He got a $245,000 pension when ‘spiking’ was legal. Supreme Court could decide if he keeps it

A Bay Area county retirement system has asked the state Supreme Court to review a pension lawsuit whose outcome could have implications for other local government retirees.

The case is focused on a 2015 decision by the Contra Costa County Employees’ Retirement Association to reduce the pension of former Moraga-Orinda Fire District Chief Peter Nowicki years after Nowicki retired.

Retirees’ pensions are generally untouchable in California with a few exceptions, including when a retirement system discovers mistaken overpayments or finds out an employee fraudulently or improperly inflated their retirement benefits.

Contra Costa’s retirement system maintains Nowicki improperly inflated his pension by negotiating a new contract with the fire district at the end of his career. The contract included a retroactive pay raise along with new batches of paid leave he could cash out in his final year of work, inflating the earnings the retirement system used to calculate his pension.

Nowicki’s salary was about $186,000 when he retired in 2009, including the end-of-career raise of about $13,000. His leave cashouts, which he timed over two years for maximum effect, helped boost his pension to about $245,000 per year.

Under a state law passed in 2012, the strategies he used became illegal for anyone retiring after Jan. 1, 2013.

Later that year, the retirement system launched a review of pensions involving big end-of-career payouts, including Nowicki’s. The system recalculated Nowicki’s pension after its review, excluding some of the payouts, and reduced it by about $69,000 per year. The system ordered him to return $586,000 it had already paid him.

Nowicki sued. He argued the retirement system had abused its discretion to interpret and enforce the County Employees Retirement Law. The 1937 law regulates 20 county-run pension systems in California.

Nowicki lost at the trial court level, but the First Appellate District Court of Appeal sided with him last month, ordering the trial court’s decision reversed.

“He’s been subject to a lot of pension abuse by (the Contra Costa County Employees’ Retirement Association),” Nowicki’s attorney, Steven Kaiser, said after the appellate court’s ruling. “It’s been a very difficult thing for him. He’s a guy who for years and years, for an entire career, played by the rules, and then got dinged by CCCERA.”

The appellate court ruling noted Nowicki communicated his plans to the retirement system before he retired.

The Contra Costa retirement system asked the Supreme Court on Sept. 20 for another review. The system did not respond to phone calls or an email this week. The court has 60 days to decide whether it will grant review.

The 2013 change to state pension law, known as the Public Employees’ Pension Reform Act or PEPRA, only applied to people who retired after the law took effect.

The appellate court’s analysis focused on a separate law, a section of the 1937 code that forbids employees from “improperly” increasing or overstating their compensation in their last year of employment.

No court had yet issued guidance on the section of law in question, the appellate court said in its ruling. That means the outcome of Nowicki’s case could create new precedent related to how much discretion retirement systems have to recalculate retirees’ pensions.

The law in question applies only to 20 county-run systems in California, not to pensions administered by the California Public Employees’ Retirement System.

According to the appellate court’s analysis, the law was aimed at giving county systems a tool to reduce pensions in cases of serious wrongdoing, such as criminal conduct, which Nowicki is not accused of, and therefore it can’t be used to reduce his pension.

“We recognize that Nowicki’s pre-retirement efforts to increase his compensation earnable in the period before his retirement, which allowed him to maximize his pension, epitomize pension spiking, a practice that led to the subsequent enactment of PEPRA,” the court said in its ruling. “Nevertheless, we cannot sanction the Board’s legally unsupported use of (the 1937 law) to penalize Nowicki for conduct that — while now prohibited under PEPRA — was expressly permitted at the time of his retirement.”