Don’t miss a story on California pensions, state workers and dozens of government departments. Sign up for state worker news alerts here.
The California Supreme Court on Monday upheld a pension law that stripped a retirement perk from public employees, issuing a narrow ruling that sidestepped a bigger question about whether employers can reduce pension benefits for current workers.
The court held that the perk at issue in the case was distinct from an employee’s core pension rights, such as the formula used to calculate retirement income, and not protected by the state constitution.
Therefore the benefit could be “altered or eliminated at the discretion of the Legislature,” the court ruled.
The case, Cal Fire Local 2881 vs. CalPERS, was seen as a test of the legal precedents known as the “California Rule” that have prevented government agencies from reducing promised pension benefits for decades.
Both unions and government agencies in court briefs cast the fight as a challenge to the California Rule. Unions argued benefits could not be withdrawn unless workers receive new compensation; government agencies countered that they need flexibility to manage their budgets.
The court stressed that its decision did not address the California Rule. Instead, the court limited its decision to a perquisite known as air time that government agencies offered until 2013.
“We have no occasion in this decision to address, let alone to alter, the continued application of the California Rule,” the court said in the decision.
The case turned on a challenge to former Gov. Jerry Brown’s 2012 pension law. The law, passed in the Great Recession amid concern about mounting pension debts, required public employees hired after Jan. 1, 2013 to kick in more money to fund their pensions. It also capped the amount of money they could earn in retirement.
Aside from those big changes for new employees, Brown’s law sought to rein in pension expenses by eliminating some lesser benefits that had been offered to employees.
One of them was air time, a perk that allowed public employees to buy up to five years of credit that would boost their pensions as if they had worked that time. Cal Fire Local 2881 sued to reinstate the perk for employees hired before Brown’s law took effect, arguing that the right to purchase air time could not be withdrawn without breaking the California Rule.
“We’re disappointed,” said Gregg McLean Adam, an attorney who argued the case for the Cal Fire union. “We felt the benefit we were arguing for was protected under the precedents we had been citing.”
On Monday, a labor-backed group that supported the Cal Fire union in court briefs said it was reassured that the court’s decision did not undo the California Rule.
“There was always some question about whether air time was a vested benefit,” said Ted Toppin, chairman of Californians for Retirement Security. “The decision was not unexpected. More importantly, the Supreme Court leaves intact the California Rule, holding that vested benefits cannot be impaired.”
Other groups that advocate for reductions in pension benefits also celebrated the ruling.
“The court said that just because you have an expectation doesn’t mean you’re going to get what you expect,” said Dan Pellissier, president of California Pension Reform. “On its face, it was a good decision. It’s probably just a building block on what we hope to get from the other cases.”
California’s largest public pension funds, CalPERS and CalSTRS, each are considered underfunded because their assets are worth about 70 percent of the benefits they owe to workers and retirees.
Brown argued that government agencies must have flexibility to reconsider benefits.
”In order to maintain the defined benefit, there has to be the power of management to make modifications,” he told The Sacramento Bee in December. “If we do it right, people who have a pension and what they’ve earned will never be changed. But you can’t say that five minutes after you sign your employment application, for the next 30 or 35 years that not one benefit can be changed. That’s a one-way ratchet to fiscal oblivion.”
The court in its ruling likened air time to other benefits public employees receive that are not considered core contractual benefits, which would be protected under the constitution.
“In addition to their salary or hourly pay, it is not unusual for public employees to be offered the opportunity to purchase different types of health insurance benefits from a variety of providers; to purchase life and long-term disability insurance; and to create a flexible spending account, by which certain medical and child care expenses can be paid with pre-tax income. We have never suggested that this type of benefit is entitled to protection under the contract clause,” the court wrote.
The Supreme Court could still address in future cases whether the state may alter benefits for current workers. The court is set to schedule oral arguments in an Alameda County case that addresses whether salary adjustments from things like cashing out vacation or sick leave should count as pensionable benefits, said Harvey Leiderman, a Reed Smith attorney representing Alameda County in the case.
“I think that going forward, what this court is going to be looking at very carefully is they recognize pensions have a special place in California law, but they’re not going to just assume that everything that could affect your pension is in fact a pension right,” Leiderman said.
New Gov. Gavin Newsom told at least one union during his campaign last year that he would uphold the California Rule precedent. However, he has a record as a former San Francisco mayor and University of California regent of supporting policies that allow adjustments to pension plans for new employees.