Felony Forfeitures Statutes Tested Again: A Tale Of Two States’ Pension Reform Statutes–One Forfeiture Survives And One Does Not – Employee Benefits & Compensation
The constitutionality of California’s felony forfeiture
statute, as applied by the Board of Administration of the
California Public Employees’ Retirement System (CalPERS),
survived yet another challenge in September 2023, after having been
upheld by two courts of appeal decisions in 2021 (see here: Two Out of Two: Another Appellate Court Upholds
Constitutionality of California’s Felony Forfeiture Statute
(nossaman.com).
Meanwhile, across the country, the Board of the Massachusetts
State Retirement System’s application of that state’s
felony forfeiture statute, which takes a more expansive approach to
forfeiture than California, fell nearly simultaneously to a similar
challenge.
The California Tale – Partial Forfeiture of Benefits
Affirmed
On September 21, 2023, the California Court of Appeal for the
Second Appellate District issued a unanimous decision, Estrada
v. California Public Employees’ Retirement System (Case
No. B3217848, Sept. 21, 2023), confirming that a public employee
who pleads “no contest” to a felony arising out of, or in
the performance of, his or her official duties forfeits public
retirement benefits that accrued during all periods after the
employee first began committing the felony. This result occurs
even if the felonious conduct could have been charged as a
misdemeanor – in criminal law lingo, a “wobbler”.
This result also occurs even if the judge in the criminal
proceeding reduces the conviction to a misdemeanor by a later
“nunc pro tunc” order – not to correct a
scrivener’s error in the order (which is the reason such orders
are permitted by law), but rather, seemingly, to avoid the
forfeiture of retirement benefits.
In Estrada, the crimes charged were misappropriation
and embezzlement of public funds, as well as unauthorized computer
access. These crimes occurred when Elaine Estrada, who was in
charge of payroll deductions for her employer, the City of La Habra
Heights (City), removed the employee share that she was required to
pay for dependents covered on her benefit plan for two years,
beginning in 2007. The City did not discover the discrepancy until
an audit in 2012 because Estrada was responsible for the payroll
and timekeeping of all City employees. The Los Angeles County
District Attorney’s Office filed a felony complaint against
Estrada in 2016. In 2017, Estrada’s counsel advised the trial
court that Estrada had entered into a “no contest” plea
agreement to the felony charge of unauthorized computer access. As
a result of that plea agreement, sentencing was set out six months,
at which time the felony plea was to be vacated and a misdemeanor
plea was to be entered in its place, so long as with Estrada paid
the full amount of the missed payroll deductions (just under
$6,000).
In 2018, while Estrada was serving probation, the City submitted
a forfeiture of benefits form to the state retirement system,
CalPERS, regarding Estrada’s criminal conviction. The form
indicated that Estrada was convicted of a job-related felony on
June 28, 2017, and that the earliest date of the commission of the
felony was September 1, 2007. After a comprehensive administrative
adjudication, including a hearing before an administrative law
judge, the CalPERS Board implemented the forfeiture required by
California law, i.e., (1) forfeiture of accrued retirement benefits
earned after September 1, 2007; (2) ineligibility to return to
CalPERS-covered employment or to accrue further CalPERS benefits;
and (3) return to Estrada of any member contributions that she made
to the retirement system during the forfeiture period.
In Estrada, the California Court of Appeal affirmed the
CalPERS Board’s application of the subject felony forfeiture
statute, noting that the statute, which is part of the California
Public Employees’ Pension Reform Act of 2013 (PEPRA), “was
enacted to close loopholes and to curb abusive practices that
existed in California’s public pension system. [Citing
Alameda County Deputy Sheriff’s Assn. v. Alameda County
Employees’ Retirement Assn. (2020 9 Cal.5th
1032, 1054, 1102.].” The court in Estrada also cited
with approval California’s recent appellate cases affirming the
constitutionality of PEPRA’s felony forfeiture statutes,
Hipsher v. LACERA (2020) 58 Cal.App.5th 671 and Wilmot
v. CCCERA (2021) 60 Cal.App.5th 631, noting the purpose of the
felony forfeiture statutes specifically: “to protect the
public employee pension system from abusive practices . . . and to
preserve public trust in government by discouraging serious
criminal activity abusive of the public trust” and “to
close an egregious loophole that allowed public funds to reward
criminality.”
Significantly, the court also observed the limitations of
California’s “partial forfeiture requirement” –
that is, it is “triggered only by felonious conduct committed
in the scope of the pensioner’s public employment”
and it is “limited to service time from the date the
criminal conduct began.” Also important to this proceeding
however, the legislature clearly applied the felony forfeiture
rules to all circumstances in which a public employee was charged
with a job-related felony and admitted that conduct. The only
exception would be if a public employee’s conviction were later
“reversed,” but the felony forfeiture rules apply
notwithstanding a subsequent downgrading of the conviction from a
felony to a misdemeanor or a reduction in penalties for the
conviction. Therefore, what mattered in Estrada was the
felony charge levied against and pled to by the (former) public
employee arising from her public duties, and her “no
contest” plea to that charge. At that point, the partial
forfeiture of retirement benefits was effectively resolved, subject
to the due process rights of the former employee addressed in
Hipsher.
The Massachusetts Tale – Complete Forfeiture of Benefits
Overturned
On September 13, 2023, the Massachusetts District Court (in
Giulino v. State Board of Retirement, Pittsfield District
Court Case No. 2227CV000072) considered the same topic of public
employee felonious acts, in that instance involving a scandal
regarding overtime abuses by a retired Massachusetts State Police
lieutenant, John Giulino. Giulino was convicted under state law for
making a false claim to a public employer, larceny, and procurement
fraud. Giulino pled guilty in 2019, and received two years of
probation, for having received more than $28,000 for nearly 280
hours of overtime that he did not work in 2015 and 2016.
Massachusetts and California differ dramatically, however, in
their felony forfeiture rules. Under Massachusetts law, the
Massachusetts State Retirement Board determined that Giulino faced
complete forfeiture of all of his pension benefits, rather
than the limited forfeiture provided by California’s
statute. In the case of Giulino, the Massachusetts court concluded
that complete forfeiture was “grossly disproportionate to the
gravity of the offenses” and overturned the retirement
board’s complete forfeiture of all of Giulino’s pension
benefits.
Applying the relevant test under Massachusetts law—which
stems from the prohibition against excessive fines in the
Massachusetts Declaration of Rights—the court considered four
factors: the nature and circumstances of the Giulino’s crimes,
whether those crimes were related to other illegal activity, the
maximum possible sentence, and the harm caused by Giulino’s
conduct. The court, continuing to follow excessive fines precedent,
then weighed the effect of total forfeiture against the
defendant’s financial status, concluding that the gravity of
Giulino’s crimes was not sufficient to justify the ruinous
consequences of total forfeiture. Particularly important to the
court was the fact that Giulino had, as a part of his criminal
plea, had already returned his unearned overtime wages.
“The State Retirement Board takes the protection and
responsibility of the State Employees Retirement System and its
trust very seriously,” a statement from the Massachusetts
Attorney General noted. “We are still considering all
available options.”
Takeaway from this Tale of Two States
Regardless of the next steps in either Estrada or
Giulino, it remains clear that efforts by public
retirement boards to protect their retirement systems from abuse by
public employees who engage in felonies when they are supposed to
be serving the public will rise or fall based on whether the law
that’s being enforced, and the manner in which it is enforced,
passes constitutional muster.
Unfortunately, the challenge for public retirement boards and
systems of having to address these challenging issues is far from
over.
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