Today, the California Supreme Court issued a unanimous opinion upholding provisions of the California Public Employees’ Pension Reform Act (PEPRA) that were intended to curb the practice of pension “spiking” by excluding certain specified items of compensation – such as leave cash-outs and on-call and standby – from the amount that county retirement systems use to calculate employees’ pension benefits at retirement under the County Employee’s Retirement Law (CERL).

Although the case – Alameda County Deputy Sheriff’s Association v. Alameda County Employees’ Retirement Association – pertained specifically to county retirement systems under the CERL, the case has important implications for cities struggling to address rising pension costs, because it clarifies the scope of the “California Rule” of pension benefits. The California Rule has traditionally been viewed as an insurmountable obstacle to modifying pension benefits for existing employees.

In its opinion today, the Court clarified that the “California Rule” does not always require “comparable new advantages” to offset modifications to pension benefits that result in disadvantages to the employee. The Court reiterated that modifications must be made for a constitutionally permissible purpose – i.e. to keep “the pension system flexible to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system” – and they must “bear some material relation to the theory of a pension system and its successful operation.” However, it clarified that if the modifications are motivated by a constitutionally permissible purpose, and if it would undermine or be inconsistent with that purpose to offer comparable new advantages, then there is no requirement to offset disadvantages with comparable new advantages.

League Executive Director Carolyn Coleman made the following statement about today’s opinion:

“The League is pleased by the California Supreme Court’s decision to uphold sections of PEPRA that were designed to close loopholes and prevent abuse of the pension system. The Court clearly agreed with the League’s position in the case, which was that this type of abuse must be stopped in order to ensure a long-term, sustainable system that all public employees can depend on.

“While there are still issues to be worked out regarding the increasing pension costs for local governments, the League will continue to collaborate with the Administration, Legislature, CalPERS, and stakeholders to address those issues, so that cities are able to provide essential services to their residents while maintaining their ability to meet pension obligations.”

Established in 1898, the League of California Cities is a nonprofit statewide association that advocates for cities with the state and federal governments and provides education and training services to elected and appointed city officials.