ARTICLE
The California Supreme Court in San Francisco on Monday, March 3 upheld a decision by state lawmakers to rollback one way for public workers to pad their pensions, but avoided ruling on the larger issue of whether retirement benefits can be taken away once promised. The issue which led to a unanimous decision, was a provision of a 2012 pension reform law that eliminated the ability of public workers to pay for more years of service. Public workers would do this for a more lucrative pension when they retire. The law, backed by former Gov. Jerry Brown, sought to rein in costs and end practices viewed as abuses of the system. Over a year ago, we wrote about pension reform and this pending court decision. You can read the Feb.7, 2018 Chamber News article here. The March 3rd ruling modifies the playing field for public employers and employees. Attorneys for the union argued that the elimination of additional retirement service credits violated a long line of California court rulings that have made pension benefits for existing employees sacrosanct. Those court decisions established the “California Rule,” which says workers enter a contract with their employer on their first day of work that entitles them to retirement benefits that can never be diminished unless replaced with similar benefits. Air-time (a benefit that allowed public employees to buy up to five years of service credit that would boost their pensions as if they had worked that time) was not supposed to cost local governments anything, since employees were paying for it. But projections used to determine how much employees had to pay for the benefit turned out to underestimate its cost. Employee contributions fell short of costs by 12 to 38 percent, according to a CalPERS analysis, leaving governments to make up the difference. When local governments pay more for worker benefits, they have less money to spend on other public services such as parks or road maintenance. The Supreme Court’s decision protects local governments from having to pay for the air time benefit. “In the absence of constitutional protection, the opportunity to purchase ARS credit could be altered or eliminated at the discretion of the Legislature” and the court had “no occasion in this decision to address, let alone to alter, the continued application of the California Rule,” Chief Justice Tani Cantil-Sakauye wrote in an opinion joined by the six other justices. The public employers must hold to the California Rule.The Supreme Court leaves intact the California Rule, holding that vested benefits cannot be impaired. What does this mean for local public employers and their employees? Nothing changes right now for public workers. The 2012 law among other things eliminated air-time. Had the court ruled differently Monday, employees hired before Jan. 1, 2013, might have regained access to that perk? On the other hand, the court could have made it easier for local governments to reduce public workers’ benefits, but it didn’t. The court’s decision preserves the status quo. Government agencies still can’t tinker with their employees’ “core” pension rights unless unions make concessions at the bargaining table. “The justices are considering several other pension cases, so they will likely address the California Rule at some point”, said Chuck Reed, the former mayor of San Jose who has warned about the dangers of unfunded pension debt. “They are very much aware of the serious question, so I don’t see them ducking the opportunity to get some clarification on the California Rule,” Reed continued. The court’s decision was significant. Many unions and government agencies in briefings leading up to the case argued it was a test of the California Rule (the set of legal precedents that has prevented public worker benefits from being reduced without compensating them for lost income.) The court declined to take up California Rule questions in its decision, determining air-time wasn’t a “core” pension benefit with constitutional protections. But those questions remain, and the court could take them up in other cases.
The California Supreme Court in San Francisco on Monday, March 3 upheld a decision by state lawmakers to rollback one way for public workers to pad their pensions, but avoided ruling on the larger issue of whether retirement benefits can be taken away once promised.
The issue which led to a unanimous decision, was a provision of a 2012 pension reform law that eliminated the ability of public workers to pay for more years of service. Public workers would do this for a more lucrative pension when they retire. The law, backed by former Gov. Jerry Brown, sought to rein in costs and end practices viewed as abuses of the system.
Over a year ago, we wrote about pension reform and this pending court decision. You can read the Feb.7, 2018 Chamber News article here.
The March 3rd ruling modifies the playing field for public employers and employees. Attorneys for the union argued that the elimination of additional retirement service credits violated a long line of California court rulings that have made pension benefits for existing employees sacrosanct. Those court decisions established the “California Rule,” which says workers enter a contract with their employer on their first day of work that entitles them to retirement benefits that can never be diminished unless replaced with similar benefits.
Air-time (a benefit that allowed public employees to buy up to five years of service credit that would boost their pensions as if they had worked that time) was not supposed to cost local governments anything, since employees were paying for it. But projections used to determine how much employees had to pay for the benefit turned out to underestimate its cost.
Employee contributions fell short of costs by 12 to 38 percent, according to a CalPERS analysis, leaving governments to make up the difference. When local governments pay more for worker benefits, they have less money to spend on other public services such as parks or road maintenance. The Supreme Court’s decision protects local governments from having to pay for the air time benefit.
“In the absence of constitutional protection, the opportunity to purchase ARS credit could be altered or eliminated at the discretion of the Legislature” and the court had “no occasion in this decision to address, let alone to alter, the continued application of the California Rule,” Chief Justice Tani Cantil-Sakauye wrote in an opinion joined by the six other justices.
The public employers must hold to the California Rule.The Supreme Court leaves intact the California Rule, holding that vested benefits cannot be impaired.
What does this mean for local public employers and their employees? Nothing changes right now for public workers.
The 2012 law among other things eliminated air-time. Had the court ruled differently Monday, employees hired before Jan. 1, 2013, might have regained access to that perk?
On the other hand, the court could have made it easier for local governments to reduce public workers’ benefits, but it didn’t. The court’s decision preserves the status quo. Government agencies still can’t tinker with their employees’ “core” pension rights unless unions make concessions at the bargaining table.
“The justices are considering several other pension cases, so they will likely address the California Rule at some point”, said Chuck Reed, the former mayor of San Jose who has warned about the dangers of unfunded pension debt.
“They are very much aware of the serious question, so I don’t see them ducking the opportunity to get some clarification on the California Rule,” Reed continued.
The court’s decision was significant. Many unions and government agencies in briefings leading up to the case argued it was a test of the California Rule (the set of legal precedents that has prevented public worker benefits from being reduced without compensating them for lost income.) The court declined to take up California Rule questions in its decision, determining air-time wasn’t a “core” pension benefit with constitutional protections. But those questions remain, and the court could take them up in other cases.