from the Superior Court in Maricopa County. No.
CV2013-015082. The Honorable Randall H. Warner, Judge.
& Bonnett, PLLC, Phoenix, By Susan Martin, Daniel L.
Bonnett, Jennifer L. Kroll, Co-Counsel for
& Kresin, PLLC, Phoenix, By Thomas M. Rogers, Co-Counsel
Attorney General's Office, Phoenix, By Jothi Beljan,
Co-Counsel for Defendants/Appellees.
Craig, PC, Phoenix, By Patrick Irvine, Co-Counsel for
Judge Peter B. Swann delivered the opinion of the court, in
which Judge Lawrence F. Winthrop and Judge Donn Kessler
B. Swann, Judge:
A.R.S. § 38-711(7) defines the " compensation"
on which employee and employer contributions to the Arizona
State Retirement System (" Retirement System" or
" ASRS" ) are calculated. The Retirement System
interprets that statute to exclude from "
compensation" the City of Chandler's payment of
contributions to an eligible deferred compensation plan, and
the superior court upheld that interpretation. We disagree.
We hold that § 38-711(7) defines "
compensation" to include money paid by an employer to a
deferred compensation plan, even if the employee could not
elect to immediately receive the deferred compensation as
AND PROCEDURAL HISTORY
The Retirement System is a defined benefit plan, as
described in 26 U.S.C. § 414(j), that provides
retirement benefits to eligible employees of the State of
Arizona and participating political subdivisions and
subdivision entities. A.R.S. § § 38-711(3), (13)
& (23), -712. The City of Chandler (" the City"
) participates in the Retirement System. The City also
operates an eligible deferred compensation plan, as described
in 26 U.S.C. § 457(b) (" Deferred Compensation
Marla Paddock is a City employee, as was Mary Wade until she
retired; both are members of the Retirement System and the
Deferred Compensation Plan. Their annual written employment
contracts provided that they were entitled to receive (among
other things): a " [s]alary" set at an "
annual base" amount; and " annual deferred
compensation," expressed in some years' contracts as
a dollar amount and in other years' contracts as a
percentage of the " base salary." The City
deposited the " annual deferred compensation" into
the Deferred Compensation Plan in equal bi-weekly payments.
Historically, the City included the " annual deferred
compensation" in its calculation of the employees'
annual " compensation" to determine employer and
employee contributions to the Retirement System under A.R.S.
§ § 38-736(A) and -737(A). In 2011, however, the
City ceased this practice based on the advice of a Retirement
System employee. Wade and Paddock disputed the changed
calculation upon discovering it in late 2012. The City then
requested a " more formal opinion" from the
Retirement System, and the Retirement System responded by
letter that " an employer should not report employer
contributions to supplemental defined contribution plans on
behalf of its contract employees as compensation for ASRS
Wade and Paddock served a notice of claim on the Retirement
System, and then filed a special action class-action
complaint against the Retirement System, its Board, and the
City, seeking mandamus, declaratory and injunctive relief.
The Retirement System moved to dismiss, arguing that the
plaintiffs had failed to exhaust their administrative
remedies. The parties also filed cross-motions for summary
judgment on the issue of whether the City's payments to
the Deferred Compensation Plan qualified as "
compensation" under A.R.S. § 38-711(7) for purposes
of Retirement System calculations.
The court granted the Retirement System's motion to
dismiss with respect to Wade, and granted the Retirement
System's motion for summary judgment with respect to
Paddock. The court held that the definition of "
compensation" set forth in § 38-711(7) " is
ambiguous, and there are good arguments for both sides'
interpretations [, b]ut ASRS's interpretation is the more
plausible." The court held that "
compensation" under § 38-711(7) includes "
salary or wages from which an employee might make deferred