LEGISLATIVE REPORT: Struggles With Public Pensions Now in Court



Pension Law and Policy,
By Michael Karsch,
Legislative Representative


The struggle with public pensions in California is coming before the State Supreme Court again. On May 5, that court was expected to hear arguments in the case of Alameda County Deputy Sheriff’s Association vs. Alameda County Employees’ Retirement Association. According to the court’s case summary: Did statutory amendments to the County Employees Retirement Law made by the Public Employees Pension Reform Act of 2013 reduce the scope of the pre-existing definition of pensionable compensation and thereby impair employees’ vested rights protected by the contracts clauses of the state and federal constitutions? According to the San Jose Mercury News, this is about pension spiking in two counties in the Bay Area that could arguably impact future pension costs across the state. The newspaper continues: The justices should strike down the pension spiking in Merced, Alameda and most egregiously, Contra Costa Counties. Abuses were so bad that some workers were retiring with pensions 25 percent greater than their top pay when they were on the job.

There are other lawsuits representing 20 county-level pension systems, according to the Mercury News, but the most important cases are from Merced, Alameda and Contra Costa Counties. This issue gets into the California Rule, which guarantees that future pensions for current employees cannot be reduced. The Mercury News says the court has three options: 1) back the unions and, by affirming the rigidity of the California Rule, essentially indefinitely lock state taxpayers into unaffordable pensions; 2) side with the state by concluding the California Rule doesn’t apply because the pension spiking was never legally permitted; and 3) temper the California Rule by emphasizing that it’s not absolute and allows for reasonable pension changes, especially when the benefits are too costly for governments to fund.

Remember that State Supreme Court’s ruling last year had the opportunity to revise the California Rule or overrule it, but chose not to get into that subject.

The retirement costs to the state and lower governmental levels are growing very fast, reflecting nearly $800 billion in pension liabilities, which are growing at seven percent per year, per David Crane on the governor’s proposed budget for 2020 (as reported in “Fox & Hounds”). Government agencies will have to reduce pension liabilities by suspending automatic benefit increases and reducing un-accrued benefits for years not yet worked, per Mr. Crane.

A Yahoo.com report in late April said that the share of state K-12 education budgets going to pension costs has doubled in two decades. Now the education budget for pensions is 14.4 percent as compared to 7.5 percent in 2001.

A Reason.com report describes the Social Security system to hit insolvency in 2035, and that does not consider the impact of the pandemic crisis. Insolvency does not mean bankruptcy, but that the reserves of the Social Security would be used up by then and mandatory benefits cuts would begin.