LEGISLATIVE REPORT: PENSION LAW AND POLICY
By Michael Karsch
The big news for governmental Retirees remains the focus on the California Supreme Court as it considers several appeals from various local disputes over whether the California Rule in pension matters is ready for changes or not. The California Rule derives from Supreme Court cases going back to the 1950s when the courts generally held that when a person began work for government, he or she had a right to all that was offered to the workers at that time — a defined benefit contribution plan, healthcare after retirement, sometimes the power to buy “air time” while working to expand your pension, and other benefits that a given jurisdiction might have given their employees. It meant that a government employee was entitled to all of the benefits then available to that work unit, plus whatever newer benefits might be offered.
In the arguments presented at the Court’s hearing on Dec. 5, 2018 in Cal Fire Local 2881 vs. CALPERS, the union argued that the air time benefit was vested as a promise to give all of the benefits that the law bestowed on those Firefighters. As such, no benefit may be changed for the employee/Retiree — this is a vested pension right. The State argues that only a contract can create a vested interest, not a statute. One of the lower courts in this lawsuit argued that such labor agreements can be modified in the future to meet unusual demands by the local jurisdiction. The Los Angeles Daily Journal summarized the union’s argument in this case as: “Public Employee pensions were unconstitutionally curtailed, attorney argues” (Dec. 6, 2018). That newspaper reported that some of the discussion by the Supreme Court reflected skeptical questions of the air time promoters. This would not mean that the California Rule is rejected, just that this one benefit, the air time, is not considered vested.
In news from other states, the Deseret News reported in December that the Utah government pension funds earned $31.9 billion and ranked eighth in the country with its liabilities for future retirees funded at 86 percent. Kentucky held an emergency legislative session in December to deal with its $43 billion pension deficit. New Jersey is also grappling with a similar pension debt.
Moody’s Investors Service reported on Dec. 20, 2018 that pension liabilities for the 50 largest local governments totaled $481 billion at the end of fiscal year 2017, up nine percent from the previous year. The highest net pension liabilities as a percentage of operating revenue were Chicago (782 percent), Dallas (562 percent), Los Angeles (424 percent), Phoenix (397 percent), and Houston (367 percent)