Defendant, the director of the Department of Finance, appealed a summary judgment entered by the Superior Court of Sacramento County, California, in favor of plaintiff Teachers’ Retirement Board (TRB), as manager of the California State Teachers’ Retirement System (CalSTRS), and intervenor retired teachers association. The trial court found that provisions of Senate Bill 20 (SB 20) constituted an unconstitutional impairment of contract.
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Overview
TRB and the association challenged the awards of prejudgment and postjudgment interest. The court found that the trial court correctly determined that the matter was ripe for adjudication. Both the plain language of Ed. Code, § 22954, and the legislative history indicated that Assem. Bill. No. 1102 (AB 1102) contractually obligated the State to make an annual contribution of 2.5 percent of creditable compensation into the Teachers’ Retirement Fund’s Supplemental Benefit Maintenance Account (SBMA). Withholding statutorily mandated sums to fund pension benefits was an impairment of contract. Reducing the income stream available to pay the supplemental benefits by $500 million increased the risk to CalSTRS members that the SBMA funds would be insufficient to make the supplemental benefit payments in the future. SB 20 did not compensate the members for that increased risk or provide a comparable new advantage in place of the $500 million. As a result, SB 20 impaired the contractual rights bestowed by AB 1102 in violation of the California and U.S. Constitutions. The trial court erred in awarding prejudgment interest at a rate of seven percent, rather than 10 percent, per annum.
Outcome
The court modified the trial court’s judgment to increase the rate of prejudgment interest to 10 percent per annum. As so modified, the judgment was affirmed.