James Morell, is a retired research attorney for the California Superior Court in Orange County. He was entitled to a pension under the County Employees Retirement Law of 1937 (CERL). To determine the amount of his pension, the Orange County Employees’ Retirement System (OCERS) needed to first calculate Morell’s “compensation.”
The issue in this case was whether the Optional Benefit Program (OBP), valued at $3,500, that the County provided to each research attorney, was part of compensation for retirement pension calculation purposes. Each research attorney could allocate the OBP in a variety of ways, such as taxable cash (paid in the first paycheck of the year), or a healthcare reimbursement account for certain medical expenses.
Morell allocated a portion of the $3,500 OBP benefit to a healthcare reimbursement account and the remainder to cash. When the OCERS calculated Morell’s “compensation” in 2014, it omitted the $3,500 OBP payments. Morell sued the OCERS for excluding the value of the OBP benefit from his pension benefits. The trial court granted Morell’s petition. OCERS appealed.
The California Court of Appeal reviewed the County resolution that excluded from compensation those payments that: 1) were provided to employees who elected to participate in a flexible benefits program; and 2) exceeded the employee’s salary.
The Court of Appeal found that both factors applied to the OBP benefit. First, there was no doubt that Morell elected to participate in the OBP because he directed the OBP be applied to a healthcare reimbursement account and cash. Second, the County’s section 125 program stated that after an eligible employee elected to participate in the OBP, “his or her Compensation will be reduced in an amount equal to the … contributions elected.” As a result, the OBP benefit exceeded Morell’s reduced salary, and OCERS was correct to exclude the value of the OBP benefit. The Court of Appeal reversed the trial court and denied Morell’s petition.
Morell v. Board of Retirement etc., 103 Cal.App.5th 632 (2024).