Public transit workers in California briefly benefited when the U.S. Labor Department challenged former Gov. Jerry Brown’s pension reform law eight years ago.

They got to keep more generous retirement benefits for two years longer than other California public employees after the Obama administration’s Labor Department found Brown’s 2013 pension law ran afoul of federal protections.

President Joe Biden’s Labor Department has sided again with California transit workers who want to preserve more lucrative retirement benefits. This time, the decision could hold up $12 billion in federal funds set aside for California public transportation agencies.

Brown pushed for the pension law at a moment of peril for California’s pension funds. The investment fund for the California Public Employees’ Retirement System, which before the Great Recession had more than enough money to pay all its long-term debts, had tanked to a funded status of 61%.

While CalPERS adjusted investment expectations and other fiscal fundamentals, Brown pushed benefit reductions including eliminating end-of-career perks, capping pensionable income and requiring employees to work longer before retiring, among other changes. Most of the changes in the Public Employees’ Pension Reform Act applied only to employees hired after Jan. 1, 2013.

In fall 2013, the U.S. Labor Department said the state pension law violated a 1964 federal law protecting mass transit employees’ collective bargaining rights. The pension law impaired bargaining by putting boundaries on retirement benefits that previously could be negotiated, the department said. The determination blocked $1.6 billion in pending federal grants.

Two weeks ago, in the latest chapter of a legal fight that was never fully settled, the Labor Department issued a new determination closely resembling its original decision. The new determination likely blocks $9.5 billion Congress earmarked for California public transit agencies in an infrastructure bill and $2.5 billion in American Rescue Plan Act funds.

As state officials decide on a next move, Brown’s original response offers one possible blueprint.

To comply with the department’s 2013 determination, Brown and the Legislature passed Assembly Bill 1222, which temporarily restored pension benefits for transit workers while the state sued the Labor Department. The pension law’s changes took effect for most public employees in the state, but transit employees kept the better benefits of before.

The U.S. District Court for the Eastern District of California sided with Brown in 2014, ruling the Labor Department’s determination “arbitrary and capricious” and ordering the Labor Department to perform a new review.

After the court’s ruling, the old pension benefits ended for transit employees. But those hired between Jan. 1, 2013 and Dec. 29, 2014 got to keep the superior benefits they accrued in the interim, according to CalPERS.

Two tiers of California pension benefits

As with all public employees impacted by PEPRA, the law created two tiers of benefits: Those with “classic” pension benefits and those with PEPRA benefits.

Keith Garcia, president of the Bay Area Rapid Transit Police Officers Association, hopes the Labor Department’s new determination will restore the classic benefits to all transit employees. He said about half of the 300 officers he represents are PEPRA employees.

“Under this decision, if we could go back and get those bargaining rights back and address it again, we could change some of the inequities that exist,” Garcia said. “We have a two-tier system, the classics have it much better than the PEPRA.”

At the core of the Labor Department’s determination on PEPRA is its impact on collective bargaining rights, which the federal law directly says must be preserved.

Under the department’s analysis, PEPRA “places limits on the maximum pension benefits obtainable by transit workers,” preventing unions and agencies from being able to “bargain freely” over a subset of benefits.

That limitation creates a “significant interference” with collective bargaining rights in violation of the federal law, while providing no “fair and equitable arrangements” to make up for the loss, according to the department.

David Mastagni, a Sacramento-based attorney who has argued several high-profile pension cases on behalf of labor unions, praised the Labor Department’s determination.

“It was nice to see a recognition that pension rights are a core part of bargaining,” he said.

CalPERS still underfunded

CalPERS, the pension system that administers most public employees’ benefits in the state, has estimated PEPRA would save between $29 and $38 billion over 30 years. As of 2019, a little more than 30% of active public employees in the system were PEPRA members, according to CalPERS.

Even with the changes PEPRA made, local governments around the state have told the retirement system their pension bills are straining their budgets.

“Almost every agency is underfunded and they have a huge unfunded liability with CalPERS that slowly is being whittled away through higher contributions by the employers,” said Steve Berliner, a Los Angeles-based attorney with firm Liebert Cassidy Whitmore who represents employers.

“There’s going to have to be some compromise between the state and the federal government of some sort,” Berliner said. “Pension reform was a very big issue and to reverse that would just exacerbate the pension problem, and no one wants to see that.”

This story was originally published November 15, 2021 at 5:25 AM.