Interest Class Action

Interest Class Action

Attorney represents plaintiffs who are enrollees, beneficiaries, and other individuals (hereafter collectively “participants”) who seek the payment of interest on funds, monies, benefits, or contributions (hereafter “funds”) that are or were on deposit with, administered by, held by, delayed, or wrongfully withheld (hereafter “held”) by the California Public Employees’ Retirement System, the CalPERS Board of Administration, or CalPERS administered systems[1] ( collectively “CalPERS”).

Participants established rights or eligibility to the funds prior to the time that the first payment was due. Participants’ rights vested and became payable on specific ascertainable dates. CalPERS, however, failed to pay participants the funds due until some point after those ascertainable dates. CalPERS owes interest to participants from the first day that such payment fell due until the time of payment.

Plaintiffs are injured where CalPERS holds their funds but does not credit or pay interest or an accretion, including in three circumstances:

  1. Firstly, in many circumstances, CalPERS holds, delays paying or wrongfully withholds Plaintiffs’ funds. CalPERS typically subsequently pays Plaintiffs an aggregated “lump sum”, but fails to credit or pay interest. Plaintiffs seek interest, accretion, and damages under the Civil Code, Constitution, case law, and statute, including for the loss of the use of funds or the interest that they could have earned.
  2. Secondly, in many circumstances, CalPERS holds Plaintiffs’ funds on deposit for months or years without crediting interest. CalPERS fails to pay or credit interest on the funds on deposit contrary to the Public Employees Retirement Law (“PERL”, Government Code, §§20000, et seq.), the Civil Code, the Constitution, and other authority.
  3. Thirdly, when CalPERS delays so long that it is required to award a “penalty” under Government Code section 21499, CalPERS often fails to pay or incorrectly calculates the penalty benefit, using the incorrect rate and time period.

The interest rate owed to Plaintiffs is the greater of the rate required by the Constitution, the Civil Code, the PERL, and other authority.

CalPERS’ underlying monetary and fiduciary obligation to a participant started upon CalPERS’ receipt of the first contribution or deposit in a participant’s name. As a constitutional trust and fiduciary, CalPERS must account for a participant’s contributions, invest the funds, segregate the funds, administer the system for the benefit of the participant, promptly deliver benefits, and keep the participant fully informed of his or her current and future benefits as he/she works, prior to the time of payment of funds.

For example, pursuant to Article XVI, section 17(a), of the California Constitution, CalPERS and its board “shall … have sole and exclusive responsibility to administer the system in a manner that will assure prompt delivery of benefits” to participants. (Westly v. California Public Employees’ Retirement System Bd. of Administration (2003) 105 Cal.App.4th 1095, 1110, italics in original.)

The Court is expressly and implicitly required to add, accrue, credit or award (hereafter “pay”) interestor accretion pursuant to:

  • the Civil Code, including sections 1955, 3281, 3287 and 3289;
  • the California Constitution, including Art. XV, §1-17 and Art. XVI, 17(a);
  • case law, including Olson v. Cory (1983) 35 Cal.3d 390, 402 where interest was required under Civil Code section 3287(a) when judicial pensioners were not timely paid;
  • the PERL, including Government Code sections 20059, 20178, 20734, 20737, 20775, 20776, and 21535, as well as 20221 and 20225;
  • the interest provisions in the California Code of Regulations, including 2 CCR sections 575.1(d)-(f) and 575.2, that are implicitly reciprocal;
  • the timing requirements in 2 CCR sections 565, et seq, and
  • other statutes, regulations, and common law.

CalPERS is expressly and implicitly authorized to add, accrue, credit or pay (hereafter “pay”) interest or accretion pursuant to:

  • the California Constitution, including art. XV, §1-17 and art. XVI, 17(a);
  • the PERL, including Government Code sections 20059, 20178, 20734, 20737, 20775, 20776, and 21535[2] as well as 20221 and 20225;
  • the interest provisions in the California Code of Regulations, including 2 CCR sections 575.1(d)-(f) and 575.2, that are implicitly reciprocal; and
  • the timing requirements in 2 CCR sections 565, et seq.

CalPERS earns significant investment returns on the Plaintiffs’ monies that CalPERS holds in trust for them. Exhibit 1. In the 20 years from 1992 to 2012, CalPERS’ cumulative investment return was 7.7% percent each year. In the year to July 2013, CalPERS earned 12.5%. When CalPERS delays payment, Plaintiffs are entitled to accretion or growth.

CalPERS fails to pay interest or credit accretion on a variety of held, delayed or withheld funds or benefits, including but not limited to:

  • contributions;
  • death benefits;
  • ongoing or survivor continuance benefits;
  • “group life insurance” or similar benefits;
  • service allowances or benefits;
  • industrial disability allowances or benefits;
  • “regular” or “ordinary” disability allowances or benefits;
  • funds divided or accounted for pursuant to a legal separation, community property, or marriage dissolution;
  • voluntary contributions, including to buy benefits;
  • refunds, including funds that CalPERS holds but subsequently refunds or returns;
  • funds arising from contracts or settlement agreements or breaches thereof, including optional benefit elections;
  • funds arising from benefit adjustments under collective bargaining, statute, contract, or otherwise;
  • Replacement Benefit Plan funds, or those funds that exceed 415(b) limits or per 2 CCR sections 589, et seq;
  • funds held, reimbursed or paid late associated with expenses, fees, costs, “out of network”, or other expenditures by participants for health or medical care, including reimbursement under CalPERS’ PERS Choice and PERSCare “preferred provider” (“PPO”) health insurance plans, or other similar arrangements;
  • aggregated, accumulated or “lump sum” payments of funds, whether service, disability, death, or other funds;
  • other funds that a participant has on deposit with, administered by, held by, or owed from CalPERS.

Length of Delay. CalPERS often holds or delays paying participants for months or years. As an illustration, CalPERS paid death benefits to 459,337 participants since 2000. As an average of these 459,337 death benefits, CalPERS held, withheld or delayed paying funds an average 275 days after the principal’s death.

Elements. Plaintiffs have established their rights:

Vesting Date. The right to interest vests on CalPERS’ receipt of funds associated with a participant. Service retirement benefits fully vest on a Member’s retirement. For contracted or elected benefits, the vesting date occurs (for the purpose of interest) on the “effective date of the member’s election”. (2 CCR, §575.2(d).) For beneficiaries, rights vest on designation, although contingent on survival. (2 CCR, §582.) For some other benefits, the Legislature determined that a transfer or continuation of other benefits vests when CalPERS first receives the information to process the benefit. (For example, see Government Code, §21499.)

Holding of Funds After Vesting. CalPERS held or withheld the vested funds. Funds that CalPERS holds or delays paying after vesting are entitled to interest.

“Wrongful” Acts Not Required. Under the PERL, contract law, trust law, the Constitution and other authority, Plaintiffs’ right to interest arises as a result of CalPERS holding Plaintiff’s funds, contributions, or vested rights, including that CalPERS earned returns on those funds. Plaintiffs do not need to allege or prove that CalPERS acted “wrongfully”.

CalPERS’ Wrongful Acts and “Damages”. However, under the wrongful acts or “damages” theory, Plaintiffs also allege (and will prove) that CalPERS also wrongfully delayed, wrongfully withheld, or wrongfully failed to timely pay their funds, benefits, or rights.

45 Day Delay is “Wrongful”, Penalized. The Legislature established an implicit threshold that 45 days’ delay (at the latest) in payment of benefits is so wrongful that it is penalized. (Government Code, §21499.)

CalPERS’ Wrongs, Delays, Errors, Policies, Procedures and Practices That Cause Delays, Underpayment, Withholding. CalPERS’ policies, procedures, decisions, or other acts, or omissions also cause CalPERS to wrongfully withhold, underpay, hold, or delay payment, including giving rise to the participants’ right to interest and damages. These include but are not limited to:

Breach of Constitutional Duties: CalPERS Failure to Prioritize Its Members’ Interest. The California Constitution requires “prompt delivery of benefits” to participants. Violating its constitutional duties, CalPERS fails to prioritize the timely or “prompt” payment. (Cal. Const. art. XVI, § 17.) CalPERS’ delayed payment breaches this specific duty and causes CalPERS to be liable for interest.

CalPERS’ Policies, Practices and Procedures to Delay Review of Information, Delayed Payment of Service Retirement. CalPERS’ obligation to timely review information and promptly pay benefits is express and implied through the PERL and regulations. For example, statutes require CalPERS to review information in a timely manner so that it can correctly calculate a participant’s service benefit at “any time”. (See e.g., Government Code, §§20221, 20225.) Employers are required to immediately inform CalPERS of a change in the participants’ status during employment, such as a promotion. (Government Code, §20221.) Employers are required to submit payroll information and pay member and employer contributions within 30 days of the pay period. (2 CCR, §§565, 565.1.) CalPERS charges interest if employers pay contributions late. (2 CCR, §565.2.) Overall, during a participant’s employment, CalPERS is bound to timely receive contributions, biweekly payroll, and other information providing the pay rate, special compensation, service period, and other information needed to account for and correctly calculate the service retirement[3] at the time of retirement.

Instead, CalPERS has wrongfully acted or failed to act, including:

CalPERS has undertaken a policy or practice to delay payment and delay review of information until after the member’s retirement.

In some cases, CalPERS has breached its regulations that require employers to timely provide correct information.

Because of these and other wrongful policies, CalPERS often pays the participant no allowance or a reduced allowance at the date that the obligation falls due, and underpays or delays paying the funds.

For example, CalPERS’ units responsible for “Compensation Review”, Death Benefit, and Community Property often delay reviewing information and withhold full payment without interest.

CalPERS’ Breach of its Fiduciary Duties to Account For and Segregate Contributions Causes Delay, Damages, Interest. CalPERS’ constitutional and fiduciary duties inform its statutory duties. As a fiduciary obligated to timely account for information and to correctly segregate contributions in participants’ accounts, CalPERS has an ongoing duty to stay informed, communicate with participants, request the correct contributions, audit employers, resolve ambiguities, timely process information, and keep the participants informed. (Cal. Const. art. XVI, § 17; Government Code, §§20150, et seq.; 2 CCR, §§565, et seq.)

However, CalPERS fails to timely and accurately stay informed, fails to keep the participant informed in a timely manner, fails to account for funds and contributions as they are received, and fails to timely request or review information.

Accounting. CalPERS’ failure to timely account and segregate funds causes payment to participants to be delayed.

Failure to Adequately Audit Units. CalPERS fails to audit its own units appropriately, leading to delayed and incorrect payments.

Delayed Application of Information. CalPERS’ failure to timely enter and apply information to the participants’ account delays payment.

Example: CalPERS Failure to Timely Input Collective Bargaining, Contract Amendments and Other Information. Even though required to input them within 30 days, CalPERS at times delays entering information about changes in participants’ contracted benefits into its computerized database, delaying payment of the increased benefit to participants. (2 CCR, §566.)

CalPERS’ Breach of its Fiduciary Duty to Accurately Inform Plaintiffs Causes Delays. As a fiduciary, CalPERS is required to timely and accurately inform participants. (Cal. Const. art. XVI, §17; Government Code, §§20150, et seq; 20221, 20225; 2 CCR, §§565, et seq.) CalPERS fails to seek and provide information in a timely manner.

For example, as a policy, CalPERS requires participants to file an application for service retirement ninety (90) days before the participants’ selected retirement date. Within that 90 days CalPERS has sufficient time to review and to resolve issues prior to retirement. However, CalPERS fails to timely request information and fails to timely inform participants or employers of information that CalPERS seeks. As a result, CalPERS delays payment of funds.

Breach of Duty of Loyalty, Wrongful Delay, Damages Arising From Delay.

Self Interest; Financial Incentives to CalPERS Employees. CalPERS is believed to offer financial incentives to its management or senior level employees that are in part associated with meeting deadlines. A counter-intuitive result is that certain projects may have been “rolled out” containing a higher degree of errors or problems that contribute to delays in payment to participants.

Financial Incentives to Third Parties or Contractors. CalPERS is believed to offer financial incentives to third parties or contractors that are in part associated with meeting deadlines. For example, there are one or more liquidated damages clauses in CalPERS’ contracts with computer providers, including such as with Accenture, that may immunize or reduce the contractors’ liability for financial responsibility for delays. Exhibit 2. A counter-intuitive result is that certain projects may have been “rolled out” containing a higher degree of errors or problems that cause or contribute to delays in payment to participants.

CalPERS’ Failure to Oversee. CalPERS fails to oversee its staff and its contractors to assure timely processing of information and timely payment of funds to participants.

  1. Backlog. CalPERS’ failure to address the backlog of cases causes delay.
  2. Erroneous Deployment of Staff and Resources. CalPERS failed to adequately staff or direct resources to the timely processing or calculating of benefits, or funds, which causes delays in payment of funds to participants.

CalPERS’ Erroneous and Delayed Computer, Information Processing. CalPERS’ delayed or erroneously implemented computer, database, software, or information processing in turn delayed payment to participants.

CalPERS’ Erroneous and Delayed Contracting. CalPERS’ errors in contracting with third parties, including computer vendors, caused delayed payment of funds to participants.

CalPERS’ Waiver of Third Party Benefits in Computer Contracts. Although CalPERS indicated that it was contracting with computer companies for the benefit of CalPERS’ members, CalPERS did not always contract with computer vendors to allow the participants’ rights to enforce the timelines. For example, CalPERS’ contract with Accenture disclaimed liability to third party beneficiaries, who could otherwise have assisted timely implementation. Exhibit 2.

Failure to Correctly Calculate. CalPERS’ failures to correctly calculate benefits actually and proximately delayed payment to participants, in a manner that CalPERS is responsible to pay interest to participants. For detailed examples regarding death benefits, see Exhibits 3 through 7.

CalPERS’ Acts and Omissions Cause Delayed Payment. CalPERS’ acts or omissions actually and proximately delayed payment to participants, which damages participants, in a manner that CalPERS is responsible to pay interest to participants.

Representation of Class. Each named class representative has standing sufficient to represent the whole class of participants. For purposes of illustration and not limitation, CalPERS delays the timely payment of the following funds or benefits:

Death Benefits

Interest on Death Benefits. Many of the participants are entitled to death benefits, including one-time, lump sum, and/or ongoing monthly benefits (collectively “death benefits”). Death beneficiaries’ rights fully vest at the principal’s death. For optional beneficiaries, the beneficiaries’ rights vest on election or designation and fully vest at the time of the principal’s death (and the beneficiaries’ survival).

CalPERS has paid about one billion, six hundred and sixteen million, seven hundred and ten thousand, eight hundred and twenty three dollars and 99 cents ($1,616,710,823.99) in death benefits to about four hundred fifty nine thousand, three hundred thirty seven (459,337) participants since 2000.

CalPERS on average has delayed paying the death benefit until two hundred and seventy five (275) days after death, and one hundred and three (103) days after CalPERS has received “the last document” that it requested.

CalPERS has not paid or credited any interest on these funds.

In the context of held death benefits,[4] CalPERS holds or wrongfully withholds and failed to pay interest on:

  1. One time death benefits – from the time that the benefit vested, or the time when the payment fell due or payable.
  2. Pro-rata post-death allowance – from the time that the benefit vested, or the time when the payment fell due or payable.
  3. Survivor continuance – from the time that the benefit vested, or the time when the payment fell due or payable.
  4. Lump sumfrom the time that the individual components of the aggregated benefit vested, or the time when each payment fell due or payable.
  5. Ongoing benefitsfrom the time that the individual components of the aggregated benefit vested, or the time when each payment fell due or payable.
  6. Beneficiary allowance – from the time that the individual components of the aggregated benefit vested, or the time when each payment fell due or payable.

In certain death benefit cases, the identity or priority of the beneficiary is uncertain or contested. CalPERS requests information. The beneficiary must provide information prior to payment. If CalPERS wrongfully withholds the money after the beneficiary has been determined, CalPERS owes interest, including from the date that CalPERS received “the last document” containing information to ascertain the beneficiary and calculate the benefit.

Wrongful Delays in Payment of Death Benefits. CalPERS is responsible for CalPERS’ delays, errors, and omissions in processing and paying death benefits. CalPERS fails to timely communicate with potential beneficiaries, fails to timely request additional information, fails to review information timely, fails to credit the correct amount of funds over the correct period, to the date of payment.

 

[1] CalPERS administers the Judges’ Retirement Systems (JRSI and JRSII), the closed Legislators’ Retirement System (LRS), medical and health benefit reimbursement funds (PERScare and other PPO or self-funded “insurance”), and other funds.

[2]The Court and CalPERS can also correct the amount of “penalty” arising from Government Codesection 21499.

[3] Disability retirement is slightly different from service retirement. Disability retirement eligibility is established on a determination that the individual is incapacitated for the performance of his or her job. CalPERS receives all information necessary to correctly calculate a participant’s disability benefit and begin paying the retirement benefit as soon as the disability determination is made. Plaintiffs seek interest only on delays after eligibility is established.

[4] CalPERS uses the terminology “one time death benefit”, “ongoing benefit”, and “lump sum”, making it difficult to ascertain whether payment of interest and “penalty” are due.