California Court of Appeals Further Clarifies STRS’ Authority to Collect Overpayments Made to Retirees

Over the last several years, the California Courts of Appeal have addressed questions regarding the California State Teachers’ Retirement System’s (CalSTRS) ability to collect overpayments of monthly retirement benefits paid to retirees because of, among other things, miscalculations of the retirees’ compensation earnable. A Court of Appeal handed down the most recent case, Blaser v. State Teachers’ Retirement System (2019) 37 Cal.App.5th 349 (“Blaser”) last month.

Blaser, and other recent decisions, specifically addressed application of California Education Code section 22008’s statute of limitations on CalSTRS’ ability to collect overpayments previously made to retirees. Section 22008, a provision of the State Teachers’ Retirement Law (the “STRL”), provides in relevant part that “no action may be commenced by or against the board, the system, or the plan more than three years after all obligations to or on behalf of the member, former member, beneficiary, or annuity beneficiary have been discharged.”

The Blaser decision is a successor to a decision of a California Court of Appeal in Baxter v. State Teachers’ Retirement System (2017) 18 Cal.App.5th 340 (“Baxter”), the facts of which are pertinent to understanding the issues adjudicated in Blaser. Baxter concerned a challenge by 11 retired teachers at the District (the “Baxter petitioners”) to a CalSTRS audit. A CalSTRS audit had determined that the Baxter petitioners were overpaid in their retirement benefits as the result of the “improper inclusion of certain earnings in the calculation” of their retirement benefits. Specifically, the District’s Collective Bargaining Agreement (“CBA”) with the Salinas Valley Federation of Teachers treated teachers who taught an extra period as a separate class of employees; the CBA considered both classes of teachers – those who taught the extra period and those who did not – as having worked full-time. However, the audit determined that the teachers who taught the extra period actually worked more than full-time (i.e., in excess of 1,000 hours) and therefore, any additional hours worked due to the extra period should not have been counted as creditable compensation to the teachers’ defined benefit plan. The Baxter petitioners appealed the audit findings according to the administrative appeals process under the STRL. The administrative appeal proceeding commenced when CalSTRS filed a “Statement of Issues,” similar in nature to the commencement of lawsuit when the plaintiff files the complaint. The Court of Appeal held that it was the date on which CalSTRS filed the administrative Statement of Issues that stopped the three-year statute of limitations under section 22008. Thus, the Blaser court held that CalSTRS was precluded from recouping overpayments occurring more than three years prior to the date on which CalSTRS filed the Statement of Issues initiating the administrative appeal.

However, because the 31 teachers at issue in Blaser were not identified in the original CalSTRS audit as among the sample of employees whose compensation earnable was misreported, they were not afforded the opportunity to file an administrative appeal before CalSTRS proceeded to reduce their future retirement allowances and recoup past overpayments. Therefore, the 31 teachers in Blaser filed petitions for writs of mandate in superior court seeking to prevent CalSTRS from recouping past overpayments and reducing further retirement allowances.

The Blaser Court made the following pertinent findings:

  1. Applying standards outlined in Baxter, the “continuous accrual theory” allowed CalSTRS to collect from the Blaser Teachers only those monthly overpayments made to the retirees within the three years prior to commencement of the action; any overpayments made to the Blaser Teachers more than three years prior to commencement of the action were time barred by Section 22008’s limitation’s period.
  2. The action in this case was “commenced” when the Blaser Teachers filed petitions for writs of mandate in superior court. Thus, because the plaintiffs did not have an opportunity for an administrative appeal, the statute of limitations was not tolled until the plaintiffs sought relief in another forum.
  3. Application of the continuous accrual theory applies whether or not the Blaser Teachers intended to act “wrongfully” in collecting the overpayments. For purposes of the application of the statute of limitations, even if the Blaser Teachers reasonably believed their extra-period earnings was appropriately included as creditable compensation, the “wrongful act” was that the Blaser Teachers received payments to which they were not legally entitled.
  4. While the Blaser Teachers held a vested right to properly calculated retirement benefits, they held no vested right in excess payments based upon incorrect calculations.

As seen by Baxter and now Blaser, application of the statute of limitations provisions in the STRL remains a complicated and evolving area of the law.