LEGISLATIVE REPORT: Is Cal Supreme Court Opening Doors to More Pension Reform?



Pension Law and Policy,
By Michael Karsch,
Legislative Representative


Remember that the California Supreme Court has ruled on one major public pension issue lately, that concerning the use by local governments to allow employees to buy “air time” for additional work time not worked, which usually meant that the contributions were seldom enough for the eventual additional paybacks in pension benefits. In his 2012 pension reform package, Gov. Jerry Brown had urged eliminating airtime. The court ruled that this benefit could be repealed without affecting the California Rule, which protects public employees who enter their government jobs with an offer for benefits that will follow them throughout their retirement.

Due to rising costs of pensions, many government agencies are forced to increase their support of the pension system at all costs. In many communities, public services are being cut back to pay for pensions, since many investment portfolios are failing to grow as fast as needed. Pensioners are living longer, which extends the support of either investments and/or taxpayer support. In March, the Supreme Court ruled that the purchase of airtime was not a vested right protected by contract law, as explained by CalPensions report on Oct. 28. The Court noted that “we have no occasion in this decision to address, let alone to alter, the continued application of the California Rule.” Some had hoped to see a review of the Rule.

Now comes some other appeals to the Supreme Court on the subject of the California Rule and government pensions. As CalPensions explains, there are two appeals that have “very different views of how pensions may be cut.” Both are challenges by labor unions to parts of the Gov. Brown reform package, mostly about spikes in final pay before retiring. These appeals are a consolidation of Alameda, Contra Costa and Merced County cases. The Alameda ruling sticks to the general protection of the California Rule. The article noted: “Pension cuts are allowed, without an offsetting comparable new benefit, if there is ‘compelling evidence establishing that the required changes bear a material relation to the theory…of a pension system and its successful operation.’”

A ruling in a Marin County case “overturns the California Rule by finding employees only have a vested right to a ‘reasonable’ pension.” The Marin case protects the amounts in a pension already earned. But the Legislature may alter the formula, prior to the employee’s retirement, thereby reducing the anticipated pension, so long as the employee is not deprived of a “reasonable” pension. This does not say much to me. What is “reasonable pension”? The Supreme Court also ruled that a San Jose pension reform in 2012 could not require workers to pay more for pensions or earn a smaller pension.

What all of this says is that the State Supreme Court will be considering several pension cases from varying situations in several parts of the state, and the door appears to be open to more than just the California Rule. Almost all of the prior decisions have upheld that Rule and protecting those who have retired on a government pension.

The CalPensions article can be found at calpensions.com/2019/10/28/second-chance-for-major-ruling’