An appeals court ruled last week that six judges have no vested right to pensions uncut by a reform, even though they were elected a half year before the reform took effect on Jan. 1, 2013.
An appellate panel unanimously ruled the judges elected to superior courts in June and July of 2012 did not obtain a vested right to a pension until Jan. 7, 2013, when they took office and began drawing a state salary.
There was a question of fairness. Judges elected in 2012 who had been members of a public pension system receive the pre-reform pension. Judges appointed by the governor in 2012 receive the pre-reform pension because they were sworn in by the end of the year.
The six judges said state personnel told them they would receive the pre-reform pension. And they paid the lower pre-reform contribution rate for more than a year, before being shifted to the post-reform pension in March 2014.
In a big bite from take-home pay, their pension contribution jumped from 8 percent of pay to 15.25 percent, an annual increase of $12,690. At retirement, their pension will be based not on the pre-reform final one year of pay, but on a presumably lower three-year average.
Legislation to allow the six judges to receive pre-reform pensions, AB 837 in 2014, passed both houses with little opposition: Assembly 69-6, Senate 31-2. But Gov. Brown vetoed the bill creating an exemption to the pension reform he pushed through the Legislature.
“I am unwilling to begin chipping away at these reforms,” said his veto message.
The state Supreme Court has agreed to review two previous appeals court rulings also arising from vested-rights challenges to the reform, which some think could result in a high court ruling that weakens or eliminates the “California rule.”
A series of state court rulings, a key one in 1955, are widely believed to mean the pension offered at hire becomes a vested right, protected by contract law, that can’t be cut unless offset by a comparable new benefit, erasing any cost savings.
Because of the California rule most pension reforms, including Brown’s Public Employees Pension Reform Act, are mainly limited to new hires that do not yet have vested rights, taking years to yield significant cost savings.
A change in the California rule that would allow cuts in pensions current employees earn in the future, while protecting amounts already earned, has been urged by the Little Hoover Commission and some reformers.
The two previous rulings the high court agreed to hear say current workers have a vested right to a “reasonable” pension, not the one offered at hire. The new ruling on when elected judges vest does not appear to be a similar direct challenge to the California rule.
But the new ruling’s “equal protection” discussion of lower post-reform pensions does cite at length one of the previous ruling’s view that a “pension crisis” needs urgent action to reduce the growing drain on basic government services.
“There is simply no question that the difference in treatment is justified by a compelling state interest — namely, the urgency of implementing public pension reform as quickly as possible and the necessity of drawing a clear line as to when these reforms would become operative, giving due regard to the “vested rights” doctrine uniquely applicable to public employment,” Justice Kathleen Banke wrote in the new ruling. “PEPRA was designed to address the critical issue of unfunded public pension liabilities.”
When the state Supreme Court takes up the two cases challenging the California rule, judges will move from ruling on the pensions of their judicial colleagues to ruling on their own pensions.
In California, judges have seldom if ever been excused or “recused” from ruling on cases that affect their own pensions. A change in the California rule could, for example, reduce pensions Supreme Court justices earn in the future.
A jury heard a major Rhode Island pension reform after the judge, who refused to recuse herself, received complaints from attorneys in the case that she and three members of her family would be affected by the decision.
Lower-court judges who would not be affected helped the Arizona Supreme court make the ruling on an employee pension-contribution case, after four justices on the high court there recused themselves.
Federal judges have made rulings on several California local government retiree health care reform cases. In an Orange County case, a federal court made a request that may or may not suggest how the California Supreme Court will view the California rule challenges.
The federal court asked: “Whether, as a matter of California law, a California county and its employees can form an implied contract that confers vested rights to health benefits on retired county employees.”
In a unanimous reply in November 2011, the state Supreme Court said:“A vested right to health benefits for retired county employees can be implied under certain circumstances from a county ordinance or resolution.”
A federal district court, following the new state guidelines on implied contracts, ruled that under the circumstances in this case Orange County could cut the health benefit of retirees. A federal 9th circuit panel upheld the ruling in 2014.
Four of the seven Supreme Court justices who made the ruling that a contract can be formed under California law, without a formal legal agreement specifying the terms, are still on the court.
Gov. Brown, who has appointed three of the current Supreme Court justices, will make a fourth appointment to replace former Justice Kathryn Werdegar, who retired in August after giving notice a year ago.
“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. He said his fourth appointment, making his appointees a majority, could be “very decisive.”
Democratic appointees will be a majority on the Supreme Court for the first time since 1986, when voters ousted three appointees Brown made in his first terms (Chief Justice Rose Bird, Cruz Reynoso, and Joseph Grodin) after a campaign focused on death penalty reversals.
The state constitution protects the independence of judges with provisions preventing manipulation of their pay. An issue in the appellate ruling last week was whether the safeguards are violated by the reform requirement that employees pay half of the pension “normal cost.”
The normal cost presumably covers the pension earned during a year, excluding the often much larger debt or “unfunded liability” from previous years. Paying half the normal cost is the reason the contributions of the six judges jumped from 8 percent of pay to 15.25 percent.
Justice Banke and two colleagues ruled that requiring payment of half the normal cost does not violate the “nondiminution” clause of the constitution or “impermissibly delegate legislative authority over judicial compensation.”