by Sean Van Leeuwen
A recent court ruling on public pensions is a concern for all active public employees. In a major departure from California Supreme Court precedent, a California appellate court ruled pension formulas for current employees can be altered during the employee’s working career and before retirement. This means deputies who are currently working could have the rug pulled out from under them in regard to what they are counting on receiving when they retire!
Decades ago, the California Supreme Court issued a series of rulings which collectively are known as the “California rule.” This rule states upon accepting public employment the employee obtains a vested right to earn a pension on the terms which exist when they are hired. Employees are entitled to any additional pension benefits under improved terms implemented during employment. There are some exceptions to the rule in cases where a reduction in the formula is allowed if a “comparable new advantage” was offered in its place.
The Marin County case arose after the Legislature adopted the Public Employee Pension Reform Act (PEPRA) in 2012, which took effect January 1, 2013. PEPRA changed pension formulas for public employees hired after January 2013 and also altered what items of compensation could be used in calculating those formulas. The Marin County Board of Retirement adopted rules which changed the calculation of salary for current employees, eliminating categories such as standby pay, administrative response pay, callback pay, and cash payments for waiving health insurance from salary calculations. These were all pay items which had been previously collectively bargained for and agreed to by the County of Marin.
The “California Rule” began in 1947; when the California Supreme Court wrote in part, employees have a right “to a substantial or reasonable pension.” In 1983, the court strengthened this protection, writing: “With respect to active employees, we have held that any modification of vested pension rights must be reasonable, must bear a material relation to the theory and successful operation of a pension system, and, when resulting in disadvantage to employees, must be accompanied by comparable new advantages.” (Emphasis added)
In short, since 1983 the rule of law in California has been that pension formulas for active employees cannot be altered without benefits being offered which are comparable to the pension benefit being diminished. In practical terms, this has blocked any lowering of pension formulas for current employees, as there are few new benefits which can be offered that are comparable to a lifetime pension formula.
In the baffling Marin case ruling, the appellate court stated the California Supreme Court did not mean what it said in 1983 when it wrote a diminishment of pension formulas for current employees “must” be offset by a new benefit. The appellate court decided the Supreme Court’s use of “must” in the 1983 decision was just sloppy writing, and there was no intent to require a decrease in pension formula had to be offset with other benefits. The appellate court held current public employees, “right is only to a ‘reasonable’ pension – not an immutable entitlement to the most optimal formula of calculating the pension.”
The focus of the Marin case was so called “pension spiking” to increase a final pension. However, this has not stopped opponents of public pensions from seizing on the ruling to claim it opens the door to roll back the basic pension formulas. After all, in the minds of those who want to take away our pensions, the quickest way to reduce unfunded liabilities is to reduce the future benefits we’ve already been promised and have planned our lives around.
Frighteningly, a “reasonable pension” would be open to interpretation. For example, the public safety formula for new employees hired after January 1, 2013, cannot be higher than “2.7% at 57″. We can anticipate the argument that for current employees, lowering a currently higher formula would be allowed, as it still provides a “reasonable” pension. Also, since employees hired post-January 1, 2013, do not get certain pay categories included in pension formulas, pension busters would argue employees hired before 2013 should not receive them either, because those employees will still get a “reasonable” pension.
Pension formulas may usually only be altered by the employing agency in collective bargaining or the state legislature, while a pension board’s job is to administer the promised benefit. However, as we have seen in Marin, there appears to be some room for pension boards to affect current employees by eliminating supplemental pay items from formulas or ending the sellback of unused vacation, holiday or sick time. Since the unfunded liabilities have been created in part by the pension boards, either through “pension holidays” or poor investment decisions, it will be very tempting for them to reduce the liabilities by removing pay categories for current employees from pension calculations.
Those of us who work for Los Angeles County are fortunate to have the Los Angeles County Employee Retirement Association (LACERA) as our retirement administrator, which according to Public Safety Board member Shawn Kehoe, “plans to stand by the Ventura decision, which allows for the use of benefits accrued within a one-year period and cashed out while you’re actively employed in computing your final compensation” (post-PEPRA employees excluded). Kehoe also feels the Marin decision, “sets a bad precedent for future challenges to public pensions in court” and that, “we all need to be actively engaged in protecting our retirement benefits.” The Marin decision will not affect people who are already retired, as they are already fully vested in their retirements.
The Marin County Employees plan to appeal the decision. CALPERS and CALSTRS have not indicate any change in their interpretation of retirement law as a result of this ruling, and no legislative action can occur this year as the legislative session is over.
Kehoe feels we all need to be vigilant as he feels pension busters will once again try to attack our benefits either through legislation or ballot initiatives in 2018. He feels the initiatives are most dangerous, as pension busters (such as Chuck Reed and Carl DeMaio) will use the false narrative of “unfunded liability” to “whip up anti-pension sentiment among voters.”
Sean Van Leeuwen is Vice President of Association for Los Angeles Deputy Sheriffs. ALADS is the collective bargaining agent and represents more than 8,200 deputy sheriffs and district attorney investigators working in Los Angeles County.