An encoder, subject to a rate constraint, wishes to describe a Gaussian source under squared-error distortion. The decoder, besides receiving the encoder's description, also observes side information consisting of uncompressed source symbol subject to slow fading and noise. The decoder knows the fading realization but the encoder knows only its distribution. The rate-distortion function that simultaneously satisfies the distortion constraints for all fading states was derived by Heegard and Berger. A layered encoding strategy is considered in which each codeword layer targets a given fading state. When the side-information channel has two discrete fading states, the expected distortion is minimized by optimally allocating the encoding rate between the two codeword layers. For multiple fading states, the minimum expected distortion is formulated as the solution of a convex optimization problem with linearly many variables and constraints. Through a limiting process on the primal and dual solutions, it is shown that single-layer rate allocation is optimal when the fading probability density function is continuous and quasiconcave (e.g., Rayleigh, Rician, Nakagami, and log-normal). In particular, under Rayleigh fading, the optimal single codeword layer targets the least favorable state as if the side information was absent.