The timing trick one retiree tried to pad his retirement - and what the state made of it
California's top court says timing leave cashouts across two calendar years won't inflate a public worker's pension above the annual limit.
On July 27, 2026, the California Supreme Court confirmed how some public employers must calculate pensions. Unused leave cashed out above an annual limit cannot pad a worker's retirement benefit, even when the employee picks a final pay period that spans parts of two years.
The case turned on the California Public Employees' Pension Reform Act of 2013, known as PEPRA. Lawmakers passed it to curb what the court called "pension spiking" - shaping pay patterns near retirement to lift final compensation, which drives up pension costs for counties.
Here's how it works. Under the older county pension law, an employee's final compensation helps set the monthly pension. The higher that figure, the bigger the check. So timing matters. If a worker's final pay period straddles two calendar years, they could cash out a full year's leave allowance twice - once in each year - and try to count all of it.
The retired employee at the center of the case, a former county counsel, did exactly that. His terms of employment let him cash out 200 hours of leave per calendar year. He set his final compensation period from October 2019 to October 2020, then cashed out 240 hours - 40 hours in December 2019 and 200 hours in February 2020. He argued all 240 should count.
The retirement system disagreed and excluded the extra 40 hours. A trial court sided with the system, the Court of Appeal affirmed, and now the state's highest court has too.
The court read the statute in light of its purpose. It held that leave cashouts count toward a pension only up to the annual limit set by the terms of employment - here, 200 hours a year. Straddling the calendar does not unlock a double allowance. The court also noted there is "nothing inherently abusive" about cashing out leave within an employer's limits.
The chief justice agreed with the result but wrote separately, saying the statute's wording does not obviously support the outcome and that the goal of stopping pension spiking carried the day.
For HR and benefits teams in the roughly 20 California counties under this pension law, the signal is clear. Leave cashout caps in employment terms now directly shape pension calculations. Payroll and retirement administrators can lean on those annual limits when a retiring worker times cashouts across two years, and workforce planners can better predict funding obligations.
