California Supreme Court Rules on Pension Board Hiring and Pay Authority in LACERA Case

By: Lizzy Lees, Director of Communications, NCPERS

A closely divided California Supreme Court clarifies who controls pension system staffing and compensation decisions, while preserving important protections for retirement boards seeking the personnel needed to fulfill their fiduciary duties.

The California Supreme Court has issued its long-awaited decision in LACERA v. County of Los Angeles, resolving a closely watched dispute over whether a public pension board’s constitutional authority to administer a retirement system includes independent authority over the classification and compensation of its own employees.

In a narrow 4-3 decision, the Court sided with Los Angeles County rather than the Los Angeles County Employees Retirement Association (LACERA). But the closeness of the vote, the strength of the dissent, and several important protections recognized by the majority ensure that the case will continue to shape conversations about pension governance, trustee independence, and fiduciary authority for years to come.

NCPERS, represented by Bernstein Litowitz Berger & Grossmann LLP and appellate co-counsel Deutsch Hunt PLLC, filed a friend-of-the-court (amicus curiae) brief in the California Supreme Court in support of LACERA. Reflecting on the Court’s decision, Anya Freedman, Partner at BLB&G noted:

“The outcome is not what we hoped for, but it was very close. Importantly, the Court did not give plan sponsors unlimited power. A sponsor cannot simply ignore or arbitrarily reject a pension board’s staffing requests. The majority made clear that plan sponsors must give due weight to a retirement board’s personnel requests and engage in good-faith collaboration. Retirement boards also retain the ability to challenge not only the substance of a sponsor’s decision, but the process by which that decision was reached.”

What the Court Decided: LACERA v. County of Los Angeles

In practical terms, the California Supreme Court concluded that a retirement board’s authority to administer its retirement system does not give it the final say over how its employees are classified or compensated. Responsibility for final decisions regarding job classifications and salary levels remains with the sponsoring governmental entity, in this case Los Angeles County.

Under the Court’s framework, retirement boards retain significant authority to determine their staffing needs. Boards may identify positions they believe are necessary, recruit specialized professionals, and recommend compensation structures. However, the sponsoring government ultimately retains veto authority over classifications and pay levels.

“The practical message for pension systems around the country,” Freedman explained, “is that courts may be reluctant to read broad independence into general grants of fiduciary authority. The more reliable path to genuine staffing and compensation independence is likely to run through legislation tailored to a particular system’s needs.”

A Mixed Result Rather Than a Complete Loss

Although the Court rejected LACERA’s claim of independent authority, it did not grant plan sponsors unlimited discretion.

The majority emphasized that plan sponsors must give “due weight” to a retirement board’s personnel requests and engage in good-faith collaboration when addressing staffing and compensation matters. The Court also expressly recognized a board’s ability to challenge, “not only the merits of a county’s classification or compensation decision but also the process by which that decision was reached.”

The Significance of the Dissent for Fiduciaries

Perhaps the most noteworthy aspect of the decision is how close the Court came to reaching the opposite result.

At its core, the dissent questioned the logic of assigning fiduciaries responsibility for managing a multibillion-dollar trust fund while denying them authority over the staffing decisions necessary to fulfill those responsibilities.

Justice Groban argued that the majority had “effectively created a system under which a public entity charged with the management of in excess of $70 billion in assets must obtain permission from a separate political body (with interests that may not always align with the interests of the pension members) before creating a new position or giving its employees a raise.” He warned that counties now possess the authority to veto personnel decisions that retirement boards have already determined are in the best interests of plan members.

Freedman noted that “while the dissent did not prevail, it validates the concerns NCPERS raised on behalf of its members. It is the pension fiduciary, not the political body that appoints it, who owes the duty of loyalty to plan members and is best positioned to judge what staffing and compensation decisions serve their interests.”

Three Practical Takeaways for Trustees and Administrators

• Member benefits are not affected. The decision concerns authority over staffing and compensation decisions for pension system employees, not the retirement benefits owed to participants and beneficiaries.
• Good-faith engagement matters. Plan sponsors retain final authority over classifications and compensation, but they must meaningfully consider and engage with retirement board requests. Unreasonable refusals or delays can be challenged in court.
• Legislation may be the most durable solution. Systems seeking stronger operational independence over staffing and compensation should consider pursuing statutory reforms tailored to their governance structures.

NCPERS and BLB&G will continue to keep the public pension community informed of new developments with this case and related litigation. Additional resources on major litigation and legal protections for public pensions are available on NCPERS’ website.