Judges win lawsuit as pension conflicts continue

A superior court judge has awarded judges back pay and a pension increase, ruling that a five-year freeze on their salary did not keep pace with average increases in state worker pay, a requirement under state law.

But the state has not agreed to the amount owed judges in the class-action suit filed by a former court of appeals presiding justice, Robert Mallano, shortly before he retired two years ago.

In a filing last week by Mallano’s attorney, Raoul Kennedy of Skadden Arps in Palo Alto, a consultant calculated that superior court judges are owed $14,664, appeals justices $16,782, associate justices $17,898, and chief justices $18,763.

Total back pay for the 1,700 active judges listed last year would be roughly $25 million, which includes 10 percent annual interest awarded by Los Angeles Superior Court Judge Elihu Berle in a decision last December.

The state disagreed with the judgment, arguing that the award of specific salaries and pension amounts is “akin to an award of damages” and that ordering the state to pay Mallano’s attorney fees is “procedurally improper” and “unwarranted.”

“The salary amounts cannot be accurate because the salary adjustments, if any, that would be made to judges in accordance with the court’s judgment will vary among individual members of the plaintiff class,” the state said as quoted in Kennedy’s filing. “It is impossible at this point to calculate what those individual figures would be.”

The state filed objections to the court’s draft judgment, and a hearing has been set for March 9.

Mallano

Mallano


Changes in pay can affect not only employer and employee contributions to the California Public Employees Retirement System, but also the amount of the pension paid to retirees.

The Mallano decision is briefly mentioned in the annual CalPERS valuations of the two judges retirement systems issued this month for the fiscal year ending last June 30.

“The increases and amounts owed have not been calculated yet,” said CalPERS. “We anticipate the impact of this lawsuit to be reflected in the June 30, 2016 valuation (issued next year).”

An old retirement system for judges hired before Nov. 9, 1994, has an unusual provision. Annual pension increases for retirees are based on pay increases for active judges, not inflation up to 3 percent a year as in the new system.

But it’s another unusual provision in the old retirement system that is a continuing conflict between CalPERS, acting on behalf of the judges, and the Legislature and the governor.

The old system is pay-as-you-go, operating mainly with a state contribution large enough to pay retiree pensions each year and a much smaller amount from active judges (8 percent of pay). No additional money is invested to “pre-fund” future pension costs.

“Although it is unlikely the State would fail to pay ongoing benefit payments, as they are due, the lack of pre-funding means there is no benefit security for members of this plan,” said a CalPERS staff report with the new Judges Retirement System valuation.

“It also means the total cost is higher to the State since there is no accumulation of assets and, consequently, little to no investment earnings can be used to defray costs.”

CalPERS expects investment earnings to pay 65 percent of future pension costs, the rest coming from the annual contributions of employers, 22 percent, and employees, 13 percent.

In a routine annual letter to the governor and Legislature this month urging pre-funding of the old judges system, Rob Feckner, the CalPERS president, said “the board has considered the System’s funding deficiency to be a serious matter for many years.”

CalPERS estimates that doubling the state $227.3 million pay-as-you-go contribution next fiscal year to $448.6 million would save $1.3 billion over the remaining life of the plan, dropping the projected $5.6 billion pay-as-you-go cost to $4.3 billion.

In one of the minor instances of the mismanagement of state pension funds (see major examples in a previous post), the legislation that created the new judges system repealed a requirement that the old system be fully funded.

A legislative analysis of SB 65 in 1993 gave no explanation for the repeal of a requirement that the old system be pre-funded with a target of eliminating its pension debt or “unfunded liability” by 2002.

But a likely explanation for leaving the old system with pay-as-you-go pensions that deliberately pass debt to future generations would seem to be avoiding the cost of pre-funding: an estimated $100 million a year to reach full funding by 2002.

Now the old Judges Retirement System has a debt or unfunded liability of $3.3 billion. The dwindling number of active judges in the system, 231 in the new valuation, are outnumbered by the 1,924 retirees and beneficiaries receiving pensions.

In contrast, The new Judges Retirement System II for those appointed or elected after Nov. 9, 1994, has no debt or unfunded liability. It’s 100 percent funded in the new valuation, down from a surplus of 107 percent the previous year.

The 1,470 active judges in the new system outnumber the 96 retirees and beneficiaries. The employer contributions is 23.2 percent of pay. Judges hired before a reform on Jan. 1, 2013, contribute 8 percent of pay, those hired later 15.25 percent of pay.

Two years ago, pre-funding the old judges retirement system was on Gov. Brown’s to-do list when he proposed a funding solution, later enacted, for the California State Teachers Retirement System.

“We still have retiree health,” he said then, before following up last year with a plan to bargain changes with state worker unions. “We still have the judges retirement system. We have got lots of other stuff here, and we will handle it.”

Berle

Berle


Another continuing conflict is judges ruling on issues that affect their own pensions. In the Mallano decision, Judge Berle presumably is included in his decision awarding back pay and a pension increase.

What some pension reformers think is a key way to reduce unaffordable pension costs, cutting pension amounts current workers earn in the future, is prevented not by legislation but by a series of state court decisions often called the “California rule.”

California judges have rarely if ever recused themselves from ruling on pension issues that might benefit them. In Arizona, four supreme court justices recused themselves from a current case to overturn a pension contribution increase for judges and others.

The case is being heard by other Arizona justices in a new pension plan not affected by the outcome. Some recent California retiree health care cases have been heard in federal court. But whether that is an option for pension cases is not clear.

Meanwhile, the conflict of interest continues. When Orange County unsuccessfully tried in 2011 to overturn a retroactive pension increase for deputy sheriffs, an attorney arguing the case for the deputies emphasized the point.

“Miriam A. Vogel, a retired Court of Appeal justice, clearly told her former colleagues that the court’s decision would affect every pension in the state of California: ‘(I)t would affect yours, it would affect mine,’” former Orange County Supervisor John Moorlach (now a state senator) wrote in the Orange County Register.

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 29 Feb 16

14 Responses to “Judges win lawsuit as pension conflicts continue”

  1. john m. moore Says:

    The California rule applies to judges because they have “vested” pension rights. The Ca. Rule does not create “vested” pension rights, but if pension rights are “vested”, the vested right applies to work not yet performed.

    But this case has a new wrinkle; it is saying that in the case of judges, because of certain statutes, pay cannot be cut for services not yet performed. The general rule is that salary is not a “vested right;” it can be cut for work not yet performed.

    In effect, this judge is saying that the judges have a salary limit that is vested and can’t be cut for services not yet performed. If that holding is upheld and carried over to other state and local employees, the cost will be so great that state and local govt. will explode: Every agency would become “cash insolvent” in a short period of time.

    Taxpayers are truly “dupes” to put up with this “stuff.”

  2. Bob Says:

    Like clockwork, John Moore shows up to dispense erroneous legal commentary.

    Let me repeat , for you, John Moore, the opening sentence in Ed’s piece which explains the ruling. A state statute mandates that the pay of Judges be increased at the same pace as those for state workers. There was no attempt to cut the pay of Judges–the state simply failed to follow the law regarding the pay raises of Judges.

    It has nothing to do with vested rights (and you deep misunderstanding of that subject), vesting, etc.

  3. john m. moore Says:

    “a five year freeze on salary” repealed statutes that granted increases at the same pace as state workers. Is that clear enough for you?

  4. Bob Says:

    Hey Johnny,
    The five year freeze occurred because the state did not follow the law and give the Judges the payraises the law entitled them to–not because a new and different law was enacted to replace the prior law and implement a salary freese. In short, that decision was without legal authority.

    In fact, these facts aren’t hard to find–they were reported by Ed in an earlier blog that he even linked to below this story.

    Let me quote for you the salient part of the blog:

    “Judges were told last November they would receive a 1.4 percent pay increase retroactive to July 1 and the matching increase in pensions. The suit said judges also were told the “statutorily mandated salary and benefits” prior to July 1 would not be paid.

    Mallano’s suit said he wrote a letter to Chiang in December explaining the legal obligation and ‘demanding payment of the full judicial salary to which he was entitled,’ but he received no reply.”

    You see, Johnny, you neither know the law or the facts in this case, but it doesn’t stop you from posting your blather. Please, do yourself a favor and stop putting your ramblings in print—you embarass yourself.

  5. Bob Says:

    In fact, Johnny, I will do you a big favor and provide the law whic requires automatic and mandatory increases in judicial salaries when state workers receive salary increases. It is Government Code Section 68203.

    That section was not “repealed” as you claimed; it was simply ignored. Hence the lawsuit and the win by the Judges.

    Consider yourself educated, Johnny.

  6. Tough Love Says:

    Quoting …. “Total back pay for the 1,700 active judges listed last year would be roughly $25 million, which includes 10 percent annual interest awarded by Los Angeles Superior Court Judge Elihu Berle in a decision last December.”

    Do CA judges award 10% interest (on top of judgement amounts) to citizens who win judgements against the State of CA or it’s Cities ?

  7. john m. moore Says:

    I understand the need for pension parasites to attack me. I am getting very close to the bone when I reveal the incredible criminal pension increases documented by grand juries in Sonoma and Marin county and specify that the criminal acts required the cooperation of counsel, administrators, the unions, the BOS and even the courts. While I do not seek vengence, I do try to protect your children and granchildren by giving them the opportunity that existed in Ca. pre-govt. unions(I am pro-union in the private sector).

    My recent postings revealing that pension reform chapter nines in bankruptcy provide a complete and available pension solution for all agencies except the state, is catching hold. I know because of the increased threats and insults I receive on a daily basis. There is great concern that as reformers gain some guts, the million dollar pensions will be modified.

    As for me, I put in a couple of hours a day on pension reform and the rest of the day with my friends and family. And I Play golf. Played Pebble Beach two days after the AT&T. Wind blew 50 mph and we had to quit after 7 holes. A real blast.

    How about you? Sleeping nights???

  8. john m. moore Says:

    Do you understand the legal elements of a freeze? Stick to sticking it to your children and grand children.

  9. bob Says:

    Hey Johnny, you put in a “couple hours of day” on pension reform. LOL, LOL,LOL!! Maybe you might want to be more productive and work on how to hit golf shots into the wind….

    Share with some of your successes, would ya? Was it your run for Mayor? The pension rollback you backed for the Pacific Grove ballot? Inquiring minds want to know.(No, getting your ramblings regarding Chapter 9 published at “unionwatch” is not a success.)

    Oh, and on the legal front—both I and the Judge who decided the class action lawsuit clearly understand the requirements of Government Code section 68203. You amuse with your plaintive question “Do you understand the legal elements of a freeze.”

  10. bob Says:

    Tough Love, to answer your question: “Do CA judges award 10% interest (on top of judgement amounts) to citizens who win judgements against the State of CA or it’s Cities ?” Sure do, when there is a violation of a contract.

    California Civil Code section 3289(a) “Any legal rate of interest stipulated by a contract remains chargeable after a breach there of until the contract is superseded by a verdict or other new obligation.”

    However, “[i]f a contract does not stipulate a legal rate of interest, the obligation shall bear interest at a rate of 10 percent per annum after breach.” California Civil Code 3289(b).

  11. john m. moore Says:

    Go Bob. You exemplify the anti-pension reform mind set. Get back to the home before they miss you. And keep your comments coming.

  12. Bob Says:

    Hey Johnny,I will keep my comments coming. Nothing makes my day more than highlighting for Ed’s reading audience how dreadfully wrong your opinions are. But the best part is that I get to do so while reveling in your utter lack of success in “pension reform.” With you as an opponent, those who enjoy public pensions have nothing to fear!

  13. john m. moore Says:

    What distinguishes you Bob, is your Cruelty: You don’t care about how the corruptly acquired govt. pensions has destroyed the state of our state. You are a Nero.

    As to what I have accomplished, I have simply flushed out for voters that the lawyers, administators, union leaders,and BOS’s in Marin and Sonoma were crooks and should be treated as such. I have revealed to all pension reformers that a just chapter 9 could solve its pension mess, but it takles guts. I have just begun, you have judged too soon.

    Most importantly, I know that you are a hired gun carrying out a strategy; it is to my credit that you give me all of your attention.

  14. Berryessa Chillin' Says:

    D-Day has come– LA, OC, and Santa Clara County report their financial positions, each a BILLION plus in debt. Maybe this will wake up the somnolent credit agencies about the lousy state of public finances in the once-Golden State.

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