Judge finds no ‘vested right’ to spiked pensions

A superior court judge last week said he plans to uphold a key part of a new state law that curbs ‘spiking’ in county retirement systems, notorious for giving retirees pensions that are much higher than the salaries they earned on the job.

The pensions ballooned mainly because some county systems allowed unused vacation and sick leave from previous years to be cashed out and counted as the final pay on which pensions are based.

A turning point in union lawsuits challenging the new law, labor attorneys said, was the intervention of state Attorney General Kamala Harris’ deputies with the argument adopted by Contra Costa Superior Court Judge David Flinn in a tentative ruling:

Current workers cannot have a “vested right” to pension increases that violate the 1937 act covering the 20 independent county retirement systems.

If the ruling is upheld on appeal, labor attorneys said they will seek a refund of employee contributions and employer contributions, negotiated in lieu of pay, that actuaries imposed to cover pensions boosted by cashing out leave time.

The lead labor attorney, Peter Saltzman, said the retirement boards haven’t provided the data, but based on average salary and maximum terminal pay the judge’s ruling “would be for many people a loss of up to 10 percent of their pensions.”

In Martinez, Flinn is hearing a consolidation of suits filed by labor unions in Contra Costa, Merced and Alameda counties. A similar dispute in Marin County is a separate lawsuit.

The judge took comment Friday from attorneys (15 lawyers filled the attorney tables and the jury box) on a modification of a tentative ruling in December, then set a schedule for working with the attorneys on a final ruling for a hearing April 25.

“There will be no substantive changes, I don’t think,” said Flinn, who plans to retire on April 30. “I’m going to change some wording to clarify.”

Judge Flinn (Contra Costa Times photo)

Judge Flinn (Contra Costa Times photo)

Spiking in the county systems drew national attention in 2009 when a Contra Costa Times columnist, Daniel Borenstein, reported that two fire chiefs retired at ages 50 and 51 with pensions much larger than their salaries.

“People point to me as a poster child for pension spiking, but I did not make these rules,” a Moraga Orinda fire chief, Peter Nowicki, told the Wall Street Journal.

His final salary was $185,000 and his pension $241,000. After retirement he stayed on at the fire district as a consultant, receiving $176,000 in pay on top of his $241,000 pension.

A former Merced Sheriff, Mark Pazin, had a salary of $163,093 and is receiving a $199,578 county pension after retiring last December, the Merced Sun-Star reported. He now heads the governor’s Office of Emergency Services Law Enforcement Branch.

Anti-spiking legislation introduced after the Contra Costa fire chiefs report stalled. The attempted crackdown became part of a broad pension reform, AB 340, that Gov. Brown pushed through the legislation two years ago.

After the legislation surfaced late in the session, Borenstein wrote a column pointing out that a loophole could legalize spiking in all 20 county systems, prompting a companion reform bill, AB 197, now being contested in the lawsuits.

An attorney for the Contra Costa County Deputy Sheriffs Association, Rocky Lucia, told the court that AB 340, the Public Employees Pension Reform Act, applies to new hires.

“What we are talking about is a retroactive application of AB 197 to current employees who we argue have vested rights,” said Lucia.

A series of state court rulings, the main one in 1955, are widely believed to mean that the public pension offered on the first day on the job becomes a vested right, protected by contract law, that can only be cut if offset by a comparable new benefit.

The “California Rule,” adopted by a dozen states, prevents what some think is the solution if government pensions become unaffordable: Cut pensions current workers earn in the future, while protecting pensions already earned.

An initiative aimed at giving state and local governments that option, filed last October by San Jose Mayor Chuck Reed and several other mayors, is unlikely to make the November ballot this year.

The Contra Costa county pension board said the AB 197 anti-spiking provisions clearly apply to current workers, not just new hires. Deputy sheriff and firefighter unions sued the board, contending the pension boosts were vested rights.

When the Contra Costa pension board said it had no position on whether current workers had vested rights to the pension boosts, the judge sought an adversary by giving notice to “interested parties,” and the attorney general intervened.

“It is significant that both in 1997 and in 2009 counsel for the Contra Costa County Retirement Board specifically opined to their said client that leave time not earned in the final compensation period could not be included,” Flinn said in the tentative ruling.

The 20 county system boards are dominated by county pension recipients. Of the nine voting members, four are employees or retirees, one is the county treasurer, and four are appointed by county supervisors, who in Contra Costa receive county pensions.

Lucia, the labor attorney, told the court last week that not being able to vest in a benefit disallowed by law was a “new issue” raised by the attorney general that was not “plead before you.” Flinn said he may have arrived at that position on his own.

Calling it a fairness issue, the judge softened his tentative ruling by allowing some current employees to boost pensions by cashing out leave time from previous years, if under the old rules they could do that during their final year on the job, not at termination.

“It’s our understanding that very few would benefit, and that those who would benefit are virtually all management employees,” Saltzman, the labor attorney, told the court.

Overtime has not been counted toward pensions. Under AB 197, other pay for “services rendered outside of normal working hours” cannot be counted in the final pay that, with age and time on the job, determines pension amounts.

But Flinn suggested in the tentative ruling that including required “stand by” or “on call” time in the final pay may be a vested right, depending on individual facts and circumstances.

In 1997, a landmark state Supreme Court decision in a Ventura County deputy sheriffs suit, which later became retroactive, greatly expanded final pay in the county systems, adding unused vacation time and some say more than 60 other items.

Lawsuits in many counties on Ventura-related issues were consolidated in an appellate ruling in 2003. But Contra Costa, Alameda and Merced counties settled separately.

In 1993, the giant California Public Employees Retirement System sponsored anti-spiking legislation for its members, SB 53, that limits the use of supplemental pay and created a screening unit.

Similar legislation for the 20 county systems, SB 2003, failed to pass the following year.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com. Posted 10 Mar 14

21 Responses to “Judge finds no ‘vested right’ to spiked pensions”

  1. BOPRN Says:

    Pension spiking needs to be brought under control. It happens at the city/county level, and is an unfair burden on the taxpayers. CalPERS only guarantees the first ~120k or so of a pension, and after that it is on the appointing authority to pay the rest, with ‘the rest’ falling on the taxpayers within the jurisdiction of the appointing authority. This type of spiking has not been allowed at the state level, and as a result the state is on a better financial footing than the local governments in relation to pension benefits.

  2. R. Edward Says:

    Spiking of pensions, by various schemes, seems fraudulent in that the pension is based on false information and calculations for the purpose of inflating a pension beyond the amount earned. I assume the people who might challenge the practice are those who intend to benefit from the practice when they retire.

  3. SeeSaw Says:

    This spiking does not happen at most City agencies because they are members of CalPERS and CalPERS does not allow these add-ons to base pay when calculating the pension. I don’t know where you get this figure of $120,000 or so, BOPRN. The CalPERS maximum for our city is $209,000, and if a CM gets more than that–you are right, the taxpayers of that City pay the rest. But don’t get your shorts in a twist over this–the personal hit to most respective taxpayers is minute, compared with the public services that are received in return. Let Plan’s like CalPERS rout the illegal practices and move on with business.

  4. SeeSaw Says:

    You could consider pension spiking wrong, as I do, R. Edward, but there was nothing illegal about the practice because it was allowed in the rules of the, respective, plans that allow spiking. CalPERS stopped pension spiking the the mid-90’s, but some county pension plans like 37 ACT are the ones that were still allowing the practice until PEPRA of 2013. The issue with these court cases is on whether or not the new pension reform act applies to current pensions, where spiking is concerned, or to only new hires. The requirement in the new plan that all public employees pay half of their pension amounts by 2018 could possibly apply to spiking too–it depends on what the judge decides. And, of course, if you were an employee currently covered by the practice as it has been, you would want to keep those benefits–who wouldn’t! In the meantime, why not appreciate what public employees do to keep you served and safe, instead of accusing them of being schemers.

  5. BOPRN Says:

    SeeSaw –

    The ~120k per year is based on a court case from a year ago. It could be that the amount is different for each agency.

    You should be concerned about spiking, as it may cause a collapse in the system. If that were to happen, then everybody could get a reduction – including the spikers.

  6. SeeSaw Says:

    I worked for a municipality–in the early 80’s we were required to calulate all figures for our department’s salary budget. We had to figure the CalPERS amount–just a percentage of budgeted payroll. I fail to see what is so hard about planning for pensions–except that the financial collapse crashed everyone. Spiking was stopped by CalPERS in 1993. My own agency had a cap on vacation accumulation and one half of sick leave could either be cashed out or added to service credit at the time of retirement. My total cash- out was less than $25,000 and it was taxed off the top. PEPRA 2013 has stopped spiking for the future. I will let the powers that be decide what to do about the practice that still exists where it had been legal. The courts will decide and we will move on. The public sector is the only avenue to sustaining the middle class now, since the corporations decided to go off shore with the jobs. Right wingers–get a clue!

  7. spension Says:

    Well, SeeSaw… many of the pension systems found unique roads to perdition. In the private sector, all sorts of accounting tricks/corporate buyouts have been used to drain rank-and-file pension funds, often in favor of executive post employment compensation (http://www.retirementheist.com). In the public sector, even a system with nearly regular contributions (CalSTRS) upped the benefits too high to be sustainable. And then the 410(k) & IRS systems suffer from investment companies taking a big cut in fees.

    All American politics functions on taking exceptional cases and making them seem average. Spiking is an example. Or Welfare cheats, or young bucks buying a steak with their Food Stamps. Or even Kenneth Lay. Meanwhile reprehensible crimes committed on the truly average folk get ignored, whether NINJA loans faked by thousands of average loan approvers in banks, then sold to Freddie and Fannie, or outrageously high health care costs for poor health care outcomes in the US.

  8. Mawinda Says:

    Just checked on two local school distirict employees retired in the last 4 years. The Teacher’s 2012 pension $74000 per year. Athletic Director at High School, AD’s pension $96000 per year. Both are in early 60’s. We will never catch up with funding needs of the plan. I have no doubts to their dedication and service but, as well as legaity of payouts, but the math does not work.

  9. SeeSaw Says:

    Well, if you don’t think we will catch up, sit back and let the professionals that are paid to worry about this stuff, worry about it. Look around–we are having play time compared to what is going on in the rest of the world. As far as the teacher and AD go–take that money, and spend, spend spend…………………..

  10. mawinda Says:

    Nice attitude. “Not my problem.” Typical of the public sector. Are you giving a nice percentage of your income to address your observations of the globe? ‘Nyet’. Probably parking on the couch to watch a basketball game. Mangia.

  11. SeeSaw Says:

    Typical “spin” from a typical public sector hater.

  12. Mawinda Says:

    My spuse works for pubic sector. Think strongly her pension promise needs to take a haircut. Otherwise, we will be large contributors to “Doctors Without Borders” for the truly needy of the globe. Enjoy the day.

  13. SeeSaw Says:

    That”s nice loyalty for your spouse, and for the sector that supports her, Mawinda. I support Drs. Without Borders myself, with a modest contribution every year, because I care about the needy of the globe. It has nothing to do with the size or not of my pension.

  14. mawinda Says:

    Our loyality is to our children and the next generation.

  15. Captain Says:

    “R. Edward Says: Spiking of pensions, by various schemes, seems fraudulent in that the pension is based on false information and calculations for the purpose of inflating a pension beyond the amount earned. I assume the people who might challenge the practice are those who intend to benefit from the practice when they retire.”

    And you assume correctly. It’s troublesome that people receiving the most lucrative pensions in the entire country find it appropriate to game/rape the system even further. And when this theft is challenged they blame Right-Wingers, Wall Street, and the attack on the Middle Class as their Red-Herrings to deflect attention from the PONZI-SCHEME they’ve created.

    As long as CalPERS, the ACT 37 COUNTY PLANS, and the Public Employee Unions are convinced that taxpayers are obligated to cover every unfunded liability they themselves created – they will continue to RIP-OFF both their own pension plans and taxpayers.

  16. Captain Says:

    “In 1993, the giant California Public Employees Retirement System sponsored anti-spiking legislation for its members, SB 53, that limits the use of supplemental pay and created a screening unit.”

    What a Joke! I guess this CalPERS screening unit had all the teeth of my grandmother when her dentures were soaking. This unit probably had the same amount of support (less-most likely) as the CalPERS division responsible for ensuring CalPERS wasn’t making illegal trades based on insider information. CalPERS has been allowing pension spiking for decades. This SO-CALLED screening unit probably consisted of two people, without a computer, sitting in the parking garage collecting parking fees.

    It wasn’t until pensions were actually published (2008-09?) that two So-Cal reporters discovered that some former CITY of VERNON employees were receiving upwards of 500K in pensions. Of course this information had been known by CalPERS for several years but their crack screening-unit (SB 53, that limits the use of supplemental pay and created a screening unit) wasn’t able to see the forest for the trees – how could they when they were assigned to collecting fees in the parking garage.

    The truth is CalPERS has only recently begun reviewing some of the most excessive pensions. What they’ve discovered is they have been paying way too much to way to many people. As to their (CalPERS) limiting “the use of supplemental pay” in the pension calculation – complete bull! They haven’t limited anything. They just ignored the supplemental pay until they got caught. Now they are quietly reviewing and adjusting pensions – doing what they should have been doing since 1993. And they’re doing a lousy job to boot.

    Unfortunately, to date, they have only reviewed a few percent of the pensions. The overpayment continues to this day and it only adds to the unfunded liability which the public sector unions claim the middle class owes them.

    CalPERS is CORRUPT!

  17. SeeSaw Says:

    I have children and grandchildren myself Mawinda and I have no less love and loyalty to them than you to your’s. So, climb down from that high-horse. My own children and grandchildren are much better off financially than they would be if I did not have the pension I have, and I suspect your’s would be too–if not, then look who is the disloyal one here.

  18. SeeSaw Says:

    Its the same old cry and moan from Captain. He knows that CalPERS and 37 ACT plans are not the same, but he pretends not to know that because then he would have no reason to bash CalPERS. Asside from believing CalPERS is corrupt, what has it done to you, personally, Captain? Are you a member of CalPERS? If not, what is your interest in the Plan? It certainly can’t be that you personally are paying more than a pittance to CalPERS through your taxes.

  19. mawinda Says:

    Seesaw, You are correct. They will need all the assets they can to pay the debt the passed on to them. Useful idiots in the view of some……

  20. SeeSaw Says:

    We all received debt when we grew up, mawinda, but if I am not mistaken, income taxes, regarding percentages of income are much lower now than they were 50 years ago. Its all relative. I came to CA when gas was about 30 cents a gallon. Now it is $4 plus. You don’t need to worry about the future for your grandchildren–worry about the people that are here right now–they don’t have the means to pay any debt. Your grandchildren are going to be fine.

  21. mawinda Says:

    Oh, yes, most interesting viewpoint. We are still in Kansas, .so all is good, Dorothy. Thanks.

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