By Linda Ross, Partner at Renne Public Law Group

Linda Ross

Last year, in a seminal vested rights decision, the California Supreme Court expanded the permissible bases for modifying public employee pensions in two significant ways. (Alameda County Deputy Sheriff’s Assn v. ACERA (2020) 9 Cal.5th 1032 (“Alameda”).)  The Court held that the state legislature had the constitutional authority to change the definition of “compensation earnable” (which dictates the amount of a pension) to prevent abuses such as “pension spiking.” And more important, the Court held, for the first time, that a pension change resulting in a financial disadvantage to public employees need not include a “comparable advantage” — if providing the new advantage “would undermine, or would otherwise be inconsistent with the modification’s constitutionally permissible purpose.”

Earlier this month, in another pension case, Wilmot v. CCCERA, the First District Court of Appeal applied the Alameda decision to uphold a law that requires a limited forfeiture of a public employee’s pension if the employee committed a felony related to the employee’s public service.  In doing so, the Court further expanded the permissible rationales for modifying vested pension rights and provided another example of a pension change that need not provide a comparable new advantage.

Both Alameda and Wilmot involved the application of the California Public Employees’ Pension Reform Act of 2013 (PEPRA), which went into effect on January 1, 2013.

Wilmot had filed for retirement in December 2012, the retirement board approved his retirement in April 2013, and Wilmot pled guilty to a felony in connection with embezzlement of public funds in December 2015.  Under PEPRA, the retirement board system eliminated the pension benefits attributable to the 13 years during which he had committed the embezzlement.

The Court of Appeal first addressed Wilmot’s contention that he was not a “public employee” subject to the forfeiture provisions of PEPRA, because he was retired before PEPRA went into effect on January 1, 2013.  The Court rejected this argument, finding that he was still a public employee when PEPRA went into effect because he was not retired until the retirement board approved his retirement the following April.

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But the Court of Appeal did not stop there.  At the direction of the California Supreme Court, which had accepted the case for review, but then remanded it, the Court of Appeal addressed Wilmot’s argument that he had earned a vested right to his pension that could not be diminished by the forfeiture provisions of PEPRA.  Based on the three-part test articulated in Alameda, the Court of Appeal held that state legislature had not violated Wilmot’s vested rights.

First, the Court found that the PEPRA forfeiture provision did not include any “compensatory or comparable” advantage to make up for the forfeiture.

But second, the Court found that the state’s purpose in enacting the forfeiture provision was “sufficient for constitutional purposes, to justify any impairment of pension rights.”  According to the Court, the changes bore “some material relation to the theory of a pension system and its successful operation.”  Quoting Alameda, the Court stated that: “In general, the Pension Reform Act was enacted for the purpose ‘of closing loopholes and preventing abuse of the pension system in a manner consistent with CERL’s preexisting structure.’”

The Court held that, like the PEPRA provisions that prevented “pension spiking,” the forfeiture provisions closed a loophole and prevented abuse of the pension system.  According to the Court, one of the primary objectives in providing pensions to public employees is to induce “long continued and faithful service.”  The Court explained that: “An employee who draws public pay while stealing public property, or embezzling public funds, . . . is the antithesis of a ‘faithful’ servant of the public trust.”  The Court concluded that to “give such a person a pension would further reward misconduct” which “clearly amounted to a ‘loophole’ that the Legislature moved to close because it ‘distort[ed] the pension calculation.’”

And third, the Court held that the legislature was not required to provide some “comparable new advantages to offset” the disadvantage of felony forfeiture, because it would undermine and be inconsistent with “the constitutionally permissible purpose underlying the modification.”   The Court explained: “Put bluntly, why should the Legislature be required to come up with another way to reward criminality by public employees? “Echoing Alameda, the Court concluded:  “Requiring comparable advantages would be wholly inconsistent with the Legislature’s purpose by restoring some form of advantages that, in the view of the Legislature, should not have been available to county employees in the first place.”

Wilmot demonstrates that the analytical framework provided by the Supreme Court  has applications far beyond the “pension spiking” addressed in that case, and potentially provides a basis to uphold other types of pension reform directed at system loopholes or abuses.  Moreover, in the past, it was thought that the requirement of a “comparable new advantage” doomed any effort at pension reform.  But Alameda and Wilmot show that this requirement is not an impediment when inconsistent with a constitutionally permissible purpose.

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