately inform. And I think that equitable estoppel in these
limited circumstances, where there's reasonable reliance
for years on direct representations made to the Board and
staff about specific questions is very similar to Mansell.
And I think that the case law that Mr. Rieger has cited
about the City of Pleasanton and Medina, those are not on
point on this, because if you look at the ALJ's ruling his
question is, is CalPERS allowed to grant reciprocity? And
I think that there's no question about that. Clearly,
they are, and that's the issue. It's not -- this case is not about granting
a benefit in excess of statute. Some of these
cases, like City of Pleasanton, they were amounts that
would never have been able to be granted as PERSable under
the PERL, 5like over time, we're those issues that were
always excluded.
But reciprocity is the benefit that this is in
statute. And Mr. *** would have been entitled to
reciprocity, because under his testimony he would have
taken the job had he been accurately informed on a
question that he asked the Board about. So if this -- one of the duties is to try
to help these members make good decisions about their
life, then they should be able to do it in these kind
of situations, where the law is being followed, and where
these standards of accountability and correct information
and fiduciary duties are enforced by this -- these members
being able to bring in limited circumstances -- this doesn't
open the flood gates -- limited circumstances to bring
this equitable estoppel, so that the member doesn't
bear the loss associated with misinformation, because
that's really what it's doing. It's shifting it, the loss
or -- the loss or the monies that the member thought
that he had and that he would have had as being taken away
from him based on this information.
And the better risk, I don't know, spreader is
the Board rather than the individual who just suffers a
straight out loss that he wasn't responsible for. And so
I just ask you to look at these -- look at the arguments,
6look at the testimony, and defer to the ALJ's judging
of -- PRESIDENT FECKNER: Time is up. Your time is
up, sir.
MR. JENSEN: Thank you. PRESIDENT FECKNER: Thank you. Okay.
Thank both of you for our presentations. It's now time to see if any Board members have
questions. Board, any of you have questions at this time?
Mr. Slaton. BOARD MEMBER SLATON: Thank you. I've got a
question about this issue of seeking another job that was
under the CalPERS system. Help me understand would that
be any job or would it be only a certain job? MR. RIEGER: So this goes to the core of what
I've described as the loophole. The -- Mr. *** had this
service credit from his part-time elected service, where
he had very little contributions. His member contributions were about $800. All of the
city's contributions were based on this $150 a month
pay. But up until 1994, the member got full-time
service credit, but they only had one final compensation.
So if later in your career if you took a CalPERS covered
job, any -- to answer your question directly, any CalPERS
covered job, then -- and if you held that job for the
7final compensation period - I think typically a year, in
some cases three years - then you would be able to use --
that would be your final compensation, the only one you
have. And it would apply to all service credit, including
the 12 years that you were only paid $150 per month.
I think it was an unfortunate unanticipated consequence of a very complicated statutory
scheme. And when there was public outcry about it back
in the nineties, the legislature closed the loophole.
Now, for some reason the legislature felt like they
couldn't close it for existing elected people -- officials,
so they didn't, but -- so -- but that point is conceded,
that if he did take a CalPERS covered job, it is true
that it would have dramatically increased his retirement
allowance. BOARD MEMBER SLATON: But only if he had taken
a job that had been at that high compensation
level. So if he had taken any job he could possibly get,
if it had a very low compensation, then his calculation
would not have been as he's asking for here.
MR. RIEGER: That's right. And I think you're actually identifying a little bit of a disjoint
in the ALJ's proposed decision, because all of this
sort of assumes that the salary of the CalPERS covered
job would have been the same as what he was receiving
in Los 8Angeles, which is what his estimates were
based on. There wasn't any evidence to support that.
Like I said, there was no evidence really at all
about that other job. I think it's fair to say he would
have made substantially more than $150 a month. Let
me just get that out there. I'm not going to contend otherwise.
It clearly would have increased his benefit,
but I do think there's sort of a disjoint here.
And then the ALJ did what I think what he thought
was rough justice. You know, he thought that, well, he
probably would have made about the same, but we don't
know. There is an evidentiary gap there about what he
would have actually made. BOARD MEMBER SLATON: Okay.
MR. JENSEN: May I address that question a little
bit? BOARD MEMBER SLATON: Sure.
MR. JENSEN: First of all, it was -- I agree that
the Cudahy City Council time was an unusual situation.
However, had he established reciprocity leaving the L.A.
County job to another CalPERS job, reciprocity would have
been established then without any question. And I'd just
like you to ask Mr. Rieger to clarify if reciprocity was
established from the L.A. County job to the CalPERS job,
what the benefits would be on that? 9MR. RIEGER: You know, that was not actually
an argument that was made in the proceedings.
The argument that was made was about the CalPERS eligible
job and the impact of that on his final compensation.
I don't know exactly how it works. My basic understanding
is I actually don't think that CalPERS construes
the statute as Mr. Jensen suggests.
I think when there's a long break like that, it's
not as easy to apply reciprocity to that prior period of
service that was so many years before. But again, that
wasn't really the argument that was made in the
administrative law hearing. The argument that was made,
as I understood it as the parties briefed it, was that he
could have obtained this through the CalPERS job and the
compensation he would have earned. I don't know that this makes that much of
a difference, to be honest with you, because
we've -- I concede the point that if he took the CalPERS
covered job and held it for a year, it would have substantially
increased the amount he made. You know, let's -- to be
honest, it probably would have been pretty close to the
same compensation he made based on his experience and --
you know, so I don't know how important, you know, this
particular dispute might be about whether it's reciprocity
or just CalPERS. 0BOARD MEMBER SLATON: No. I'm just trying
to understand. There's a specific number here
of 141,3, and I'm trying to understand -- that must be directed
toward a specific job. And that's what I've heard in
the paperwork, but there may or may not be that
particular job. And if there are other jobs, then how
do you determine what the number is?
MR. JENSEN: And so if they do establish reciprocity, it's the highest -- and your
staff would actually know this better than I, but it's
the highest salary in either of the positions, I believe.
So nothing -- nothing else it established -- if
reciprocity was established, it would be the LACERA salary,
am I correct, Mr. Rieger?
BOARD MEMBER SLATON: Is that correct? MR. RIEGER: This point about reciprocity,
if he had established it that late in his career,
and he had transferred at that point, if there had been
a six -- less than a six month gap, my understanding is
that staff does not go back to apply that years of service
that were many, many, many years before. I hope I'm getting
this right, because again it wasn't really what was briefed
in the case.
But I think the point you raise is an important evidentiary point which is that there was
no evidence put 1on about what the CalPERS covered job would
have paid. That is not in the record, a specific dollar
amount. MR. JENSEN: But at the very least, the salary
would be the salary that was earned at LACERA. That would
be the floor, and it would only increase to that,
because -- if reciprocity was established. But I want to address just one thing about
Mr. Rieger's argument is he still -- I mean he
basically characterizes reciprocity as a loophole. The
whole thing is a loophole, because this -- you know, this
being able to get a second job after his L.A. County
would also have provided additional benefits.
And so, you know, there's a certain point where
the characterization that lawyers make in argument is, you
know, it's clever, but it's not necessarily persuasive
when you look at what actually happens, if reciprocity is
established. BOARD MEMBER SLATON: All right. Thank you.
MR. RIEGER: Could I respond briefly to -- if it's okay with --
PRESIDENT FECKNER: We have other questions, so
unless it's something material. Is it? MR. RIEGER: Well, I just want to correct.
I think he misstated me position.
PRESIDENT FECKNER: Go ahead. 2MR. RIEGER: But if I -- is that all right.
PRESIDENT FECKNER: Go ahead. Quickly. MR. RIEGER: Just to be clear, by no means
am I characterizing reciprocity as a loophole.
Absolutely not. And I just want to be clear. I mean what I'm
describing as a loophole is the fact that you earn the
full-time service credit for part-time service, and
it's not me. It's the legislature itself called it a windfall
when it closed the loophole in 1994.
PRESIDENT FECKNER: Thank you. Ms. Mathur.
BOARD MEMBER MATHUR: Thank you, Mr. President. Is it appropriate, Mr. President, for us to
take a briefly recess and consult with the Board's
counsel? PRESIDENT FECKNER: It is, if we're done with
other questions, we will -- BOARD MEMBER MATHUR: I'm happy to wait until
other questions are exhausted. PRESIDENT FECKNER: All right. Does anyone
else have any questions or comments at this time?
If not, then without objection, the Board will go
into the back chambers. We will come back out in probably 0 minutes.
MR. JENSEN: Mr. President, do you want us to be
available to answer more questions, if -- 3PRESIDENT FECKNER: If we have -- yeah, stay
here. If we have questions, we'll come back out and ask
them, please.