State of "Pay": What Comes Next in LACERA v County of LA & the Stakes for Trustee Independence
The California Supreme Court will review the Court of Appeal decision in LACERA's favor that upheld the authority of public pension boards to make independent fiduciary decisions regarding job classifications and compensation for pension personnel, without political interference from the plan sponsor.
By: Anya Freedman, Partner, Bernstein Litowitz Berger & Grossmann LLP
NCPERS, represented by Bernstein Litowitz Berger & Grossmann LLP and appellate co-counsel Deutsch Hunt PLLC, recently filed a friend-of-the-court (amicus curiae) brief in the California Supreme Court in support of the Los Angeles County Employees Retirement Association (“LACERA”) in the case LACERA v. County of Los Angeles (Case No. S286264). This article provides an update for NCPERS members on the litigation and what is at stake for public pension systems.
California Law Context
The case centers on the meaning of Proposition 162, “The California Pension Protection Act of 1992,” which amended the California Constitution to ensure that pension board decisions prioritize their beneficiaries' interests and that trust funds are insulated from political meddling. As amended, the California Constitution grants retirement boards “sole and exclusive responsibility to administer the system in a manner that will assure prompt delivery of benefits and related services to the participants and their beneficiaries.” Cal. Const., art. XVI, § 17, subd. (a).
However, the promised power of Proposition 162 was limited two decades ago by the California Court of Appeal's interpretation in Westly v. Board of Administration, 105 Cal. App. 4th 1095 (2003). That court ruled that a state pension board could not bypass state civil service rules for staffing and salary decisions. Since Westly, state and local pension boards have done their best to meet organizational needs within governmental civil service and budget frameworks. In California and beyond, this has been challenging. According to the NCPERS 2023 Public Pension Compensation Survey, 60 percent of public pensions are struggling to attract and retain top talent.
Status of Litigation
A June 2024 ruling from the California Court of Appeal provided LACERA with independent authority to manage its personnel decisions in order to effectively administer the system, disagreeing with a previous Court of Appeal decision that had undermined the independent authority of a state pension system over personnel decisions.
In August, the County sought review in the California Supreme Court, which agreed to hear the case—likely to resolve this important constitutional question and the interpretative disagreement between the Court of Appeal decision in the LACERA case and the 2003 Westly decision. The case was fully briefed by the parties on March 25, and amicus curiae briefs were due on April 24.
The court accepted amicus curiae briefs in support of LACERA filed by:
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California charter city pension systems from the City of Fresno, San Jose, and San Diego;1
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California county pension systems, led by the Alameda County Employees' Retirement Association;2
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Retired Employees of Los Angeles County and the California Retired County Employees Association;
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NCPERS;
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The Los Angeles Water and Power Employees' Retirement Plan, Los Angeles City Employees' Retirement System, and San Francisco City and County Employees' Retirement System; and
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The Coalition of County Unions and Service Employees International Union Local 721.
On the other side, the California State Association of Counties filed an amicus brief supporting the County.
High Stakes in the Case for Public Pension Funds
The Supreme Court will review the Court of Appeal decision in LACERA's favor that upheld the authority of public pension boards to make independent fiduciary decisions regarding job classifications and compensation for pension personnel, without political interference from the plan sponsor.
The NCPERS brief urges the court to affirm that California's constitution and longstanding principles of fiduciary law give pension boards the independent power to determine how best to attract and retain the expert staff needed to grow pension trust funds and safeguard retirees' benefits. These fiduciary duties also ensure that all decisions made by trustees are made in the sole interest of pension beneficiaries and according to the demanding duty of prudence.
As engaged investors, public pension funds like LACERA have advocated for good governance in the companies they invest in, including independent fiduciary board oversight of executive compensation. Pension funds must be empowered to apply the same governance best practices in their own organizations.
The stakes are high for public pension funds. Allowing outside officials—who are not bound by fiduciary responsibilities to the pension fund—to determine pension system job classifications, cap salaries, or veto hiring based on political trade-offs risks driving away top talent, constraining investment returns, and ultimately increasing costs for taxpayers and public employers.
In contrast, a decision in LACERA's favor could have positive ramifications well beyond California. A ruling supporting trustee independence over critical personnel decisions would strengthen pension plan governance by empowering pension boards to make independent fiduciary decisions regarding professional staffing and executive compensation. This decision has far-reaching implications for public pension systems' ability to attract the next generation of top talent and presents an opportunity to align pension governance practices with the corporate governance standards pension funds uphold as institutional investors. Of course, even if the decision grants pension boards with additional independent authority to make these decision, how each board exercises that authority will depend on many other factors unique to each pension plan, including, among other factors, the local job market and cost of living, the fund's size and asset allocation and accompanying need for specialized investment staff, relevant labor and employment laws in the jurisdiction, and the plan's relationship with the plan sponsor.
Next Steps and Expected Timetable
The next step in the litigation will be for the court to schedule oral argument, which may take approximately one year. Once the case is calendared for argument, and argument is held, the Supreme Court is obligated to issue an opinion within 90 days. A fair prediction would be that argument may be held in Q3 of 2026, with a final decision issued by the end of the 2026 calendar year.
Arguments are open to the public both in person and via webcast (live and recorded) here.
Stay informed using the Supreme Court of California's website (using the docket search function, search S286264).
We will all be watching closely—and patiently—as the case proceeds.
Endnotes:
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San José Police & Fire Department Retirement Plan, Board of Administration for the San José Police & Fire Department Retirement Plan, Federated City Employees' Retirement System, Board of Administration for the Federated City Employees' Retirement System, San Diego City Employees' Retirement System, Board of Administration for the San Diego City Employees' Retirement System, City of Fresno Employees Retirement System, Board of Retirement for the City of Fresno Employees Retirement System, City of Fresno Fire & Police Retirement System, and Board of Retirement for the City of Fresno Fire & Police Retirement System.
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Board of Retirement of Alameda County Employees' Retirement Association, Board of Retirement of San Diego County Employees Retirement Association, Board of Retirement of Ventura County Employees' Retirement Association, Board of Retirement of Sonoma County Employees' Retirement Association, Board of Retirement of Imperial County Employees' Retirement System, Board of Retirement of San Mateo County Employees' Retirement Association, Board of Retirement of Sacramento County Employees' Retirement System, Board of Retirement of Santa Barbara County Employees' Retirement System, Board of Retirement of San Bernardino County Employees' Retirement Association, Board of Retirement of San Joaquin County Employees' Retirement Association, Board of Retirement of Stanislaus County Employees' Retirement Association, Board of Retirement of Mendocino County Employees Retirement Association, Board of Retirement of Marin County Employees' Retirement Association, and Board of Retirement of Orange County Employees Retirement System.