The Los Angeles Times obtained the memo that pension staff sent to the board of the California Public Employees' Retirement System.
The state pension system granted an exemption to its rules in 2006 so the Bell city manager could get a 47 percent pay hike and still receive a full pension on his salary, according to the memo.
The pension system found out about the salary hike while conducting an audit and told Bell officials they needed to get an exemption.
CalPERS allows large pay hikes as long as they are spread out among a group of employees, as was the case in Bell, but exemptions are not granted for a single official, said CalPERS spokesman Brad Pacheco.
"At the time, the city represented that the city manager was part of the top management groups or class, and all of the employees in this group or class received similarly large increases," CalPERS' head of employer services, Lori McGartland, wrote in the memo. "Based upon those representations, CalPERS granted a one-time approval of the city manager's 2005 increase."
Pacheco said Bell officials may have violated other rules, and CalPERS staff are helping law enforcement in their investigations.
The memo states that CalPERS has expanded its internal probe and is researching the pay of all members who are paid more than $400,000.
Bell City Manager Robert Rizzo resigned after a Times investigation showed he received an annual salary of nearly $800,000.