'Fresno Approach' Could Cost Pension Millions

May 9, 2003 (PLANSPONSOR.com) - Fresno County California has filed a lawsuit against its retirement board to stop a possibly illegal method of calculating pensions that could cost the county millions of dollars.

The lawsuit seeks to stop the practice called the “Fresno approach” from being used in the future, but will not attempt to lower pensions for people who have already retired.   If the practice continues, the lawsuit contends, the county and its employees would have to pay $30 million or more, according to a Fresno Bee report.

However, lawyers representing the county’s largest unions, Service Employees International Union Local 535 and the Fresno Deputy Sheriff’s Association, have said they believe the practice is legal and should continue. A judge will have 10 days to make a decision, said a lawyer for the plaintiff.

Calculating Issue

At issue is how retirement is calculated. Local and regional governments throughout California base retirement on a single year’s pay, which consists of 26 consecutive pay periods. However, a change appeared in Fresno county retirement handbooks that calculated final compensation based on the highest 26 pay periods of an entire career.

Even though the change was never approved by the Board of Supervisors, no one paid much notice since the highest pay for most retirees comes during the last year of their careers. However, in 1997, Fresno County, along with 19 other counties, settled a lawsuit on retirement benefits that added vacation payouts and other benefits into pension calculations.

This was due to how the county then handled left-over retiring employee vacations:   letting workers cash out and then adding the pay in one check. Those checks are used in factoring final compensation, spiking pensions.

This gave 267 out of 3,507 county retirees higher pensions, so far in the amount of $700,000 and in what could be as high as $6.7 million over their lifetimes. Further, an additional 967 of 1,581 employees eligible to retire could also receive higher pensions under the Fresno approach.

The retirement board’s legal counsel told board members at an earlier meeting the practice was illegal, but the board has allowed it to continue. “Our position is the retirement board has been told that this is illegal and we don’t think there’s any question that it is,” plaintiff lawyer Don Fischbach said.