A labor board may have helped open a new front in public pension battles last week by overturning a Los Angeles cost-cutting reform, ruling that pension cuts for new hires must be bargained.
New hires have been a target for lower pensions because, unlike workers already on the job, they are not believed to have a “vested right” to their current pension, protected by contract law, that can only be cut if offset by a comparable new benefit.
The five-member Los Angeles Employee Relations Board unanimously adopted a hearing officer’s conclusion that the city violated labor law by imposing a pension cut on non-sworn new hires without bargaining with public employee unions.
“This is a huge deal,” an attorney for a union coalition, Ellen Greenstone, reportedly said after the board meeting last week. A spokesman for Mayor Eric Garcetti said the city will ask state courts to overturn the board decision.
The pension cut for employees hired after July 1 last year is expected to save the city $4.3 billion over three decades. During the last decade, pension costs increased from 3 percent to 18 percent of the city budget, the Los Angeles 2020 Commision saidlast December.
“The cost of covering further increases will continue to cut into the city’s ability to supply services,” said the blue-ribbon commission established by Herb Wesson, the city council president.
After the recession punched huge holes in pension investment funds, a common response to soaring costs (in addition to a sharp increase in employer rates) asks employees to pay more toward their pensions and gives new hires a lower pension.
The leading example, pushed through the Legislature two years ago by Gov. Brown, covers state workers and more than 3,000 local governments in the California Public Employees Retirement System as well as 20 independent county systems.
The provisions of the Public Employees Pension Reform Act, which include lower pension formulas for employees hired after Jan. 1 last year, were not bargained by the thousands of local union bargaining units covered by the legislation.
Los Angeles is not in CalPERS and has its own retirement systems. The hearing officer, Luella Nelson, who has a Harvard law degree, twice recommended that the Los Angeles labor claims be dismissed as “untimely” but was rejected by the board.
Her report on June 30 concluded that the “tier” of lower pension benefits for new hires (except police and firefighters) violated the city’s Employee Relations Ordinance because it was imposed “without meeting and conferring” with the labor coalition.
Nelson said state labor law, the Meyers-Milias-Brown Act, also requires bargaining over “wages, hours, and other terms and conditions of employment,” similar to the National Labor Relations Act on which the city ordinance and state law are based.
Central to the city’s defense, said the report, is the assertion that future hires are not “employees” under city or state labor rules, an issue on which neither the Los Angeles or state labor boards have ruled.
“Neither the MMBA (state law) nor the ERO (city ordinance) expressly address the obligation to meet and confer over changes in pension benefits affecting only new hires,” Nelson said, describing the city position. “No precedential case law directly on point has been found.”
But last April, Nelson said, the National Labor Relations Board ruled in a case where a nursing home (Regency Heritage) did not pay contract wages to employees hired after the contract expired, calling them “applicants” rather than “employees.”
The national board adopted an administrative law judge’s conclusion that the new hires are part of the bargaining unit and cannot be paid lower than contract wages “without bargaining with the union to impasse or agreement of the union.”
Echoing the board’s view that “applicants” do not differ from employees, Nelson said the Los Angeles “distinction between ‘future hires’ and ‘employees’ has crossed the thin line between ‘novel’ and ‘frivolous.”
Her report said the city inaccurately characterizes future hires as “prospective employees.” At the moment of hire, they become “public employees” under state law, “regular employees” under the city ordinance and members of the bargaining unit.
“Once hired into a bargaining unit position,” Nelson said, “the negotiated wages, hours and other terms and conditions of employment would apply for the remainder of his/her employment within the bargaining unit, and upon retirement.”
The report said the city’s defense also is based on one test for when bargaining is required as set by a state Supreme Court ruling in 2006 in a Claremont police case: a “significant and adverse effect” on bargaining unit wages and employment terms.
The city said an actuarial study disproves the union theory that giving future hires lower pensions potentially increases the cost of providing pensions for existing bargaining unit members and is a “major retirement benefit modification.”
But in Nelson’s view the city argument that lower retirement benefits for new hires would have no “significant impact” on the bargaining unit is incorrect, because the new hires are members of the bargaining unit.
Among the eight ways Nelson said the benefits of new hires would differ from the benefits of other bargaining unit members:
Raising the full retirement age to 67, capping the maximum pension at 75 percent of final pay instead of 100 percent, reducing the pension formula from 2.16 to 2 percent of final pay for each year served at age 67, and lowering cost-of-living adjustments.
“They would have a ‘significant and adverse effect’ on employees’ terms and conditions of employment, by setting up a new class of employees within the bargaining unit who were employed with less desirable pension benefits,” Nelson said.
“In any future negotiations, Claimants (the union coalition) would be starting from a status quo that included two classes of employees, one class of which would be working under a condition of employment that was never negotiated.”
Unequal pensions have been an issue in the past. One reason CalPERS sponsored a state worker pension increase, SB 400 in 1999, which critics say led to “unsustainable” benefits for local police and firefighters, was to “address benefit equity issues.”
The legislation more than erased a pension cut enacted in the early 1990s for new hires, allowing “buy backs” to increase low pensions earned in previous years. Gov. Brown’s pension reform, AB 340 in 2012, was said to “rollback SB 400” for new hires.
If “benefit equity” becomes an issue under the new reforms, unions have the option of filing an unfair practices charge with the state Public Employment Relations Board.
PERB challenges to cost-cutting pension reforms approved by San Diego and San Jose voters in June 2012 are still pending. As in Los Angeles, the state board acted on union unfair practices charges alleging a lack of proper bargaining.
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Originally posted at Cal Pensions.