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Another Lawsuit for Santa Clara — This Time Over Allegedly Promised Pension Boost

Former Acting Santa Clara City Manager Rajeev Batra is suing the City over pension benefits he alleges were promised but which the City has refused to pay. [Batra Pension Lawsuit 2019]

Early in February Batra filed suit against the Santa Clara for “negligent misrepresentation” and “breach of oral contract” over a $12,000 annual pension supplement he says the City promised when he continued to serve as acting City Manager until October 2017 after formally retiring. Previously Batra was Santa Clara’s Director of Public Works. He worked for the City for 15 years.

The dispute has been simmering since Batra asked the City Council to act on the matter at the April 24, 2018 City Council meeting.

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At that meeting Santa Clara City Attorney Brian Doyle said that Batra had made “serious misrepresentations” and that giving Batra an additional pension benefit would violate the California Constitution.

Doyle was referencing a provision in the California Constitution that prohibits “extra compensation or extra allowance” to employees “after service has been rendered or a contract has been entered into and performed in whole or in part.”

Council Member Patricia Mahan responded that for Santa Clara to “renege” on its agreement with Batra after he took over as City Manager when the City was “in chaos” was “shameful.” Nonetheless, the Council voted 4-2 to reject Batra’s claim, with Council Members Dominic Caserta and Mahan dissenting and Council Member Patrick Kolstad absent.

 

Was There A Deal or Not?  

Batra accepted the position of Acting City Manager in the spring of 2016 after the resignation of former City Manager Julio Fuentes. Batra continued to be the Santa Clara’s Public Works Director as well as Acting City Manager and did both jobs with no extra pay.

In 2017 — a year and a half before he planned to retire — Batra “was assured by Liz Brown [then Santa Clara HR Director] that the City Council would agree to additional compensation,” the complaint says, if, after retiring he agreed to serve as a contractor as Acting City Manager.

This was something “the City had done so in similar situations before,” continues the complaint, and Batra “reasonably and foreseeably relied on this statement” in his early retirement decision and in agreeing to continue as Acting City Manager as contractor.

At its March 7, 2017 meeting the City Council approved a 5 percent merit increase in Batra’s salary, which the lawsuit describes as an “increase to [Batra’s] salary commensurate with other similarly situated City managers and providing additional benefits.”

In doing this, Santa Clara “agreed to supplement” Batra’s retirement benefits, and the agreement was confirmed in a closed session, according to the complaint.

Batra’s lawsuit alleges that this was a commitment to make up the difference between his CalPERS annual pension and what it would be were there no income cap on pensionable income — in other words, a defined benefit — using an IRS 401(a)* tax-deferred account as the vehicle.

Batra’s salary at retirement was $296,000 and the pensionable limit is $265,000. Batra’s annual CalPERS pension is $106,000. His complaint sets the additional pension amount between $12,000 and $13,000 per year.

The March 2017 agenda report doesn’t include any of this. It refers only to the merit increase.

But the discussion at that meeting clearly indicates that there had been previous discussion — which may have violated California’s public meetings law, the Brown Act,  because it wasn’t on the agenda nor was it conducted in public — and some kind of agreement about a pension supplement.

In making the motion to approve the increase, Mahan made an “additional recommendation subject to getting some information, preferably in writing, of the application of Internal Revenue Code 401 (a)(17). That’s the compensation limitation law, so if we get an affirmative under that section … it will be of a greater benefit than this, but if we get a negative determination on that law, then this would be in place.”

“That makes sense,” replied Mayor Lisa Gillmor, and the motion passed unanimously. In fact, the motion stated that, “Santa Clara and Rajeev Batra certify that Rajeev Batra has not and will not receive a Golden Handshake** or any other retirement-related incentive.”

City Attorney Doyle, who was present at the March 2017 meeting, subsequently asked Batra to get a legal opinion on the IRS question.

Batra got the opinion and sent it to the City in December 2017. The opinion was that “the City can, through a side agreement, pay you a retirement benefit in excess of the IRS Section 401(a)(17) limit.”

In February 2018 City Hall got another legal opinion that, “the City cannot offer … a supplemental defined benefit plan unless such plan existed prior to January 1, 2013, and the City Manager position was within a group of employees entitled to participate in the supplemental defined benefit plan at that time.” The City’s lawyer further noted that Batra’s attorney had only been asked about IRS regulations, not on state law.

In April 2018 the City Council rejected Batra’s claim.

Batra is charging that the City “made knowing, negligent and/or recklessly false and misleading statements about its ability to provide additional compensation” when Batra was deciding whether or not to take the acting City Manager position.

Further, the City “foreseeably know and intended” that Batra would rely on the City’s “misrepresentations” in making his decision. The complaint goes on to say that Batra’s decision to retire and work as a contractor “significant financial loss” and the dispute caused him medically significant “severe and extreme emotional stress.”

 

It’s Still Pension Boosting No Matter What It’s Called

After the Bell, CA salary scandal, CalPERS set a cap on the amount of salary that can earn pension benefits — $265,000. But public agencies have simply found other ways to boost pensions with private pension funds, local agency supplemental pension funds, and by setting up agency-funded tax exempt IRS 401(a) accounts for highly paid employees. All of these are legal. But ultimately it’s taxpayers who pay for them.

For example, Santa Clara City Manager Deanna Santana gets an additional five percent of salary — about $19,000 based on her initial salary of $374,000 — paid into a 401(a) account in addition to the City’s CalPERS contributions.

The difference between Santana’s pension supplement and what Batra says he was promised is that Santana’s plan is a defined contribution plan while Batra’s is a defined benefit plan. The California law that reformed public pensions limits such defined benefit plans in several ways. One is that such plans had to exist prior to 2013.

 

*A 401(a) account is similar to a 401(k), but sponsored by a non-profit or government agency.

** Similar to a “golden parachute” but also includes benefits that an executive would receive at retirement

 

Correction: In an earlier version of this story we incorrectly stated the amount of former City Manager Rajeev Batra’s pension as $273,000. Batra’s CalPERS pension is $106,000. We regret the error.

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