Court of Appeal Upholds Limits on Pensionable Pay of Former Union President
In Serrano v. California Public Employees Retirement System (Case No. C098392, February 25, 2025), the Third District Court of Appeal unanimously upheld the CalPERS Board’s exclusion of certain compensation paid to a member for serving as the president of his employee union. This case, the first to interpret Government Code section 3558.8, held that Section 3558.8 does not require retirement systems to include all pay received while on leave for service to a labor union in retirement allowance calculations.
CalPERS applied rules within the Public Employees Retirement Law (PERL) and its own regulations detailing the pay that may, and may not, be included in “compensation earnable,” an important component in determining retirement allowances.
Plaintiff Gerry Serrano, the former president of the Santa Ana Police Officers Association, argued, first to CalPERS staff and a hearing officer, then to its Board, and finally to the superior and appellate courts, that a provision of the Meyers-Milias-Brown Act enacted in 2017 (Gov. Code § 3558.8) gave him special rights beyond those provided by PERL.
Specifically, Serrano noted that Section 3558.8 requires no loss of “compensation” during leaves of absence for serving as a union president. He then argued that this requirement precluded CalPERS from excluding any pay received during his union presidency from “compensation earnable.”
The court analyzed the language and import of both PERL and Section 3558.8. It concluded that Section 3558.8 did not modify the PERL. It further concluded that the “compensation” referred to in Section 3558.8 does not modify the definition of “compensation earnable” in the PERL. That is, the court determined that Section 3558.8 has no effect on the PERL’s pensionability rules.
Applying those rules, the court determined that the “confidentiality premium” – the largest pay item at issue – was not pensionable. This is because, among other reasons, Serrano’s employment agreement defined the “confidential premium” as pay “in lieu of 20 hours per pay period at time and one-half.” The court thus agreed with CalPERS that the “confidential premium” was essentially overtime pay, which must be excluded under the PERL.
The court also upheld the exclusion of holiday pay from Serrano’s pensionable pay because, as union president, he was not required to work holidays or manage staff during holidays. Hence, this pay did not meet the criteria for inclusion in his retirement allowance.
Importantly, this case confirms that the retirement statutes – not statutes defining employer-employee relationships – determine which pay does or does not qualify as pensionable.
Ashley Dunning, co-chair of the Pensions, Benefits & Investments (PB&I) Group, and Alex Westerfield, a partner in the PB&I Group, represented CalPERS in the trial and appellate courts.
