mar 1 2 2012 - john jensen

JOHN MICHAEL JENSEN, State Bar No. 176813LAW OFFICES OF JOHN MICHAEL JENSEN

2 11500 West Olympic Blvd., Suite 550Los Angeles, CA 90064

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(310) 312-1100

4 Attorneys for Plaintiffs Jeffrey E. Andert,Neil MacLaren and Randy Slaughter,

5 individually and on behalf of a class ofothers similarly situated

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CONFORMED COPsupEORRIGINAL FILEco.... _coo wropcA urfiRur OF

LOSANGELFS NIA

MAR 1 2 2012.101717A.

Clarke, Executive Officer/ClerkBY____aeltLawa:___, DeputyMary Flores

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SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES

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JEFFREY E. ANDERT, an individual; NEILMacLAREN, an individual; and RANDYSLAUGHTER, an individual; and on behalfof a class of others similarly situated,

Plaintiffs,

VS.

CALIFORNIA PUBLIC EMPLOYEES'RETIREMENT SYSTEM (CalPERS),BOARD OF ADMINISTRATION OFCALIFORNIA PUBLIC EMPLOYEES'RETIREMENT SYSTEM,

Defendants.

BC480 69 5Case No.:

CLASS ACTION

COMPLAINT FOR DAMAGES,EQUITABLE RELIEF, RESCISSION,AND INJUNCTIVE RELIEF:

(1) BREACH OF STATUTORY DUTIES;(2) BREACH OF CONTRACT;(3) RESCISSION, RESTITUTION;(4) BREACH OF FIDUCIARY DUTIES;(5) DENIAL OF EQUAL PROTECTION;(6) DUE PROCESS VIOLATION;(7) EQUITABLE RELIEF;(8) DECLARATORY RELIEF;(9) ACCOUNTING;(10) CONSTITUTIONAL IMPAIRMENT

OF CONTRACT;(11) ESTOPPEL; AND(12) OTHER RELIEF, INCLUDING

ATTORNEYS' FEES

DEMAND FOR JURY TRIAL

[NOTICE OF CONCURRENTLY FILED:(1) PETITION FOR ORDER RELIEVINGPETITIONER RANDY SLAUGHTERFROM PROVISIONS OF GOVERNMENTCODE SECTION 945.4; AND (2) NOTICEOF RELATED CASE DEEMINGINSTANT COMPLAINT RELATED TOMARZEC, ET AL. V. CALPERS, LOSANGELES SUPERIOR COURT CASE

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COMPLAINT FOR DAMAGES, EQUITABLE RELIEF,RESCISSION, AND INJUNCTIVE RELIEF

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) NO. BC 461887, CURRENTLY ASSIGNED) TO THE HON. ANTHONY MOHR, DEPT.) 309]

The above named Plaintiffs, on their own behalf and on behalf of all other similarly

situated individuals, alleges as follows:

OVERVIEW

1. Named Plaintiffs Jeffrey E. Andert, Neil MacLaren and Randy Slaughter and the

other members of the putative class defined herein (collectively the "Plaintiffs") are Members of

the California Public Employees' Retirement System ("CalPERS").

2. Plaintiffs are police officers, firefighters, correctional officers, or other public

employees who serve or served in the most dangerous and hazardous jobs in public service. As a

result of such employment, Plaintiffs are or were entitled to an Industrial Disability Retirement

("IDR") for injuries on or related to their safety job.I

3. The gravamen of the Complaint is:

a) Plaintiffs have paid, or will pay, substantial sums of money (i.e. tens of

thousands of dollars each) to CalPERS to purchase optional additional retirement benefits

in the form of military service credit, Additional Retirement Service Credit ("ARSC" or

"air time"), or other Present Value Service Credit ("PVSC") (also known as 'permissive

service credit" under the Internal Revenue Code).

b) For example, named Plaintiffs Jeffrey E. Andert and Randy Slaughter and

many of the class served in the United States armed forces and later purchased prior

military service while employed in a safety position. Named Plaintiff Neil MacLaren and

many others of the class purchased ARSC while employed in a safety position.

c) CalPERS' policy and practice violates Internal Revenue Code ("IRC")

All State and local safety members are entitled to IDR if they are injured or disabled onthe job In addition, a small number of other State and local CalPERS Members are eligible for1DR retirement (either by statute or CalPERS contract amendment). Plaintiffs refer for brevitythroughout this First Amended Complaint specifically to "safety jobs", "safety members", etc.,since persons in safety positions are the vast majority of those making up the proposed class.

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laws and regulations in at least 3 ways:

• Although 26 US. C. 41 5(n)(3) requires that the Plaintiffs' investment must

be recognized for purposes of calculating a benefit, many times CalPERS

fails to provide a commensurate additional benefit for the military time,

ARSC or PVSC purchase.

• Although IRC requires that the purchased benefit must not be a benefit

that the participant has already received under the plan, CalPERS is

utilizing all or part of the money invested by Plaintiffs, applying it to the

costs of IDR (a benefit that Plaintiffs are already vested in); and

• Although IRC requires that the participant must make a voluntary

contribution which does not exceed the amount necessary to Raid the

additional benefit, CalPERS charges Plaintiffs a great deal and many

Plaintiffs receive little or nothing extra for the purchased benefit (that they

were not already entitled to).

d) CalPERS, in reliance on determinations made by the Internal Revenue

Service, has deemed IDR benefits as being "in the nature of a workers' compensation

award" and thus tax-free. (1RC 104(a)(1.) "[A] law ... may qualify as a 'workmen's

compensation act' ..., even though those benefits are styled as 'disability retirement

benefits' "(Take v. C.I.R. Service (9th Cir. 1986) 804 F.2d 553, 556-57.)

e) State statutory law forbids an employer from directly or indirectly

charging an employee for any share of workers' compensation. (Labor Code, §3751.)

Case law forbids retirement systems from using employee contributions to offset the cost

of providing disability retirement. (Healy v. Industrial Acc. Corn. (1953) 41 Ca1.2d 118.)

Yet CalPERS charges Plaintiffs for a share of the IDR benefit that it has characterized as

workers' compensation.

f) Incorporated into the investment price, CalPERS improperly charges

Plaintiffs an additional premium that is attributable to an employer's unrelated costs,

including for IDR, unfunded liability, disability experience or other costs separate from

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funding the cost of the Member's future service retirement. In this way, CalPERS has

inappropriately and illegally transferred a portion of unrelated employer's expense (for

IDR coverage, unfunded liability, etc.) to the employee.

When the Member pays for his or her service credit by installments,

CalPERS improperly includes up to one-half of one percent increase or "surcharge" on

the purchase price to offset unrelated employer costs (perhaps based on the possibility

that some Members may later cancel their installment payments). (Government Code,

§§31037,21050)

h) Many Plaintiffs who have purchased military time, ARSC and/or PVSC

and later qualified for IDR have been further harmed. If a Plaintiff is disabled, CalPERS

wrongfully accounts for, and on that basis seizes or fails to properly credit, each

Plaintiffs investment in the optional benefits (in whole or in part) if the Plaintiffretires

on IDR. While the IDR statutes may permit CalPERS to use "normal contributions"

associated with work in the safety position where a Plaintiff is disabled to partially fund

that Member's disability allowance, CalPERS inappropriately forces Plaintiffs to

involuntarily relinquish all or part of their investment in military time, ARSC and PVSC

which the Plaintiffs contributed for time or service outside their safety employment.

Reaching beyond the language or intent of the law, CalPERS seizes the investments

without compensation or notice. Plaintiffs have not breached any legal obligation. The

disabled Plaintiffs have simply been injured in safety positions and retired on IDR.

i) No provision in the Public Employees' Retirement Law or PERL

(Government Code, § 2O000, et seg.) allows a Member to purchase additional service

credit in the job that he or she holds. CalPERS acts without statutory support or authority

when it associates the military time, ARSC and PVSC monies as contributions in the job

that the Member holds at the time of purchase.

Even though the Plaintiffs are buying credit associated with a time

different from their safety job, CalPERS inappropriately characterizes and accounts for

each Plaintiffs military time, ARSC or PVSC as "normal contributions" in the job the


Plaintiff holds at the time of purchase. CalPERS should account for and associate the

contributions arising from the military time, ARSC or other time purchased as either (i)

"additional contributions" or some similar type of "other contributions" or (ii) "normal

contributions" associated with military or other time outside of the employment

classification and category where the injury occurred.

k) CalPERS admits that Members who retire on IDR are entitled to an

annuity for all contributions made while working for a different CalPERS-covered

employer, whether in the safety category or not. Yet CalPERS fails to provide an

additional benefit or annuity in addition to the disability allowance for service credit

purchases, in part because CalPERS fails to correctly account for the contributions made

to purchase the military time, ARSC and PVSC. (Government Code, §21420.)

I) Three illustrations show that CalPERS is wrong:

• Different Classification. Many members earn service credit for work both

in non-safety positions and in safety positions. For example, a Member

may work as a technician before becoming a firefighter. CalPERS

separates the contributions that a Member makes in the non-safety positio

from contributions made in the safety position. Then if the safety Member

later takes an IDR, CalPERS provides an additional annuity above the ID

for the contributions associated with prior non-safety service.

• Different Emplover, Same Classification. CalPERS also pays an additiona

annuity for contributions made by a Member while working in a prior

safety position but for a different safety employer. For example, a

firefighter may work for one fire department, then later move to a differen

fire department and suffer an IDR in the second position. In this case,

CalPERS will provide an additional annuity above the IDR payment for

the contributions associated with the first employer (where the Member

was not injured).

• Wrong Assumption: Military Time/ARSC Cannot Lawfully Be

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Characterized as Contributions with the Employer At Time of Purchase.

CalPERS' decisions are based in a basic incorrect assumption contrary to

law that the service credit investments can be characterized as

contributions with the employer where the employee works at the time of

purchase.

For the disabled member, CalPERS wrongly seizes the contributions made to purchase

military time, ARSC or PVSC, even though these are also contributions for service or

time outside the safety position in which the Member suffers the IDR.

m) Plaintiffs' entitlement to IDR arose on their first safety employment.

Plaintiffs never waived or bargained away their statutory entitlement to a 50% IDR

allowance,2 nor agreed to offset their 50% IDR with their military time, ARSC and/or

PVSC investments. Safety employers are responsible for paying contributions to fund

IDR. (Government Code, §§20808, 21418.) By seizing all or a portion of the Plaintiffs'

investments and crediting them to the employers and/or the retirement system, CalPERS

is wrongly forcing Plaintiffs to pay for a portion of their own IDR allowances without

informed waiver or consent.

n) Many Plaintiffs invested a significant portion of their life savings,

including by "rolling over" funds from their governmental 457 accounts. CalPERS must

separately account for any 457 rollover it receives and must hold in trust for the exclusive

benefit of participants and their beneficiaries all assets and rights purchased therewith.

(26 CF.R., §§1.457-10(e) and (g).) If a Plaintiff used 401(k) funds to purchase the

permissive service credit, the accrued benefit must be non-forfeitable. (29 U.S.C. §1053.)

o) CalPERS inappropriate accounting was only recently discovered or

discoverable.

11) CalPERS has not only hidden its wrongful accounting, it has represented

2 For most CalPERS Members eligible for IDR, the allowance is set at 50% of finalcompensation. A few specific categories have the right to an enhanced 1DR under certaincircumstances. (Government Code, § 21410, 21416.)

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that accounting as correct and lawful. Moreover, CalPERS continues to insist on the

allegedly "lawful" nature of its wrongful accounting.

CalPERS does not disclose the nature of its wrongful accounting and the

associated risk of loss in the purchase contract, the statutes, IDR information, or

publications.

r) CalPERS (i) violates federal law concerning permissive service credit; (ii)

charges purchasers of military time, ARSC and/or PVSC excessive costs attributable to

expenses that the employers and/or the retirement system are responsible for; (iii)

wrongly accounts for Plaintiffs' investment in military time, ARSC or PVSC; (iv) fails to

pay an annuity after a Member takes an IDR based on military time, ARSC and/or PVSC

investment funds in addition to the statutory IDR allowance, including as mandated by

Government Code section 21420; (v) seizes (or fails to properly credit) all or part of

Plaintiffs' investment without a hearing; (vi) transfers all or part of the seized money to

the employers' (i.e., Police Departments, Fire Departments, etc.) or the retirement

system's accounts; and (vi) uses the Plaintiffs' investment to offset the employers' and/or

the retirement system's cost of providing the Plaintiffs with their own disability payments

(and thereby inappropriately reducing the Plaintiffs' IDR entitlement).

s) The statutory language of the PERL, legislative intent, the structure of the

PEAL, the contract terms, and common sense squarely oppose CalPERS' wrongful

pricing, overcharging, accounting, characterization, failure to properly credit, and seizure

of military time, ARSC and PVSC.

4. Although the size of the purported class is unknown, the purchase of military

time, ARSC and PVSC has been very popular. Approximately 50,000 people have bought ARSC

as of July 2011. As of 1997, over 2,300 local safety members had purchased prior military time.

It is unknown how many members have purchased prior military time in the 14 years since then.

It is unknown how many have purchased other PVSC.

• 5. Approximately 5% of the 500,000 current CalPERS retirees have taken an IDR.


INTRODUCTION

A. Types of Optional Service Credit (also known as "Permissive Service Credal

6. Military Time. As an elective right set in statute, CalPERS sells "military time"

(AKA "military service credit" or "Military, Peace Corps or AmeriCorps*VISTA or Americorps

Service" and known hereinafter as "military time") as an optional benefit to allow Members who

served in active military duty prior to CalPERS membership to make voluntary contributions to

purchase up to four (4) years of military service to increase their CalPERS retirement benefits.

(Government Code, §§21024, 20127 and 21029.)

a) From about 2001 to the present, CalPERS calculated a Member's cost to

purchase military time using present value methodology. (Government Code, §§21024,

21027 and 21029)3

b) From about 1987 to 2001, CalPERS sold military time in a substantially

similar form such that a State or School Member paid both Member and employer

contributions sufficient to cover the total costs plus interest of the purchased military

time. (Government Code, §21029.)

c) From about 1974 to 2001, CalPERS sold military time in a substantially

similar form such an active or retired local agency Member paid the full Member and

employer contributions for the military service. (Government Code, §§21024 and 21027.)

d) After January 1, 2001, CalPERS has considered military time to be a type

of PVSC, as defined below.

e) Moreover, since at least the 1970's, CalPERS has sold military time to

Members such that a Member paid the full cost of all current employee and employer

obligations associated with purchased military time.

f) Members who bought military service credit at any point since CalPERS

3 For a three year period from January I, 2001 through December 31, 2003, CalPERSoffered members purchasing service credit to either do so under the new present valuecalculations that came into effect in 2001 or the calculations in effect through December 31,2000.

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first offered it for sale and were entitled to an IDR are included in this class action.

7. Air Time. CalPERS also sells an optional, additional, defined benefit called

Additional Retirement Service Credit ("ARSC", also known colloquially as "air time").

(Government Code, §20909.) ARSC was first offered for sale in 2004. With ARSC, CalPERS

allows a Member to pay the full cost of all Member and employer contributions (related to the

increased service benefit) to increase their pension by buying up to five (5) years of service

credit. "Air time" is defined as time that is (i) not associated with any prior state or local

CalPERS service, or (ii) not "public service, military service, leave of absence, or any other time

recognized for service credit by the retirement system." (Government Code, §20909.)

8. PVSC. CalPERS also sells "leave time" and other present value service credit

("PVSC"). (Government Code, §§21006-21008, 21013, 21020.5, 21023.5, 21025.5 and 21030-

21031.) CalPERS calculates and sells PVSC in the same or similar manner as ARSC and mili

time. With PVSC, CalPERS allows a Member to pay the full cost of the Member and employer

contributions to increase their pension by buying prior service credits.

9. The statutory language clearly authorizes the optional additional benefits. The

statutes do not provide CalPERS with authority to wrongfully account for them, seize them or

fail to credit them.

B. Pricing of Military Time, ARSC and PVSC

10. From about 2001 to the present, CalPERS has calculated the Member's cost to

purchase these optional service credits using the same methodology. (Government Code

§§21050, 20151 and 21052.) Based on CalPERS' actuarial assumptions, Members are charged

the full cost of all employee and employer obligations associated with military time, ARSC or

PVSC so that the Members alone bear the cost of funding the portion of a future service

retirement attributable to that investment.

11. These benefits are considered "cost neutral" because no additional contributions

are paid by CalPERS or the employers. "Cost neutral" means that CalPERS is not allowed to

charge the Member any price higher than the expected additional cost of finding the Member's

increased service pension.


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12. However, CalPERS improperly includes (within the "employer contributions"

portion) expenses, charges, valuations, or increases for IDR allowances, unfunded liability,

disability experience, actuarial factors unrelated to the increase in Member's service pension, or

other costs unrelated to funding the total cost of the Member's future service retirement. In doing

so, CalPERS inappropriately decreases the expenses to be borne by employers and/or the

retirement system while forcing Members to bear those unrelated expenses.

13. Plaintiffs intended and contracted to bear the full cost of the additional increase in

their service retirement allowance or in an annuity in addition to an IDR allowance. They did not

intend to pay an additional premium to pay or offset other employer or retirement system

obligations, costs or liabilities, including those that are associated with IDR, or those that do not

directly fund Plaintiffs' future service retirements or annuities.

14. CalPERS allows or encourages Members to "roll over" the funds in their existing

retirement accounts such as governmental 457 plans to buy military time, ARSC or PVSC.

Members can also pay for them with deductions from Members' payroll checks or installments.

CalPERS charges a one-half percent fee on installment payments. CalPERS is responsible for the

practices, policies, and transactions associated with the promotion, information, pricing,

accounting, calculation, collection, payment, and other aspects of the optional service credits,

their purchases, and MR.

C. CalPERS' Election Contracts

15. In its promotional material and contracts, CalPERS explicitly promises

"increases" in Members' retirement benefits.

16. CalPERS requires that Members sign non-negotiable, irrevocable contracts to

purchase military time, ARSC and PVSC. CalPERS also does not disclose the risk of loss of the

investment in military time, ARSC or PVSC in the purchase contract or elsewhere. Specifically,

CalPERS does not disclose that it may not pay the full additional military time, ARSC or PVSC

benefits (whether in the form of a "service retirement payable' disability allowance", an annuity,

or otherwise) if a Member takes an IDR allowance. CalPERS does not disclose how it will

account for the investment or that the Member may thereby forfeit the investment in those

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benefits. CalPERS does not disclose that a portion of the military time, ARSC and/or PVSC

purchase price includes unrelated employer expenses, including for IDR allowances, unfunded

liability, disability experience or other costs unrelated to funding the cost of the portion of the

Member's future service retirement attributable to the service credit purchased. The purchase

contract's lack of disclosure and notice violates due process and allows rescission.

17. The ambiguous and uncertain language in the statutes, contracts, disclosures, and

policies should be strictly construed against CalPERS and in favor of Plaintiffs, especially where

forfeiture is nondisclosed and where limitation or exclusion to IDR are sought.

D. Failure to Pay An IDR Allowance Plus the Value of Plaintiffs' Investments

18. Police, firefighters, correctional officers, and other safety positions are covered by

IDR immediately upon first employment. (Frank v. Board of Administration (1976) 56

Cal.App.3d 236.) Injured safety employees are entitled to IDR benefits if the injuries are related

to their safety position jobs. (See footnote 1, above, for a more complete description of CalPERS

Members eligible for IDR benefits.)

19. For contracting agencies, CalPERS established a contribution to pay for industrial

disability costs "separate from and independent of the contribution required for other benefits

under their contracts". (Government Code, §20808). The PERL requires employees'

contributions made towards the cost of the benefit or benefits be kept as a separate account,

which shall be available only for payment of the benefit or benefits and shall not be a part of the

accumulated contributions under this system of any of the employers or members included.

(Government Code, §20808.)

20. An employer's contributions to CalPERS "are in the nature of insurance premium

(§ 20456); during the contract term they represent the employer's ongoing share of the actuarial

equivalent of amounts necessary to fund current and future benefits due covered employees...."

(Carman v. Alvord (1982) 31 Ca1.3d 318, 325.)

21. With respect to disability pensions, offset is not allowed against or using

Member's contributions. (Healy v. Industrial Acc. Corn. (1953) 41 Ca1.2d 118; City and County

of San Francisco v. Workmen's Compensation Appeals Bd. (1968) 267 Cal.App.2d 771.)

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22. Members are insured against disability throughout the time they are employed by

a CalPERS agency. The disability statutes describe specific benefits that Members are entitled to

once a Member is approved for disability. 4 (The statutes are described with particularity in

sections below.)

23. Class members never waived their full IDR benefit. Class members never agreed

to the reduction or transfer of funds to the employers and/or the retirement system to offset IDR.

Class members never signed anything, were never informed, and never elected to reduce their

IDR benefit. CalPERS' literature about IDR or service purchases failed to provide clear and plain

notice of the limitations, exclusions, coordination, offset, or the risk of loss.

24. Each Plaintiff bought his military time, ARSC and/or PVSC after becoming fully

vested in IDR. At the time of the military time, ARSC and/or PVSC purchase, class members

never agreed to offset their IDR.5

25. Sometime after they purchased military time, ARSC or PVSC, a portion of the

Plaintiffs suffered (or in the future will suffer) a work-related injury or disease that qualifies as

an industrial disability. Plaintiffs were already covered by disability law at the time they

purchased military time, ARSC or PVSC and at the time of their disabling injuries. Once

disabled Plaintiffs received a disability determination, CalPERS administers and pays their IDR

allowance. In this action, disabled Plaintiffs have already received, or in the future will receive, a

4 Both the service allowance and non-industrial disability allowance are calculated asspecific percentages of final compensation received by a Member. The IDR statutes do notconsider a Member's years of service in that calculation, instead providing a flat percentage ofthe Member's final compensation. The IDR statutes also provide for an annuity on top of thedisability allowance based on either (i) "additional contributions" (Government Code, §§21407-21409 and 21411-21414) or (ii) on "normal contributions in respect to service rendered in acategory of membership other than the category in which [the Member] was at the time he or shesuffered the disability or incurred the disease causing his or her retirement for industrialdisability ..." (Government Code, §21420).

5 The right to receive a [disability] pension may accrue on disability arising as a result ofservice, prior to IDR determination. (Tyra v. Board of Police and Fire Pension Com'rs of City ofLong Beach (1948) 32 Ca1.2d 666.) Disabled Plaintiffs were fully vested in IDR beforedetermination.

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disability determination. The underlying disabilities and disability determinations are not at issue

in this case.

26. The PERL does not allow a Member to "double dip", i.e., it does not authorize

both a concurrent disability and a service allowance for the same service and the same

contribution. "Double charging" Plaintiffs for their IDR is also forbidden. Double costing or

double liability is also forbidden. (Symington v. City of Albany (1971) 5 Ca1.3d 23.)

27. However, the PERL does allow the Member to receive the largest allowance he or

she is entitled by law by harmonizing the disability and service allowance statutes:

a) The disability statutes provide a minimum disability allowance in lieu of a

service allowance if the disability allowance would be greater. For example, if a Member

has reached minimum retirement age but is still relatively new to the job and gets injured,

his or her service allowance would be less than a disability allowance. In those cases, the

PEAL ignores the service allowance and provides the greater disability allowance.

b) On the other hand, if the service retirement is greater than the disability

allowance (because a Member worked or purchased more years), then the PERL provides

what CalPERS calls a " 'service retirement payable disability allowance" meaning the

Member receives a retirement allowance composed of a tax-free IDR allowance, as well

as a taxable portion equal to the difference between the IDR allowance and the total

amount the Member would be entitled to if he or she took a service allowance alone.

28. The PERL specifically provides for an additional benefit for military time, ARSC

and PVSC above the disability allowance. A service or annuity allowance above the IDR amount

would not provide two allowances for the same service or the same contribution. Military time,

ARSC and PVSC are by definition not the same as the service credit earned working on the job

where the Member was industrially injured. On the contrary, military time, ARSC and PVSC

represent "air time", "military time" or other time outside CalPERS-covered employment.

29. Among other reasons, CalPERS cannot account for the purchase as time with the

employer because the PERL forbids granting credit for more than one year of service in any

fiscal year. (Government Code, §2096I. See Service Employees Intern. Union, Local 22, AFL-

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CIO v. Sacramento City Unified School Dist. (1984) 198 Cal.Rptr. 884.)

30. A Member is already presently covered for disability as a result of his or her

employment. The purchase of military time, ARSC and PVSC does not extend or increase

disability coverage. For example, the purchase of an additional two years of military time, ARSC

or PVSC would not add another two years of disability coverage or eligibility.6

31. Plaintiffs have already fully paid all their legally required disability or other

contributions as part of their normal mandatory employment contributions in the job, completely

separate from their military time, ARSC and PVSC purchases.

32. Plaintiffs are entitled to the statutorily-set IDR allowances irrespective of whether

they purchased military time, ARSC or PVSC.

33. Military time, ARSC and PVSC are distinct, "cost neutral" optional additional

purchases that should only benefit the individual Plaintiff.

34. Interpreting the military time, ARSC, PVSC and disability statutes as they were

written and intended, disabled Plaintiffs are entitled to at least two separate and independent

benefits: (i) the disability allowance and (ii) a supplemental military time, ARSC or PVSC

benefit (whether denominated as a "service retirement payable' disability allowance", an annuity,

or otherwise) above the disability benefit.

35. Misinterpreting the statutes and producing absurd results, CalPERS denies

disabled Plaintiffs both the full benefit of the military time, ARSC or PVSC and it refuses to

refund the military time, ARSC or PVSC investment:

a) If a disabled Plaintiffs service credit, including the purchased military

6 Further, IDR retirement is only available for Members who are incapacitated for theperformance of their job duties "as a result of injury or disease arising out of and in the course ofhis or her employment" in the safety position. For example, a firefighter that develops respiratorydisease from years of breathing hnardous smoke would be eligible for IDR paid by the firedepartment employer, even if that member had left the fire department before the illnessmanifested and was now working at a desk job in a local city administration in a non-safetycategory. On the other hand, if a police officer had purchased credit for prior military service andthen was diagnosed with lung disease caused by chemical exposure while in the armed forces, heor she would not be eligible for IDR because the source of the disability was outside of a safetyjob. Plaintiffs are not entitled to IDR for injuries suffered in the purchased periods.

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time, ARSC or PVSC, would result in a service allowance less than the disability

allowance, CalPERS pays only the disability allowance In this case, CalPERS provides

no additional benefit for the military time, ARSC or PVSC, thus seizing or failing to

credit the investment.

b) If a Plaintiffs service credit, including military time, ARSC or PVSC,

would result in a service allowance only slightly greater than the disability allowance,

CalPERS only pays a pro-rated portion of the additional military time, ARSC or PVSC

benefit, thus seizing or failing to credit the remaining value of the investment.

36. The examples of named Plaintiffs Jeffrey E. Andert ("Andert"), Neil MacLaren

("MacLaren") and Randy Slaughter ("Slaughter") are illustrative.

Plaintiff Jeffrey E. Andert:

37. Andert worked as a police officer for the City of Alhambra Police Department for

approximately six years. Prior to that, he worked for approximately five years as a police officer

for the Los Angeles Police Department. Andert was a patrol officer, carried a weapon on his

service belt, and performed all aspects of law enforcement. He had previously served four years

in the United States Air Force. While working for the Alhambra Police Department, and upon

learning about the right to purchase his service in the Air Force as military time, Andert began to

investigate whether purchasing military time would benefit him.

38. On or about January 15, 2004, Andert mailed CalPERS a Request for Service

Cost Information — Military Service, seeking information on the cost of purchasing four years of

military service credit. A true and correct copy of that Request for Service Cost Information —

Military Service is attached hereto as Exhibit 1.

39. On or about August 26, 2004, CalPERS sent Andert a packet of documents

indicating that he could purchase four (4) years of military service credit, called "Public Agency

Military", at a cost of fifty one thousand one hundred seventy six dollars and thirty seven cents

($51,176.37). A true and correct copy of that packet of documents is attached hereto as Exhibit

2. Exhibit 2 indicated that if Andert purchased four (4) years of military service credit, he would

receive an estimated monthly pension increase based on four (4) additional years of service

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40. On September 2, 2004, Andert signed the irrevocable "Election to Purchase

Service Credit" contract to purchase four (4) years of military time from CalPERS and mailed

that back to CalPERS. (Exhibit 2.) He elected to pay $269.90 in 286 bi-weekly payments from

his salary. Thus, the cost of his purchase of four (4) years of military time from CalPERS would

total to approximately $77,190, including both principal and interest.

41. On October 15, 2004, CalPERS confirmed receipt of the "Election to Purchase

Service Credit" and also advised that it had authorized his employer, the Alhambra Police

Department, to begin taking 286 hi-weekly payments of $269.90 each from his pay checks to pay

off the cost of the four (4) years of military service credit. A true and correct copy of the October

15, 2004, letter from CalPERS is attached hereto as Exhibit 3.

42. In accepting his money, CalPERS represented to Andert that CalPERS would

increase his retirement allowance. CalPERS calculated the estimated increase by multiplying the

number of years of military time purchased by the applicable retirement benefit plan used to

calculate his retirement allowance.

43. In or about early 2006, Andert was injured on the job and was unable to continue

working. However, he continued to make monthly payments for his purchase of the four (4)

years of military service credit.

44. On or about April 24, 2007, Andert wrote to the CalPERS Member Services

Division and requested that Ca1PERS suspend the installment payments for his military service

credit purchase because he was still unable to return to work, was on reduced income, and was

scheduled to undergo surgery and lengthy recover time for his on-the-job injuries. A true and

correct copy of Andert's April 24, 2007, letter to CalPERS is attached hereto as Exhibit 4.

45. In an undated letter apparently written in May 2007, Tammy Yotuit of the

7 Exhibit 2 lists Andert's then-current monthly salary at $5,413 and estimates a pensionincrease of $649.56 per month for four years of military service, 12% of his monthly salary. Thismatches the fact that four years of additional service credit equals a 12% increase based on hismembership in the "3% @ 50" CalPERS retirement plan available to Alhambra PoliceDepartment employees.

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CalPERS Election Processing Unit, Member Services Division, wrote to Andert and told him

that his request for a temporary suspension of payments for his four (4) years of military service

credit was approved. A true and correct copy of Ms. Yount's undated letter to Andert is attached

hereto as Exhibit S.

46. On or about May 8, 2007, CalPERS' employee Yount sent a letter to the City of

Alhambra advising the City to discontinue taking the $269.90 bi-weekly installment payments

from Andert's monthly salary for the pay period beginning May 3, 2007. A true and correct copy

of Ms. Yount's May 8, 2007, letter to the City of Alhambra is attached hereto as Exhibit 6.

47. At some point after that, the City of Alhambra Police Department concluded that

Andert would be unable to resume his police officer duties as a result of his on-the-job injuries,

and therefore submitted a request that he be retired on industrial disability. He was determined to

be industrially disabled and unable to perform his job as police officer for the City of Alhambra

and was retired on IDR effective May 10, 2008.

48. On or about August 27, 2008, after his IDR was granted, CalPERS sent Andert a

form to elect suspension of any further installment payments for purchase of military service

credit. Andert signed and returned that form on or about September 2, 2008. A true and correct

copy of the August 27, 2008, request for suspension bearing Andert's signature is attached hereto

as Exhibit 7.

49. By statute, CalPERS Members receiving IDR are automatically entitled to an

allowance of 50% of their final compensation regardless of their years of service. (Government

Code, §§21406-21409 and 21411-21414.)

50. Because Andert was less than 50 years of age at the time he was forced to take

IDR retirement, he was not eligible to elect a service retirement. Nevertheless, he was eligible to

receive an IDR allowance of 50% of his final compensation.

51. Andert, however, believed and expected that he would receive the automatic 50%

IDR allowance he was entitled to by statute, plus an additional pension amount associated with

his purchase of military time. Instead, CalPERS' wrongful policy and practice has resulted in

Andert being paid a retirement allowance of only 50% of his final compensation, with no

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additional benefit for his ARSC purchase.

52. The net result is Andert paid CalPERS approximately $17,500 toward the

purchase of military service credit and is receiving absolutely no additional benefit.

53. In refusing to pay a larger pension or return the military time investment to

Andert, CalPERS has breached the written military time purchase contract.

54. CalPERS' policy and practice either (i) illegally reduces the amount of Andert's

IDR allowance or (ii) illegally grants him no benefit for his military time purchase. Neither is

permissible under the statutes providing for those benefits.

Plaintiff Neil MacLaren:

55. MacLaren worked as a firefighter for a total nearly two and a half decades. He

began as a firefighter for the Humboldt Fire District for just under two years, then worked for

more than twenty-one (21) years for the City of Roseville Fire Department.

56. In or about 2005, while working for the Roseville Fire Department and upon

learning about the right to purchase ARSC, MacLaren began to investigate whether purchasing

ARSC would benefit him. As a part of that investigation, MacLaren contacted CalPERS to

request information on the cost of purchasing two (2) years of ARSC from CalPERS.

57. On May 27, 2005, CalPERS later sent MacLaren a packet of documents

indicating that he could purchase two (2) years of ARSC at a cost of twenty-nine thousand nine

hundred seventy-seven dollars ($29,977.09). The documents indicated that if MacLaren

purchased two (2) years of ARSC, he would receive an estimated monthly pension increase

based on two (2) additional years of service credit. A true and correct copy of one of the pages of

that packet of documents is attached hereto as Exhibit 8.

58. MacLaren later signed the "Election to Purchase ARSC" ("Election") contract to

purchase two (2) years of ARSC from CalPERS that was included in the packet of documents

sent to him by CalPERS, and mailed the Election contract back to CalPERS.

59. A true and correct copy of an exemplar "Election to Purchase ARSC", similar to

the "Election to Purchase ARSC" executed by MacLaren and also similar to the Election

contracts executed by other Plaintiffs who purchased ARSC is attached hereto as Exhibit 9.

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60. MacLaren elected to pay for the purchase of the two (2) years of ARSC in a one-

time lump sum transfer of funds to CalPERS from his governmental 457 plan account. By letter

dated July 27, 2005, CalPERS confirmed receipt of a check in the sum of $29,977.09 from

MacLaren's ICMA Retirement Corporation governmental 457 plan and indicated it had accepted

the funds as a "roll-over" of tax deferred monies from the 457 plan to pay for MacLaren's

purchase of the two (2) years of ARSC. A true and correct copy of the July 27, 2005, letter is

attached hereto as Exhibit 10.

61. In accepting his money, CalPERS represented to MacLaren that CalPERS would

increase his retirement allowance. CalPERS calculated the estimated increase by multiplying the

number of years of ARSC purchased by the applicable retirement benefit plan used to calculate

his retirement allowance.

62. On or about July 14, 2007, MacLaren suffered serious injuries to his back during

a work-related training incident. Over the next approximately two years, MacLaren's medical

condition did not resolve and it threatened to permanently prevent him from performing his

duties as a firefighter. Based on that medical condition, it was finally determined that MacLaren

would be unable to continue his firefighter duties because of his injuries and medical condition

and a request was made in or about August 2009 that MacLaren be retired on industrial

disability.

63. MacLaren was determined to be industrially disabled and unable to perform his

job as firefighter for the City of Roseville and was retired on IDR effective December 9, 2009.



Code, §§21406-21409 and 21411-21414.)

65. Because MacLaren was less than 50 years of age at the time he was forced to take



66. MacLaren, however, believed and expected that he would receive the automatic

50% IDR allowance he was entitled to by statute, plus an additional pension amount associated

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with his purchase of ARSC. Instead, CalPERS' wrongful policy and practice has resulted in

MacLaren being paid a retirement allowance of only 50% of his final compensation, with no


67. The net result is MacLaren paid CalPERS $29,977.09 for the purchase of two (2)

years of ARSC and is receiving absolutely no additional benefit.

68. In refusing to pay a larger pension or return the ARSC investment to MacLaren,

CalPERS has breached the written ARSC purchase contract.

69. CalPERS' policy and practice either (i) illegally reduces the amount of

MacLaren's IDR allowance or (ii) illegally grants him no benefit for his ARSC purchase. Neither

is permissible under the statutes providing for those benefits.

Plaintiff Randy Slaughter:

70. Slaughter worked as a police officer for the City of Newport Beach for

approximately seventeen (17) years. Slaughter was a patrol officer, carried a weapon on his

service belt, and performed all aspects of law enforcement. He had previously served four years

in the United States Marines. While working for the Newport Beach Police Department, and

upon learning about the right to purchase his service in the Marines as military time, Slaughter

began to investigate whether purchasing military time would benefit him.

71. On or about October 10, 2000, Slaughter wrote to CalPERS seeking information

on the cost of purchasing four (4) years of military service credit. A true and correct copy of

Slaughter's October 10, 2000, Request for CalPERS Service Credit Cost Information form is


72. On or about January 4, 2011, CalPERS sent Slaughter a packet of documents

indicating that he could purchase four (4) years of military service credit at a cost of forty seven

thousand six hundred ninety four dollars and 86 cents ($47,694.86). The documents indicated

that if Slaughter purchased four years of military service credit, he would receive an estimated

monthly pension increase based on four (4) years of service credit. A true and correct copy of the

cover letter page 1 of that packet of documents is attached hereto as Exhibit 12.

73. Slaughter later signed the "Election to Purchase ARSC" ("Election") contract to

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purchase four (4) years of military service credit from CalPERS that was included in the packet

of documents sent to him by CalPERS, and mailed the Election contract back to CalPERS. A

true and correct copy of that Election form is attached hereto as Exhibit 13.

74. Slaughter elected to pay for the purchase of four years of military time by means

of installment payments withheld from his Newport Beach Police Department salary each pay

check and transferred to CalPERS. After several years, Slaughter made further arrangements to

pay off the remaining balance on his installment payment plan by transferring monies equal to

the remaining balance in a single lump sum from his governmental 457 plan account to

CalPERS. A true and correct copy of a two-page CalPERS' Calculation Work Sheet indicating

that Slaughter had made 38 installment payments for a total of $6,977.94 and had a balance due

of $44,652.45 is attached hereto as Exhibit 14. A true and correct copy of Slaughter's July 8,

2002, check in the sum of $44,652.45 used to pay off the balance due on his military service

credit purchase is attached hereto as Exhibit 15.

75. Thus, by time the purchase was completed, Slaughter had paid CalPERS a total of

$51,639.39.

76. In accepting his money, both his initial installment payments and his later lump

surn payment to pay off the remaining balance on his Election purchase contract, CalPERS

represented to Slaughter that CalPERS would increase his retirement allowance. CalPERS

calculated the estimated increase by multiplying the number of years of military time purchased

by the applicable retirement benefit plan used to calculate his retirement allowance.

77. In or about 2003, Slaughter was diagnosed with a medical condition which

threatened to prevent him from performing his duties as a sworn police officer. At some point

after that, the Newport Beach Police Department concluded that Slaughter would be unable to

continue his police officer duties because of his medical condition, and therefore submitted a

request that he be retired on industrial disability. On or about November 18, 2004, CalPERS sent

Slaughter a letter notifying him that he was determined to be industrially disabled and unable to

perform his job as police officer for the City of Newport Beach and was retired on IDR effective

September 21, 2004. A true and correct copy of that November 18, 2004, letter is attached hereto

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Code, §§21406-21409 and 21411-21414.)

79. Because Slaughter was less than 50 years of age at the time he was forced to take



80. Slaughter, however, believed and expected that he would receive the automatic

50% IDR allowance he was entitled to by statute, plus an additional pension amount associated

with his purchase of military time. Instead, CalPERS' wrongful policy and practice has resulted

in Slaughter being paid a retirement allowance of only 50% of his final compensation, with no


81. The net result is Slaughter paid CalPERS in excess of $47,600 for the purchase of

four (4) years of military service credit and is receiving absolutely no additional benefit.

82. In refusing to pay a larger pension or return the military time investment to

Slaughter, CalPERS has breached the written military time purchase contract.

83. CalPERS' policy and practice either (i) illegally reduces the amount of Slaughter's

IDR allowance or (ii) illegally grants him no benefit for his military time purchase. Neither is

permissible under the statutes providing for those benefits.

E. Equal Protection Violation Examples

84. As additional evidence that it is wrong, CalPERS' policy and practice violates

equal protection. For example, if two Members with eight years of compensated service each are

simultaneously disabled and entitled to an IDR, they would each receive 50% of their final

compensation as an allowance, even if one of them had purchased $100,000 worth of additional

military time, ARSC or PVSC benefits.

85. As another example, a disabled Member who purchased military time, ARSC or

PVSC and was entitled to a service retirement greater than his or her disability allowance would

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receive some or all of the benefit of that military time, ARSC or PVSC purchase. If the same

Member, however, had fewer years of compensated service at the time he or she was disabled

(and thus would receive less in a service retirement than in a disability retirement), the Member

would receive nothing for the military time, ARSC or PVSC investment. There is no reason for

this dissimilar and unfair treatment.

F. Sizeable Numbers of Members Have Been Harmed

86. As noted, the purchase of military time, ARSC and PVSC has been very popular.

87. As of 1997, over 2,300 local safety Members bought military time.

88. As of 1997, CalPERS advised that over 3,900 Members had purchased some type

of PVSC. See "Service Credit Costing Proposal" chart prepared by CalPERS concerning Senate

Bill 2840 (Assembly PER&SS), introduced into the California Legislature in 2000 and later

enacted, inter cilia, as amendments to Government Code sections 21006-21008, 21013, 21023.5,

21024, 21027, and 21029-21031 and newly created Government Code sections 21050-21052,

21053 and 21054. A true and correct copy of the CalPERS "Service Credit Costing Proposal"

chart is attached hereto as Exhibit 17.

89. According to CalPERS, over 33,000 Members purchased ARSC during the three

year period from June 30, 2004, through June 30, 2007. A true and correct copy of the CalPERS

study prepared for the California Legislature stating that over 33,000 Members purchased ARSC

during June 2004 through June 2007 period is attached hereto as Exhibit 18.

90. We understand that approximately 50,000 people have bought ARSC as of July

2011. Many more have purchased ARSC in the months since.

91. Plaintiffs allege, on information and belief, that all of the Members who have

purchased military time, ARSC and/or PVSC have paid an inappropriate "surcharge" or

The individuals who only receive partial credit or benefit for their optional servicecredit purchase would also be included in this class action. For example, an individual whopurchased four years of military time, is over the age of 50 (and thus eligible to take a serviceretirement) and has sufficient total service credit to receive an allowance of 51% of his or herfinal compensation would be included in this class action as one who has purchased time thatCalPERS is failing to provide him or her full credit for.

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additional monies that are related to expenses, charges, fees, evaluations, estimates, or other

increases that are associated with employer obligations, including for IDR allowances, unfunded

liability, disability experience or other costs unrelated to funding the total cost of the Member's

future service retirement

92. Plaintiffs allege, on information and belief, that all of the Members who have

purchased military time, ARSC and/or PVSC on installment have paid an additional

inappropriate "surcharge" or additional monies of one-half percent of the investment that is not

related to costs legitimately associated with their additional purchased service benefit.

93. Further, CalPERS' policy and practice of failing to properly credit or seizing

Plaintiffs military time, ARSC or PVSC investments when they take OR affects many people.

Ten percent (10%) or more of CalPERS Members retire because of a disability, approximately

half of those for IDR. The average age of someone retiring on industrial disability is 46, too

young to take a service retirement and therefore automatically eligible only for a disability

allowance. Under CalPERS' wrongful practice, people who retire on IDR under the age of 50

automatically receive no credit for any military time, ARSC or PVSC purchased.

94. In 2003, CalPERS estimated that 1,500 retirees, survivors or beneficiaries were

receiving no benefit from their service credit purchases. See Exhibit 19, "Bill Analysis" prepare

by CalPERS concerning Senate Bill 268 (Soto) and enacted as Government Code section 21037

in 2003. CalPERS found approximately 1,500 CalPERS retirees, survivors or beneficiaries were

making service credit purchases for which they were receiving no benefit because they were

receiving an allowance that is limited due to disability or special death.

95. Thus, there are likely to be many in the putative class

G. CalPERS' Policy and Practice Has Been Hidden

96. The losses arise (i) from CalPERS' inappropriate characterization and accounting

for the military time, ARSC and PVSC contributions as associated with the safety job held by th

Member at the time of purchase, and (ii) from CalPERS' inappropriate policy of charging

purchasers of military time, ARSC and PVSC for a portion of the costs that their employers

and/or the retirement system are responsible for, including related to IDR.

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97. CalPERS has hidden its wrongful pricing and accounting of military time, ARSC

and PVSC from the general public. CalPERS has also presented its pricing and accounting as

correct and lawful.

98. Moreover, CalPERS is often the only real source of information about CalPERS

pension rights and benefits. 9

99. Because CalPERS has been misapplying the relevant statutes, while at the same

time representing its pricing and accounting to Plaintiffs and all Members as accurate and lawful

it was impossible for Plaintiffs or anyone else to discover the cause, reasons, and mechanisms

behind CalPERS' inappropriate pricing of military time, ARSC and/or PVSC service credit.

100. The cause, reasons and mechanisms behind CalPERS' failure to provide the

correct benefits, the associated failure to properly credit or seizure of Plaintiffs' optional service

credit investments, and CalPERS' refusal to refund the investment funds was impossible for

Plaintiffs or anyone else to discover.

101. CalPERS' illegal acts and undisclosed practices delayed the accrual of Plaintiffs'

causes of action against CalPERS until they were finally revealed.

102. Seizure and forfeiture laws are narrowly construed. They must provide notice

sufficient to support due process. There is no explicit notice and no authority in the PERL to

seize or to force Plaintiffs to forfeit their military time, ARSC or PVSC benefits or investment.

By contrast, the PERL does contain one or more forfeiture statutes (see, e.g., Government Code,

§75526), but those forfeiture statutes do not apply to this matter.

103. Furthermore, an agency must initiate a hearing when a right, authority, license or

privilege is to be revoked, suspended, limited or conditioned. (Government Code, §§11500, et

seq.; Fascination, Inc. v. Hoover (1952) 39 Ca1.2d 260.) Thus, even if CalPERS could point to

some statutory authority, it would be required to conduct a hearing and provide due process.

104. CalPERS' failure to disclose these material terms, including the risk of loss, in the

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contract to purchase military time, ARSC and PVSC is unconscionable given CalPERS' superior

knowledge, superior bargaining position, its position as the dominant provider of disability

payments, its fiduciary duties, and its position as the required pension provider for state

employees and contracting agencies employees. The failure to disclose the risk of loss, the offset

or reduction of the IDR benefit is also unconscionable

105. In sum:

• Plaintiffs are police officers, firefighters, correctional officers or other safety

employees. They work the most dangerous and demanding jobs in public

service. By virtue of their safety positions, they are entitled to industrial

disability retirement if they are injured on the job or related to the job. The

IDR rights are set in statute.

• The language of the PERL provides for the purchase of the military time,

ARSC and PVSC benefits.

• Military time, ARSC and PVSC are "permissive service credits" under federal

law. CalPERS is required to provide an additional benefit that is not already

earned. Permissive service credit investments cannot fund an existing benefit.

Permissive service credits must be priced only to fund the additional service

purchased.

• Plaintiffs pay the entire employer and employee costs of the increased service

related benefits associated with military time, ARSC or PVSC such that they

are "cost neutral" to the employer and the retirement system.

• There is no disclosure that the service credit purchases or the IDR benefit

could be improperly credited, reduced, offset, lost or seized. The contracts to

purchase military time, ARSC and PVSC do not disclose the risk of loss.

• CalPERS inappropriately overcharges Plaintiffs by included a portion of

unrelated employer costs, including IDR expenses, in the investment price.

• CalPERS inappropriately overcharges Plaintiffs by including a one-half

percent fee on installment payments.

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• The IRC and the PERL do not allow CalPERS to characterize the military

time, ARSC and PVSC investments as contributions in the job worked by the

Member at the time of purchase.

• By definition, the purchase of "air time", PVSC, and "military time" are

associated with a different time and a different position such that they cannot

be considered to be contributions in the safety job the Member holds at the

time of purchase.

There is no statutory authority that allows a Member to buy more service

credit in the job that he or she holds.

• CalPERS misreads the PERL's disability statutes to authorize seizure of the

military time, ARSC and PVSC benefits.

• CalPERS characterizes IDR as "in the nature of workers compensation", but

still requires Plaintiffs to pay a portion of the cost contrary to Labor Code

section 3751.

• Harmonizing the statutory scheme of the PERL (including Government Code

section 21240 describing annuities for contributions made in other categories)

requires that CalPERS provide a benefit for the military time, ARSC or PVSC

investment above the disability payments.

• CalPERS' fiduciary duties to its Members and its duty to disclose indicate that

CalPERS should interpret the law in favor of the Member.

• CalPERS breaches the purchase contracts and the DR statutes (or policies)

when it fails to pay an increased military time, ARSC or PVSC benefit above

the disability entitlement.

• CalPERS breaches its duties when it fails to pay an additional annuity or other

additional benefit that are beneficially equivalent to the value of the military

time, ARSC or PVSC that the Plaintiffs purchased.

• CalPERS violates the law when it requires Plaintiffs who purchase military

time, ARSC or PVSC to pay a portion of IDR-related costs that are the sole

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responsibility of the employers and/or the retirement system to pay.

• In the real world, CalPERS unexpectedly overcharges, fails to properly credit

or seizes thousands of dollars from safety employees and disabled Plaintiffs.

Often, a seizure of the investment could represent most of a disabled

Plaintiff's "life savings" outside of their IDR benefit. Either by overcharging

or later seizing, CalPERS takes all or part of the Plaintiffs' investment in

violation of statute, federal law, common sense, equity, and CalPERS'

fiduciary position, simply because the Plaintiffs are entitled to an IDR and

purchased optional service credits.

THE PARTIES

106. Plaintiffs in this action are currently employed or were employed by the State of

California or an entity that contracts with CalPERS. Plaintiffs are enrolled in CalPERS.

107. Plaintiffs are police officers, firefighters, correctional officers, safety officers, or

other employees who are entitled to an industrial disability retirement (IDR) under the PERE.

108. Plaintiffs are qualified to purchase military time, ARSC or PVSC from CaLPERS

based upon readily verifiable characteristics. All Plaintiffs and Plaintiffs to be named are

members of the putative class defined immediately below.

109. The class for whose benefit this action is being prosecuted is identified as follows

All persons employed as safety Members or in other positions

covered for the potentiality of industrial disability retirement who have

purchased, or in the future will purchase, "Military Service Credit" or

"Military Time", "Additional Retirement Service Credit" or other present

value service credit options from the California Public Employees'

Retirement System (CalPERS) and either overpaid for their benefits or did

not receive all of the benefits that they are entitled to.

The above defined class includes those who have paid monies that

have been included in the purchase price or cost of "Military Service

Credit" or "Military Time", "Additional Retirement Service Credit" or

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other present value service credit options which are (i) the lawful

responsibility of Plaintiffs' employers and/or the retirement system, (ii) in

addition to the amount necescary to fund the additional service or annuity

benefit, (iii) costs unrelated to the Member's increased service or annuity

benefit; or (iv) which Plaintiffs cannot be lawfully required to pay.

The above defined class includes those who have suffered, or in

the future will suffer, an industrial disability retirement (IDR), and now

receive or will receive retirement allowances, IDR allowances, other

benefits, or a combination thereof, that are or will be such that Plaintiffs

will not receive all of the benefits that they are entitled to.

110. All members of this class have been or will be substantially and adversely

affected by violations of law alleged herein and, hence, have a beneficial interest in the relief

sought.

111. CalPERS is a public retirement association authorized by Article XVI, Section 17

of the California Constitution and subject to the PERL. Authority over CalPERS' operations,

formulation of its policy and practice, and approval and ratification of its actions vests in the

Board of Administration of California Public Employees' Retirement System. Both CalPERS an

its Board of Administration are collectively referred to herein as "CalPERS". CalPERS is a

legally separate and distinct entity from the State of California, state agencies, and local public

agencies.

112. CalPERS is responsible for collecting, investing, and otherwise managing the

retirement funds collected from the State, state agencies, local agencies, contracting entities, and

CalPERS Members.

113. CalPERS is the entity with the responsibility and duty to price, to characterize an

to account for the contributions, monies, obligations, and liabilities associated with both the

service credit and the contributions made in the purchase of military time, ARSC and PVSC, as

well as the retirement system and the disability system. CalPERS receives or is charged with the

responsibility for receiving monies, accounting, payment, insurance, accounting, assets or

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liabilities associated with the funds whether by itself, as an entity, as a system, as a fiduciary, or

as an administrator, including maintaining "plenary authority" or other responsibility for matters

associated with the retirement system and the industrial disability system.

114. The State of California and CalPERS contracting agencies that have employed or

will employ Plaintiffs are not necessary parties to this action since military time, ARSC and

PVSC are calculated by CalPERS to be "cost neutral" to the employers and the retirement

system. Any overpricing or inclusion of unrelated employer costs in the price of the optional

service credit is the responsibility and liability of CalPERS as administrator of the benefit and

fiduciary. Any unlawful transfers that benefit employers are caused solely by CalPERS which

remains the responsible party.

CLASS ACTION ALLEGATIONS

115. Overcharging. All putative class members have had or will have their pension

rights or benefits substantially and adversely affected by an identical allegedly unlawful policy

and practice, to wit: CalPERS' improper policy of (i) requiring Members who purchase military

time, ARSC and PVSC to pay a "surcharge" or extra monies to pay costs, charges or expenses

for IDR allowances, unfunded liability, disability experience or other costs unrelated to funding

the total estimated cost of the portion of the Member's future service retirement allowance

attributable to the service credit purchased; (ii) charging an additional amount for an installment

payment that benefits employers and/or the retirement system; (iii) failing to calculate, to

account or to characterize the Plaintiffs' investment correctly; (iv) failing to properly credit

Plaintiffs' investment; (v) failing to adequately inform Plaintiffs; and (vi) offsetting part of the

employer's or system's obligation or cost (including for IDR) with the Plaintiffs investment.

116. Loss. All putative class members who have taken an IDR and have not received

the full value of their military service credit, ARSC and PVSC investments have had or will have

their pension rights or benefits substantially and adversely affected by an identical allegedly

unlawful policy and practice, to wit: (i) CalPERS' wrongful accounting of the funds paid by

Plaintiffs and all class members for the purchase of military time, ARSC and PVSC; (fi)

CalPERS' associated refusal to provide members of the putative class who are entitled to an IDR

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allowance with either (a) an additional or commensurate benefit arising from their purchase of

military time, ARSC or PVSC or (b) a refund of the amounts paid by them for military time,

ARSC or PVSC benefits; (iii) CalPERS' offsetting part of the IDR allowance with Plaintiffs'

investment such that Plaintiffs pay more than their fair share for IDR; and (iv) the harm

identified in the section above.

117. CalPERS has anticipatorily breached its contracts with Plaintiffs, including those

who have not suffered a disability, by overcharging and by its denial of military time, ARSC or

PVSC benefits to Plaintiffs who have already been disabled, thereby giving notice that CalPERS

will not perform the contracts as understood.

118. CalPERS' explicit and implied repudiation of the contract was and is an

unambiguous and unretracted statement that CalPERS would not pay full or commensurate

military time, ARSC or PVSC benefits, including by overcharging and by failing to provide

benefits in excess of disability entitlements. At the time of the repudiation, Plaintiffs had

performed all the conditions or things to be done. (Civil Code, §1440.)

119. Ascertainable Class. Members of the putative class are readily identified from

files and computer databases maintained by CalPERS. The litigation of the questions of fact and

law involved in this action will resolve the rights of all members of the class and hence will have

a binding effect on all class members.

120. Numerositv. The class is numerous and joinder of all class members is

impracticable due to the existence of complex issues resulting in the high cost of separate,

individualized litigation in comparison to the amount of monetary recovery for individual class

members. In addition, class members who are still employed may be reluctant to join in a lawsuit

out of concern that it may negatively affect their continued employment.

121. CalPERS has 1.6 million active and retired Members. Approximately 2,000

CalPERS Members suffer industrial disabilities each year.

122. Since the mid 1970's, CalPERS Members have been allowed to purchase military

time as well as PVSC for public service and other uncompensated leave. The purchase of ARSC

has been allowed since 2004. According to CalPERS, over 33,000 Members purchased ARSC

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during the three year period from June 30, 2004 through June 30, 2007. According to news

reports, over 47,000 Members have purchased ARSC as of September 2010. As of 1997,

CalPERS indicated that in excess of 3,900 Members had purchased military time or some type of

PVSC.

123. In 2003, CalPERS estimated that there were approximately 1,500 Members

making service credit payments for military time or other PVSC who had retired for disability or

whose beneficiaries were Special Death survivors, m many of whom were getting no benefit for

the military time or PVSC.

124. Although the total number of people that have purchased military time, ARSC or

PVSC and are entitled to IDR is not presently known, CalPERS retains all the records that would

be needed to identify the members of the class.

125. Community of Interest. The proposed class has a well-defined community of

interest in the questions of law and fact to be litigated. Common questions of law and fact

predominant in the liability issues, relief issues and anticipated affirmative defenses. For

example, a large issue concerns CalPERS' legal authority to require Members who purchase

military time, ARSC and PVSC to pay unrelated employer expenses, including those associated

with IDR allowances, unfunded liability, disability experience or other costs unrelated to funding

the Member's future service retirement allowance.

126. Another large issue concerns CalPERS' failure to correctly account for and

properly segregate the contributions made to purchase military time, ARSC, and PVSC. In

particular, common questions of law about CalPERS' legal authority to characterize the monies

paid to purchase military time, ARSC and PVSC as contributions associated with the jobs

worked by Members at the time of purchase, rather than correctly accounting for this as service

credit outside the safety position or other employment held by Plaintiffs at the time of purchase.

127. Another large issue concerns CalPERS' legal authority to fail to properly credit or

to seize Plaintiffs' money or reduce the value of Plaintiffs' benefits or IDR payments. Any factual

lo The number of Special Death survivors is estimated to be quite small. It is not knownhow the estimated 1,500 Members breaks down between industrial and non-industrial disability.

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or legal issues about the underlying disability status of the disabled Members have been

adjudicated or will be separately adjudicated. The named Plaintiffs have claims typical of all of

the class members.

128. The named Plaintiffs can fairly and adequately represent and protect the interests

of the class. There is no conflict between their interests and the interests of other class members,

this action is not collusive, the named Plaintiffs and their counsel have the necessary resources to

litigate this action, and counsel has the experience and ability required to prosecute this case as a

class action.

129. Superiority of Class Adjudication. The certification of a class in this action is

superior to the litigation of a multitude of cases by individual members of the putative class.

Class adjudication will conserve judicial resources and will avoid the possibility of inconsistent

rulings. Moreover, there are class members who are unlikely to join or bring an action due to,

among other reasons, their inability to afford the prosecution of separate, individual actions. For

example, named Plaintiff Andert has suffered losses of approximately $17,500 plus interest.

Named Plaintiff MacLaren has suffered losses of approximately $29,900 plus interest. Named

Plaintiff Slaughter has suffered losses of approximately $47,600 plus interest. The cases are

impractical to litigate effectively as individual matters against CalPERS or its outside counsel, as

the common legal issues are complex and require significant briefing and research. Individual

cases cannot support the amount of novel legal work needed to resolve these matters. Finally,

equity dictates that all persons who stand to benefit from the relief sought herein should be

subject to the lawsuit and hence subject to an order spreading the costs of litigation among the

class members in relationship to the benefits received.

130. Superiority of Class Action to Agency Determination. While it may assert

primary jurisdiction, CalPERS as a state agency is not empowered to adjudicate or resolve the

rights of individuals that are not before the agency. As such, a class or representative action is

the only way that the class members can get relief.

TRIAL COURT JURISDICTION AND VENUE

131. Trial Court Jurisdiction. Jurisdiction is proper in the Superior Court of Los

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Angeles County. (Code of Civil Procedure, §410.10.) The amount in question is greater than

$25,000. This Court has personal jurisdiction over CalPERS as a California state agency

headquartered in California. A substantial amount of the wrongdoing alleged in this Complaint

occurred in Los Angeles County. CalPERS also maintains a regional office in Glendale, CA,

specifically to serve Los Angeles County, including in matters related to Members' purchase of

military time, ARSC and PVSC as alleged in this Complaint.

132. Venue. Venue is proper in the County of Los Angeles as it is the county where

the obligation of payment of the disability allowance or the retirement allowance is to be

performed. (Code of Civil Procedure, §395(a).) Los Angeles is also the proper venue as this

action seeks the recovery of a penalty or forfeiture. (Code of Civil Procedure, §393.)

STATUTE OF LIMITATIONS

133. In California state public employee pension law, there is no statute of limitations

when CalPERS owes a Member money. Specifically, CalPERS has a mandatory duty to correct

its errors and omissions. CalPERS is not supposed to assert a statute of limitations to bar a

Member's monetary recovery when CalPERS has made an error. Government Code section

20164(b)(2) provides that in cases where CalPERS owes money to a Member or beneficiary,

there shall be no statutory period of limitations for (i) the correction of the errors and omissions

and (ii) the payment of money to correct those errors. CalPERS has an affirmative duty to correc

its errors as long as the Member (or his or her beneficiary) is alive. (Government Code,

§§20160(b), 20164(a).) CalPERS shall make the corrections effective retroactively. (Governmen

Code 20160(e).)

134. "Delayed Accrual" of Plaintiffs' causes of action. CalPERS' erroneous

practices were only recently discovered or discoverable.

135. CalPERS' practices of accounting for and characterizing the military time, ARSC

and PVSC contributions as associated with the safety job held by the Member at the time of

purchase remained hidden until CalPERS disclosed those practices no earlier than October 15,

2010, in its first pleadings and disclosures in response to a different class action Complaint in the

case of David Yost, et aL v. CalPERS, Los Angeles Superior Court Case No. BC444842

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(hereinafter "Yost"). Therefore, the causes of action of Plaintiffs and all members of the proposed

class did not accrue until October 15, 2010, at the very earliest.

136. At the time of receiving the first disability check and continuing to the point of

CalPERS' disclosures in Yost and possibly beyond that, named Plaintiffs Andert, MacLaren and

Slaughter and others were unaware of the nature, extent, amount, or facts of their injury. It is

difficult for Plaintiffs to immediately detect or comprehend the overcharging, violations, breach

or resulting injuries. CalPERS provided Plaintiffs no information, explanation, or disclosure of

its accounting or the forfeiture, seizure, or reduction even though CalPERS has a fiduciary duty

to do so.

137. CalPERS has failed and refused to disclose to Plaintiffs or any member of the

public the facts or consequences that CalPERS characterizes the monies paid by Plaintiffs for the

purchase of military time, ARSC and/or PVSC as contributions made in the current job and

"made in respect to service rendered in a category of membership" in which the Member was

employed at the time of purchase". Logically, military time, ARSC and PVSC are contributions

in respect to service outside of the job where the Member was disabled. In failing to disclose this

material fact to Plaintiffs, or at most disclosing it only very recently, CalPERS has denied

Plaintiffs the information necessary to understand and act on the wrongs committed by CalPERS

138. As far as the date of the earliest accrual of the causes of action, Plaintiffs allege

that the earliest that anyone could have learned of CalPERS' improper accountings, errors, and

practices related to contributions arose from CalPERS' first responsive pleadings and disclosures

filed in response to the Complaint in Yost. More specifically, Plaintiffs allege that the earliest

that CalPERS disclosed that it characterizes the monies paid by Plaintiffs for the purchase of

military time, ARSC and/or PVSC as contributions made in the current job ("made in respect to

II Government Code section 21420 requires CalPERS to account for, and pay Plaintiffsan additional annuity based upon, "contributions in respect to service rendered in a category ofmembership other than the category in which [the Member] suffered the disability or incurredthe disease causing his or her retirement for industrial disability ..." (emphasis added). Militarytime, ARSC and PVSC investments constitute contributions made in a category "other than thecategory" in which the Member was disabled.

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service rendered in a category of membership" in which the Member was employed at the time

of purchase), rather that correctly characterizing the monies as contributions made in respect to

service outside of the job in which the Member was disabled, was in connection with CalPERS'

Demurrer filed in Yost on October 15, 2010.

139. CalPERS' inappropriate policy of charging Members who purchased military

time, ARSC and PVSC for expenses for IDR allowances, unfunded liability, disability

experience or other costs unrelated to funding the cost of the portion of the Member's future

service retirement attributable to that service credit, (thereby charging Members for costs which

the employers and/or the retirement system are responsible for), remained hidden until CalPERS

disclosed documents which indicated those practices no earlier than the first time CalPERS

produced discovery in the course of the litigation in the case of Robert Marzec, et al. v.

CalPERS, Los Angeles Superior Court Case No. BC461887 (hereinafter "Marzec"), starting in

January 2012. Therefore, the causes of action of Plaintiffs and all members of the proposed class

did not accrue until sometime after the commencement of Marzec.

140. At the time of their respective purchases of military time and ARSC and

continuing to the point of CalPERS' production in Marzec after January 2012, named Plaintiffs

Andert, MacLaren and Slaughter and others were unaware of the nature, extent, amount, or facts

of their injury caused by CalPERS' improper inclusion of expenses for IDR allowances,

unfunded liability, disability experience or other costs unrelated to funding the cost of the portion

of the Member's future service retirement attributable to that service credit. It is difficult for

Plaintiffs to immediately detect or comprehend the overcharging, violations, breach or resulting

injuries. CalPERS provided Plaintiffs no information, explanation, or disclosure of its wrongful

pricing or overcharging for the cost of military time, ARSC and PVSC, even though CalPERS

has a fiduciary duty to do so.

141. Further, CalPERS has not only hidden its faulty accounting and illegal conduct,

but it has represented and continues to represent that accounting and conduct as lawful when in

fact it violates the PERL. Because CalPERS has been misapplying the relevant statutes, while at

the same time representing its accounting to Plaintiffs and all members of the proposed class as

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accurate and lawful, it was impossible for Plaintiffs or anyone else to discover the cause, reasons.

and mechanisms behind CalPERS' inclusion of improper charges or expenses in the price class

members were required to pay for military time, ARSC and PVSC, its failure to provide the

correct benefits, the associated seizure of Plaintiffs' optional service credit investments, and

CalPERS' refusal to refund the investment funds.

142. As a fiduciary and otherwise, CalPERS has a special relationship with its

Members. CalPERS actively encourages Members to rely on its information. CalPERS is often

the only source of information about pension benefits. Public sector workers repose great trust in

CalPERS.

143. CalPERS' has "a fiduciary duty to provide timely and accurate information to its

members" on matters related to their vested pension rights. (City of Oakland v. Public

Employees' Retirement System (2002) 95 Cal App.4th 29, 40; emphasis in original.) CalPERS

therefore knew or should have known that Plaintiffs would believe that CalPERS must be acting

within statutory authority when (i) CalPERS wrongly charged Plaintiffs expenses that were the

responsibility of the employers and/or the retirement system and (ii) CalPERS wrongly charged

monies that should not have been included in the purchase price of military time, ARSC and

PVSC, or (iii) CalPERS wrongly characterized Plaintiffs' investments in military time, ARSC

and PVSC. CalPERS intended Members to act in reliance on those representations or beliefs,

when the truth was that CalPERS itself knew or should have known that its actions were illegal

and contrary to statutory authority.

144. It was impossible for Plaintiffs or anyone else to discover the cause, reasons,

facts, and mechanisms behind (i) CalPERS' failure to provide the correct benefits, (ii) the

resulting loss or seizure of the optional service credit investments, and (iii) CalPERS' refusal to

refund the investment funds.

145. CalPERS' illegal acts and undisclosed practices concerning its wrongful

accounting for and characterization of the military time, ARSC and PVSC investments delayed

the discovery of Plaintiffs' causes of action at least until revealed in CalPERS' Demurrer in Yost.

CalPERS' illegal acts and undisclosed practices concerning its wrongful inclusion of costs the

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employers and/or the retirement system are responsible in the purchase price of military time,

ARSC and PVSC, delayed the discovery of those causes of action until CalPERS commenced

production of discovery in Marzec.

146. Thus, Plaintiffs have had no viable means to discover CalPERS' improper

characterization of the contributions paid for the purchase of military time, ARSC and/or PVSC

until, at the very earliest, CalPERS' October 15, 2010, revelation of its characterization in Yost,

and no viable means to discover CalPERS improper pricing of military time, ARSC and PVSC

until, at the very earliest, CalPERS' production of documents in Marzec starting in January 2012.

147. The discovery rule indefinitely delays accrual of a cause of action until the

plaintiff discovers or reasonably has cause to discover the facts constituting it. (Samuels v. Mix

(1999) 22 Ca1.4 th 1.) The delayed discovery also delayed the accrual of Plaintiffs causes of

action. (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Ca1.4th 797.)

148. Further, "[d]elayed accrual of a cause of action is viewed as particularly

appropriate where the relationship between the parties is one of special trust such as that

involving a fiduciary ... relationship." (Moreno v. Sanchez (2003) 106 Cal.App.4 th 1415, 1424.)

149. CalPERS' fiduciary duties to Plaintiffs. Further, the statute of limitations does

not run because CalPERS owes a fiduciary duty to Plaintiffs. (In re Cary's Estate (1928) 203

Cal. 335.)

150. A portion of the Plaintiffs are actively working, but bought or will buy military

time, ARSC or PVSC at a cost greater than required to fund the additional service benefit.

Because of CalPERS' policy and practice, those Plaintiffs will receive retirement allowances that

provide them with a reduced portion of the additional pension benefits promised in exchange for

their purchase of military time, ARSC or PVSC. Hence, a portion of their pension-related claims

have not yet fully accrued.

151. A portion of the Plaintiffs are retired on a service retirement (or a service pending

disability retirement), but bought or will buy military time, ARSC or PVSC at a cost greater than

required to fund the additional service benefit.

152. A portion of the Plaintiffs are retired on a disability or IDR retirement (or a

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service pending disability retirement), but bought or will buy military time, ARSC or PVSC at a

cost greater than required to find the additional service benefit.

153. A portion of the Plaintiffs have already retired from CalPERS service due to a

disability. Because of CalPERS' policy and practice, those Plaintiffs are also receiving retirement

allowances that provide them with none, or at most only a reduced portion, of the additional

pension benefits promised in exchange for their purchase of military time, ARSC or PVSC. They

have been harmed and will continue to be harmed into the future unless and until CalPERS'

policy and practice are corrected.

154. All Plaintiffs are entitled to the frill value or benefit of the monies they have

contributed to CalPERS to purchase military time, ARSC or PVSC and will elect their remedies

at time of trial, including but not limited to seeking restitution, or compensation for the

difference between that full value and the lesser value they are actually receiving, or will in the

future receive, in their respective retirement allowances.

155. Government Code section 20160(b) provides CalPERS with the statutory

authority and imposes upon it the statutory obligation to correct all actions taken as a result of

errors and omissions by CalPERS.

156. CalPERS is causing continuing, repeated, and future harm. CalPERS is

causing, and will continue to cause, a continuous and repeated course of conduct causing

Plaintiffs and the proposed class harm and damages. (See, Lee v. Los Angeles County

Metropolitan Transportation Authority (2003) 107 Cal.App.4th 848, 858.)

157 Each month, CalPERS underpays or fails to pay disabled Plaintiffs an additional

annuity. (Government Code, §21420.) Each month, CalPERS fails to return the money it

wrongly charged Plaintiffs at the time they purchased military time, ARSC and/or PVSC Each

month, CalPERS fails to provide Plaintiffs with disclosure, an accounting, legal authority, or

substantial information to inform them of a seizure or forfeiture of the portion of their military

time, ARSC or PVSC investment that they were wrongly charged.

158. Each month, CalPERS underpays or fails to pay disabled Plaintiffs an "increased"

allowance associated with the military time, ARSC or PVSC purchase. Each month, CalPERS

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"seizes" a portion of the disabled Plaintiffs' military time, ARSC or PVSC investment. Each

month, CalPERS "offsets" or applies to the employers' accounts a portion of the disabled

Plaintiffs' military time, ARSC or PVSC investment, whether labeled as "normal contributions"

or otherwise Each month, CalPERS causes some of the proposed class to continue to pay the

installment or purchase contracts, even after they have suffered an IDR and it has been

determined that they will receive only a portion of the additional retirement benefits they

contracted for as part of said installment or purchase contracts. Each month, CalPERS fails to

provide disabled Plaintiffs with notice, hearing, or due process to effect a seizure or forfeiture of

their military time, ARSC or PVSC investment. Each month, CalPERS fails to provide disabled

Plaintiffs with disclosure, an accounting, legal authority, or substantial information to inform

them of a seizure or forfeiture of their military time, ARSC or PVSC investment.

159 Each month, CalPERS underpays or fails to pay disabled Plaintiffs' IDR

allowance. Each month, CalPERS "seizes" a portion of the disabled Plaintiffs' IDR allowances.

Each month, CalPERS "offsets" or applies to the employers' and/or the retirement system's

accounts a portion of the disabled Plaintiffs' money or IDR allowance entitlement. Each month,

CalPERS fails to provide disabled Plaintiffs with notice, hearing, or due process to affect a

seizure or forfeiture of part of their IDR allowance or other funds Each month, CalPERS fails to

provide disabled Plaintiffs with disclosure, an accounting, legal authority, or substantial

information to inform them of a seizure or forfeiture of their IDR allowance.

160. Continuing right. Disabled Plaintiffs have a continuing right to receive (i) a

refund of all wrongly paid portions of their military time, ARSC and PVSC investments, (ii)

their full IDR allowance if they have retired on IDR; (iii) their additional annuity under

Government Code section 21420 attributable to their military time, ARSC and PVSC investment

(iv) their full pension, disability, benefit, or allowance, and (v) their full military time, ARSC or

PVSC benefit. CalPERS violates disabled Plaintiffs' continuing rights each month by reducing

their IDR benefits, failing to pay their additional annuity, and failing to pay their additional

military time, ARSC and PVSC benefit in an amount above their full IDR allowances. The

statute of limitations commences to run on each installment when that installment falls due and is

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unpaid. A cause of action or damage occurs when each installment falls due and is unpaid.

161. CalPERS' continuing breach of duty. CalPERS never informs class members

that it is failing to account for the contributions correctly, overcharging, and/or failing to

correctly credit or causing them to forfeit their military time, ARSC or PVSC investment.

CalPERS never provides notice, due process, or a hearing either to establish the level of the

benefit or to cause a forfeiture. (Government Code, §20151.)

162. CalPERS' continuing breach of purchase and installment contracts. CalPERS

overcharges Plaintiffs a half percent for installment payments and by including unrelated

employer expenses in the purchase price. CalPERS has breached its continued duty to pay

Plaintiffs a monthly "increased" benefit. The breach of contract arises at the time for

performance, which is monthly The military time, ARSC and PVSC purchase contracts are

wholly statutory and the terms of the purchase contracts incorporate the PERL, including the "no

statute of limitations" terms of Government Code sections 20160-20164. (Government Code,

§20122.). The IDR contracts or entitlements are wholly statutory, due monthly, and without a

statute of limitations. No statutory authority allows CalPERS to let Members purchase additional

service credit in the job that Member currently holds, so CalPERS cannot legally characterize the

military time, ARSC or PVSC investments as "normal contributions" in the job that the Member

holds at the time of purchase. No authority allows CalPERS to offset the IDR allowance, charge

a one-half percent premium (contrary to IRC regulations and laws), and include employer or

system costs unrelated to the additional service credit.

163. No consent to VCGCB or Government Claims Act statute of limitations.

Although they have filed claims under protest and with a reservation of rights with the Victim

Compensation and Government Claims Board ("VCGCB") as CalPERS has insisted, neither

Andert nor MacLaren nor Slaughter, on their own behalf and on behalf of all others similarly

situated, consents nor submits to the Government Claims Act or the VCGCB's jurisdiction,

statutes of limitations, presentation of claims, nor to the validity or applicability of the

Government Claims Act statutes (Government Code sections 900, et seq.) to this matter.

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GOVERNMENT CLAIM PRESENTATION OF CLASS CLAIM

164. Under protest and with a reservation of rights, Andert, individually and in a

representational capacity for all others in the class identified herein, filed a Government Claim

with the VCGCB and paid the $25 filing fee on or about August 11, 2011.

165. By letter dated September 23, 2011, the VCGCB notified counsel for Andert that

the VCGCB rejected his claim at its hearing on September 15, 2011.

166. Although the VCGCB earlier notified counsel for Andert by letter dated August

29, 2011, that Andert's claim "is being accepted only to the extent it asserts allegations that arise

from facts or events that occurred during the six months prior to the date it was presented",

Andert contends that the time period for presentation of his claim, if required, is one year from

accrual of his cause of action. He is not asserting a claim "relating to a cause of action for death

or for injury to person or to personal property or growing crops" which requires presentation

within six months of the accrual of the cause of action. (Government Code section 911.2.)

Instead, he is asserting a claim for CalPERS accounting malfeasance which is wholly unrelated

to physical injury. The disabilities underlying these matters are already separately adjudicated

and not in dispute.

167. Under protest and with a reservation of rights, MacLaren, individually and in a


with the VCGCB and paid the $25 filing fee on or about September 1, 2011. Again under protest

and with a reservation of rights, MacLaren, individually and in a representational capacity for all

others in the class identified herein, filed an Amended Government Claim with the VCGCB and

paid the $25 filing fee on or about October 12, 2011.

168. By letter dated October 28, 2011, the VCGCB notified counsel for MacLaren that

the VCGCB rejected his claim at its hearing on October 20, 2011.

169. Although the VCGCB earlier notified counsel for MacLaren by letter dated

September 7, 2011, that MacLaren's claim "is being accepted only to the extent it asserts

allegations that arise from facts or events that occurred during the six months prior to the date it

was presented", MacLaren contends that the time period for presentation of his claim, if required

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is one year from accrual of his cause of action. He is not asserting a claim "relating to a cause of

action for death or for injury to person or to personal property or growing crops" which requires

presentation within six months of the accrual of the cause of action. (Government Code section

911.2.) Instead, he is asserting a claim for CalPERS accounting malfeasance which is wholly

unrelated to physical injury. The disabilities underlying these matters are already separately

adjudicated and not in dispute

170. Under protest and with a reservation of rights, Slaughter, individually and in a


with the VCGCB and paid the $25 filing fee on or about August 31, 2011. Again under protest

and with a reservation of rights, Slaughter, individually and in a representational capacity for all

others in the class identified herein, filed an Amended Government Claim with the VCGCB and

paid the $25 filing fee on or about October 12, 2011.

171. On or about October 12, 2011, Slaughter also presented the VCGCB with a

"Request for Leave to File Late Claim", making clear that (i) he did not think a six month

presentation deadline applied, but (ii) if the VCGCB felt that it did, Slaughter requested leave to

file a late claim.

172. By letter dated October 28, 2011, the VCGCB notified counsel for Slaughter that

the VCGCB had denied his request for leave to present a late claim at its hearing on October 20,

2011.

173. Concurrent with the filing of the instant class action lawsuit, Slaughter is timely

petitioning the Superior Court to either determine that the applicable claims presentation

deadline for presenting his claim pursuant to Government Code section 911.2 was within one

year of accrual of his cause of action, not six months; or in the alternative petitioning the

Superior Court pursuant to Government Code section 946.6 to be relieved of the provisions of

Government Code section 945.4, should the court determine that he was required to present his

claim within six months of accrual of his cause of action, rather than within one year of accrual.

174. Pursuant to Government Code sections 912.4 and 912.8, the VCGCB was

mandated to act on Slaughter's claim within 45 days of his submission of his amended claim or

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the amended claim would automatically be deemed to have been rejected by the VCGCB. That

45 day period expired on or about November 26, 2011. No action to accept or reject Slaughter's

claim was taken by the VCGCB by November 26, 2011. Therefore, Slaughter's claim has been

deemed rejected by operation of law.

175. At the earliest, the claims of Andert, MacLaren and Slaughter and those of all

other members of the proposed class accrued within less than the a year of the filing of the

instant action because none of them discovered or could have discovered CalPERS 1 improper

characterization of their investments in military time, ARSC and/or PVSC until CalPERS

disclosed this fact in the course of the Yost v. CalPERS lawsuit. In the alternative, the claims of

Andert, MacLaren and Slaughter and all other members of the proposed class accrued since the

initiation of the litigation in Marzec because none of them discovered or could have discovered

CalPERS' improperly charging them expenses unrelated to funding future service retirement(s)

until CalPERS produced documents in the course of Marzec.

176. Andert, MacLaren and Slaughter do not consider the legal issues in this claim to

relate to death or personal injury. For example, there is no claim for personal injury. There is a

claim for CalPERS accounting malfeasance which is wholly unrelated to physical injury. The

disabilities underlying these matters are already separately adjudicated and not in dispute.

177. Although the requirement to present is in controversy, a single class

representative may comply with the purported presentation requirements to maintain a class

action (City of San Jose v. Superior Court (Lands Unlimited) (1974) 12 Ca1.3d 447, 457).

178. Andert, MacLaren and Slaughter identify and make ascertainable the class. For

additional distinguishing features, we incorporate all terms in this Complaint.

179. The circumstances of the occurrences are (i) CalPERS is failing to disclose

sufficient information in the promotional material and contracts about the fact that it improperly

includes expenses for IDR allowances, unfunded liability, disability experience or other costs

unrelated to funding the cost of the portion of the Member's future service retirement attributable

to that service credit in the purchase price charged Members for military time, ARSC and PVSC;

(ii) the consequences of taking an IDR after purchasing military time, ARSC, or PVSC; (iii)

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CalPERS is incorrectly accounting for the optional benefit contributions; (iv) CalPERS is

transferring some or all of the military time, ARSC, or PVSC monies to the employers' and/or

the retirement system's benefit; (v) the class members are not receiving full value for their

military time, ARSC, or PVSC purchase, (vi) disabled Members are not receiving full value for

their IDR; (vii) CalPERS is breaching its contracts, its fiduciary duties and its accountings; (viii)

and related wrongs and causes of action as described in this Complaint.

EXEMPTION OR EXCUSE FROM GOVERNMENT CLAIM PRESENTATION

180. Andert, MacLaren and Slaughter, on their own behalf and on behalf of all others

similarly situated, present this claim under protest with a reservation of rights. Andert, MacLaren

and Slaughter, on their own behalf and on behalf of all others similarly situated, do not

necessarily agree or believe that (i) the causes of action need to be presented to the VCGCB, (ii)

Government Code sections 900, et seq. apply, (iii) the claims presentation requirements to the

agency apply, (iv) CalPERS retains jurisdiction, or (v) the administrative remedies need to be

exhausted. In presenting these claims under protest to the VCGCB, Andert, MacLaren and

Slaughter and all others have not waived and are not waiving any rights, including related to any

purported statute of limitations or other bars or limitations, to be excused from compliance with

the claim presentation requirement and/or excused from claims presentation, exhaustion or-

administrative appeals, and excused therefrom the administrative process, as further alleged

below. They do not consent to VCGCB jurisdiction.

181. More specifically, Andert, MacLaren and Slaughter and all others similarly

situated reserve and maintain (i) their right to require CalPERS to correct its errors over the

lifetime of the member so as to require CalPERS to make each Member financially whole and

(ii) their right to not be barred by any statute of limitations related to VCGCB claim presentation

when CalPERS owes a member money, or (iii) the right to be free of any other impediment,

limit, reduction, or diminution associated with the Government Claims Act.

182. Andert, MacLaren and Slaughter and the other Plaintiffs are exempt from the

requirement to present the claims herein to the VCGCB because:

183. CalPERS acts as a bailee or fiduciary;

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184. CalPERS has a functionally equivalent claims process with no statute of

limitations;

185. Statutory violations claims do not have to be presented (or have in substance been

presented) as described in this section, below; and

186. Breach of contract claims do not have to be presented (or have in substance been

presented) and as additionally described in this section, below, because the military time, ARSC

and PVSC purchase and installment contracts incorporate (i) the PERL's Government Code

section 20164(b)(2) and (ii) CalPERS' hearing process through the OAH. The GA11 process does

not allow for class wide relief so the claims in this First Amended Complaint are excused by the

nature of its being a class action. Case law includes breach of contract in the Government Code

section 905(f) exemption. (Blue v. Los Angeles Unified School Dist. (1994) 26 Cal.App.4th Supp.

12.)

187. Government Code exemptions. Government Code sections 905.2(b)(1) and

905.2(b)(4) exempt this claim from such presentation:

a) CalPERS has a fund available to satisfy this claim, CalPERS is required

by statute to fix these errors, and CalPERS is required by the Constitution and statute to

be responsible for administration of the pension system and to establish a separate

hearing process to resolve errors over the life time of the Member. In the Government

Claims Act, Section 905(b)(1) excludes CalPERS pension claims and only mandates that

claims must be presented to the VCGCB "for which no appropriation has been made or

for which no fund is available but the settlement of which has been provided for by

statute or constitutional provision." (Government Code, §905(b)(1), emphasis added.)

Specifically, CalPERS is a self-funded state agency, generating its funding through

mandatory contributions by its Members and CalPERS-contracting employers, as well as

investment earnings. Further, the CalPERS Board of Administration has plenary authority

over the retirement fund (California Constitution, Art. XVI, §17) and exclusive control of

the administration and investment of the retirement fund (Government Code, §20171).

Thus, CalPERS (i) does have the funds available to settle the claims herein and (ii) the

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settlement of such claims has been provided for by both statute and constitutional

provision, exempting the instant claims from presentation to the VCGCB.

b) CalPERS is also required by law to fix its errors and pay the correct

benefit to Plaintiffs. (Government Code, §20160.) The Government Claims Act excludes

the claims in this First Amended Complaint. Section 905.2(b)(4) states that claims must

be presented to the VCGCB "for which settlement is not otherwise provided for by

statute or constitutional provision." (Government Code, §905.2(b)(4), emphasis added.)

The settlement of the claims herein has been provided for by both statute and

constitutional provision, exempting the instant claims from presentation to the VCGCB.

188. Government Code section 905(1) exempts "applications or claims for money or

benefits under any public retirement or pension system" from the presentation requirements.

Clearly, CalPERS is a public retirement system and thus these claims are exempt.

189. CalPERS acts as bailee; return of optional service credit investments does

not require Government Claims Act filing under Minsky v. City of Los Angeles. The legal

and equitable causes of action for rescission, accounting, and restitution claims do not have to be

presented (or have in substance been presented), as described in this section, below, and because

they seek the return of specific military time, ARSC, PVSC, and monetary contributions propert

from CalPERS, including from CalPERS as trust. (Minsky v. City of Los Angeles (1974) 11

Ca1.3d 113, quoted in City of Stockton v. Superior Court (2007) 42 Ca1.4th 730.)

190. Andert, MacLaren, Slaughter and the other Plaintiffs are beneficiaries, and

monies associated or paid into CalPERS for military time, ARSC or PVSC are pursuant to trust

arrangements. (See, Bertone v. City & County of S.F. (1952) 1 1 1 Cal.App.2d 579, 588.) The fact

alleged herein are sufficient to support a claim for specific recovery of the military time, ARSC

or PVSC sums overcharged, misaccounted for, seized and allegedly wrongfully withheld from

Plaintiffs. (See, Visher v. Smith (1891) 91 Cal. 260, 263-264.)

191. The portion of the price Plaintiffs were charged for the for military time, ARSC

and PVSC that is attributable to an employer's unrelated costs, including for IDR, unfunded

liability, disability experience or other costs separate from funding the cost of the Member's

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future service retirement, are monies that CalPERS has wrongly charged Plaintiffs. Those excess

payments, plus interest, constitute the personal property of Plaintiffs which is being held by

CalPERS as bailee.

192. CalPERS is a fiduciary that has overcharged Plaintiffs. It holds the money as a

bailee in trust.

193. If a disabled Member retires on IDR, then Section 21420 mandates that his or her

investment in military time, ARSC and/or PVSC (plus any accrued interest) becomes that

Member's personal property, to be returned to the Member over time in the form of an annuity

but based specifically on those investment sums.

194. Governmental officers who seize property bear the duty to provide a receipt, to

safeguard, and to pay and deliver such property. CalPERS has failed to appropriately safeguard

and deliver the military time, ARSC and PVSC contributions because it has characterized them

(and continues to characterize them) as contributions in the job held at the time of purchase. As

Plaintiffs restitution, statutory violations, and other causes of action claim, CalPERS caused an

unlawful statutory seizure and CalPERS has a duty to return seized property, including a duty

enforceable under mandamus. (City of Stockton v. Superior Court, supra, at 743.) The restitution,

statutory violations, and other claims are not subject to the presentation requirements in

Government Code sections 900, et seq. (Minsky v. City of Los Angeles, supra, at 119.)

195. Constitutional and equitable claims. The constitutional causes of action for due

process and equal protection do not have to be presented (or have in substance been presented)

described in this section, below, and because an administrative agency has no jurisdiction to hear

constitutional issues or declare a statute unconstitutional.

196. To illustrate facts demonstrating or excusing compliance with the claim

presentation requirement of the California Government Claims Act or other administrative

processes, Plaintiffs' request for damages or money was incidental to a transcendent interest in

statutory, equitable, constitutional, declaratory, injunctive, and contract relief for the whole class.

197. CalPERS has its own administrative remedies that are "functionally

equivalent" to those of the VCGCB. CalPERS is contradictory in requiring the claims herein to

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be first submitted to both (1) the VCGCB (as an attempt to incorporate more limited statute of

limitations) and (2) CalPERS' agency jurisdiction. Once a claim is filed in the VCGCB, the

VCGCB retains jurisdiction and their final decision is made by a three person VCGCB board.

(Government Code, §13959, 2 CCR §619.2.) If the VCGCB claim is rejected or appealed, the

only jurisdiction is in the Superior Court. (Government Code, §13960.)

198. CalPERS' actions and established processes demonstrate or excuse compliance

with the claim presentation requirement of the California Government Claims Act or other

administrative processes.

199. Pension claims involve the payment of money. CalPERS requires that

administrative hearings shall be conducted in accordance with the provisions of Chapters, Part

1, Division 3, Title 2 of the Government Code. (2 CCR, §555.1, Government Code §§11500-

11529.) All CalPERS hearings are required to be conducted by administrative law judges (ALJs)

on the staff of the Office of Administrative Hearings (OAH). (Government Code, §11502(a).) In

the CalPERS administrative process, the OAH and an AU hold a hearing and the CalPERS

Board approves the Proposed Decision. (Government Code, §11523.) CalPERS' adopted process

does not require VCGCB presentation. The hearings and settlement provided by CalPERS is the

"functional equivalent" to the claims process provided by the VCGCB and the Government

Claims Act and thus presentation of the claims herein to the VCGCB is not required. (Lozada v.

City and County of San Francisco (2006) 145 Cal.App.4th 1139, 1153.)

200. Exceptions to the Government Claims Act arise in "a statute or statutory scheme

that includes a functionally equivalent claim process". (Gatto v. County of Sonoma, (2002) 98

Cal.App.4th 744, 764.) CalPERS' process is "functionally equivalent" to that of the VCGCB:

a) CalPERS has plenary authority and exclusive control over pension system

administration (California Constitution, Art. XVI, §17);

b) CalPERS has established fiduciary duties to the membership (Government

Code, §20151);

c) CalPERS exclusively determines membership and benefits (Government

Code, §§20120, 20123, 20125);

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d) The CalPERS Board must determine all issues of membership,

contributions, service credit, benefits, and death benefits (Government Code, § §20280-

21635.5);

e) No statute of limitations applies when CalPERS owes a Member money

(Government Code, §20164(b)(2));

f) CalPERS must correct the system's errors and omissions throughout the

lifetime of Members-beneficiaries (Government Code, §§20160, 20164);

g) CalPERS conducts hearings to determine any right, benefit or obligation

(Government Code, §20134, CCR §555.1);

h) CalPERS hearings are subject to the APA (Government Code, §§11500, et

seq.);

i) CalPERS has adopted specific additional detailed Regulations for hearings

on all claims for pension rights and benefits (2 CCR, §§555-555 4); and

j) CalPERS' final decisions are subject to Superior Court writ review within

30 days of becoming final (Government Code, §11523).

201. However, CalPERS' exclusive hearing process under Government Code sections

11500-11529 does not provide for class wide relief or representative actions, restricting relief to

one or more named person(s). (Government Code, §11500(c).) A class action aggregating

individual claims does not change the nature of the claims or the statute of limitations. However,

as a result of CalPERS defective OAH process, since the present claims seek class wide relief,

the Plaintiffs' claims are excused from the CalPERS administrative process because it cannot

provide relief. The proper jurisdiction is the Superior Court.

202. Under protest, Andert, MacLaren and Slaughter, individually and behalf of the

class, each filed claims with the VCGCB and each paid their $25 fee, satisfying presentation to

the Government.

203. Plaintiffs have satisfied or will satisfy the requirements of CalPERS'

functionally equivalent claims process. The California Law Revision Commission which

recommended enactment of what became the GCA said the claims presentation requirements of

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the GCA serve two basic purposes.

First, they give the governmental entity an opportunity to settle just claims beforesuit is brought. Second, they permit the entity to make an early investigation ofthe facts on which a claim is based, thus enabling it to defend itself against unjustclaims and to correct the conditions or practices which gave rise to the claim.

4 Cal. L Rev'n Comm'n Reports 1008 (1963), cited in Cal. Gov't Tort Liab. Prac.,4th Ed., §5.6.

204. It has also been held that:

[Government Claims Act claim filing] requirements are intended to give thepublic entity the opportunity to investigate the factual basis of the claim while theevidence is fresh, to settle meritorious cases without litigation, and to consider thefiscal implications of potential liability. [Citations omitted.]

(Barkley v. City of Blue Lake (1996) 47 Cal.App.4th 309, 316.)

205. As soon as the instant class action is filed, Plaintiffs will concurrently (i) serve the

Summons, this Complaint for Damages, and all other relevant documents on defendants

CalPERS and the Board of Administration of CalPERS and (ii) also serve a courtesy copy of

those papers on CalPERS' General Counsel Peter Mixon, together with a cover letter staying any

prosecution of the instant action for thirty (30) days, to give CalPERS an opportunity to review

the law and facts in order to settle the case. The 30-day stay on litigation pending settlement

discussions exactly matches the 30-day period CalPERS gives claimants in its administrative

process to formally appeal CalPERS' denial of a claim for rights or benefits or forever lose their

appeal rights. (CCR, §555.1.)

206. By these actions, Plaintiffs will accomplish the precise purposes of the

Government Claims Act, to wit: affording CalPERS the opportunity to conduct an early

investigation into facts alleged in the Complaint for Damages and to explore the possibility of

early settlement of the case before the commencement of expensive litigation.

207. Moreover, CalPERS' administrative process has left Plaintiffs with no alternative

but to file suit in Superior Court and then immediately thereafter provide notice to CalPERS

with an opportunity to settle. If Plaintiffs were to present their claims to CalPERS prior to filing

suit, they would be consenting to CalPERS' adjudication through CalPERS' limited jurisdiction.

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(Stuck v. Board of Medical Examiners of State (1949) 94 Cal.App.2d 751; 2 Cal.Jur.3d,

Administrative Law §445.)

208. However, CalPERS' administrative process is incapable of providing for class

relief (Rose v. City of Hayward (1981) 126 Cal.App.3d 926.) CalPERS' has not established a

"right to sue" process for class actions. So in practical effect, submitting to CalPERS

adjudication would be voiding or extinguishing Plaintiffs' class allegations by consenting to an

administrative forum that could not adjudicate class claims.

209. Thus, Plaintiffs have (i) complied with CalPERS' administrative claims

presentment process and (ii) satisfied the Government Claims Act by presenting their claim to

CalPERS' "finictionally equivalent" claims process, but (iii) are excused from adjudicating their

claim in that "functionally equivalent" claims process because CalPERS' process is incapable of

handling claims,of unnamed parties and class claims.

210. Finally, Plaintiffs assert that the Legislature specifically intended claims under

CalPERS' "functionally equivalent" system to be made at any point during the lifetime of the

Member-beneficiaries. (Government Code, §20164(a).)

ADMINISTRATIVE REMEDIES

211. Plaintiffs' claims cannot be adequately addressed through administrative

remedies. VCGCB Administrative remedies can at most provide relief concerning claims of tort,

not constitutional or equitable claims. OAR administrative remedies provided by CalPERS can

determine statutory, contract, and interpretation relief Most of the claims in this Complaint are

statutory, constitutional, or equitable claims which could only be resolved in a court of law.

212. CalPERS has insisted that Plaintiffs comply with two mutually exclusive

administrative remedies. CalPERS asserts that Plaintiffs are required to file a claim with the

VCGCB and obtain a rejection before proceeding with the instant action in Superior Court.

However, CalPERS also asserts that it has primary jurisdiction, not the VCGCB. By filing a

claim with the VCGCB and obtaining a rejection, Plaintiffs' only remedy would be to then file an

action in the appropriate court of law. CalPERS would be barred from asserting jurisdiction at

that point.

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213. Exhaustion of administrative remedies not required. In a case involving

CalPERS, the court held that "plaintiffs in a class action need not exhaust their administrative

remedies prior to instituting judicial proceedings where the administrative remedies available to

the plaintiffs do not provide for class relief" (Rose v. City of Hayward, supra. See also, Code of

Civil Procedure, §382.)

214. No plaintiff need exhaust the remedies before litigation may proceed in a putative

class action. (Tarkington v. California Unemployment Ins. Appeals Bd (2009) 172 Cal.App.4th

1494, rehearing denied.)

215. Exhaustion of administrative remedies not applicable. In addition, the doctrine

of exhaustion of administrative remedies does not apply because (i) CalPERS cannot provide an

adequate remedy, (ii) the availability of class remedy lies outside CalPERS' jurisdiction; (iii)

pursuit of an administrative remedy would result in irreparable harm to those already injured and

in need of their higher allowances because the adjudication of small individual cases would be

prohibitive; (iv) unrepresented parties cannot directly participate or benefit from an

administrative hearing process, (v) the recovery of attorney fees from the agency are limited in

administrative actions; (vi) the constitutional, declaratory relief, and equitable relief cause of

actions cannot be adjudicated in the administrative process and (vii) it would be futile to pursue

such a remedy because CalPERS has already tried to require the Plaintiffs to file with the

VCGCB rather than CalPERS. (In Re Electric Refund Cases (2010) 184 Cal.App.4 th 1490.)

216. CalPERS' administrative remedies do not provide class-wide relief or for

representative actions. Rather, CalPERS' statutory authority to conduct administrative hearings

involving pension rights of Members is limited to claims of explicitly named individuals, not a

class of claimants, as indicated in the clear language of Government Code section 20134 which

states that CalPERS may "hold a hearing for the purpose of determining any question presented

to it involving any right, benefit, or obligation of a person under this part." (Emphasis added)I2

12 CalPERS has disputed this, asserting that it has the authority and ability to handleclaims of multiple named claimants and citing to In the Matter of Abbond, et aL and City ofHuntington Beach, CalPERS Precedential Board Decision No. 99-02. However, while that case

•COMPLAINT FOR DAMAGES, EQUITABLE RELIEF,

RESCISSION, AND INJUNCTIVE RELIEF

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217. Lastly, no law exists that allows CalPERS to reduce either the military time,

ARSC or PVSC benefit or the disability allowance. As such, there is no administrative action

required because CalPERS cannot apply existing law to these facts and fashion a remedy.

(Howard v. County of San Diego (2010) 184 Cal.App.4th 1422.)

BACKGROUND

218. The background involves (i) a description of the Internal Revenue Code sections

that underlie optional service credit, (ii) a description of CalPERS' enticements to purchase

military time, ARSC and PVSC options; (ii) the applicable CalPERS allowances payable,

including under industrial disability retirement; (iii) CalPERS' wrongful accounting for the

monies invested in the purchase of military time, ARSC and PVSC as contributions associated

with the position worked by the Member at the time of purchase, rather than as contributions

associated with membership other than such service; (iv) CalPERS' practice of providing an

annuity for prior contributions except in this case; (v) CalPERS' failure to disclose that (a)

CalPERS will not refund a Member's lump sum payment or installment payments made to

purchase military time, ARSC or PVSC options if a Member receives an IDR allowance, and (b)

CalPERS will pay no additional benefit, or at most only a reduced portion of the additional

benefit, purchased under the military time, ARSC or PVSC options if an IDR allowance is also

paid; and (vi) CalPERS' policy and practice of either (a) denying the additional promised pensio

benefits or (b) reducing the Member's IDR allowance.

Internal Revenue Code Sections

219. Governed by federal law and regulations, CalPERS violates the IRC section 26

US.C. §415(n)(3)'s requirements for "permissive service credit".

220. CalPERS provides no additional benefit. Although federal law requires that the

involved numerous claimants, every single individual claimant in the action was explicitlynamed and represented. A class action such as the instant lawsuit, however, involves claims onbehalf of similarly situated individuals who are not yet named and in fact could not be namedunless CalPERS identified all individuals who meet the class definition. As noted above, Rose v.City of Hayward, supra, holds that CalPERS' administrative remedies do not provide for classrelief.

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Plaintiffs investment must be recognized for purposes of calculating a benefit, CalPERS fails to

provide a commensurate additional benefit (i) for the overcharged amounts; (ii) for the one-half

percent installment payments fee, and (iii) for all or part of the military time, ARSC or PVSC

purchase. For the disabled Plaintiffs, CalPERS does not calculate nor provide a benefit in

connection with some or all of their service credit purchase. (26 US.C., §415(n)(3).)

221. CalPERS not allowed to charge Members for an existing, vested benefit.

CalPERS is providing the disabled Plaintiffs with a benefit that they are already entitled to under

the retirement plan Briefly, Plaintiffs vested in IDR upon first employment, before purchasing

the service credit. The disabled Plaintiffs are only receiving the IDR benefit that they were

already entitled to under the retirement plan. Plaintiffs who paid a premium in the purchase price

that is associated with unrelated employer costs are also paying for a benefit that they would

already be entitled to under the retirement plan. Although federal law requires that a purchased

benefit must not be a benefit that the participant has already received under the plan, CalPERS is

doubly or more charging Plaintiffs for the IDR benefit that they are already were entitled to and

vested in. (26 U.S.C., §415(n)(3). )

222. CalPERS not allowed to charge Members for already credited service or

benefits. The IRS allows making contributions only for periods of service not previously

credited by retirement plan. The IRS does not allow funding or offsetting a vested IDR benefit.

(IRS Private Letter Ruling ("PLR") 200126042.) "Permissive service credit" relates to an actual

period of service for which the employee has not yet been credited with performing service.

(PLR 200617038, page 6; see also PLR 200224034, page 7.) Plaintiffs did not voluntarily buy

service credit to offset their employer's existing or fi gure IDR or other employer responsibilities

unrelated to the service purchased.

223. CalPERS' certification. When ARSC was first introduced, CalPERS required

each Member to certify that the time purchased was in employment outside the current job and

outside the retirement system. See, for example, the exemplar "Employment Certification and

Your Payment Options" form attached hereto as Exhibit 20.

224. Exceeds amount necessary to fund the benefit. Section 4I5(n)(3) requires that

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the cost of the "permissive service credit" investment be calculated in an amount just necessary

to fund the increased service or annuity benefit. Although federal law requires that the

participant must make a voluntary contribution which does not exceed the amount necessary to

fund the additional benefit, CalPERS charges Plaintiffs a great deal and Plaintiffs receive little or

nothing extra for the purchased benefit. (26 USC., § 415(n)(3).)

225. Cost. If the amount of the funds being transferred or rolled over purchases either

more or less than the actuarial equivalent service credit, such purchase may raise other

qualification requirements. (PLR 200411051, page 5.)

226. CalPERS likely includes a share of the employers' and/or the retirement system's

unrelated costs, such IDR, disability or other employer liability, in the purchase price. In

charging for the extra one-half percent for installment payments (which also are increased by the

cost of interest), CalPERS charges a fee that exceeds the amount necessary to fund the benefit. In

misaccounting for and later seizing the benefit, CalPERS exceeds the amount necessary to fund

the benefit. In many cases, there is no benefit associated with the purchase so that cost should be

zero (i.e., CalPERS should refund the entire purchase price). In failing to provide an annuity,

CalPERS exceeds the cost of funding a benefit.

227. Disability refunds okay. In case of disability, the IRC allows the retirement

system to stop Members' payments for purchases and grant partial service credit. Extra

contributions will be refunded. (PLR 200126042, p. 6.)

228. 457 Roll-oven. The federal government allows roll-overs from 457 plans with an

intent to provide the retirees with more significant retirement benefits for employees, not fewer.

CalPERS must separately account for any 457 roll-over it receives. (Section 1.457-10(e) [PLR-

159315-04, 200524016, page 8].)

229. CalPERS must hold in trust for the exclusive benefit of participants and their

beneficiaries all assets and rights purchased with such deferred compensation amounts (emphasis

added). (Section 457(g) [PLR-159315-04, 200524016, page 9; PLR-138800-09, page 4].)

230. If the Plaintiffs used money from their 401(k) plans to purchase the military time,

ARSC or PVSC, the accrued benefit derived from the Member's own contributions must be non-

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forfeitable. (29 U.S.C., §1053.)

California Public Employees' Retirement System (CalPERSI

231. CalPERS was established by state law in 1932. Pursuant to Article XVI, Section

17(b), of the California Constitution and the PERL, CalPERS bears a fiduciary duty to its

Members.

232. CalPERS' defined benefit plans are funded by employee contributions and

investment returns, with the balance paid by the employers. Employees mandatorily contribute at

a fixed statutory rate of their earnings (ranging between 5% and 11%) as a result of their

employment with the state, a state agency, or a CalPERS-contracting entity. Earnings from

CalPERS' investment portfolio historically have contributed the bulk of the funding (75%),

although it fluctuates from year to year. Employers contribute the remaining balance of the

funding, based on CalPERS' annual actuarial valuation.

233. CalPERS membership is divided approximately in thirds among current and

retired employees of the State, schools, and participating public agencies.

234. As of lime 30, 2009, CalPERS provided pension benefits to 492,513 retirees,

beneficiaries, and survivors. Another 1,134,397 active and inactive Members are not yet retired.

Ten percent (10%) or more of CalPERS Members retire because of a disability, approximately

half of those on IDR. CalPERS had 25,150 new retirees during the 2008/2009 fiscal year.

235. CalPERS paid $11.85 billion in benefits in the 2008-2009 fiscal year. The

CalPERS investment portfolio market value was $210.2 billion as of March 31, 2010.

236. CalPERS calculates service retirement allowances based on a Member's years of

service credit, final compensation, age at retirement, and specific provisions in the contract

between CalPERS and the employer. Service credit is earned as a Member is employed by the

State of California or a contracting CalPERS agency. IDR's are determined by whether an

employee was injured on the job. IDR's pay a retiree 50% of their final compensation:3

Membership in CalPERS (and therefore the payment of regular contributions and the accrual of

13 CalPERS Members in a few specific categories have the right to an enhanced IDRunder certain circumstances. (Government Code, §§21410, 21416.)

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service credit) is mandatory for all individuals working in CalPERS-covered employment unless

excluded by other provisions of the PERL or by the entity's contract with CalPERS.

(Government Code, §20502.)

Brief History of Right to Purchase Optional Retirement Benefits

237. Beginning at least as early as the mid-1970's, CalPERS commenced offering

certain Members the optional right to purchase military time and various types of PVSC. 14

238. Background of military time statutes. The general rule is that time spent in the

armed services may be credited toward retirement. (Government Code, §§20990-21013.)

CalPERS is required to eliminate or minimize the disadvantages which can result from military

service, and to prohibit discrimination' s (including in benefits) because of military service. (38

US. C., §4301.)16 The time should be credited as "state service". (Government Code, §§19775.6,

20991.)

239. For example:

Government Code section 21024. "Public Service" — Military Service —LocalMember

(a) "Public service" with respect to a local member, other than a schoolmember, also means active service with the Armed Forces or the MerchantMarine of the United States, including time during any period of rehabilitationafforded by the United States govenunent other than a period of rehabilitation forpurely educational purposes, and for six months thereafter prior to the member'sfirst employment by the employer under this section in which he or she was amember.

(b) Any member electing to receive credit for that public service shallmake the contributions as specified in Sections 21050 and 21052. However, any

14 There is no individual right to buy additional IDR payments. Only an employer cancontract for an enhanced IDR.

15 "No member ... shall be prejudiced or injured ... with respect to that member'semployment, appointment, position or status ... by virtue of ... service in the military. As usedin this subdivision, "benefit" includes ... disability insurance." (Military and Veteran's Code, §394.)

16 A veteran is entitled to have his or her time spent in the armed forces included in thecomputation of the length of service for the purpose of qualifying for retirement in the same wayas if he or she had been on ordinary leave of absence. (Palaske v. City of Long Beach (1949) 93Cal.App.2d 120; see also Ops. Attny Gen, No. 94-516.)

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eligible member who requests costing of service credit between January 1, 2001,and December 31, 2003, may, instead of making those contributions, make thepayment calculated under this article as it read on December 31, 2000, whichpayment shall be made in the manner described in Section 21050.

(c) The public service under this section shall not include military service(1) in any period for which credit is otherwise given under this article or Article 4(commencing with Section 20990) or (2) to the extent that total credit under thissection would exceed four years.

(d) Notwithstanding Section 21034, a member may select which of two ormore periods of service entitles him or her to receive public service under thissection.

(e) This section shall apply to a member only if he or she elects to receivecredit while he or she is in state service in the employment of one employer on orafter the date of the employer's election to be subject to this section.

(f) This section shall not apply to any contracting agency nor to theemployees of any contracting agency until the agency elects to be subject to thissection by amendment to its contract made in the manner prescribed for approvalof contracts or in the case of contracts made after this section takes effect, byexpress provision in the contract making the contracting agency subject to thissection. The amendments to this section made during the second year of the 1999-2000 Regular Session shall apply to contracts subject to this section on January I,2001.17

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240. Since the 1970's, the California Legislature has added other types of PVSC

service credits. For example, Members can purchase service credit for (i) prior military and

Peace Corps service, (ii) uncompensated leaves of absence, and (iii) maternity/paternity leave.

241. No statute has ever allowed Members to purchase additional service credit in the

job that they currently hold. The PERL forbids granting credit for more than one year of service

in any fiscal year. (Government Code, §20961.)

242. Deferred Compensation Plans. CalPERS has established deferred compensation

plans.

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243. In 1995, CalPERS offered a supplemental deferred compensation plan ("CalPERS

457 Plan"). While it did not affect a Member's service credit, the CalPERS 457 Plan permitted

eligible Members to defer a portion of salary from income tax and invest the savings in

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17 Government Code sections 21006-21008, 21013, 21020.5, 21023.5, 21024, 21025.5,21027 and 21029-21031 set forth military time and various types of PVSC that CalPERSMembers are eligible to purchase. Military service time appears to be the most popular.

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the fact that contributions paid at younger ages have longer to earn compounded interest before

the member retires. In addition, factors such as compensation amount, retirement formula,

amount of COLA increases, 1 year or 3 year final compensation, and the number of years of

service the member already has at the time of purchase will affect the cost of purchase."

(Enrolled Bill Report of AB 719, State and Consumer Services Agency (i.e. CalPERS), 9/25/03,

page 2.)

In general, there are two ways of paying for the increase in retirement benefit thatresults from crediting of additional service credit. One method of paymentrequires the member to pay [only] the portion that would normally be attributableto the member's contributions and interest, and the employer pays the balance.This method 19 most commonly applies when the employer directly benefited fromthe service being purchased- such as when a member worked for the employerbefore the agency came into CalPERS, or worked part-time or seasonally prior tofull-time CalPERS-covered employment.

The other type of payment is known as the "full present value" payment. In thiscase, the member pays for the full cost of the increase in the benefit that willresult from the service credit purchase. The cost method generally applies whenan employer does not directly benefit from the member's service, such as withmilitary or Peace Corps service." Enrolled Bill Report of AB 719, State andConsumer Services Agency (i.e. CalPERS), 9/25/03. Page 3.

Program Costs. This benefit is intended to be cost neutral to employers. Themember would pay the full present value cost of the additional service credit. Thefull present value cost is calculated to be the equivalent to the cost of theincreased benefit due to the additional service credit. (Enrolled Bill Report ofAB

)20719, State and Consumer Services Agency (i.e. CalPERS), 9/25/03, page 4.

19 "The cost to the member to purchase the various forms of service credit is generallformulated around the type of service credit that is purchased. For example, if a membepurchased service credit for a leave of absence, the member would pay the contributions thahe/she would have made had he/she not been on leave (Government Code Section 211051). Ithe member purchased military service for a period prior to employment, the member is expecteto pay an amount that would be equal to the increase in liability that would result from thadditional service credit (Government Code Section 21052)." (Enrolled Bill Report, AB 719,Department of Personnel Administration, pages 2-3.)

29 "ft is possible that in some case the benefit may be more expensive than projected, sucas when a member receives a dramatic increase in compensation prior to retirement or a higheretirement formula (such as going from the 2 percent at age 50 safety formula to the 3 percent aage 50 formula). On the other hand, the benefit may be less expensive than projected, such

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249. True and correct copies of the legislative history reports quoted from above are


250. Ultimately, the Legislature enacted:

Government Code section 20909. Additional Service Credit —All Members(a) A member who has at least five years of credited state service, may

elect, by written notice filed with the board, to make contributions pursuant to thissection and receive not less than one year, nor more than five years, in one-yearincrements, of additional retirement service credit in the retirement system.

(b) A member may elect to receive this additional retirement service creditat any time prior to retirement by making the contributions as specified inSections 21050 and 21052. A member may not elect additional retirement servicecredit under this section more than once.

(c) For purposes of this section, "additional retirement service credit"means time that does not qualify as public service, military service, leave ofabsence, or any other time recognized for service credit by the retirement system.

(d) Additional retirement service credit elected pursuant to this sectionmay not be counted to meet the minimum qualifications for service or disabilityretirement or for health care benefits, or any other benefits based upon years ofservice credited to the member.

(e) This section only applies to the following members:(1) A member while he or she is employed in state service at the time of

the additional retirement service credit election.(2) A member of the system defined in Section 20324.(0 For purposes of this section, "state service" means service as defined in

Section 20069.

251. ARSC is often referred to as "nonqualified" service credit or "airtime" because it

does not correspond to any service actually performed.

252. "Additional retirement service credit" is defined as "time that does not qualifr as

public service (i.e., not the current position), military service, leave of absence, or any other time

recognized for service credit by the retirement system." (Government Code, §20909(c);

parenthetical and emphasis added.)

253. Similarly, "military time" is defined as "active service" with the Armed Forces or

the Merchant Marine of the United States or with the California National Guard. (Government

when a member dies at a young age. The factors used in fill present calculations are intendedencompass these possibilities." (Enrolled Bill Report of AB 719, State and Consumer ServiceAgency (L e. CalPERS),9/25/03, page 4.)

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Code, §§21024, 21027 and 21029.)

254. Military time, ARSC and PVSC are qualitatively different from service earned in

employment. The optional benefits are paid in respect to a different time period than service

credit earned as a consequence of employment. (Government Code, §§20909, 21006-21008,

21013, 21020.5, 21023,5, 21024, 21025.5, 21027 and 21029-21031.)

255. No statute allows CalPERS to seize the optional benefits or the contributions

made. Specifically, there is nothing in Government Code sections 21024, 20127 and 21029 (the

authorizing statutes governing military time), section 20909 (the authorizing statute governing

ARSC), or sections 21006-21008, 21013, 21020.5, 21023 Sand 21030-21031 (the authorizing

statutes governing other types of PVSC) which permits CalPERS to deny Members purchasing

military time, ARSC or PVSC the full benefit to which they are entitled.

"Cost Neutral": Purchase Price of Military Time, ARSC and Other PVSC

256. The purchase price for military time, ARSC and PVSC is set by CalPERS'

actuarial calculations relating to the increased cost of the service retirement and annuity. Military

time, ARSC and PVSC are supposed to be "cost neutral" to the pension system and the

employers. The employee pays both Member and employer contributions relating to the

increased cost of the service retirement and annuity. However, the employee is not supposed to

pay for any fees that are not associated with the increased service cost or annuity.

257. Failing the "cost neutral" requirement, CalPERS mistakenly charges the employee

to inappropriate higher share of the employer's costs in at least four ways: (1) CalPERS includes

a cost, charge, actuarial evaluation, or other increase in the investment cost which includes

amounts attributable to employers and/or the retirement system costs including IDR, unfounded

liability, disability experience, or other costs or fees unrelated to the increased service or annuity;

(2) adds a one half percentage increase for installment payments which in whole or part offsets

employer costs; (3) when an employee who purchased military time or ARSC retires on IDR,

CalPERS many times fails to properly credit or seizes some or all of the investment, and (4)

denies Plaintiffs a Section 21240 annuity for contributions made for military time, ARSC or

PVSC.

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258. CalPERS specifically allows Members to purchase military time, ARSC and

PVSC with tax-deferred funds. Members can "roll over" funds from non-CalPERS accounts like

IRAs, qualified 401(a) accounts and 401(k) accounts. (Government Code, §21050.) "Roll-overs"

are plan-to-plan distributions from a non-CalPERS retirement account into the CalPERS system.

259. In February 2004, CalPERS approved in-service transfers from 403(a), 403(b),

and 457 governmental plans to purchase military time, ARSC or PVSC.

260. A "roll-over" or "transfer" maintains the tax-deferred nature of the funds.

261. Many Plaintiffs invest in military time, ARSC or PVSC to achieve more stable

and reliable retirement income.

CalPERS' Industrial Disability Retirement Program

262. Police officers, firefighters, correctional officers, and other safety employees face

great physical danger and psychological stress. As a result, those workers suffer a greater risk of

disability.

263. In recognition of these conditions, the Legislature has provided for industrial

disability retirement (IDR). "A disability allowance ... provid[es] a means to replace

incapacitated employees 'without hardship or prejudice' to them. (s 20001.)" (Frank v. Board of

Administration (1976) 56 Cal.App.3d 236.)

264. The CalPERS retirement system provides for the payment of industrial disability

allowances to eligible Members throughout the time each Member is employed in a job

classification eligible for IDR. Every Member is thus independently insured against disability

irrespective of whether he or she buys military time, ARSC or PVSC.

265. All of the Plaintiffs were or are entitled to IDR coverage. The right to receive a

disability pension accrues immediately upon employment by the public agency. (Frank v. Board

of Administration, supra.) Each disabled Member bought his military or ARSC time after

becoming fully vested in full 1DR. The right to receive a disability pension may accrue on

disability arising as a result of service, prior to IDR determination. (Tyra v. Board of Police and

Fire Pension Com irs of City of Long Beach, supra.)

266. Class members never waived their fill IDR benefit. Class members never agreed

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to a reduction or transfer to their employer of their investments. Class members never signed

anything, were never informed, and never elected to reduce the IDR. An employee has a vested

right not merely to preservation of benefits already earned pro rata, but also, by continuing to

work until retirement eligibility, to earn the benefits, or their substantial equivalent, promised

during his or her prior service. (Pasadena Police officers Assn. v. City of Pasadena (1983) 147

Cal.App.3d 695.)

267. The disabled Plaintiffs have already had their IDR determined. To qualify for

IDR, " '[t]here must be substantial evidence of some connection between the disability and the

job.' (Id., at p.399 [citing De Puy v. Board of Retirement (1978) 87 Cal,App.3d 392]; see also

Gelman v. Board of Retirement (1978) 85 Cal.App.3d 92,97 [requiring a 'material and traceable'

connection between employment and disability].)" (Bowen v. Board of Retirement (1986) 42

Ca1.3d 572, 578.) After a Member has qualified for retirement (in this case by suffering an injury

at work), nothing shall deprive him or her of the right to a retirement allowance as determined

under this part. (Government Code, §21259.) Retirees, unlike employees, are not subject to the

reasonable modification doctrine. (Claypool v. Wilson (1992) 4 Cal.App.4th 646.)

268. The employer bears the nth cost of contributions required to pay the injured

worker the 50% tax-free IDR allowance, regardless of how long the employee worked or how

much the employee contributed. "[The employer] shall apply for disability retirement of any

member believed to be disabled." (Government Code, §21153.) If qualified, "the board shall

immediately retire him or her for disability...." (Government Code, §21156.)

269. For contracting agencies, CalPERS has established a contribution to pay for

Industrial disability costs "separate from and independent of the contribution required for other

benefits under their contracts". (Government Code, §20808.) Located in the PERL section

guiding employer contributions, the law requires employees' contributions "made towards the

cost of the benefit or benefits [to be maintained] as a separate account, which shall be available

only for payment of the benefit or benefits and shall not be a part of the accumulated

contributions under this system of any of the employers or members included. (Government

Code, §20808.) Clearly, this section directs that the employee contributions are only made durin

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the employment and must be separately accounted for.

270. The CalPERS literature about IDR or service purchases has failed to provide clear

and plain notice of the limitations, exclusions, coordination, offset, or the risk of loss. (Russell v.

Bankers Life Co. (1975) 46 Cal.App.3d 405.) In effect, CalPERS offset of the purchase monies is

a limitation or an exclusion from IDR insurance coverage. Exclusions and limitations must be

written in plain, clear, and conspicuous language. (Thompson v. Occidental Lift Ins. Co. (1973)

Ca1.3d 904, 921.) The exclusions violate the Insurance Code that applies to government.

(Insurance Code, §§10270.5, 10270.51.) "The essential features of any such plan ... shall be

disclosed to the insured ... prior to enrollment in any such plan. All such disclosures shall state

whether or not the benefits payable under such blanket insurance policy are subject to reduction,

to the extent provided in such policy, if an individual insured thereunder is entitled to benefits,

whether on an indemnity basis or on a provision-of-service basis .... (Insurance Code, §10270.3)

271. IDR is available by statute to all Members classified as State Safety, State Peace

Officer/Firefighter, State Patrol, Local Safety, School Safety, State Industrial and certain State

Miscellaneous Members. It also is available to Members classified as Local Miscellaneous if

their employers contract for this benefit.

272. A determination of disability requires that the Member be found to be

incapacitated (i) permanently or (ii) for an extended and uncertain duration for the performance

of his or her duties.

273. For a local safety Member, other than a school safety Member, the governing

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71 body of the employer makes the disability determination. CalPERS makes the determination of

22 disability for all other CalPERS Members.

23 274. There is no minimum period of employment before a Member is eligible for an

24 IDR.

25 275. IDR payments are 50% of the Member's final compensation, regardless of the

/6 amount of service credit the Member has accumulated or the Member's age.

Government Code section 21413. Industrial Disability; Annuity —Local SafetyMember

Upon retirement of a local safety member for industrial disability he or she- 66 -


shall receive a disability retirement allowance of 50 percent of his or her finalcompensation plus an annuity purchased with his or her accumulated additionalcontributions, if any, or, if qualified for a service retirement, he or she shallreceive his or her service retirement allowance if the allowance, after deductingthe annuity, is greater:21

276. The industrial disability statutes do not authorize CalPERS to seize or to force

Plaintiffs to forfeit monies paid for military time, ARSC or PVSC. The Industrial Disability

statutes do not give notice of CalPERS' right to seize military time, ARSC or PVSC. On the

contrary, the plain language of "additional contributions" and Government Code section 21420

would indicate that an additional annuity is payable for monies paid to invest in military time,

ARSC or PVSC.

277. CalPERS accepts that IDR is in the nature of workers' compensation.

CalPERS accepts that the Internal Revenue Service has determined that the PERS industrial

disability benefit "qualifies as being in the nature of a worker's compensation award" and thus is

excludable from taxation under Section 104(a)(1) of the Internal Revenue Code. "[A] law ...

may qualify as a 'workmen's compensation act' for the purposes of section 104, even though

those benefits are styled as 'disability retirement benefits.' Rev.Rul. 83-91, 1983-1 C.B. 38."

"(Take v. CIR. Service (9th Cir. 1986) 804 F.2d 553, 556-57.)

278. While recognizing IDR as workers' compensation for tax purposes, CalPERS

avoids the strict impact of Labor Code section 3751 which forbids employers from directly or

indirectly charging employees any share of workers compensation. Courts do not apply Labor

Code sections to the PERL absent clear legislative intent. (Pearl v. W.C.A.B. (2001) 26 Ca1.4th

189, 197.) "Workers compensation" laws are found in a section of law separate from the PERL.

However, CalPERS is adopting the treatment of IDR as in the nature of workers' compensation

and the Legislature has consented to this approach. As such, the natural implication is that

CalPERS and the Legislature would also apply the policy of Labor Code section 3751.

279. Section 3751 reads: "(a) No employer shall exact or receive from any employee

While this particular statute is specific to Local Safety Members, virtually identicallanguage in Government Code sections 21406-21409, 21411, 21412, and 21414 covers otherMembers eligible for IDR.

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any contribution, or make or take any deduction from the earnings of any employee, either

directly or indirectly, to cover the whole or any part of the cost of compensation under this

division." (Labor Code, § 3751.)

280. Case law applied Labor Code section 3751 to forbid offsetting pension with

employees' contributions. For example, a City could not reduce pension of disabled fireman by

amount of workmen's compensation because no employer shall exact or receive from any

employee any contribution, or make or take any deduction from earnings of any employee, either

directly or indirectly, to cover any part of the cost of compensation. (Symington v. City of Albany

(1971) 5 Ca1.3d 23.) CalPERS in this case is requiring Plaintiffs to use their personal funds to

offset the employers' and the system's cost of providing what CalPERS considers to be "workers'

compensation".

281. Workers Compensation Offset Rules Bar Duplicate Recovery, Bar Duplicate

Liability, and Bar Duplicate Costing. Duplicate recovery of damages is barred, and neither

double recovery of the same item of loss nor double liability for the same item of injury is

permitted. (Labor Code, §§3855, 3856, 3858, 3860, 3861; Sanstad v. Industrial Acc. Corn.

(1959) 171 Cal.App.2d 32, 35.) Double charging Plaintiffs is also barred.

282. An agency can only "decrease its pension payments by an amount commensurate

with its contributions to the pension fund because of a fireman's compensation award. [Citations

omitted]." (Sytnington v. City of Albany (1971) 5 Ca1.3d 23, 32.

283. CalPERS' accounting errors. Accounting for IDR, the 'normal contributions"

referred to in Government Code section 2141822 includes only the contributions associated with

actual work in the safety position where the Member suffered the industrial disability. Those

"normal contributions" exclude all contributions the Member paid 23 to CalPERS in any manner

22 A qualifying Member's IDR allowance is "derived from his or her accumulated normalcontributions and the contributions of his or her employer" in the specific employment where he wasinjured. (Government Code, §21418.)

23 All state employees are required to be members of CalPERS, as are employees of localpublic agencies that contract with CalPERS. Although the state or contracting public agency

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for service or time outside the job where he or she was injured. (Government Code, §21420.)

284. CalPERS ignores the qualitative nature of the contributions (that they were paid

for military or other time outside the current employment) but looks instead at their temporal

nature (the fact they are paid during the time period when a Member is working at a job where

he or she is later disabled).

285 Importantly, CalPERS accounts for and associates the Member's military time,

ARSC or PVSC deposits with the time period, employer and job when the Member made the

military time, ARSC or PVSC purchase, rather than associating those voluntary military time,

ARSC or PVSC contributions with the actual military service, "air time", or other time which is

actually "purchased".

286. Even if CalPERS wanted to, without statutory authority, CalPERS cannot allow a

member to buy additional service credit in the job which he or she is currently in (or the job he o

she was injured in). For example, Auden and Slaughter could not have bought additional time as

police officers in a local police department, and MacLaren could not have bought additional time

as a firefighter in a local fire department.

287. Plaintiffs cannot buy additional service credit that would allow them to qualify for

IDR during the purchased time. (Government Code, § 20046.)

288. Accounting, misaccounting for funds, service credit purchases. Each month,

the employer should fully fund the IDR requirement, such that the individual is not required to

fund any excess portion of it ( although partial offset with normal contributions by the employer

in the job may be allowed). "[A]ecumulated employee-employer contributions are to be '... held

for the benefit of members ....' (Slats. 1931, Ch. 700, § 56; see also §§ 20758-20759.1.) ...

Section 20200 further declares that the PERS fund '... is a trust fund created, and administered ...

solely for the benefit of the members and retired members of the system and their survivors and

beneficiaries.' (Stats. 1978, ch. 231, § I.)" (Valdes v. Cory (1983) 139 Cal.App.3d 773, 782.)

Employers are not beneficiaries of the trust relationship and should not receive any of the monies

actually "picks up" and pays many safety employees' "normal contributions", all CalPERSMembers are obligated to contribute (or have contributions paid on their behalf) to CalPERS.

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contributed by or held in trust for the individuals.

289. "Employer contribution rates, based on actuarial recommendations by the Board,

are codified in section 20741 et seq. Sections 20751 and 20752 expressly provide for monthly

appropriation of employer contributions..[which ] are 'continuing obligations of the State.'

(Valdes v. Cory, supra, at 787.)

[A]s trustee of the PERS fund, the [Board's]duties of actuarialinvestigation and reporting as well as the power to adjust employer rates ofcontribution ... (§§ 20127, 20140, 20206.5, 20231, 20750.9) manifest an intentthat periodic employer contributions will not be altered absent actuarial inputfrom the Board in a timely manner.

[T]he state and other public employers are contractually bound in aconstitutional sense to pay the withheld appropriations to the PERS fund... (§20757) [and] to make the statutorily set payment of monthly contributions toPERS Once paid, appropriated employer contributions constitute a trust fund heldsolely for the benefit of PERS members and beneficiaries (§ 20200). ... (p. 758,62 P.2d 1037; Daugherty v. Riley (1934) 1 Ca1.2d 298, 308, 34 P.2d 1005).

(Valdes v. Cory, supra, at 788.)

290. Transferring contributions to employer to charge plaintiffs more for IDR is

not allowed.

In Allen, supra, an amendment to a city charter provision raised the rate of acurrent employee's contribution to the city pension fund from 2 to 10 percent ofhis salary without any corresponding increase in the benefits he would receiveupon retirement. The Allen court held the increase to be an unconstitutionalimpairment. (45 Ca1.2d at p. 131, 287 P.2d 765.) Wisley v. City of San Diego(1961) 188 Cal.App.2d 482, 485-487, 10 Cal.Rptr. 765, similarly held that anincrease in a current city employee's contributions to a retirement fund from 1 to 8percent of his salary, without a corresponding increase in future benefits, wasunconstitutional. (See also Singer v. City of Topeka (1980) 227 Kan. 356, 607P.2d 467; Brazelton v. Kansas Public Pimp. Retirement (1980) 227 Kan. 443, 607P.2d 510; and Marvel v. Dannemann (D.De1.1980) 490 F.Supp. 170, all applyingthe California Allen rule in comparable situations.) City of Downey v. Board ofAdministration (1975) 47 Cal.App.3d 621, 631-633, 121 Cal.Rptr. 295, held that1971 amendments to the Public Employees' Retirement Law, while increasing therate of contribution of each employee to the system, did provide offsettingincreases in retirement allowances and thus were constitutional.

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291. Crediting of service credit; "normal contributions" but not in the job at time

of purchase. Members that buy military time, ARSC or PVSC buy time for something outside

the current position. All contributions of a Member for present value service credit shall be

considered to be and shall be administered as normal contributions. (Government Code, §21010.)

There is no requirement that they be considered as normal contributions in the job worked at the

time of purchase. The statute only requires that the service credit be credited as current or prior

service as it would be if the Member had been in state service during his or her absence.

(Government ('ode, §21010.)

292. Plaintiffs performed their jobs as (i) state safety Members in the "classification"

of membership described in Government Code sections 20390 to 20416; (ii) local safety

Members in the "classification" of membership described in Government Code sections 20420 to

20445, and (iii) miscellaneous or industrial Members in the "classification" of membership

described in Government Code sections 20380 to 20383.

293. When working in safety job classification, Plaintiffs were entitled to IDR for

injuries suffered in that job.

"Industrial," in reference to the death or disability of any member of this systemwho is in a membership category under which special benefits are provided bythis part because the death or disability is industrial, means disability or death as aresult of injury or disease arising out of and in the course of his or heremployment as such a member. (Government Code, §20046.)

294. Plaintiffs are not entitled to DR for their military time, ARSC or PVSC. Even if

they were injured during the time period of that military service, "air time", etc., the injury or

disease would not be arising out of and in the course of the Member's safety employment.

295. By definition, military time, ARSC and PVSC are contributions in respect to

service outside of the job and in a categoty outside where the Member was injured.24

24 If the contributions were made in respect to the job in which a Member was disabled,they would not be "military time", "ARSC" or "PVSC". Importantly, military time, ARSC andPVSC are bought when the employee is otherwise already covered by obligatory "normalcontributions".

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296. PERL requires that Member was absent from service to buy credit. The

legislation governing the purchase of military time, ARSC and PVSC only assumes it is current

service for the purposes of calculating cost. 25 The legislation explicitly differentiates that the

period for which credit is granted is different than current service credit.

297. Background of Section 21420 re annuity from prior contributions.

Government Code section 21420 indicates that Members retired for IDR shall receive an annuity

purchased with normal contributions made in respect to service rendered in a category of

membership other than the category in which the Member suffered the disability. The PERL

does not define "category" but uses the term "classification" of jobs.

Government Code section 21420. Contributions Made in Other Category ofMembership; AnnuityIf a member retired for industrial disability has made contributions in respect toservice rendered in a category of membership other than the category in which heor she was at the time he or she suffered the disability or incurred the diseasecausing his or her retirement for industrial disability, in addition to the disabilityretirement allowance to which he or she is otherwise entitled under this article, heor she shall receive an annuity purchased with his or her accumulated normalcontributions made in respect to service rendered in the other category ofmembership.

298. CalPERS explicitly admits that an employee is entitled to an annuity (in addition

to the 1DR allowance) for any prior contribution that the employee made with another CalPERS

covered agency. Prior contributions with another CalPERS covered agency are paid out as

"excess income" and reportable as taxable income.

299. As the legislative history of Government Code section 21420 makes clear, the

Legislature intended for the member to get full advantage of any contributions made outside the

category where he/she was injured (and to deny the advantage to the employer).

25 "The contributions the member would have made to the system for the period fowhich current service credit is granted, assuming that the rate of contribution under his or heemployer's formula at the rate age applicable to him or her at the beginning of his or her firssubsequent period of service in membership and his or her compensation earnable on that dathad applied to the member during the period for which credit is granted." (Government Code§21051(1), emphasis added.)

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300. For example, "Sometimes we have members who first serve in what is called a

miscellaneous category and then move to a special category, such as firemen or highway

patrolmen. This section provides that if he is retired for industrial disability, he shall receive

the allowance of one-half the average of his final compensation and in addition shall receive an

annuity from the contributions made in the former category. To do otherwise, would be unfair as

between members, one of whom had always served in the special category with no previous

contributions, and the other serving in two categories as explained above." (Analysis of Assembly

Bill 486 Which Provides Technical Amendments to the State Employees' Retirement Law, 619/53,

page 3,J15.)

301. "Provides that if member retired for industrial disability has made contributions

for service rendered in other category, he is to receive, in addition to disability retirement

allowance calculated in same manner as for other members retired for industrial disability who

have not made contributions for service in any other category, annuity purchased with his

accumulated contributions made in other category." (Report on Assembly Bill No. 486, 6/9/53,

page 2 )

302. "Section 21294.2 permits a member retired for industrial disability to be given

also a retirement allowance based upon an annuity purchased if he served in a membership

category in which he made contributions for such an annuity. It is understood that some member

have served only as safety members and some have served as safety members and miscellaneous

members. Under current law if the safety member is retired for industrial disability he receives

that allowance in lieu of another allowance. If he has served in a category of membership other

than safety member and paid contributions for an annuity he would not benefit from such

contributions under current law. This section thus enables a member who has served in more

than one category of membership to receive the benefit of his annuity contributions." (Inter-

Departmental Communication from the Deputy Attorney General to Governor Earl Warren,

6/11/53, pages 4-5.)

303. True and corfect copies of the legislative history reports quoted from above are


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304. Section 21420 does not require actual service in another "category" of

membership, only contributions made with respect to service.

305. Although "category" and "category of membership" are not defined, the PERL

distinguishes between different job "classifications" by job duties. Vast sections of the PERL

provide specific narrow "classifications". When distinguishing, the Court looks at the scope of

the duties in the specific "classifications". (Crumpler v. Board of Administration (1973) 32

Cal.App.3d 567, 576; see also ) See also Overend v. Board of Administration (1991) 232

Cal.App.3d 166, 167 [relying on statutes and definitions repealed in 1995].

306. The conceptualization of "classification" of the job or "category of membership"

for purposes of Section 21420 are left to this Court's discretion.

307. Background of PERL's statutory terms "allowance", "annuity" and

"pension". As defined in the PERL, an "annuity" is different than an "allowance". 26 As

described in a recent Supreme Court, a retirement allowance 27 under the PERL:

[C]onsists of two distinct components: an annuity28 and a pension. (Gov.Code, §21350.) "[C]ontributions made by a member" are converted on retirement to an" "which makes "payments for life" and is equal in value to theaccumulated normal contributions and interest in the member's individualaccount. (Id., § 20018; see id, §§ 20012, 21351.) "[C]ontributions made fromemployer controlled funds," in turn, form a" '[p]ension,' "which also makes"payments for life." (Id:, § 20054.) The retirement allowance thus consists of "a

26 As such, the annuity for contributions made outside the job must be in addition to theallowance, for purposes of Government Code section 21037 or otherwise.

27 "Upon retirement for service, a member is entitled to receive a service retirementallowance which shall consist of: (a) The member's service retirement annuity, including, withrespect to patrol members and solely in respect to the portion of the annuity derived from thenormal accumulated contributions of those members, respectively, automatic continuance tosurviving spouse, or if there is no spouse at retirement, to surviving children, or if there are noeligible surviving children at retirement, to surviving dependent parents as provided in thisarticle; and (b) The member's current service pension (c) The member's prior service pension."(Government Code, §21350.)

28 "The service retirement annuity is the sum of the annuities which are the actuarialequivalents of the normal and additional accumulated contributions of a member at the time ofhis or her retirement." (Government Code, §21352.)

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pension derived from the contributions of the employer sufficient when added tothe service retirement annuity that is derived from the accumulated normalcontributions of the member at the date of his or her retirement to equal 3 percentof his or her final compensation at retirement, multiplied by the number of yearsof ... local safety service subject to this section with which he or she is credited atretirement." (Id., § 21362.2, subd. (a), italics added; see § 20576, subd. (a).)

But, as demonstrated above, the redeposit was of member contributions, andmember contributions are used to purchase the service retirement annuity, whichis only one component of the retirement allowance. (Gov.Code, §§ 20018,21362.2, subd. (a).) The remainder of the retirement allowance is supplied by thepension, which derives from the contributions of the employer and which, therecord shows, is several orders of magnitude larger than the accumulated membercontributions.

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308. Background of language used in Government Code sections 21420 and 21037.

Government Code sections 21037 and 2140 are cumulative and answer different questions.

Section 21037 first stops the installment payment, but does not forfeit the funds to the state.

Section 21420 provides that "in addition to the disability retirement allowance to which he or she

is otherwise entitled under this article, he or she shall receive an annuity." (Government Code,

§21420, emphasis added.)

309. An annuity in addition to the allowance cannot be included in the allowance.

310. Sections 21420 and 21037 can be easily harmonized so that each is given effect.

The first inquiry is whether Section 21037 applies: Is the "allowance" increased by the continued

installment payments for the service credit? If the allowance is not increased, then installments

payments can be stopped. The Member's "allowance" is judged against the 50% IDR amount.

311. Secondly, the Section 21420 inquiry starts. If the installment payments for

military service credit, ARSC or PVSC can be stopped, then the Member has made contributions

related to time or service outside the job where injured. Section 21420 provides an annuity for

those contributions. Section 21420 would not apply if 21037 did not stop the installments. If the

Member was receiving full credit for the purchased years of service, then Section 21420 would

not apply (otherwise the contributions would be double counted).

312. As an illustration, the applicable calculation in Section 21037 stops installment



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payments if the additional years of service purchased will not increase the service payable IDR

retirement "allowance" (e.g., to more than 16.6 years of service in a 3% formula, or greater than

50%). In this first calculation, the years of service (including the purchased time) are compared

to the 50% IDR allowance. If the total years of service provide a higher benefit, then the Member

receives a pension based on the higher years of service (with the first 50% tax-free), and Section

21037 does not apply. Because Section 21037 does not apply, the installment payments are not

stopped, and there is no Section 21420 annuity payable. The contributions are already accounted

for in the years of service increase.

313. However, when the years of service (including the purchased time) do not

provide a benefit higher than IDR, then the Plaintiff is allowed to stop payments. Section 21037

applies. The monies contributed in connection with the purchase of military time, ARSC or

PVSC should provide an additional annuity under Section 21420. The additional annuity will not

increase the "allowance" (because it will be in addition to the allowance) but it will increase the

total benefit received.

314. The disability allowance with the additional annuity will often be less than the

service pension including the promised "years or service" benefit, because the allowance

associated with the "years of service" increase includes the pension amount (i.e. always greater

than the annuity discussed in In re Sonne, supra.)

315. There is no conflict between Sections 21037 and 21420 when properly

interpreted. Plaintiffs' allowance calculation (by years of service) would not be increased (so that

Section 21037 applies) but Plaintiffs are still allowed an additional annuity (pursuant to Section

21240) based on their contributions for military time, ARSC or PVSC.

316. No forfeiture or seizure; annuities versus refunds. Section 21037 does not

authorize seizure or forfeiture. There is no language that forbids paying an annuity based on

contributions already made. In fact, Section 21050 authorizes pro-rated credit when installment

payments are stopped, which is the opposite of forfeiture. There are seizure statutes in PERL. If

the Legislature had wanted to seize the money, they would have said that no annuity and no

benefit shall be paid for the monies received and satisfied basic due process.

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317. While statutory refunds (without a finding of error or omission) are not allowed

without withdrawing from the system, Section 21037's bar against refunds does not authorize

seizure.

318. Refund of military time, ARSC or PVSC investments, but only on complete

withdrawal. CalPERS allows a disabled Member to receive a refund of the Member's

accumulated contributions, including those associated with military time, ARSC or PVSC

payments, if the Member elects a refund prior to the mailing of the first disability retirement

check. However, if the Member takes a refund of contributions, his or her membership in

CalPERS ends and the Member is ineligible for any future allowance. To get a refund, a disabled

Member must forfeit his or her complete retirement allowance and forfeit his or her IDR.

319. Section 21037 (read in connection Section 21050) supports Plaintiffs (on a theory

of annuity) because it shows that the legislature intended to benefit people in plaintiffs' position

and provide pro-rated credit (and an annuity).

320. Presumption against forfeiture. The presumption is against forfeiture: "after a

member has qualified as to service and disability for retirement for disability, or as to age and

service for retirement for service, nothing shall deprive him or her of the right to a retirement

allowance as determined under this part." (Government Code, §21259.) In the absence of a valid

provision enacted prior to eligibility for retirement which provides for forfeiture, once a person

who has undertaken public employment becomes eligible for retirement, his or her right to a

pension is not destroyed. (Willins. V. Commission On Judicial Qualifications (1973) 10 Ca1.3d

451; Pearson v. Los Angeles County (1957) 49 Ca1.2d 523.) The Government Code provides for

forfeiture in specific cases not relevant here. (Government Code, §§1235, 20343, 31563, 45310.3

(referring to Section 1243).)

321. Section 21050 pro rated credit. Section 21050 allows prorated credit, which

militates against a forfeiture interpretation.

322. Additional one-half of one percent. The member buys insurance against any risk

of loss associated with any of the actuarial adjustment when he is required to pay the additional

one half percent fee required in Section 21050. Although we assert that the one-half percent fee

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on installment payment is unlawful (including under the IRC law and regulations regarding

"permissive service credit"), alternatively, if CalPERS wants to insist that there is an actuarial

risk, that actuarial or other risk of loss is priced into Section 21050, and any loss is strictly

limited to the one-half percent fee. CalPERS would be required to provide a benefit associated

with the principal of the installment payments and lump sums, including paid in an annuity form.

323. With respect to Sections 21037 and 21050, purchasers on installments pay an

increased "risk" premium to insure against losing the payments. The Member buys insurance

against loss of principal that would arise from all actuarial risk, including all risk of loss that may

be associated with potential disability, death, or a termination of installment payments.

Otherwise, the increased one-half percent premium is simply a transfer that would violate the

IRC laws and regulations regarding "permissive service credit". This reinforces that the

Legislature intended that the risk of loss is not to fall on the individual. (Government Code, §

21050.)

324. Service and IDR allowances paid together. Members can receive a service

allowance instead of or in conjunction with a disability allowance if the service allowance will

be higher. For Members eligible to receive an IDR, the first 50% of final compensation is

considered to be a disability allowance and free of all state and Federal taxes. For service in

excess of the industrial disability allowance, CalPERS pays an additional service allowance for

the share above the 50% disability allowance. In this case, only the amount over 50% is taxable.

While CalPERS terms this a " 'service retirement payable' disability allowance" and treats it as a

single composite allowance, in practical effect CalPERS is providing both a tax-free disability

allowance and an additional taxable allowance for the portion of the service allowance the

Member would be eligible for had he or she simply taken a service retirement.

325. Analogies About Offset. The nature and extent of the city's obligation must be

ascertained not only from the language of the pension provisions but also from the judicial

construction of this or similar legislation at the time the contractual relationship was established.

(Kern v. City of Long Beach (1947) 29 Ca1.2d 848, 850.)

326. Limited ability to offset in the Public Employees' Retirement System.

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Constitutionally, the state and other public employers are contractually bound to pay appropriate

contributions. (California Constitution, Art. 1, §9; United States Constitution, Art. 1, §10, cl. 1;

Valdes v. Cory, supra.) (1983) 139 Cal.App.3d 773.) The PERL forbids the use of any CalPERS

fund to offset an otherwise required employer contribution. (Claypool v. Wilson, supra, at 671.)

327. State fund, no offset from benefits. Offset "shall not be made from benefits

payable under this part because of the injury or death. (Government Code, § 20253, emphasis

added; see Ventura County Employees' Retirement Association v. Pope (1978) 87 Cal.App.3d

938, 951-52.)

328. Disability: differentiating between employer contributions and employee

contributions. With respect to disability pensions, offset is not allowed against or using

Member's contributions. (Healy v. Industrial Acc. Com ., supra.; City and County of San

Francisco v. Workmen's Compensation Appeals Bd., supra.)"[O]nly the amount contributed by

the public entity may be so credited, because a person cannot be required directly or indirectly to

pay part of the cost of his or her workers' compensation. [Citations omitted.]" (Myers v. Fire &

Police Pension System 1973) 32 Cal.App.3d 725, 728.)

329. Integration or coordination with other state benefits. IRS rulings base their

allowance of pension payment integration on three factors: the employer must contribute to the

other benefit funds, these other funds must be designed for general public use, and the benefits

they supply must correspond to benefits available under the pension plan. (See, e.g., Rev.Rul.

69-421, Part 4(j), 19699-2 Cum.Bull. 72, Rev.Rul. 68-243, 1968-1 Cum.Bull. 157.)

330. Contract disclosures in military time, ARSC or PVSC elections are

inadequate. "[T]o take even a partial credit the city must put the employee on notice by means

of the contract of employment or charter." (Symington v. City of Albany, supra, at 33.) Since the

limited "may not benefit" disclosure in the military time, ARSC and PVSC purchase contracts

are susceptible to two reasonable constructions, we must adopt the one more favorable to the

Member (policyholder). (Russell v. Bankers Life Co. (1975) 46 Cal.App.3d 405.) This is

especially so because the effect otherwise would be to cause Members to pay more towards their

IDR benefits.

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331. No economic risk. The employee is not supposed to take on the economic risk of

his or her investment. Although contributory, PERS lacks the elements of economic risk usually

associated with investments, participation therein by state employee did not involve a reasonable

expectation of entrepreneurial profit and, thus, such participation did not constitute a "security"

within the meaning of federal securities laws. (Black v. Payne (9`h Cir 1979) 591 F.2d 83,

certiorari denied.

332. CalPERS modifications of IDR benefits to seize military time, ARSC or

PVSC investments is not reasonable. CalPERS' treatment of purchase monies as normal

contributions in the job at time of purchase modifies the IDR contract by forcing Members to

fund more of their IDR benefit but fails to provide any comparable additional benefit. "To be

sustained as reasonable, alterations of employees' pension rights must bear some material

relation to the theory of a pension system and its successful operation, and changes in a pension

plan which result in disadvantage to employees should be accompanied by comparable new

advantages." (Pasadena Police Officers Assn. v. City of Pasadena, supra, at 701.) " ' "[I]t is

advantage or disadvantage to the particular employees whose own contractual pension rights,

already earned, are involved which are the criteria by which modifications to pension plans must

be measured." [Citation.]' (United Firefighters of Los Angeles City v. City of Los Angeles (1989)

210 Cal.App.3d 1095, 1103, citing Miller v. State of California (1977) 18 Ca1.3d 808, 816.)

333. Duty to correct errors or omissions is mandatory. "We interpret section 20180

[now numbered Government Code section 20160] as broadly available for the correction of

errors or omissions made by employees, their employers, members or beneficiaries, or the

system, and resulting from inadvertence, oversight, mistake of fact, mistake of law, or other

cause. " (Rodie v. Board of Administration (1981) 115 Cal.App.3d 559, 566.)

334. In light of this interpretation, an employee's inadvertent or mistaken election to

buy military time, ARSC or PVSC is embraced by the statute. Following the Rodie court, there is

no reason for treating an employee's mistaken choice selecting a benefit (especially at an age

before 50 and before qualifying for a service retirement) differently from any other mistake

depriving him or her of benefits to which he is fairly entitled. An employee's late recognition that

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he or she should have elected not to purchase military time, ARSC or PVSC may thus be viewed

as a failure to wait to purchase it until after qualifying for service retirement. The Rodie court

3 held that Government Code section 20180 [now 20160] is available to correct an employee's

4 election where such election results from "inadvertence, oversight, mistake of fact, mistake of

5 law, or other cause." Rodie, supra, at 566.)

6 FIRST CAUSE OF ACTION

7 (For Breach of Statutory Duties)

335. Plaintiffs hereby incorporate and restate all allegations set out above as though set

forth in full herein.

10 336. The statutes providing for military time (Government Code sections 21024, 21027

11 and 21029, et al. and the predecessors or successors thereof) clearly describe an additional

11 benefit.

13 337. The statute providing for ARSC (Government Code section 20909, et aL and the

14 successors thereof) clearly describes an additional benefit.

•15 338. The statutes providing for PVSC (Government Code sections 21006-21008,

16 21013, 21020.5, 21023.5, 21025.5 and 21030-21031, et al. and the predecessors and successors

17 thereof) clearly describe an additional benefit.

18 339. The statutes providing for industrial disability allowances (Government Code

19 sections 21406-21409 and 21411-21414, et al. and the predecessors and successors thereof)

20 clearly describe a minimum benefit level.

21 340. The statute providing for an annuity in addition to an IDR allowance for

22 contributions made other than in the job where a Member suffers an industrial disability

23 (Government Code section 21420) clearly describes a benefit to be paid in addition to the

24 statutory IDR allowance.

341. The statutes providing for employer obligations concerning IDR allowances

(Government Code section 20808 and 21418) clearly require the employers to bear responsibility

for IDR allowances, not the disabled Members, beyond the "normal contributions" made by

those Members in connection with their employment in the safety category where they suffer an

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342. The statutes providing for establishment of the purchase price of military time,

ARSC and PVSC (Government Code sections 21050, 21051 and 21052) clearly establish that

Members are to bear responsibility for employee and employer contributions only in so far as

those contributions are directly related to funding the total cost of the Member's future service

retirement.

343. In violation of the laws and regulations of the Internal Revenue Code, CalPERS is

failing to calculate, cost, treat, account, segregate, and provide the Plaintiffs with the military

time, ARSC and PVSC benefits in accordance with the rules governing "permissive service

credits".

344. In violation of the laws and regulations of the Internal Revenue Code, CalPERS is

overcharging (by, inter cilia, adding unrelated costs in the investment and by charging a fee for

installment payments) Plaintiffs for the military time, ARSC and PVSC benefits in violation of

the rules governing "permissive service credits".

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16 failing to treat Plaintiffs' lump sum payments or roll-overs from tax preferred investments used

17 to invest in military time, ARSC and PVSC benefits in accord with the rules governing tax-

18 preferred investments.

19 346. In violation of the laws and regulations of the Internal Revenue Code, CalPERS is

20 failing to provide disabled Plaintiffs with a commensurate additional benefit associated with

21 military time, ARSC and PVSC benefits and/or using the hinds to offset an existing vested

22 benefit (including IDR).

23 347. In violation of the Labor Code, CalPERS is charging Plaintiffs a share of the

benefit that it considers to be in nature of workers' compensation.

25 348. In violation of its constitutional and other fiduciary duties, CalPERS is failing to

construe the PERL, the Internal Revenue Code, and Labor Code statutes in a manner favorable

to the beneficiaries.

349. In violation of its constitutional, statutory and other fiduciary duties to treat

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beneficiaries equally, CalPERS is construing these statutes in a manner that favors one class of

beneficiaries over another class, or otherwise interpreting these statues in its own favor and in

favor of the State of California or the contracting entities, rather than in favor of the

beneficiaries.

350. In violation of its constitutional, statutory and other fiduciary duties, CalPERS is

failing to timely inform disabled Plaintiffs that CalPERS accounts for the contributions as it

does, seizes, causes forfeiture of, or fails to properly credit the military time, ARSC or PVSC

benefit and investment if those Plaintiffs receive a disability allowance.

351. In violation of its constitutional, statutory and other fiduciary duties, CalPERS is

failing to timely inform Plaintiffs that CalPERS includes (within the "employer contributions"

portion of the cost of military time, ARSC and PVSC) expenses, charges, valuations, or increase

for IDR allowances, unfunded liability, disability experience and actuarial factors unrelated to

the increase in Member's service pension attributable to the military time, ARSC and PVSC.

352. In violation of giving meaning to the plain language of the statutes, CalPERS is

interpreting the statutes to omit words, failing to give plain meaning to words, rendering sections

superfluous, adding language that does not exist, inserting conditions that do not exist, failing to

put the words in context, or failing to provide the benefits described in statute.

353. In violation of interpreting statutes so that the PERL is harmonized, CalPERS is

interpreting the statutory scheme so that aspects of the PERL are in conflict, ignored, or

meaningless, with the result that the PEAL is not being read as a harmonious whole, with its

separate parts being interpreted within their broader statutory context in a manner that furthers

statutory purpose. [Should we add in something about not only harmonizing the PERL, but other

state and federal statutes?]

354. In violation of its duty to construe the details of an act in conformity with its

dominating general purpose, CalPERS is denying the benefit of the military time, ARSC and

PVSC benefits to the disabled Plaintiffs and charging all Plaintiffs a "surcharge" or extra monies

to pay costs, charges or expenses for IDR allowances, unfunded liability, disability experience or

other costs unrelated to funding the total estimated cost of the portion of the Member's future

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service retirement allowance attributable to the service credit purchased.

355. In violation of its duties to interpret the statutes so that their objects may be

obtained, CalPERS is interpreting the statutes to deny the very substance of parts of the statutes.

356. In violation of its duties to interpret the statutes to avoid constitutional doubts,

CalPERS construes these statutes so that the results violate Due Process, Equal Protection,

constitutional fiduciary duties, and other constitutional rights (incorporating herein the causes of

action below).

357. In violation of the statutory rule that the "law abhors a forfeiture" and that

forfeiture and seizure laws are to be narrowly construed, CalPERS interprets the statutes to

generate a forfeiture or seizure of all or part of disabled Plaintiffs' military time, ARSC, PVSC,

or IDR when the statutes do not support or authorize that power.

358. In violation of the duty to avoid absurd results, CalPERS is misinterpreting the

statutes to deny the additional military time, ARSC and PVSC benefits while also refusing to

refund the disabled Plaintiffs' investment.

•15 359. In violation of the duty not to repeal statutes by implication, CalPERS is, in

16 effect, selectively repealing the statutes and denying the benefits.

17 . 360. In violation of the duty to harmonize the statutory scheme, CalPERS is failing to

18 give full force and effect to both (i) the military time, ARSC and PVSC sections as well as (ii)

19 the disability benefit sections of the PERU

20 361. In violation of the duty to harmonize the statutory scheme, CalPERS is failing to

11 give cumulative credit to benefits where there is no conflict, and is in essence forcing a forfeiture

22 or election of remedies without there being express words or implication in the statutes to

23 support it.

24 362. In violation of the duty to harmonize the statutory scheme, and if the provisions

/5 are irreconcilably inconsistent, CalPERS is failing to give credit to the later military time, ARSC

26 and/or PVSC legislation to the extent that that legislation repeals or amends sections of the

27 earlier enacted statutes.

/8 363. In violation of the duty to give effect to the more specific legislation that provides


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a greater benefit, CalPERS is ignoring the more specific statute and giving effect to the more

general statute.

364. In violation of its duty to act according to statute, CalPERS is arbitrarily and

capriciously interpreting the statutes, including in its own favor.

365. In violation of its duty to interpret the statute according to legislative intent,

CalPERS is interpreting the statutes so that the military time, ARSC, PVSC, or IDR benefit is

denied to disabled Plaintiffs in whole or in part.

366. In violation of its duty to interpret the statute according to legislative intent,

CalPERS is interpreting the statutes so that all Plaintiffs are charged a "surcharge" or extra

monies to pay costs, charges or expenses for IDR allowances, unfunded liability, disability

experience or other costs unrelated to funding the total estimated cost of the portion of the

Member's future service retirement allowance attributable to the service credit purchased.

SECOND CAUSE OF ACTION

(For Breach of Contract)



368. CalPERS overcharges Plaintiffs and breaches the purchase contracts by including

in the investment a surcharge or costs unrelated to funding the increased service benefit

purchased, including costs that would violate the PERL and the Internal Revenue Code.

369. CalPERS overcharges Plaintiffs and breaches the purchase contracts by including

•

11 in the installment payments and investment a fee or charge of one-half of one percent that is

unrelated to funding the increased service benefit purchased, including costs that would violate

23 the PERL and the Internal Revenue Code.

24 370. CalPERS breaches the IDR contracts by failing to provide the statutory IDR

25 benefit in full.

/6 371. CalPERS overcharges Plaintiffs and breaches the IDR contracts by offsetting the

27 disability benefits with monies received related to the purchase of service credits, including

28 offsetting that would violate the PERL and the Internal Revenue Code.

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372. CalPERS breaches the purchase contracts when it fails to provide full additional

commensurate value for the monies that Plaintiffs contribute for additional benefits.

CalPERS' Enticements to Plaintiffs to Purchase Military Time, ARSC or PVSC

373. CalPERS actively undertakes to inform Plaintiffs about their rights. CalPERS

informs Plaintiffs about their right to purchase military time, ARSC or PVSC from a variety of

CalPERS sources. For example, CalPERS provides written information in the Member benefit

pamphlets and other publications. CalPERS advertises military time, ARSC and PVSC on the

CalPERS web site. CalPERS informs Plaintiffs about their right to disability benefits and IDR

from a variety of CalPERS sources. CalPERS sponsors retirement planning seminars for

Plaintiffs. CalPERS representatives advise Plaintiffs in person at CalPERS regional offices and

over the telephone.

374. In its official "A Guide to Your CalPERS Service Credit Purchase Options",

CalPERS publication PUB 12 (January 2009) (Exhibit 23), CalPERS states the following

concerning military time, ARSC and all PVSC options:

Only you can decide if the increase to your future benefits is worth the cost ofyour purchase. You may want to attend a CalPERS seminar or workshop to findout more. Check with a CalPERS Regional Office for dates and locations. Youcan also use the Retirement Planning Calculator on the CalPERS Web site to seehow additional service could impact your future retirement benefits. (Exhibit 23,Page 7, emphasis added)

375. Addressing the question of military time, ARSC and specific other PVSC

purchases, the same publication states the following:

The cost to purchase this service credit is calculated using the present valuemethod. That means it is based on a pay rate that provides the best estimate ofyour future potential final compensation at retirement. We look at the projectedretirement benefit increase you can expect to receive with this additionalservice (at retirement, disability, death, or other termination from employment),then we convert that to a lump sum in today's dollars.

Determining the increase to your future benefits involves a number of actuarialassumptions, including projected retirement age, life expectancy, and thepossibility that some may not retire, but instead become disabled, die, orterminate their CalPERS membership. These probabilities are the same

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assumptions used to ensure all our benefits are adequately funded. (Exhibit 23,Pages 9, 27 and 32, emphasis added)

376. A true and correct copy of the CalPERS "A Guide to Your CalPERS Service

Credit Purchase Options", CalPERS publication PUB 12 (January 2009), is attached hereto as

Exhibit 23.

377. CalPERS informs Plaintiffs about their right to disability benefits and IDR in

other publications It does not disclose that the 1DR allowance may be offset by military time,

ARSC or PVSC investments.

378. CalPERS' publications do not disclose a risk of loss of military time, ARSC or

PVSC (or IDR) if a Member takes MR. CalPERS only describes military time, ARSC and PVSC

in terms of "increase" or "increased" benefit.

379. CalPERS' publications do not disclose that CalPERS accounts for, characterizes,

or otherwise treats the contributions or investment in military time, ARSC or PVSC as "normal

contributions" associated with the job that the Member holds at the time that he or she purchases

the optional benefit.

380. CalPERS' publications do not disclose that because CalPERS accounts for,

characterizes, or otherwise treats the Members' contributions or investment in military time,

ARSC or PVSC as "normal contributions" associated with the job that the Member holds at the

time that he or she purchases the optional benefit, CalPERS can seize or fail to credit the

investment, fail to pay an additional annuity, and in effect transfer the investment to the

employer to offset the cost of paying the disabled Member's IDR allowance in whole or in part.

381. CalPERS' publications do not disclose that when establishing the price to be

charged to Plaintiffs for the purchase of military time, ARSC and PVSC, CalPERS includes a

"surcharge" or extra monies to pay costs, charges or expenses for IDR allowances, unfunded

liability, disability experience or other costs unrelated to funding the total estimated cost of the

portion of the Member's future service retirement allowance attributable to the service credit

purchased.

382. In essence, CalPERS vaguely and insubstantially cautions Plaintiffs to weigh the

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costs of military time, ARSC or PVSC against the prospective increase in their retirement

allowances. CalPERS inadequately and obliquely cautions the Plaintiff to determine whether the

benefit outweighs the cost given the Plaintiffs age and expected retirement date, the Plaintiffs

health or other conditions that might impact his or her life expectancy, and similar factors. Since

CalPERS does not disclose that CalPERS may seize all or part of the invested principal if the

Plaintiff later becomes disabled, there is no way that a disabled Plaintiff could "weigh" that

possibility.

383. Likely the reason that CalPERS does not disclose the risk of loss to disabled

Plaintiffs is that the PERL does not support CalPERS' characterization of the investment as

"normal contributions" in the Member's job at the time of purchase and then the subsequent

seizure by CalPERS.

CalPERS' Failure to Disclose and Failure to Warn of Potential Loss of or

Reduction in Military Time, ARSC and PVSC Investment and Benefits

384. The CalPERS web site fails to disclose the potential loss, seizure, forfeiture or

denial of military time, ARSC or PVSC benefits (and/or the reduction in the IDR) if a Member

later takes IDR. For example, the "Calculate My Service Credit Cost" calculator says only:

If you plan on retiring on a disability or industrial disability retirement you shouldcontact CalPERS to determine if purchasing Service Credit will increase yourretirement benefit. (Emphasis added)

385. Disability is an unexpected event that may unfortunately befall a Plaintiff in the

future. There is no "planning" involved.

386. A more correct disclosure as proposed by Plaintiffs would read:

Warning. Risk of Total Loss. Please Seek Independent Advice. If you becomedisabled, CalPERS can seize without a hearing all of the money you invest inmilitary time, ARSC or PVSC service credit because CalPERS characterizes theinvestment as contributions in your current job. If you get disabled, CalPERS willprovide you little or no added benefit. Strongly consider waiting to purchase thisoption until your service retirement is greater than what you would receive in apotential disability retirement allowance.

387. CalPERS requires Plaintiffs to utilize the "Calculate My Service Credit Cost"

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calculator on the CalPERS web site, and encourages Plaintiffs contemplating the purchase of

military time or other PVSC to utilize the same calculator on the CalPERS web site. That

calculator informs Plaintiffs whether they meet the eligibility criteria. CalPERS requires

Plaintiffs to enter their date of birth, years of service credit, retirement formula, and other factors

in the calculator to determine the purchase price for military time, ARSC or PVSC.

388. The CalPERS calculator estimates the cost of service credit, either by lump sum

or by installment payments. Importantly, the CalPERS calculator also provides Plaintiffs with an

estimate of the "increase" in monthly retirement benefits they would receive if they go forward

with the purchase of such military time, ARSC or PVSC.

389. The CalPERS calculator does not disclose the various material facts and law in

issue herein, including failing to disclose that CalPERS had given itself authority to seize the

investment and/or deny the additional benefit if the Plaintiff files for disability; and failing to

disclose that the estimated cost for the purchase of military time, ARSC and PVSC includes a

"surcharge" or extra monies to pay costs, charges or expenses for IDR allowances, unfunded

liability, disability experience or other costs unrelated to funding the total estimated cost of the

portion of the Member's future service retirement allowance attributable to the service credit

purchased.

390. After reviewing the calculations on the CalPERS web site, the Plaintiff must

submit a written request to CalPERS to purchase such ARSC service, attaching a copy of the

estimate obtained by the Plaintiff from the CalPERS calculator. CalPERS requires that Plaintiffs

also submit forms to purchase military time and PVSC. CalPERS in return provides the Plaintiff

with a written "Election to Purchase Service Credit" contract (or its equivalent) to purchase

military time, ARSC or other types of PVSC. CalPERS' Election contracts often provide a

specific estimate of the increased monthly pension allowance the Plaintiff can expect to receive

upon retirement from the purchased military time, ARSC or PVSC.

•/6 391. True and correct copies of "Election to Purchase Service Credit" contracts

27 executed by named Plaintiffs Andert and Slaughter and similar to Election contracts signed by

28 other Plaintiffs who purchased military time are attached as Exhibits 2 and 13. A true and

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correct copy of an "Election to Purchase ARSC" contract similar to that executed by named

Plaintiff MacLaren and similar to Election contracts signed by other Plaintiffs who purchased

ARSC is attached as Exhibit 9. Similar Election or purchase contracts were executed or will be

executed by other Plaintiffs to purchase military time, ARSC or PVSC.

392. The written Election materials that CalPERS sends to Plaintiffs are incomplete

and misleading, including in that it fails to advise Plaintiffs that in setting the purchase price,

CalPERS has added a "surcharge" or extra monies to pay costs, charges or expenses for IDR

allowances, unfunded liability, disability experience or other costs unrelated to funding the total

estimated cost of the portion of the Member's future service retirement allowance attributable to

the service credit purchased.

393. The written Election materials that CalPERS sends to Plaintiffs offer incomplete,

misleading or nonexistent disclosure of the potential loss of benefits. For example:

ESTIMATED MONTHLY PENSION INCREASE

The estimated monthly pension increase information was calculated using themonthly pay rate shown above based upon the highest monthly retirement pensionoption. This amount is only an ESTIMATE; whereas your actual retirementallowance will be based upon your average payrates.

For SAFETY MEMBERS purchasing additional safety service, keep in mindthat the percentage of retirement allowance to which you will be entitled underthe Safety formula is limited to a percentage of your average CalPERScompensation at the time of retirement. The estimated monthly pension increaseshown above takes your current posted service and benefit cap into consideration.

If you are considering a DISABILITY RETIREMENT, this additional servicecredit may not benefit you. You may request a retirement estimate with andwithout this additional service credit by submitting a CalPERS RetirementEstimate Request Form (MSD 470) along with a copy of this cover letter or usethe Retirement Planning Calculator on our website at http://www.calpers.ca.gov .If you need additional information or retirement counseling, please contactCalPERS at (888) 225-7377.

[See Exhibit 24; emphasis added to the word "increase" in bold italics above.]

394. The incomplete, misleading or nonexistent disclosure is defective. Plaintiffs are

already fully vested in IDR at the time of contracting. CalPERS cannot offset the vested IDR

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without a clear and knowing waiver or disclosure. CalPERS cannot accept the funds as

"permissive service credit" without calculating a benefit and costing the credits so that they only

cost as much as the benefit provided. CalPERS cannot legally cause the Member to pay for any

portion of his or her workers' compensation. The disclosure itself discloses only an increase in

retirement allowance. A more correct sample disclosure proposed by Plaintiffs could read:

Warning. Risk of Total Loss. Please Seek Independent Advice. If you becomedisabled in the future, CalPERS can seize all of the money you invest in militarytime, ARSC or PVSC service credit without authority, notice or a hearing becauseCalPERS characterizes the investment as contributions in your current job. If youbecome disabled, CalPERS will not provide additional benefits. In varioussituations, CalPERS may take this money and give you nothing. There is noguaranteed increase in pension benefits.

395. All ambiguities in the contract are construed against CalPERS. CalPERS' failure

to distinctly and clearly disclose an offset, coordination, exclusions, or other coordination of

benefits indicates that the contract language must be construed in the Member's favor.

396. If the Plaintiff accepts CalPERS' contractual offer, he or she signs and returns the

Election documents and agrees to pay the required payment. At that point, the Plaintiff and

CalPERS have entered into what CalPERS describes as an irrevocable written contract.

However, at this point, there are fundamental mistakes of fact and law that make the contract

voidable at the Plaintiffs option.

397. In advertising and providing military time, ARSC and PVSC, CalPERS

encourages or requires the Plaintiff to go to the CalPERS web site to enter information in the

cost calculator to determine the cost, terms and conditions for the purchase of military time,

ARSC and PVSC. There is no negotiation allowed. CalPERS offers the benefits on a take-it-or-

leave-it basis.

398. In CalPERS' advertising and promotion material, CalPERS does not disclose the

risk of loss. In CalPERS' response to Plaintiffs' requests to purchase military time, ARSC or

PVSC, CalPERS does not disclose any risk of loss of the purchased benefit or any potential

reduction in the IDR, nor does it disclose that CalPERS improperly includes (within the

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"employer contributions" portion of the purchase price) expenses, charges, valuations, or

increases for IDR allowances, unfunded liability, disability experience, actuarial factors

unrelated to the increase in Member's service pension, or other costs unrelated to funding the

total cost of the Member's future service retirement.

399. Disability allowances are an essential service to provide funds to those who have

been injured in safety or other dangerous positions. It is an insurance-like service. CalPERS

admits that IDR allowances are in the nature of workers' compensation. In most IDR cases,

CalPERS is the only supplier and administrator of benefits. CalPERS must administer the

disability entitlement according to statute. In practical terms, there is no negotiation.

400. Procedurally, CalPERS has vastly superior knowledge and bargaining power

which results in the absence of meaningful choice for Plaintiffs about their retirement and

disability. Since CalPERS is the monopoly provider of pension rights and disability

administration, CalPERS has superior expertise and knowledge in both of those complex areas.

Plaintiffs implicitly or explicitly rely on CalPERS.

401. In essence, CalPERS uses its superior bargaining position to reduce its disability

expenses, for itself and its contracting agencies, when it overcharges, seizes or reduces the

military time, ARSC or PVSC credit investments from disabled Plaintiffs and when it improperl y

includes expenses, charges, valuations, or increases for IDR allowances, unfunded liability,

disability experience, actuarial factors unrelated to the increase in Member's service pension, or

other costs unrelated to funding the total cost of the Member's future service retirement in the

cost of the military time, ARSC or PVSC.

402. Disabled Plaintiffs are surprised when they learn that (i) no or substantially

reduced additional military time, ARSC or PVSC benefits will be paid if they receive a disability

allowance and (ii) CalPERS will not refund the payments they have made.

403. CalPERS' seizure of the military time, ARSC or PVSC investment and benefit is

oppressive as it imposes harsh and oppressive forfeiture on disabled Plaintiffs. CalPERS'

seizures of disabled Plaintiffs' funds frustrates the purpose of military time, ARSC, PVSC, and

disability.

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404. CalPERS' breach of the military time, ARSC and PVSC contracts, resulting in a

reduction of disability entitlement and/or seizure of disabled Plaintiffs' funds, is illegal and void

as contrary to public policy, law, and statute. (Civil Code, §§1595, 1599 and 1608.)

CalPERS' Disclosures Concerning the 1959 Survivor Allowance Plan

and the Cap on Safety Members' Pension Allowances

405. By comparison to CalPERS' failure to advise disabled Plaintiffs that CalPERS

may seize or fail to properly credit each Plaintiffs investment in the optional benefits (in whole

or in part) if the Plaintiff retires on IDR, CalPERS provides disclosures concerning the CalPERS

1959 Survivor Allowance plan where CalPERS Members pay a mandatory premium (normally

$2 per month) to allow their eligible survivors to claim an allowance after the Member's death.

The 1959 Survivor Allowance plan functions, in effect, as an insurance fund.

406. Enrolled Members are informed of the fact that each of them is being charged the

monthly premium, with the deduction reflected on the Member's pay check.

407. By comparison, CalPERS also provides disclosures in the written Election

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•15 materials that the pension allowances of safety Members (police, fire, and similar occupations)

16 are limited to a statutorily fixed amount of their CalPERS compensation at the time of

17 retirement. (Exhibit 24.) CalPERS discloses that safety Members' pensions are "capped" at a

18 fixed percentage of their final compensation29, depending on which CalPERS plan they qualify

19 for.

20 408. It is unconscionable that CalPERS provides disclosure of the 1959 Survivor

21 Allowance and warns about the cap on safety Member pensions, but fails to disclose the risk of

loss of military time, ARSC or PVSC investments if a Member takes an IDR, as commonly

23 occurs.

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26 29 For example, the pensions of California State University police officers in the "3% @50" plan are limited to 90% of their final compensation. (Government Code, §21363.3.) If a CSU

27 officer had 30 years of earned service credit, he or she already would be ai the 90% level and28 would get no additional benefit from the purchase of military time, ARSC or PVSC.


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The Agreement

409. While CalPERS made written representations and representations implied by

conduct to Plaintiffs, the final executed written contracts are the basis of the contract action.

(Exhibits 2, 9 and 13.) (Code of Civil Procedure §430.10(g).)

410. CalPERS promised in writing to provide Plaintiffs with increases in their future

allowance if Plaintiffs purchased military time, ARSC or PVSC.

411. Plaintiffs transferred money to CalPERS based on CalPERS' promise to pay an

"increased" allowance for military time, ARSC and/or PVSC.

412. Plaintiffs have performed all required conditions precedent or conditions imposed

by the military time, ARSC or PVSC contracts.

413. CalPERS accepted Plaintiffs' money knowing that Plaintiffs believed that they

would receive a valuable "increase".

414. CalPERS accepted all Plaintiffs' money knowing that Plaintiffs believed that the

price they were paying for the military time, ARSC and/or PVSC only included expenses related

to funding the total cost of the Member's future service retirement.

415. Plaintiffs and CalPERS reached a written agreement whereby Plaintiffs

transferred money to CalPERS and CalPERS accepted Plaintiffs' money for an increase in

Plaintiffs' future allowance.

416. Plaintiffs allege that on the first date of Plaintiffs signing CalPERS' irrevocable

written contract "Election to Purchase Military Time" or other written contracts to purchase

ARSC or PVSC, Plaintiffs and CalPERS reached a written agreement.

417. Plaintiffs allege that on the earliest date of (i) CalPERS accepting Plaintiffs'

"Election to Purchase Military Time" or other written Election contracts and/or (ii) CalPERS

depositing Plaintiffs' roll-over funds and/or (iii) CalPERS accepting Plaintiffs' first installment

payment for the purchase of military time, ARSC or PVSC, Plaintiffs and CalPERS reached a

written agreement.

418. The essential terms of the agreements with respect to military time, ARSC and

PVSC are that disabled Plaintiffs made contributions to CalPERS and CalPERS promised to pay

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the Plaintiffs an increased allowance.

419. The essential terms of the agreements with respect to military time, ARSC and

3 PVSC are that disabled Plaintiffs made contributions to CalPERS and CalPERS promised to pay

4 the Plaintiffs an increased allowance.

5 420. The essential terms of the agreements with respect to military time, ARSC and

6 PVSC are that all Plaintiffs made contributions to CalPERS believing that they were only being

7 charged expenses related to finding the total cost of each Plaintiffs future service retirement.

8 421. The essential terms of the agreement with respect to disability benefits is that

9 Plaintiffs are entitled to the rights in statute.

10 Plaintiffs' Full Performance

II 422. Plaintiffs have performed all conditions, covenants, and promises required on

12 their part to be performed in accordance with the terms and conditions of CalPERS membership,

13 the disability entitlement statutes, and their individual Election contracts to purchase military

14 time, ARSC and/or PVSC, however, some of the class members still are obligated to pay future

15 installment payments for their military time, ARSC or PVSC purchases.

16 CalPERS' Breach of the Agreement

17 423. CalPERS breached the military time, ARSC and PVSC agreements with disabled

18 Plaintiffs by CalPERS' nonpayment of the promised increased benefits. CalPERS also breached

19 the agreement to provide full IDR benefits.

20 424. CalPERS may have also breached the agreement at inception when CalPERS

21 failed to disclose that CalPERS characterized the military time, ARSC and PVSC contributions

22 as "normal contributions" in the job or position that the Member held at the time of purchase of

/3 the optional benefit, without statutory or other support to do so.

24 425. CalPERS may have also breached the agreement at inception when CalPERS

25 failed to disclose that CalPERS was including in the purchase price expenses unrelated to

funding the total cost of each Plaintiffs future service retirement.

27 426. The discovery of the harm and the cause of the harm was delayed and only first

/8 occurred much later, and only recently. - 95 -


427. On the first date that disabled Plaintiffs sought information from CalPERS,

CalPERS failed to disclose to Plaintiffs that (i) CalPERS will not pay the full additional military

time, ARSC or PVSC benefit in the full amount above the Plaintiffs' disability entitlement, (ii)

CalPERS will also refuse to refund the Plaintiffs' lump sum and installments payments made,

including with interest, and (iii) CalPERS characterized the invested military time, ARSC and

PVSC funds as contributions in the job held by the Member at the time of purchase.

428. On the first date that all Plaintiffs sought information from CalPERS, CalPERS

failed to disclose to Plaintiffs that the cost estimates and purchase prices incorporated in the final

Election documents (i) include expenses in the cost of military time, ARSC and PVSC that are

unrelated to funding the total cost of each Plaintiffs future service retirement and (ii) include

expenses, charges, valuations, or increases for IDR allowances, unfunded liability, disability

experience, actuarial factors unrelated to the increase in Member's service pension, or other costs

that are the responsibility of the employers or retirement system to pay.

429. On the first date that all Plaintiffs sought information from CalPERS, CalPERS

failed to disclose to Plaintiffs that the installment fee or surcharge incorporated in the final

installment contracts (i) include expenses or costs that are unrelated to funding the total cost of

each Plaintiffs future service retirement and (ii) include expenses, charges, valuations, or

increases for IDR allowances, unfunded liability, disability experience, actuarial factors

unrelated to the increase in Member's service pension, or other costs that are the responsibility of

the employers or retirement system to pay.

430. On disabled Plaintiffs' first day of entitlement to monies from CalPERS, and

continuing thereafter, CalPERS breached the agreement by failing to pay in full the military

time, ARSC, PVSC or IDR benefit, including (i) failing to pay an additional benefit (including

the contracted additional military time, ARSC or PVSC benefit) in the full amount above the

disability entitlement and/or (ii) failing to refund the Plaintiffs' lump sum and installments

payments, including with interest.

431. On disabled Plaintiffs' first day of entitlement to monies from CalPERS, and

continuing thereafter, CalPERS breached the military time, ARSC or PVSC agreements by

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nonpayment in full of a separate military time, ARSC or PVSC benefit in addition to the amount

of the statutory disability allowance.

432. CalPERS' breach and nonpayment proximately and directly caused Plaintiffs to

lose some or all of the value of (i) the additional military time, ARSC or PVSC that they

contracted for, and (ii) the investment that they had transferred to CalPERS in lump sum or by

installment for the purchase of military time, ARSC or PVSC.

433. Alternatively, CalPERS' breach and nonpayment of the military time, ARSC or

PVSC contracts proximately cause the Plaintiffs to suffer a diminution in the value of their

statutory IDR allowance (which CalPERS also pays).

434. CalPERS' failure to perform as required was unjustified and unexcused and

clearly in breach of CalPERS promise to perform.

435. CalPERS' failure to perform as required was unjustified and unexcused and

clearly in breach of CalPERS' written agreements that it entered into with each Plaintiff and each

member of the putative class.

Plaintiffs' Damages

436. Plaintiffs and all members of the class have suffered damages proximately caused

by CalPERS' breach of its agreements. The damages, in an amount to be proven, are clearly

ascertainable in their nature and origin.

437. Plaintiffs seek in damages or compensation an amount which will compensate

Plaintiffs for all the detriment proximately caused by CalPERS, or which, in the ordinary course

of things, would be likely to result from CalPERS' breach.

438. As a result of CalPERS' breach, disabled Plaintiffs suffered damages legally and

proximately caused by CalPERS' breach of the agreement in the amount of disabled Plaintiffs'

funds that were transferred to CalPERS by roll-over or paid in installments, plus interest from th

respective dates of deposit. Plaintiffs and the members of the class are also entitled to

compensatory damages in an amount to be proven at trial.

439. Disabled Plaintiffs who are already retired seek damages, rescission, restitution,

declaratory relief, and a return of the lump sum and installment payments made for their

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purchases of military time, ARSC or PVSC, with interest. (Civil Code, §§3300 and 1692.)

440. Plaintiffs who are been overcharged seek damages, rescission, restitution,

declaratory relief, and a return of the portion of the lump sum and installment payments made for

their purchases of military time, ARSC or PVSC that was overcharged, with interest. (Civil

Code, §§3300 and 1692.)

441. Plaintiffs who have paid or are paying an installment fee seek damages,

rescission, restitution, declaratory relief, and a return of the installment fee with interest. (Civil

Code, §§3300 and 1692.)

442. Plaintiffs damages are all caused by CalPERS' illegal policy and practice, in

contravention of statute, and the amount of damages are easily ascertainable.

443. For Plaintiffs that are not yet retired, CalPERS has repudiated material terms of

the contract in an anticipatory breach and those Plaintiffs seek rescission and restitution.

444. CalPERS' contracts associated with military time, IDR, ARSC and PVSC (i)

breach the implied covenant of good faith and fair dealing, (ii) are unenforceable as material

terms are hidden, (iii) are illegal as contrary to the authorizing statute, (iv) violate public policy

inherent in the disability and retirement statutes, (v) disappoint the reasonable expectations of the

Plaintiffs, (vi) breach CalPERS' fiduciary duties, and (vii) are fraudulent.

445. Plaintiffs' "consent" to the military time, ARSC and PVSC purchase contracts was

given by mistake, fraud or undue influence by CalPERS. (Civil Code, §§1565-1584 and

1689(b)(1).) Plaintiffs suffered a material "mistake of fact" and/or "mistake of law." (Civil Code,

§§1576-8.)

446. As for a mistake of fact, Plaintiffs (i) were ignorant of a past or present fact

material to the contract, and/or (ii) believed in the present existence of something material to the

contract that does not exist, or in the past existence of something that never existed. (Civil Code,

§1577.) The effect of the mistake is such that enforcement of the contract would be

unconscionable. Substantive (and procedural) unconscionability is clearly present from the

oppression and surprise that resulted.

447. The mistake concerns a basic assumption upon which the contract was made; the

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mistake has a material effect on the agreed exchange of performances under the contract that is

adverse to Plaintiffs; the Plaintiffs did not bear the risk of the mistake; and the effect of the

mistake is such that enforcement of the contract would be unconscionable.

448. A mistake of law exists because the Plaintiffs misunderstood the law at the time

of contracting and CalPERS knows the "correct" law but does not rectify the other party's

misunderstanding. (Civil Code, §1578.)

449. CalPERS perpetrated a fraud on Plaintiffs sufficient to support the Plaintiffs'

unilateral rescission because of "actual fraud" or "constructive fraud". (Civil Code, §§1571-

1574.) A presumption of constructive fraud arises when the parties are in a confidential (i.e.

fiduciary) relationship.

450. Plaintiffs will make an election of remedy at the time of trial.

451. Plaintiffs are entitled to pre-judgment, post-judgment, and all other interest (i) on

the principal amount invested from the date of first investment of money and continuing on

cumulatively until paid; and (ii) on each underpayment of amounts payable but unpaid from the

time that such payment was due, and (iii) on all other monies or benefits due but unpaid pursuant

to the higher of the rates described in Government Code section 20178; Government Code

section 20017; Government Code section 20014; California Constitution, Art. 15, §1; Civil Code

section 3287; and/or Civil Code section 3289. Plaintiffs are entitled to interest and prejudgment

interest. (Civil Code, §§3287(a) and 3288.) Plaintiffs will elect the interest provision at trial.

452. Plaintiffs are entitled to benefit of the bargain damages, including the award of

such sums of money as would allow them to replace the future income stream that they would

have received from the optional benefit, including for example, the award of such monies as

would allow them to purchase an alternative investment that would have yielded the same

expected return that they expected or were promised.

THIRD CAUSE OF ACTION

(For Rescission, Restitution)



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454. Plaintiffs seek rescission of their purchase contracts. A contracting party has a

right to what it contracted for, and so has the right to rescind where he obtained something

substantially different from that which he is led to expect. (Civil Code, §§1688, et seq.)

455. Using unconscionable contracts of adhesion that do not disclose the risk of loss if

the Plaintiff is disabled, coupled with CalPERS' superior bargaining position (including as the

mandatory pension plan and only source of disability payments for state workers and other

public employees working for CalPERS employers), CalPERS advertises, induces Plaintiffs to

contract, and contracts with Plaintiffs to purchase military time, ARSC and PVSC on the explicit

and implicit promise that their retirement benefit will increase.

456. Using unconscionable contracts of adhesion that include inappropriate charges or

do not disclose the overcharging, inclusion of costs unrelated to the additional service benefit, or

installment fees, coupled with CalPERS' superior bargaining position (including as the

mandatory pension plan and only source of disability payments for state workers and other

public employees working for CalPERS employers), CalPERS advertises, induces Plaintiffs to

contract, and contracts with Plaintiffs to purchase military time, ARSC and PVSC on the explicit

and implicit promise that their retirement benefit will increase in a cost neutral amount to the

investment provided by Plaintiffs.

457. CalPERS failed to disclose that it accounted for the military time, ARSC and

PVSC investments as contributions made in the position held at the time of purchase, rather than

the "military time", "air time" or other time or service purchased.

458. With their consent given under mistake or by fraud, Plaintiffs who are already

retired seek rescission, restitution, declaratory relief, and a return of the lump sum and

installment payments made for their purchases of military time, ARSC or PVSC. (Civil Code,

§1692.)

459. For Plaintiffs that are not yet retired, CalPERS has repudiated material terms of

the contract in an anticipatory breach and those Plaintiffs seek rescission and restitution.

460. Voidable or subject to rescission with restitution plus interest at the Plaintiffs'

option, the military time, ARSC and PVSC contracts (i) breach the implied covenant of good

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faith and fair dealing, (ii) are unenforceable as material terms are hidden, (iii) are illegal as

contrary to the authorizing statute, (iv) violate public policy inherent in the disability and

retirement statutes, (v) disappoint the reasonable expectations of the Plaintiff, (vi) breach

CalPERS' fiduciary duties, and (vii) are fraudulent.

461. Plaintiffs' "consent" to the military time, ARSC and PVSC purchase contracts was

given by mistake, fraud or undue influence by CalPERS. (Civil Code, §§1565-1584 and

1689(b)(1).) Plaintiffs suffered a material "mistake of fact" and/or "mistake of law." (Civil Code,

§§1576-8.)

462. As for a mistake of fact, Plaintiffs were (i) ignorant of a past or present fact

material to the contract, and/or (ii) believed in the present existence of something material to the

contract which does not exist, or in the past existence of something which never existed. (Civil

Code, §1577.) The effect of the mistake is such that enforcement of the contract would be

unconscionable. Substantive (and procedural) unconscionability is clearly present from the

oppression and surprise that resulted.

463. The mistake concerns a basic assumption upon which the contract was made; the

mistake has a material effect on the agreed exchange of performances under the contract that is

adverse to Plaintiffs; the Plaintiffs did not bear the risk of the mistake; and the effect of the

mistake is such that enforcement of the contract would be unconscionable.

464. A mistake of law exists because the Plaintiffs misunderstood the law at the time

of contracting and CalPERS knows the "correct" law but does not rectify the other party's

misunderstanding. (Civil Code, §1578.)

465. CalPERS perpetrated a fraud on Plaintiffs sufficient to support the Plaintiffs'

unilateral rescission because of "actual fraud" or "constructive fraud". (Civil Code, §§1571-

1574.) A presumption of constructive fraud arises when the parties are in a confidential (i.e.

fiduciary) relationship.

466. Even CalPERS' innocent misrepresentation supports Plaintiffs' right of rescission

as a type of "mistake".

467. The military time, ARSC and PVSC purchase contracts are subject to unilateral

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rescission because they are unlawful "for causes which do not appear in its terms and conditions"

and "the parties are not equally at fault " (Civil Code, §1689(b)(5).) There is no statute that

supports CalPERS allowing members to buy more service credit in the position that the Member

held at the time of purchase.

468. Plaintiffs may also rescind the military time, ARSC and PVSC purchase contract

because its enforcement would be prejudicial to the public interest. (Civil Code, §1689(b)(6).)

469. Plaintiffs assert the right to rescind under "any other statute providing for

rescission." (Civil Code, §1689(b)(7).)

470. Plaintiffs seek the restitution of all lump sum and installment payments for the

purchase of military time, ARSC or PVSC, plus interest from the date of deposit. (Civil Code,

§1692.)

471. Plaintiffs offer to restore everything of value which the Plaintiffs have received

from CalPERS under the contract upon condition that CalPERS do likewise. (Civil Code,

§1691.)

472. Plaintiffs seek to recover any and all money owing to Plaintiffs by CalPERS as a

consequence of the rescission and for any other relief to which Plaintiffs may be entitled. (Civil

Code, §1692.)






section 20017; Government Code section 20014; California Constitution, Art. 15, §1; Civil Code



474. Plaintiffs seek any and all relief that is necessary to adjust the equities between

the parties and ensure restoration to the pre-contract status quo. (Civil Code, §1692.)

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FOURTH CAUSE OF ACTION

(For Breach of Fiduciary Duty)


forth in frill herein.

476. Pursuant to Article XVI, Section 17, of the California Constitution, CalPERS has

a fiduciary duty to provide its Members with the pension rights and benefits to which they are

entitled under the PERL and CalPERS' pension plans. Specifically, Article XVI, Section 17,

subdivision (b) provides that "[a] retirement board's duty to its participants and their beneficiarie

shall take precedence over any other duty."

477. CalPERS has a special relationship with Plaintiffs. State workers are required to

join CalPERS for both their service and disability retirements. Many local agencies contract with

CalPERS to provide benefits. Public sector workers repose great trust and confidence in

CalPERS.

478. CalPERS administers the disability retirement program that is mandatory for state

workers and for contracting agencies. In IDR cases involving Members other than local safety

Members, CalPERS also holds hearings and determines the entitlement to benefits. In IDR cases

involving local safety Members, the local agencies hold the entitlement hearings, but CalPERS

administers the benefits once the local agency determines the threshold entitlement.

479. CalPERS has breached and has indicated its intention to continue to breach its

fiduciary duty to Plaintiffs by engaging in the policy and practice described above.

480. CalPERS breaches it fiduciary duties including by (i) failing to disclose that it

will not pay an additional military time, ARSC or PVSC benefit in certain cases, (ii) treating

certain Members differently than other similarly situated Plaintiffs; (iii) failing to interpret the

disability, military time, ARSC, and PVSC statutes in way favorable to the beneficiaries; (iv)

failing to properly account for the military time, ARSC and PVSC contributions; (v) failing to

properly account for disability contributions; (vi) dividing its loyalty such that some of the

Plaintiffs' military time, ARSC or PVSC contributions do not benefit Plaintiffs; (vii)

overcharging Plaintiffs; and (viii) in other ways to be proven at trial.

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481. Government Code section 815.6 provides that when a public entity is under a

mandatory duty imposed by an enactment that is designed to protect against the risk of a

particular kind of injury, the public entity is liable for an injury of that kind proximately caused

by its failure to discharge the duty unless the public entity establishes that it exercised reasonable

diligence to discharge that duty.

482. The constitutional, statutory and adopted fiduciary duties impose upon CalPERS

mandatory fiduciary duty, including a duty to adequately inform Plaintiffs of the election to

benefits, so CalPERS is liable for Plaintiffs' resulting damages, including the loss of monies used

to buy military time, ARSC and/or PVSC in these circumstances, or the reduced disability

benefits, because CalPERS breached its fiduciary duties to Plaintiffs, including by failing to

adequately disclose the possibility that led to the loss.

483. As a result of CalPERS' breach of its fiduciary duties to Plaintiffs, Plaintiffs have

been and/or will be substantially harmed, in the manner set forth above.

484. Plaintiffs seek rescission and restitution, damages in an amount that would

compensate them for the stream of funds that they believed they are entitled to, interest, and

damages in an amount to be proven at trial, with an election of remedies at trial.

FIFTH CAUSE OF ACTION

(For Denial of Equal Protection)



486. The Equal Protection clauses of the California Constitution and United States

Constitution guarantee each person the equal protection of the law. (XIV Amendment, United

States Constitution, and Article 1, California Constitution.)

Equal Protection: CalPERS' Charges Plaintiffs More of IDR

or Workers' Compensation than Other Employees

487. Under CalPERS' current policy and practice, CalPERS charges Plaintiffs that

purchased military time, ARSC or PVSC additional fees or costs associated with employer costs,

including but not limited to IDR, unfunded liability, or insurance "in the nature of workers'

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compensation", that it does not charge to those who do not buy the optional service credits.

CalPERS is not allowed to charge employees for a share of their workers' compensation

insurance on CalPERS' behalf or on behalf of the employers.

Equal Protection: CalPERS' Payment of Military Time, ARSC and PVSC Benefits

To Some Disabled Members While Denying the Same to Plaintiffs

488. Under CalPERS' current policy and practice, some disabled CalPERS Members

that purchased military time, ARSC or PVSC are receiving or will receive a pension allowance

that pays them the full value of the military time, ARSC or PVSC benefits they have purchased.

Plaintiffs, however, are receiving or will receive none, or at most only a reduced portion, of the

value of their military time, ARSC or PVSC benefits.

489. This discriminatory treatment happens under a number of scenarios, including,

inter alia:

Example 1 —Total Loss of Military Time, ARSC or PVSC for Plaintiffs Below

50 Years Old Who Qualify for an IDR: The average age of Members taking an IDR is

46 years old. Any Plaintiff who is under the age of 50 is not eligible to take a service

retirement. CalPERS will pay only an IDR allowance (in most instances 50% of final

compensation), irrespective of whether the Plaintiff had purchased military time, ARSC

or PVSC.

Example 2 —Plaintiffs Eligible to Retire Who Qualify for an IDR: Plaintiffs

who are at least 50 years of age and meet the other criteria for eligibility to take a service

retirement will not receive full value for their service credit purchase. For illustration,

consider three proposed CalPERS Members, all employees of a local police department

with a CalPERS "2% @ 55" retirement plan. The first two would be members of the

putative class. Only the third would receive full value for his military time, ARSC or

PVSC.

2(a) — Partial Loss Under IDR Example: The first Member, who has

22 years of service but who also bought four (4) years of military time, would

end up with a total of 26 years of service credit (22 for his years on the job

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plus the additional four (4) years of military time). Under CalPERS' current

policy and practice, he would be entitled to take a service retirement with a

pension of 52% of his final compensation, with the first 50% categorized as

IDR. However, he purchased four years of military time anticipating an 8%

increase in his retirement pension (2% more of his final compensation for

each of the four years of military time under his "2% @ 55" plan). Instead,

CalPERS would pay him only 2% over and above the 50% allowance to

which he is legally entitled under the IDR statutes. If the 2% increase in

service allowance is less than the annuity this Member should receive for his

military time contributions pursuant to Government Code section 21420, he

would not receive the full value of that benefit.

2(b) — Total Loss Under IDR Example: A second Member, who has 16

years of service credit and who also bought an additional five years of ARSC,

would end up with a total of 21 years of service credit (16 for her years on the

job plus the additional five years of ARSC). Her service retirement would be

only 42% of final compensation so, under CalPERS' policy and practice, she

would opt to take the 50% IDR allowance. In her case, she would have

purchased the ARSC at considerable cost and received absolutely nothing for

it.

2(c) — Complete Credit Under IDR: A third Member, who has 28 years

of service and who also bought three years of Peace Corps time, would end up

with a total of 31 years of service credit (28 for his years on the job plus the

additional three years of Peace Corps time). His service retirement would be

62% of final compensation. He would be the only person in these examples

who would receive full value for the purchased service credit.

490. The above-described scenarios are not exhaustive. They simply illustrate some of

the situations under this common legal problem where CalPERS pays disabled Plaintiffs (and

those who will become disabled in the future) little or none of the value of the military time,

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ARSC or PVSC they purchased. The class is easily identified and easily categorized, albeit

perhaps with subgroups containing those suffering different identifiable damages from the same

improper policy and procedure by CalPERS.

Equal Protection: CalPERS' Discriminatory Award or Denial of Military Time

ARSC and PVSC Benefits Based On the Member's Job At Time of Purchase

491. In addition, CalPERS also violates equal protection and unfairly discriminates

when it pays military time, ARSC or PVSC benefits to some disabled Members and denies

military time, ARSC or PVSC benefits to other disabled Plaintiffs. Many CalPERS Members

work in a two or more different jobs:

Example 3(a): If such a Member becomes disabled and qualifies for an IDR in a

different job than the Member had when he or she bought the additional service credit,

the Member will receive the applicable disability allowance as well as an annuity

purchased with the accumulated normal contributions made while in the earlier category

of membership. (Government Code, §21420.)

Example 3(b): If a Member purchases military time, ARSC or PVSC, stays in the

same job, and suffers a disability in that job, the Member may not get any additional

benefit for that purchased service credit.

492. There is no rational or legitimate reason for treating the two Members differently

simply because one changed jobs while the other did not, or because of the timing of when each

suffered a disability.

493. Moreover, the contributions made in respect to military time, ARSC and PVSC

are by definition something other than service credit in the job. Government Code section 21420

should provide Plaintiffs with an annuity purchased with those contributions, in addition to the

disability allowance to which Plaintiffs are entitled, regardless of what job the Plaintiff was in

when he or she purchased the military time, ARSC and/or PVSC.

494. When CalPERS uses Plaintiffs' military time, ARSC and PVSC investment to

offset the employers' and/or the retirement system's cost and to fund Plaintiffs' IDR allowances,

CalPERS is "double expensing" (or more) the Member for the cost of his or her own IDR

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allowance. Because the Plaintiffs who buy military time, ARSC or PVSC pay both the employee

and employer's contributions for that additional service benefit (while contemporaneously still

paying obligatory "normal contributions" to fund a potential IDR as a regular part of their

employment), CalPERS' current policy and practice makes Plaintiffs fund a much greater share

of the cost of their own disability allowances than other similarly situated Members who suffer a

disability and receive and 1DR allowance but do not buy military time, ARSC or PVSC.

Equal Protection: CalPERS' Refund of Prospective Payments for

Military Time, ARSC and PVSC But Its Refusal to Refund Prior Payments

495. Because military time, ARSC and PVSC is so expensive, many Plaintiffs contract

to buy it from CalPERS in installments to be paid from future payroll contributions. Some

Plaintiffs became disabled before paying off their installments.

496. Example 4: If the military time, ARSC or PVSC will not increase a Member's

retirement allowance at all, the Member can elect to terminate his or her installment contract and

stop prospective future payments. (Government Code, §§21037 and 21039.) However, if the

Plaintiff would receive an enhanced service retirement allowance, CalPERS will require the

Plaintiff to pay the remaining cost of the installment contract in frill over time. CalPERS requires

all installment payments even if the increased retirement benefits over the course of the

Plaintiffs lifetime is minimal or the "break even" point is far into the future.

497. CalPERS deems all prior lump sum and installment payments to be forfeited to

CalPERS. There is no statutory support for forfeiture. There is no rational or legitimate reason to

refuse to give Plaintiffs any value for those payments already made.

498. Lump Sum Payment. While some intervening statutes indicate there may be no

refund of installment payments prior to the Member's election to terminate the installment

contract, the statutes do not forbid the refund of lump sum or roll-over monies. (Government

Code, §§21037 and 21039.) Seizure and forfeiture statutes are narrowly construed.

499. The statutes do not specifically authorize the escheatment, forfeiture or seizure of

monies already paid. CalPERS cannot deny the Plaintiff the benefit of those contributions. Those

monies should fund a separate annuity payable to the Plaintiff, over and above the amount of any

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disability allowance.

Equal Protection: CalPERS' Discriminatory Treatment of Plaintiffs

Who Purchase Military Time, ARSC and PVSC Compared to

Members Who Invest In CalPERS' 457 Plan

500. Finally, CalPERS' denial of equal protection and discriminatory treatment of

Plaintiffs is further illustrated by looking at how CalPERS treats Member funds contributed to

the CalPERS 457 defined contribution plan. Since CalPERS also maintains the 457 program, the

method of accounting for contributions to the 457 plan and contributions for military time,

ARSC and PVSC indicate the primary distinguishing feature.

501. Example 5: Both (i) military time, ARSC and PVSC purchases and (ii) 457 Plan

contributions are optional voluntary purchases or investments funded entirely by the Member.

CalPERS offers both programs to its Members as ways to increase their retirement allowances.

502. However, in practical effect, CalPERS treats the military time, ARSC and PVSC

purchase options and 457 Plan investments very differently. A CalPERS Member who

contributes to the CalPERS 457 plan will receive funds once he or she retires, even if the

Member begins receiving a CalPERS disability allowance. On the other hand, CalPERS seizes

the value of Plaintiffs military time, ARSC or PVSC when they suffer a disability as described

above.

503. There is no rational, statutory, or legitimate reason for CalPERS to treat these

investments so differently.

504. The inequity of this treatment is apparent because the money used to purchase the

military time, ARSC or PVSC may well have been rolled over from a Member's 457 plan.

CalPERS actively encourages Members to roll over their 457 contributions to purchase military

time, ARSC or PVSC without disclosing they can be seized if a Member suffers a disability.

505. All of the aforesaid unequal and unfair treatment of Plaintiffs follows from

CalPERS' unlawful policy and practice.

506. As a result of CalPERS' unequal treatment of Plaintiffs in comparison to other

CalPERS Members, Plaintiffs have been denied equal protection of the law, as guaranteed by

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both the California and United States Constitutions, by (i) overcharging them; (ii) denying them

some or all of the increase in their respective retirement allowances that they contracted for in

comparison to other CalPERS Members who similarly purchased military time, ARSC and/or

PVSC but who have received or will receive all of the increase that they contracted for; and (iii)

offsetting in part the IDR allowances of disabled Plaintiffs who bought the benefits (but not the

IDR allowances of the ones that did not buy the military time, ARSC and/or PVSC).

507. The pension rights and benefits denied to Plaintiffs by this unequal treatment

constitute fundamental rights and vested contractual rights.

508. As a result of this denial of equal protection of law, Plaintiffs have been and/or

will be substantially harmed, upon retirement, in the manner set forth above because they have

been denied their constitutional rights, denied associated appropriate financial benefits, interest,

and otherwise harmed.

509. Plaintiffs seek rescission and restitution, damages in an amount that would

compensate them for the stream of funds that they believed they are entitled to, interest, attorney

fees, and damages in an amount to be proven at trial, with an election of remedies at trial.

SIXTH CAUSE OF ACTION

(For Due Process Violation)



511. CalPERS may not deny Plaintiffs' the benefit of military time, ARSC or PVSC

and may not seize the investment in military time, ARSC or PVSC without due process of law.

(Amendment V, United States Constitution and Article I, California Constitution.) Alternatively,

CalPERS may not deny or reduce the amount or value of Plaintiffs' disability allowance without

due process of law.

512. If Plaintiffs are not entitled to the higher additional benefit, the statutes providing

for the military time (Government Code, §§21024, 21027 and 21029), ARSC (Government Code

§20909), PVSC (Government Code, §§21006-21008, 21013, 21020.5, 21023.5, 21025.5 and

21030-21031), pricing of the present value service credit (section 21050, 21037) and disability

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(Government Code, §§21406-21409 and 21411-21414) benefits violate due process because they

2 fail to provide sufficient notice to understand CalPERS' accounting practices or the fact that one

3 may lose the investment and/or not receive additional value for the purchase.

4 513. CalPERS has denied Plaintiffs procedural due process in seizing the military time,

5 ARSC and PVSC benefits and investment without first giving Plaintiffs some adequate legal

6 process.

7 514. CalPERS has denied Plaintiffs substantive due process and the right to be free

8 from arbitrary or unreasonable government actions As a result of this denial of due process of

9 law, Plaintiffs have been and/or will be substantially harmed, upon retirement, in the manner set

10 forth above because they have been denied their constitutional rights, denied associated

11 appropriate financial benefits, interest, and otherwise harmed.

12 SEVENTH CAUSE OF ACTION

13 (For Equitable Relief)

14 515. Plaintiffs hereby incorporate and restate all allegations set out above as though set

15 forth in full herein.

16 516. Plaintiffs seek equitable relief, including in the form of rescission, restitution, an

17 accounting, a constructive trust on all monies that Plaintiffs have contributed to CalPERS

18 associated with military time, ARSC or PVSC, and all other equitable remedies.

19 517. Plaintiffs seek an order appointing a referee to conduct an accounting as necessary

20 to effectuate the equitable relief afforded.

21 518. Plaintiffs seek an order awarding prospective relief

22 519. Plaintiffs seek an order requiring CalPERS to disclose in full in informational

23 material related to military time, ARSC or PVSC the potential for loss of Members' monies used

"x4 to purchase military time, ARSC or PVSC, if the court finds that to be the correct statutory

25 interpretation.

520. Plaintiffs have been and/or will be substantially harmed, including upon

retirement, in the manner set forth above because they have been denied their constitutional

rights, denied associated appropriate financial benefits, interest, and otherwise harmed.

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521. Plaintiffs seek rescission and restitution, interest, and attorney fees, with an

election of remedies at trial.

EIGHTH CAUSE OF ACTION

(For Declaratory Relief)



523. Pursuant to Code of Civil Procedure sections 1060, et seq., Plaintiffs seek a

declaration regarding: (a) their fundamental, vested contractual pension rights and disability

rights; (b) CalPERS' constitutional, statutory and fiduciary duties under the California

Constitution, the PERL, and the CalPERS retirement plans; and (c) CalPERS' equal protection

and due process obligations under the California and United States Constitutions. Plaintiffs are

entitled to such a declaration, there being an actual controversy between Plaintiffs and CalPERS

regarding these issues.

524. Plaintiffs seek a declaration of the rights of Plaintiffs with respect to the military

time statutes (Government Code, §§21024, 21027 and 21029), ARSC statute (Government Code,

§20909), the PVSC statutes (Government Code, §§21006-21008, 21013, 21020.5, 21023.5,

21025.5 and 21030-21031), the pricing statutes (Government Code, §§21050, 21037) and/or the

disability statutes (Government Code, §§21406-21409 and 21411-21414) described above.

525. Plaintiffs seek a declaration of the rights of Plaintiffs with respect to the military

time statutes (Government Code §§21024, 20127 and 21029), ARSC statute (Government Code,

§20909), the PVSC statutes (Government Code, §§21006-21008, 21013, 21020.5, 21023.5,

21025.5 and 21030-21031) and/or the disability statutes (Government Code, §§21406-21409 and

21411-21414) if two or more of the statutes apply concurrently.

526. Plaintiffs seek a declaration of the rights of Plaintiffs with respect to CalPERS'

fiduciary duties to inform, duty of impartiality, duty to interpret statutes in Plaintiffs' favor, and

other fiduciary duties in the context of Plaintiffs transferring funds to CalPERS or the employers

based on the Election language, on the promised "increase", on the contract language, on the

military time statutes (Government Code, §§21024, 21027 and 21029), ARSC statute

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(Government Code, §20909), on the PVSC statutes (Government Code, §§21006-21008, 21013,

21020.5, 21023.5, 21025.5 and 21030-21031), the pricing statutes (Government Code, §§21037,

21050) and/or on or with respect to the disability statutes (Government Code, §§21406-21409

and 21411-21414), especially if two or more of the above apply concurrently.

527. To the extent that one or more of the military time statutes (Government Code,

§§21024, 21027 and 21029), ARSC statute (Government Code, §20909), the PVSC statutes

(Government Code, §§21006-21008, 21013, 21020.5, 21023.5, 21025.5 and 21030-21031)

and/or the disability statutes (Government Code, §§21406-21409 and 21411-21414) are not

sufficiently clear to satisfy the requirements of due process or fair notice under the California

Constitution or the United States Constitution with respect to (i) the nonpayment of the

additional benefit if one receives a disability allowance; or (ii) seizure of the military time,

ARSC or PVSC investment if one receives a disability allowance, or (iii) the reduction of the

disability benefit by the amount of the military time, ARSC or PVSC purchase if one receives a

disability allowance, (iv) overcharging for the benefits; then Plaintiffs seek a declaration that one

or more of the statutes are unconstitutional for violation of due process to the extent identified in

this Complaint.

528. To the extent that one or more of the military time statutes (Government Code,

§§21024, 21027 and 21029), ARSC statute (Government Code, §20909), the PVSC statutes

(Government Code, §§21006-21008, 21013, 21020.5, 21023.5, 21025.5 and 21030-21031), the

pricing statutes (Government Code, §§21037, 21050), and/or the disability statutes (Government

Code, §§21406-21409 and 21411-21414) violate Equal Protection under the California

Constitution or the United States, then Plaintiffs seek a declaration that one or more of the

statutes are unconstitutional to the extent identified in this First Amended Complaint.

529. Plaintiffs seek an order declaring CalPERS' practices and procedures in these

cases to be illegal, to violate equal protection and to breach its fiduciary duties.

530. Plaintiffs seek rescission and restitution, interest, attorney fees, and damages in an

amount to be proven at trial, with an election of remedies at trial.

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NINTH CAUSE OF ACTION

(For An Accounting)



532. Likely since at least as early as the mid-1970's when CalPERS began offering

Members the opportunity to purchase military time and certain types of PVSC, and continuing

up through the present, CalPERS has improperly obtained funds from Plaintiffs through the use

of unlawful conduct, including as described in the paragraphs of this First Amended Complaint.

533. CalPERS has received money as a result of its improper conduct, at Plaintiffs'

expense, and some or all of that money is rightfully due Plaintiffs.

534. The amount of money in overcharging, offsetting, "workers' compensation",

installment and lump sum payments should be readily ascertainable from CalPERS. However, if

CalPERS refuses to comply, or raises issues that explicitly or implicitly implicate or involve

CalPERS accounting practices or procedures, then Plaintiffs are entitled to a full accounting.

TENTH CAUSE OF ACTION

(For Constitutional Impairment of Contract)



536. Government Code sections 20909, 21006-21008, 21013, 21020.5, 21023.5,

21024, 21025.5, 21027 and 21029-21031 impaired Andert's, MacLaren's and Slaughter's and

other Plaintiffs' right to their 50% IDR allowance by causing the money to be described as

"normal contributions" and then used those funds to offset Plaintiffs' disability allowance.

Andert's, MacLaren's and Slaughter's IDR entitlement vested at the time of their first

employment in the "safety" category. CalPERS' practices impaired Andert's, MacLaren's and

Slaughter's and the other Plaintiffs' right to both their IDR allowances and their additional

optional benefits. (California Constitution, Article 1, Section 9.) The contract clauses of the

federal and state Constitutions limit the power of a state to modify its own contracts with other

parties, as well as contracts between other parties. (Allen v. Board of Administration (1983) 34

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Ca1.3d 114, 119; Valdes v. Cory (1983) 139 Cal.App.3d 773, 783; Board of Administration v.

Wilson (1997) 52 Cal.App.4th 1109.)

537. The constitutional prohibition against contract impairment demands that contracts

be enforced according to their just and reasonable purport. Although not permitting a

construction which permits contract repudiation or destruction, the impairment provision does

not prevent laws which restrict a party to the gains reasonably to be expected from the contract."

(California Teachers Assn. v. Cory (1984) 155 Cal.App.3d 494, 510-11; Board of Administration

v. Wilson, supra, 1130-31.)

538. As such, Andert's, MacLaren's and Slaughter's and the other Plaintiffs' existing

IDR vested right should not be impaired by the subsequent impairment established by offsetting

the IDR benefit with the military time, ARSC or PVSC investment.

ELEVENTH CAUSE OF ACTION

(For Estoppel)



540. The California Supreme Court ruled:

The cases which have applied Estoppel to the narrow area of public employeepensions, have emphasized the unique importance of pension rights to anemployee's well-being, and have frequently arisen after employees were inducedto accept and maintain employment on the basis of expectations fostered bywidespread, long-continuing misrepresentations by their employers. In each ofthese instances the potential injustice to employees or their dependents clearlyoutweighed any adverse effects on established public policy.

(Longshore v. County of Ventura 25 Ca1.3d 14.)

541. Clearly, Equitable Estoppel may apply against government 30, and in particular

against retirement systems:

30 Where owner of property, in good-faith reliance upon governmental representation thatconstruction is fully approved, has suffered substantial detriment by proceeding withdevelopment, government is estopped from prohibiting project by subsequent change in law.(Patterson v. Central Coast Regional Coastal Zone Conservation Commission (1976) 58Cal.App. 3d 833.)

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The applicable principles are set forth by the California Supreme Court in City ofLong Beach v. Mansell (1970) 3 Ca1.3d 462, 91 Cal.Rptr. 23, 476 P.2d 423(Mansell). The requisite elements for equitable Estoppel against a private partyare: (I) the party to be estopped was apprised of the facts, (2) the party to beestopped intended by conduct to induce reliance by the other party, or acted so asto cause the other party reasonably to believe reliance was intended, (3) the partyasserting Estoppel was ignorant of the facts, and (4) the party asserting Estoppelsuffered injury in reliance on the conduct. (Id. at p. 489, 91 Cal.Rptr. 23, 476 P.2d423.) " '[T]he doctrine of equitable Estoppel may be applied against thegovernment where justice and right require it. [Citation.] 1 [Citations.] Correlativeto this general rule, however, is the well-established proposition that an Estoppelwill not be applied against the government if to do so would effectively nullify 'astrong rule of policy, adopted for the benefit of the public....' [Citation.] Thetension between these twin principles makes up the doctrinal context in whichconcrete cases are decided." (Id. at p. 493, 91 Cal.Rptr. 23, 476 P.2d 423.) "Thegovernment may be bound by an equitable Estoppel in the same manner as aprivate party when the elements requisite to *869 such an Estoppel against aprivate party are present and, in the considered view of a court of equity, theinjustice which would result from a failure to uphold an Estoppel is of sufficientdimension to justify any effect upon public interest or policy which would resultfrom the raising of an Estoppel." (Id. at pp. 496-497, 91 Cal.Rptr. 23, 476 P.2d423.)

(Medina v. Board of Retirement, Los Angeles County Employees Retirement Assn.(2003) 112 Cal.App.4th 864.)

542. The requisite elements for Equitable Estoppel are met: (1) the party to be

estopped (CalPERS) was apprised of the facts, (2) CalPERS, the party to be stopped, intended by

conduct to induce reliance by Andert, MacLaren and Slaughter and the proposed class members

on an "increased" benefit (and also acted so as to cause Andert, MacLaren and Slaughter and

other class members reasonably to believe reliance was intended so that they purchased the

military time, ARSC or PVSC benefit), (3) Andert, MacLaren and Slaughter and the proposed

class members, the parties asserting Estoppel, were ignorant of the facts, especially of the

overcharging for and seizure of the military time, ARSC or PVSC investment and its use to

offset the employer's liability or cost of providing the IDR benefit, and (4) Andert, MacLaren

and Slaughter and others in the class, the parties asserting Estoppel, suffered injury (overcharged

reduced benefits, offset of IDR, loss of military time, ARSC or PVSC or IDR allowance, etc.) in

reliance on CalPERS' representations and conduct.

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543. If those Estoppel elements are established against the government, the court must

then balance the burden on the party asserting Estoppel if the doctrine is not applied against the

public policy that would be affected by the Estoppel. (Lentz v. McMahon (1989) 49 Ca1.3d 393,

400-401.) In this case, the burden would be that the employer has to pay the otherwise correct

share of the IDR allowance.

TWELFTH CAUSE OF ACTION

(For Other Relief, Including Attorneys' Fees)



545. Plaintiffs seek attorneys fees, from CalPERS and/or from class members,

including under Code of Civil Procedure section 1021.5, common fund theory, substantial

benefit equitable doctrine, and other relevant sections or doctrines. In the alternative, Plaintiffs

seek attorneys' fees from the monies and other benefits awarded to class members.






section 20017; Government Code section 20014; California Constitution, Art. 15, § 1; Civil ('ode



547. Plaintiffs are entitled to costs, interest and prejudgment interest. (Civil Code,

§§3287(a) and 3288.)

548. Plaintiffs seek an order awarding prospective relief

549. Plaintiffs seek an order awarding attorney's fees and costs.

550. Plaintiffs seek such other relief as the court deems just and proper.

PRAYER FOR RELIEF

Wherefore, Plaintiffs' pray for a judgment against defendants, the California Public

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Employees' Retirement System and the Board of Administration of the California Public

Employees' Retirement System, as follows:

UNDER THE FIRST CAUSE OF ACTION

(For Breach of Statutory Duties)

Under the First Cause of Action, Plaintiffs pray for relief against Defendants as follows:

1. Find and declare that CalPERS (i) has violated Plaintiffs' statutory rights, (ii)

breached defendant CalPERS' statutory duties to Plaintiffs, (iii) failed to correctly interpret the

statutes for Plaintiffs' benefit, (iv) failed to comport with federal, tax, and/or workers'

compensation laws, (v) failed to correctly pay to Plaintiffs the benefits or entitlements described

or enumerated in this First Amended Complaint;

2. Order CalPERS to refund to Plaintiffs the full amount of any overcharges, costs,

or fees that were charged to Plaintiffs or included in the cost or investment of optional service

credits where such overcharges, costs, or fees are unrelated to funding Plaintiffs' additional

service benefit; with interest from the time of deposit, payment, or contribution;

3. Order CalPERS to refund to Plaintiffs the full amount of any installment fee,

including but not limited to the one-half of one percent installment fee, that were charged to

Plaintiffs or included in the cost or investment of optional service credits paid in installments

where such overcharges, costs, or fees are unrelated to funding Plaintiffs' additional service

benefit; with interest from the time of deposit, payment, or contribution;

4. Order CalPERS to pay disabled Plaintiffs a continuing military time, ARSC or

PVSC benefit in addition to Plaintiffs' disability allowance on a monthly or periodic basis for the

lifetime of the Plaintiffs (and for the lifetime of the Plaintiffs' beneficiaries if selected) in an

amount that provides Plaintiffs the full additional value that CalPERS is obligated to pay under

the relevant statutory provisions in the PERL, including Government Code section 21420, or the

amount that CalPERS indicated it would provide when Plaintiffs initially made their military

time, ARSC or PVSC purchase;

5. Alternatively, order CalPERS (i) to pay a lump sum of funds sufficient to make

Plaintiffs whole for any prior period of underpayment of the benefits, plus interest, for those

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Plaintiffs that have already retired but have not received the full value of the military time,

ARSC or PVSC benefit, including in an amount above their disability allowance and (ii) to pay

an ongoing allowance in the full value of the purchased or vested benefits;

6. Alternatively, grant Plaintiffs the right to rescind the military time, ARSC or

PVSC contracts and order CalPERS to pay restitution in the amount of all of the lump sum and

installment payments paid by Plaintiffs in conjunction with their military time, ARSC or PVSC

purchase, plus interest;

7. Alternatively, award damages, consequential damages, or other relief in the

amount to make Plaintiffs whole;

8. Enjoin CalPERS from future actions that would not provide the Plaintiffs or those

persons similarly situated to Plaintiffs with the full benefit of the purchased military time, ARSC

or PVSC, including in an amount above their disability allowance;

9. Provide prospective relief, including requiring CalPERS to inform class members

who have not retired or suffered a disability that CalPERS will provide the full benefit of the

military time, ARSC or PVSC benefit, including above the disability allowance;

10. Alternatively, order CalPERS to allow the Plaintiffs who have not yet retired or

suffered a disability to rescind their military time, ARSC or PVSC purchase contracts and

receive in restitution from CalPERS an amount such that Plaintiffs receive full recovery of their

lump sum and installment payments used to purchase military time, ARSC or PVSC, plus

interest;

11. Award attorneys' fees, costs, and other relief as is appropriate, including from

CalPERS directly, in addition to any sums that CalPERS directly or indirectly provides or

transfers as restitution, damages, relief, prospective relief, or other recovery;

12. Award interest as described above;

13. Award costs of suit;

14. Award any and all additional and further relief as the Court may deem proper;

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UNDER THE SECOND CAUSE OF ACTION

(For Breach of Contract)

Under the Second Cause of Action, Plaintiffs pray for relief against Defendants as

follows..

15. Award damages in an amount to be proven at trial;

16. Alternatively, grant Plaintiffs the right to rescind the military time, ARSC and

PVSC contracts and order CalPERS to provide restitution of all benefits conferred by Plaintiffs

to CalPERS associated with the military time, ARSC or PVSC purchases;

17. Award consequential damages in Plaintiffs favor, including expenses incurred;

18. Award benefit of the bargain damages, including to each Plaintiff a sum sufficient

to allow Plaintiff to buy a commercial investment that would provide the same expected return or

stream of income as CalPERS had promised or implied that the optional military time, ARSC, or

PVSC benefit would have provided;

19. Alternatively, order CalPERS (i) to pay a lump sum of funds sufficient to make

Plaintiffs whole for any prior period of underpayment of the benefits, plus interest for those

Plaintiffs that have already retired but have not received the full value of the military time,

ARSC or PVSC benefit, including in an amount above their disability allowance; and (ii) to pay

an ongoing allowance that provides full value for the benefits purchased or vested;


CalPERS directly, in addition to any sums that CalPERS transfers as restitution or damages,

relief, or other recovery;




UNDER THE THIRD CAUSE OF ACTION

(For Rescission and Restitution)

Under the Third Cause of Action, Plaintiffs pray for relief against Defendants as follows:

24. Grant Plaintiffs the right of rescission of the military time, ARSC or PVSC

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contract;

25. Order CalPERS to pay restitution to Plaintiffs of all benefits conferred by

Plaintiffs to CalPERS for the purchase of the military time, ARSC or PVSC benefits if those

contracts are rescinded;

26. Award consequential damages in Plaintiffs' favor, including expenses incurred;



CalPERS directly, in addition to any sums that CalPERS transfers as restitution, relief, or other

recovery;

29. Award any and all additional and further relief as is necessary to adjust the

equities between CalPERS and Plaintiffs and to restore the pre-contract status quo (Civil Code,

§1692);

UNDER THE FOURTH CAUSE OF ACTION

(For Breach of Fiduciary Duty)

Under the Fourth Cause of Action, Plaintiffs pray for relief against Defendants as

follows:

30. Order CalPERS to pay Plaintiffs a continuing military time, ARSC or PVSC

benefit in addition to Plaintiffs' disability allowance on a monthly or periodic basis for the

lifetime of the Plaintiffs (and for the lifetime of the Plaintiffs' beneficiaries if selected) in an





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for any prior period of underpayment of the benefits, plus interest, for those Plaintiffs that have

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34. Enjoin CalPERS from future actions that would not provide the Plaintiffs or those


or PVSC, including in an amount above their disability allowance;



military time, ARSC or PVSC benefit including in an amount above their disability allowance;





interest;

37. Grant Plaintiffs the right of rescission and restitution of the military time, ARSC

or PVSC contract and purchase monies;

38. Order an accounting of all monies that Plaintiffs and class members or their

employers have paid into or contributed to CalPERS or related funds (i) associated with

Plaintiffs interest in military time, ARSC, PVSC, or disability benefits or entitlement or (ii)

associated with payments made pursuant to the enumerated military time, ARSC, PVSC, or

disability statutes;

39. Order a constructive trust of all monies that Plaintiffs and the class members have

paid into or contributed to CalPERS or related funds associated with military time, ARSC,

PVSC, and/or the disability statutes;



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recovery;



UNDER THE FIFTH CAUSE OF ACTION

(For Denial of Equal Protection)

Under the Fifth Cause of Action, Plaintiffs pray for relief against Defendants as follows:

43. Find and declare that CalPERS has violated the Plaintiffs' right to Equal

Protection under the United States and/or California Constitutions in that (i) CalPERS has

violated Plaintiffs' statutory rights and treated similarly situated person unequally under the law,

(ii) breached CalPERS' statutory duties to Plaintiffs and treated similarly situated person

unequally under the law, (iii) failed to correctly interpret the statutes for Plaintiffs' benefit, (iv)

failed to act in comportment with federal, tax, or workers compensation law, and/or (iv) failed to

correctly pay to Plaintiffs the benefits or entitlements described or enumerated in this First

Amended Complaint;


benefit, including in addition to Plaintiffs' disability allowance, on a monthly or periodic basis

for the lifetime of the Plaintiffs (and for the lifetime of the Plaintiffs' beneficiaries if selected) in

an amount that provides Plaintiffs the full additional value that CalPERS is obligated to pay

under the relevant statutory provisions in the PERL, including Government Code section 21420,

or the amount that CalPERS indicated it would provide when Plaintiffs initially made their

military time, ARSC or PVSC purchase;

45. Order CalPERS to pay a lump sum of funds sufficient to make Plaintiffs whole

for any prior period of underpayment of the benefits, plus interest for those Plaintiffs that have

already retired but have not received the full value of the military time, ARSC or PVSC benefit

above their disability allowance;




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48. Enjoin CalPERS from future actions that would violate equal protection as

CalPERS' actions would not provide the Plaintiffs or those persons similarly situated to Plaintiffs

with the full benefit of the purchased military time, ARSC or PVSC, including in an amount

above their disability allowance;



military time, ARSC or PVSC benefit, including in an amount above their disability allowance;





interest;

51. Award attorneys fees, costs, and other relief as is appropriate, including from






UNDER THE SIXTH CAUSE OF ACTION

(For Denial of Due Process)

Under the Sixth Cause of Action, Plaintiffs' pray for relief against Defendants as follows:

55. Find and declare that CalPERS has violated the Plaintiffs' right to due process

under the United States and/or California Constitutions in that CalPERS (i) failed to give proper

notice and failed to sufficiently inform Plaintiffs and thereafter took Plaintiffs' property without

due process of law, (ii) failed to provide due process before taking, in whole or in part, the

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property or vested benefits, (iii) failed to correctly give notice of its interpretation of the statutes

such that CalPERS could take, seize, or cause forfeiture of Plaintiffs' military time, ARSC or

PVSC benefit or investment if Plaintiffs also receive a disability allowance, and/or (iv) failed to

correctly pay to Plaintiffs the benefits or entitlements described or enumerated in this First

Amended Complaint without due process of law;

56. Grant Plaintiffs the right to rescind the military time, ARSC or PVSC contracts

and order CalPERS to pay restitution in the amount of all of the lump sum and installments

payments paid by Plaintiffs in conjunction with their military time, ARSC or PVSC purchase,

plus interest;




about the amount of benefit from military time, ARSC or PVSC to be paid if the class member

also receives a disability allowance;

59. Declare that one or more of the statutes, including the military statutes

(Government Code, §§21024, 21027 and 21029), the ARSC statute (Government Code, §20909),

the PVSC statutes (Government Code, §§21006-21008, 21013, 21020.5, 21023.5, 21025.5 and

21030-21031), pricing statutes (Government Code, §§21050, 21037), and/or the disability

statutes (Government Code, §§21406-21409, 21411-21414) are not sufficiently clear to satisfy

the requirements of due process or fair notice under the California Constitution or the United

States Constitution with respect to (i) overcharging for unrelated employer costs„ fees, or

obligations; (ii) charging for an installment fee that is inconsistent with federal laws, tax laws,

and the PERL; (iii) charging a fee for a benefit that is in the nature of workers' compensation;

(iv) the nonpayment of the additional military time, ARSC or PVSC benefit if one receives a

disability allowance; or (ii) seizure of the military time, ARSC or PVSC investment if one

receives a disability allowance, or (iii) the reduction of the disability benefit by the full or partial

amount of the military time, ARSC or PVSC purchase, including if one receives a disability

allowance;

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UNDER THE SEVENTH CAUSE OF ACTION

(For Equitable Relief)

Under the Seventh Cause of Action, Plaintiffs pray for relief against Defendants as

follows:

64. Grant Plaintiffs the right to rescind the military time, ARSC or PVSC contracts

and order CalPERS to pay restitution in the amount of all of the lump sum and installments

payments paid by Plaintiffs in conjunction with their military time, ARSC or PVSC purchase,

plus interest;



Plaintiffs' interest in military time, ARSC, PVSC, or disability benefits or entitlement or (ii)



66. Order the appointment of a referee to conduct an accounting;

67. Order a constructive trust of all monies that Plaintiffs and class members or their


Plaintiffs' interest in military time, ARSC. PVSC, or disability benefits or entitlement or (ii)






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recovery;


UNDER THE EIGHTH CAUSE OF ACTION

(For Declaratory Relief)

Under the Eighth Cause of Action, Plaintiffs pray for relief against Defendants as

follows:

71. Declare that (i) CalPERS has violated Plaintiffs' statutory rights, (ii) breached

defendant CalPERS' statutory duties to Plaintiffs, (iii) failed to correctly interpret the statutes for

Plaintiffs' benefit, (iv) failed to comport with federal, tax, state, Labor Code, or workers'

compensation laws or regulations; and/or (iv) failed to correctly pay to Plaintiffs the benefits or

entitlements described or enumerated in this First Amended Complaint;

72. Declare the CalPERS has violated: (a) Plaintiffs fundamental, vested contractual

pension rights; (b) CalPERS' constitutional, statutory and fiduciary duties under the California

Constitution, the PERE, and the CalPERS retirement plans; and (c) CalPERS' equal protection

obligations under the California and United States Constitutions.

73. Declare that CalPERS has violated Plaintiffs' rights with respect to CalPERS'

fiduciary duties to inform, duty of impartiality, duty to interpret statutes in Plaintiffs' favor, and

other fiduciary duties in the context of Plaintiffs transferring funds to CalPERS based on the

Election language, on the promised "increase", on the contract language, on the military time

statutes (Government Code, §§21024, 21027 and 21029), the ARSC statute (Government Code,

§§20909), on the PVSC statutes (Government Code, §§21006-21008, 21013, 21020.5, 21023.5,

21025.5 and 21030-21031.) and/or on or with respect to the disability statutes (Government Code

§§21406-21409, 21411-21414);

74. Declare that one or more of the statutes, including the military time statutes

(Government Code, §§21024, 21027 and 21029), the ARSC statute (Government Code, §20909),

the PVSC statutes (Government Code, §§21006-21008, 21013, 21020.5, 21023.5, 21025.5 and

21030-21031), pricing statutes (Government Code, §§21050, 21037) and/or the disability statutes

(Government Code, §§21406-21409, 21411-21414) are not sufficiently clear to satisfy the

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requirements of due process or fair notice under the California Constitution or the United States

Constitution with respect to (i) overcharging for costs unrelated to the service benefit; (ii)

overcharging for the installment fee; (iii) the reduction or nonpayment of the additional military

time, ARSC or PVSC benefit if one receives a disability allowance; or (ii) full or partial seizure

of the military time, ARSC or PVSC investment if one receives a disability allowance, or (iii) the

full or partial reduction of the disability benefit by amounts of the military time, ARSC or PVSC

purchase, including if one receives a disability allowance.

75. Declare that the Plaintiffs are entitled to be paid by CalPERS a continuing

military time, ARSC or PVSC benefit in addition to Plaintiffs' disability allowance on a monthly

or periodic basis for the lifetime of the Plaintiffs (and for the lifetime of the Plaintiffs'

beneficiaries if selected) in an amount that provides Plaintiffs the full additional value that

CalPERS is obligated to pay under the relevant statutory provisions in the PERL, including

Government Code section 21420, or the amount that CalPERS indicated it would provide when

Plaintiffs initially made their military time, ARSC or PVSC purchase;

76. Declare that the Plaintiffs are entitled to be paid by CalPERS a lump sum of funds

sufficient to make Plaintiffs whole for any prior period of underpayment of the benefits, plus

interest, for those Plaintiffs that have already retired but have not received the full value of the

military time, ARSC or PVSC benefit above their disability allowance;

77. Declare that the Plaintiffs are entitled to rescind the military time, ARSC or PVS

contracts and CalPERS is required to pay restitution in the amount of all of the lump sum and









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UNDER THE NINTH CAUSE OF ACTION

(For An Accounting)

Under the Ninth Cause of Action, Plaintiffs pray for relief against Defendants as follows:






83. Order the appointment of a referee to conduct an accounting;

84. Order a constructive trust of all monies that Plaintiffs and class members or their







CalPERS directly, in addition to any sums that CalPERS transfers as restitution relief, or other

recovery;


UNDER THE TENTH CAUSE OF ACTION

(For Constitutional Impairment of Contract)

Under the Tenth Cause of Action, Plaintiffs pray for relief against Defendants as follows


benefit, including in addition to Plaintiffs' disability allowance, on a monthly or periodic basis

for the lifetimes of the Plaintiffs (and for the lifetimes of the Plaintiffs' beneficiaries if selected)

in an amount that provides Plaintiffs the full additional value that CalPERS is obligated to pay

under the relevant statutory provisions in the PERL, including Government Code section 21420,

or the amount that CalPERS indicated it would provide when Plaintiffs initially made their

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military time, ARSC or PVSC purchase;



already retired but have not received the full value of the military time, ARSC or PVSC benefit,

including above their disability allowance;







92. Enjoin CalPERS from future actions that would violate constitutional rights,

contracts rights, or equal protection as CalPERS actions would not provide the Plaintiffs or thos


or PVSC in an amount above their disability allowance;



military time, ARSC or PVSC benefit above the disability allowance;





interest;






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UNDER THE ELEVENTH CAUSE OF ACTION

(For Estoppel)

Under the Eleventh Cause of Action, Plaintiffs pray for relief against Defendants as

follows:


benefit in addition to Plaintiffs disability allowance on a monthly or periodic basis for the

lifetimes of the Plaintiffs (and for the lifetimes of the Plaintiffs' beneficiaries if selected) in an







already retired but have not received the full value of the military time, ARSC or PVSC benefit,

including above their disability allowance;







103. Enjoin CalPERS from future actions that would violate the Constitution or equal

protection as CalPERS' actions would not provide the Plaintiffs or those persons similarly

situated to Plaintiffs with the full benefit of the purchased military time, ARSC or PVSC in an

amount above their disability allowance;



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Dated: March 8, 2012 By:

, Esq.ey for Plaintiffs

EXHIBITS ATTACHED

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military time, ARSC or PVSC benefit above the disability allowance;





interest;







UNDER THE TWELFTH CAUSE OF ACTION

(For Other Relief, Including Attorneys' Fees)

Under the Twelfth Cause of Action, Plaintiffs pray for relief against Defendants as

follows:

110. Award attorneys' fees, including an award of costs and attorneys' fees to be made

under Code of Civil Procedure section 1021.5, under the common fund theory and/or under the

substantial benefit theory, the and other relevant sections;

111. Order that Plaintiffs are entitled to costs, including an award of allowable costs to

be made against CalPERS under Code of Civil Procedure sections 1032, et seq.

112. Award interest and prejudgment interest as described above;

113. Award prospective relief; and

114. Award any and all additional and further relief as the Court may deem proper.


mar 1 2 2012 - john jensen

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