Local Government
Crucial Court Pension-Cut Ruling Not on Fast Track

Crucial Court Pension-Cut Ruling Not on Fast Track

The state Supreme Court is proceeding at a judicious pace after agreeing to hear appeals of two rulings that would weaken or eliminate the “California rule,” allowing state and local government pension cuts.

Briefing has yet to begin on a groundbreaking Marin County appellate ruling in August 2016 that employees only have a vested right to a “reasonable” pension, not to a pension offered at hire that can’t be cut without a comparable new benefit, erasing any savings.

The Supreme Court put the Marin case on hold while awaiting an appellate court ruling in a similar union challenge to “anti-spiking” provisions in Gov. Brown’s pension reform, a consolidation of cases from Alameda, Contra Costa and Merced counties.

An appellate court ruling on the Alameda case in January, “respectfully” disagreeing with the Marin decision, said if pensions are cut without a comparable new benefit, there must be compelling evidence of the relation to the successful operation of the retirement system.

Both sides are asking the Supreme Court to hear an appeal of the Alameda case. The conflict between the different legal views in the Marin and Alameda cases, and their different outcomes allowing and preventing pension cuts, could cause the court to clarify the California rule.

Meanwhile, the second case the Supreme Court has agreed to hear, a state firefighter union challenge to the Brown reform’s ban on the employee purchase of “airtime” to boost pensions, is listed as fully briefed and the court presumably could set a date for an oral hearing.

The appellate ruling in January last year upholding the ban on the purchase of additional years of service, called “airtime” because no work is performed, makes several references to the groundbreaking Marin ruling.

If the state Supreme Court ruled that airtime is not a vested right, as some argue, there could be no need to consider the California rule that a series of state court rulings, not legislation, mean the pension offered at hire becomes a vested right protected by contract law.

A Supreme Court website summary of the airtime case says the issue has two parts: 1) Was the option to purchase additional service credits a vested benfit, 2) and if so, did the airtime ban “violate the contracts clauses of the federal and state Constitutions?”

Whether the Supreme Court is likely to consolidate all of the California rule cases or handle them in another way is not clear. Although the airtime case is listed as “fully briefed,” there was a request last week to extend amicus brief filings until April 23 to allow a response.

“It’s hard to say,” Cathal Conneely, Supreme Court spokesman, said via email when asked when the court will hear the airtime case. “The court has three remaining oral argument sessions this court year (two in May in San Francisco, and one in Los Angeles in June).

“After that the next oral argument session is in September in San Francisco. Generally, the Supreme Court Clerk would send notice of the time and place of oral argument to all parties at least 20 days before the argument date.”

It’s theoretically possible that Brown’s pending appointee to a vacant seat on the seven-member Supreme Court could cast a key vote on the California rule. Former Justice Kathryn Werdegar announced her retirement last March, ample notice before her departure last August.

“It’s not something I want to do too quickly,” Brown said in January as he also expressed a “hunch” the California rule will be modified. “I have appointed three. The fourth could be very decisive. So I want to understand how that decisiveness should work.”

The other three Supreme Court justices were appointed by Republican governors. The conflicting Marin and airtime appeals court rulings were written by Republican appointees, Marin by Justice James Richman and airtime by Justice Timothy Reardon.

The California rule has been the roadblock to major cost-cutting reforms as growing pension costs take a bigger bite out of local government budgets, often leading to service cuts, staff reductions, and higher taxes.

In recent years, for example, courts citing the California rule overturned voter-approved pension reforms in San Francisco, San Jose and Pacific Grove.

Most pension reforms are limited to new hires, who do not yet have vested rights protected by the California rule. Significant savings can take decades as employees hired before the reform are slowly replaced.

The pension reform Brown pushed through the Legislature for the California Public Employees Retirement System, the California State Teachers Retirement System, and the 21 independent county systems mainly follows the California rule.

Most of the major provisions of the Public Employees Pension Reform Act, such as lower pension formulas and higher employee contributions, are limited to employees hired after the reform took effect on Jan. 1, 2013.

The Cal Fire Local 2881 suit to overturn the airtime ban is a direct challenge to the governor. His 12-point pension reform plan issued in 2011 included ending airtime purchases, saying investment risk was shifted to taxpayers and pensions are intended for actual work.

CalPERS has said 61,217 members purchased airtime from 2004, when legislation created the program, through 2012, when the reform legislation ended it. A review found CalPERS had been undercharging, “selling $1.00 worth of benefits for between $0.72 and $0.89.”

The state firefighters sued CalPERS, which responded that airtime purchases could only resume if the ban is ruled unconstitutional. The trial court held airtime “was not a vested right,” said CalPERS, “and even if it were, the Legislature could eliminate it.”

Brown’s legal office filed a brief last November making a similar argument that airtime purchases are not a vested right, but even if they were they could be ended. The Marin ruling was among the citations in the 55-page brief.

Last month a national bipartisan group, the Retirement Security Initiative chaired by former San Jose Mayor Chuck Reed, announced that five organizations had filed separate amicus briefs in support of the governor’s ban on airtime.

“We have five different briefs all with a different way the court could go to change the California rule,” Reed said last week. “You never know which track is going to appeal to how many justices.”

The amicus briefs were filed by the Pacific Research Institute, California Business Roundtable, City of Pacific Grove, Howard Jarvis Taxpayers Association, and League of California Cities.

A superior court upheld some of a Reed-led pension reform approved by nearly 70 percent of San Jose voters in 2012. Citing the California rule, the court blocked giving employees the option of a lower pension or paying more to keep earning their current pension.

In an airtime amicus brief last month, CalSTRS urged rejection of the appeal court’s “radical” revision. The California rule was cited as the reason for limiting teacher rate increases in 2014 CalSTRS funding legislation, which is more than doubling school district and state rates.

Teacher rates increased from 8 percent of pay to a maximum of 10.25 percent of pay, the amount deemed comparable to the new benefit of vesting a cost-of-living adjustment. The modest COLA, 2 percent of the initial pension payment, has rarely if ever been cut.

In an intervention on behalf of the state last month, the governor’s legal office urged the Supreme Court to review the Alameda ruling to clarify the anti-spiking legislation and to “decide this case together with Marin.”

Originally posted at Cal Pensions.

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