Crucial court pension-cut ruling not on fast track

The state Supreme Court is proceeding at a judicious pace after agreeing to hear appeals of two rulings that would weaken or eliminate the “California rule,” allowing state and local government pension cuts.

Briefing has yet to begin on a groundbreaking Marin County appellate ruling in August 2016 that employees only have a vested right to a “reasonable” pension, not to a pension offered at hire that can’t be cut without a comparable new benefit, erasing any savings.

The Supreme Court put the Marin case on hold while awaiting an appellate court ruling in a similar union challenge to “anti-spiking” provisions in Gov. Brown’s pension reform, a consolidation of cases from Alameda, Contra Costa and Merced counties.

An appellate court ruling on the Alameda case in January, “respectfully” disagreeing with the Marin decision, said if pensions are cut without a comparable new benefit, there must be compelling evidence of the relation to the successful operation of the retirement system.

Both sides are asking the Supreme Court to hear an appeal of the Alameda case. The conflict between the different legal views in the Marin and Alameda cases, and their different outcomes allowing and preventing pension cuts, could cause the court to clarify the California rule.

Meanwhile, the second case the Supreme Court has agreed to hear, a state firefighter union challenge to the Brown reform’s ban on the employee purchase of “airtime” to boost pensions, is listed as fully briefed and the court presumably could set a date for an oral hearing.

The appellate ruling in January last year upholding the ban on the purchase of additional years of service, called “airtime” because no work is performed, makes several references to the groundbreaking Marin ruling.

If the state Supreme Court ruled that airtime is not a vested right, as some argue, there could be no need to consider the California rule that a series of state court rulings, not legislation, mean the pension offered at hire becomes a vested right protected by contract law.

A Supreme Court website summary of the airtime case says the issue has two parts: 1) Was the option to purchase additional service credits a vested benfit, 2) and if so, did the airtime ban “violate the contracts clauses of the federal and state Constitutions?”

Whether the Supreme Court is likely to consolidate all of the California rule cases or handle them in another way is not clear. Although the airtime case is listed as “fully briefed,” there was a request last week to extend amicus brief filings until April 23 to allow a response.

“It’s hard to say,” Cathal Conneely, Supreme Court spokesman, said via email when asked when the court will hear the airtime case. “The court has three remaining oral argument sessions this court year (two in May in San Francisco, and one in Los Angeles in June).

“After that the next oral argument session is in September in San Francisco. Generally, the Supreme Court Clerk would send notice of the time and place of oral argument to all parties at least 20 days before the argument date.”

It’s theoretically possible that Brown’s pending appointee to a vacant seat on the seven-member Supreme Court could cast a key vote on the California rule. Former Justice Kathryn Werdegar announced her retirement last March, ample notice before her departure last August.

“It’s not something I want to do too quickly,” Brown said in January as he also expressed a “hunch” the California rule will be modified. “I have appointed three. The fourth could be very decisive. So I want to understand how that decisiveness should work.”

The other three Supreme Court justices were appointed by Republican governors. The conflicting Marin and airtime appeals court rulings were written by Republican appointees, Marin by Justice James Richman and airtime by Justice Timothy Reardon.

The California rule has been the roadblock to major cost-cutting reforms as growing pension costs take a bigger bite out of local government budgets, often leading to service cuts, staff reductions, and higher taxes.

In recent years, for example, courts citing the California rule overturned voter-approved pension reforms in San Francisco, San Jose and Pacific Grove.

Most pension reforms are limited to new hires, who do not yet have vested rights protected by the California rule. Significant savings can take decades as employees hired before the reform are slowly replaced.

The pension reform Brown pushed through the Legislature for the California Public Employees Retirement System, the California State Teachers Retirement System, and the 21 independent county systems mainly follows the California rule.

Most of the major provisions of the Public Employees Pension Reform Act, such as lower pension formulas and higher employee contributions, are limited to employees hired after the reform took effect on Jan. 1, 2013.

The Cal Fire Local 2881 suit to overturn the airtime ban is a direct challenge to the governor. His 12-point pension reform plan issued in 2011 included ending airtime purchases, saying investment risk was shifted to taxpayers and pensions are intended for actual work.

CalPERS has said 61,217 members purchased airtime from 2004, when legislation created the program, through 2012, when the reform legislation ended it. A review found CalPERS had been undercharging, “selling $1.00 worth of benefits for between $0.72 and $0.89.”

The state firefighters sued CalPERS, which responded that airtime purchases could only resume if the ban is ruled unconstitutional. The trial court held airtime “was not a vested right,” said CalPERS, “and even if it were, the Legislature could eliminate it.”

Brown’s legal office filed a brief last November making a similar argument that airtime purchases are not a vested right, but even if they were they could be ended. The Marin ruling was among the citations in the 55-page brief.

Last month a national bipartisan group, the Retirement Security Initiative chaired by former San Jose Mayor Chuck Reed, announced that five organizations had filed separate amicus briefs in support of the governor’s ban on airtime.

“We have five different briefs all with a different way the court could go to change the California rule,” Reed said last week. “You never know which track is going to appeal to how many justices.”

The amicus briefs were filed by the Pacific Research Institute, California Business Roundtable, City of Pacific Grove, Howard Jarvis Taxpayers Association, and League of California Cities.

A superior court upheld some of a Reed-led pension reform approved by nearly 70 percent of San Jose voters in 2012. Citing the California rule, the court blocked giving employees the option of a lower pension or paying more to keep earning their current pension.

In an airtime amicus brief last month, CalSTRS urged rejection of the appeal court’s “radical” revision. The California rule was cited as the reason for limiting teacher rate increases in 2014 CalSTRS funding legislation, which is more than doubling school district and state rates.

Teacher rates increased from 8 percent of pay to a maximum of 10.25 percent of pay, the amount deemed comparable to the new benefit of vesting a cost-of-living adjustment. The modest COLA, 2 percent of the initial pension payment, has rarely if ever been cut.

In an intervention on behalf of the state last month, the governor’s legal office urged the Supreme Court to review the Alameda ruling to clarify the anti-spiking legislation and to “decide this case together with Marin.”

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 12 Mar 18

35 Responses to “Crucial court pension-cut ruling not on fast track”

  1. Tough Love Says:

    Quoting ………… “CalPERS has said 61,217 members purchased airtime from 2004, when legislation created the program, through 2012, when the reform legislation ended it. A review found CalPERS had been undercharging, “selling $1.00 worth of benefits for between $0.72 and $0.89.””

    If CalPERS stated this, you can be sure it is the most “optimistic” calculation, and undoubtedly based on the assumption that it will indeed earn it annual “official” assumed return on investment. If costed out using the Rates that are unsed in the Private Sector for discounting such strongly guaranteed benefits, the cost to the workers are likely closer to HALF what CalPERS stated.

    I sure would like to buy something worth $1 for $0.36 to $0.45. Just ANOTHER of the MANY MANY ripoffs perpetrated upon the Taxpayers by the insatiably GREEDY Unions/workers and our Union-BOUGHT Elected Officials.

  2. spension Says:

    Not defending airtime or the pension situation, but, a contract is a contract.

    If California or local jurisdiction issued a bond with, say, 6% coupon, why can’t they now unilaterally reduce the coupon to, 3% or 2%, because that is *reasonable* now?

    If reasonable is the criterion, *all* California debt, not just pensions, should be subject to adjustment. There should be no entitlement of protected classes of debt.

  3. Tough Love Says:

    Spension,

    Bond purchasers cheated nobody.

    The Public Sector Union/Elected-Official cabal cheated the Taxpayers, now told to pay the bill for the ludicrously excessive pensions & benefit promises.

    It’s WAY past time for a re-set.

  4. acc Says:

    @spension 1) It is not unusual for contracts to be amended, renegotiated in the real world; just not in the case of California public employees. 2) Who anywhere gets 50% raises??? SB 400 and its companion remain premium examples of breathtaking greed, arrogance of union power, and political ineptitude. Yet …’a contract is a contract’? In what is clearly a fantastic situation, you would stand by and let the ship sink. 5-4 in favor of Janus please, that we might one day get to the root of this problem.

  5. Waheed Mendoza Says:

    To Spension…If pension promises are contractual agreements then the next administration that negotiates the follow on bargaining agreement can change the benefit package thst was negotiated previosly. Bond holders have exchanged remuneration between two agreeing parties. Future benefits that have not been accrued in any legal environment can be changed- except in the minds of socialists.

  6. spension Says:

    Tough Love… many, many bond purchasers, most notably all the New York Investment Banks (Goldman Sachs etc, who got $20+ trillion taxpayer payouts in the 2009 bailout according to SIGTARP head Neil Barofsky) and private sector executive William McGuire, who got $600 million in retirement benefits from public taxpayer Medicare and Medicaid, are far more corrupt than public unions.

    Not to mention China, Russia, etc who also hold California bonds; those countries kidnap and murder people they don’t like.

    If corruption is the standard, California bondholders need a giant haircut.

    acc… sure, re-negotiate bond coupons and payback too. They are also sinking the ship just as much as pension payouts. How about stopping all paybacks to bondholders who are corrupt? That is Tough Love’s idea.

    I’m not averse to amending *every single debt instrument* issued by the State of California. Picking exclusively on pension debt is obviously motivated by bald political power, and not by earnest concern for debt.

  7. Tough Love Says:

    spension,

    Given MANY of your comments, I’m convinced that self-interest drives your commentary, and that you or a close family member are now (or will be) collecting a Public Sector pension….likely from a Teacher’s retirement Plan.

  8. legalnerd Says:

    The court will not hear oral argument until a new judge is seated. And the court will then hold that airtime is not a vested right.

    The court will probably consolidate the Marin and Alameda cases. The court might hold that pensiin-spiking was a vested right. But, in light of the Ventura settlement, that holding is far from certain.

    Even if the court reaches the merits of the California Rule in the Marin/Alameda case, any modification of the Rule (allowing for a reduction of vested rights) would only apply prospectively. Meaning the modified rule would only apply to employees hired after the date the court modifies the Rule.

    Prospective application is required under California and Supreme Court case law regarding stare decisis and the “reliance interests” of the impacted parties — employees, employers, legislators, courts — all of whom have relied upon the California Rule for over 60 years.

    So, in the end, the vested rights of “legacy” employees hired before the effective date of the 2013 pension reform will not be changed (not even prospectively) even if the court modifies the Rule as to employees hired after the court’s holding.

  9. Tough Love Says:

    Legalnerd,

    Sounds like a lot of wishful thinking.

    The Court is FULLY AWARE that ending the California Rule ONLY for new employees is financially pointless AND that many CA Cities will go bankrupt if that’s all they do.

    While it’s a tough call whether they will get rid of it, if they do, my money is that it will include the future service of CURRENT workers …. as it should (because such FUTURE-service protections never should have existed AT ALL).

  10. spension Says:

    Tough Love, you are in the investment business and you don’t even live in California. You probably make loads of money off of fees and commissions by peddling California debt instruments. Your self-interest dwarfs mine: I and my relatives have no California pension nor will we ever have one in the next 70 years.

  11. Tough Love Says:

    spension,

    I noticed you stated “no California pension”. Nice qualification.

    Perhaps one from a City, a Town, an Independent Agency, CalSTIRS, CalPERS, or another State/City/Town/Agency outside CA? I’m convinced there is a Teacher pension in there somewhere.
    ————————————-
    And I make $0 in fees or commissions from selling anything.

  12. legalnerd Says:

    Tough Love,

    It’s not wishful thinking.

    Take the time to read the California & United States Supreme Court’s opinion regarding stare decisis, “reliance interests,” and prospective application only of new court rulings that overturn long-established precedent (like the 60+ year-old California Rue).

    You will learn that the likelihood of the court giving only prospective application to any decision overruling or modifying the California Rule is far greater than you (and others not versed in the law) might hope.

    I don’t disagree as a policy matter with the concept of modifying the California Rule so that changes can be made prospectively to the benefits earned by current employees. I just believe (based upon over 35 years of legal experience) that the long-standing prospective-application-of-new-decision principle will be applied to any decision by the court overruling or modifying the California Rule.

  13. Tough Love Says:

    legalnerd,

    I’m not an attorney, but the Courts surprise us quite often.

    Example: The NJ ruling to uphold the COLA suspension (noting that it also impacted the pensions of NJ’s judges) surprised EVERYONE.

  14. SeeSaw Says:

    TL, it is really disgusting that you continue to spread your own opinion that every person who worked in the public-sector is a greedy, ingrate. Public employees are there to provide the myriad of services needed by the public in general and most work hard and never see the inside of a union meeting or ever meet a union leader. The majority of them make reasonable wages and get reasonable pensions if they are fortunate enough to get onel. Nowadays many new hires are working up to 39 hrs. week and are not getting CalPERS.

    Author, in my own memory regarding PEPRA, all employees classic and new hires were to be put on the same retirement-contribution chart after 2018.

    There is nothing benevolent about the “Retirement Security Initiative”. It is a national organization because Chuck Reed founded it and is spreading it nationally. It is a “get rich” scheme for him and Pete Constant who already did what damage they could in San Jose and both now have comfortable public-sector pensions, while they work to denigrate what benefits still exist in the public sector.

  15. Tough Love Says:

    Quoting Seesaw …………

    “TL, it is really disgusting that you continue to spread your own opinion that every person who worked in the public-sector is a greedy, ingrate.”

    While I do NOT blame the individual workers ………. instead “blaming” the rampant Union/Elected-Official COLLUSION ……… it certainly IS the workers that are the financial beneficiaries of that collusion (via their resultant ludicrously excessive pension & benefits), so THAT is where the Taxpayers must look to right his wrong, by very materially reducing these “promises”.

    These “promises” should be reduced to the level that likely WOULD HAVE been granted in the absence of that collusion, and a valid proxy for that level is the retirement security contributions typically granted PRIVATE Sector workers by their employers.

    I know that you don’t “get it” Seesaw, often complaining about how little you husband gets in retirement payments from his Private Sector job, but THAT reflects “market rate” compensation, NOT the compensation now granted PUBLIC Sector workers when their ludicrously excessive pensions & benefit are included.

  16. SeeSaw Says:

    TL, if everybody got that “market rate” compensation, instead of a reasonable pension, they would all be on welfare! The majority of high-level managers are not union members and they get the highest pension payouts, so where is the collusion with unions? The pension plans were founded and operated for 30 years before unions were in the picture. The pensions will still exist if all the unions were abolished. Yes, I do get it–forty years in the public-sector have given me a good understanding of the issues.

  17. Tough Love Says:

    Quoting Seesaw………..

    “TL, if everybody got that “market rate” compensation, instead of a reasonable pension, they would all be on welfare! ”

    Sounds like you are agreeing with me. Given that 85% of all workers are employed in the Private Sector, it’s those who you feel have such LOW retirements that the should be on Welfare ….. but apparently have enough left over after paying their bills, to pay the Taxes that fund the MUCH greater Public Sector Plans.

    And you see nothing wrong with that ?

  18. S Moderation Douglas Says:

    What you are talking about is the “race to the bottom, Mr. Love.

    And you see nothing wrong with that ?

    “The national pattern that public-sector workers with college degrees are compensated somewhat less and those without college degrees are compensated somewhat more than their private-sector counterparts holds true for Connecticut as well. The more compressed pay structure—with top and bottom pay closer together—reflects the fact that people are drawn to public service for nonpecuniary reasons and that government employers have an interest in setting a higher floor on compensation than private-sector employers, some of whom pay poverty-level wages and pass health care and other costs onto government programs. Because public-sector workers are more likely to have college degrees, public employers—and taxpayers—are getting a bargain while ensuring a decent standard of living for less educated workers.”

    Monique Morrissey

  19. Tough Love Says:

    Quoting S Moderation Douglas …………

    “What you are talking about is the “race to the bottom, Mr. Love.”

    There certainly is “greed” in Corporations, as exhibited in how the compensation of large Corporate CEOs has risen from 20 times the average worker’s compensation in 1965 to over 300 times today. Undeniably, that may explain (in part) why employer-provided Private Sector retirement security contributions is so low today.

    But we still can’t get past the very REAL fairness-problem that (for workers at all income levels taken together*) Public Sector Total Compensation is MUCH higher than that of comparable Private Sector workers, and that it is the MUCH greater pension & benefit elements of Total Compensation that is the source of that Public Sector Total Compensation advantage.

    That being the case, my strongly advocating to eliminate the ROOT CAUSE of the problem ….. that being the MUCH greater Public Sector Pensions & Benefits ………. is NOT supporting a “race to the bottom”, but the need for fairness to be extended to the Taxpayers, whose contributions (and the investment earnings thereon) are now responsible for 80% to 90% of the total cost of the MUCH richer Public Sector pensions (AND benefits).
    ——————————-

    * Yes Stephen, we know that Public/Private Sector Total Compensation differentials vary considerably by income group (you having mentioned that 100’s of times), but we BOTH know that what FINANCIALLY impacts Taxpayers is the net differential for workers in ALL income groups taken together. If you repeat it 1000 MORE times, that still will not change.

    The FINANCIAL impact on taxpayers comes from workers at ALL (yes ALL) income groups taken together.

  20. S Moderation Douglas Says:

    Dozens of times, at most. Not hundreds. If I’ve told you once, I’ve told you a million times; don’t exaggerate!

    “we know that Public/Private Sector Total Compensation differentials vary considerably by income group”

    Then we both know that hundreds of thousands of government workers earn compensation equal to or less than equivalent private sector workers. ” The FINANCIAL impact on taxpayers” from these workers is positive, or neutral. Got a problem with EQUAL?

    The Flaw of averages. You fell for it. And “we BOTH know” it.

  21. Tough Love Says:

    Stephen,

    Now 100’s of times +1

  22. spension Says:

    TL said “spension,

    I noticed you stated “no California pension”. Nice qualification.

    Perhaps one from a City, a Town, an Independent Agency, CalSTIRS, CalPERS, or another State/City/Town/Agency outside CA? I’m convinced there is a Teacher pension in there somewhere.”

    I have no DB pension at all. Not from any government or public sector agency from any Special District, School District, Educational Institution, City, County, State, Country, Planet, Solar System, Galaxy, or Universe. Not from the United Nations or from any international treaty agency or NGO. No DB pension from any public or private source.

    As I’ve posted here many times: I have all DC plans. They are corrupt due to fees and I can’t wait until I retire to move them to Vanguard, the least corrupt investment organization in the US. Maybe partly to American Funds.

    The corruption by the private sector that handles Defined Contribution plans dwarfs that in the public sector DB plans. Most private sector DC plans allow marketing fees and subsidies for execs to take their girlfriends and boyfriends on expensive junkets, like, to the Kentucky Derby. DC plans in the US are major corrupt organizations.

    Now TL, I think you have pecuniary interests in the US private sector, and that explains why you shill for the US private sector that intentionally and with corrupt influence on government officials destroyed their rank-and-file pension system, as documented by Pulitzer-Prize winning reporter Ellen Schultz in http://www.retirementheist.com.

    Let’s see if you deny that you make money out of the corrupt US private sector. Just as you do, if you don’t specify and deny any specific money-making mechanism in the private sector, we’ll all assume you corruptly make money through it.

  23. Tough Love Says:

    Quoting spension ………..

    “The corruption by the private sector that handles Defined Contribution plans dwarfs that in the public sector DB plans. ”

    Not by a long shot.

    NOTHING holds a candle to the financial devastation created (and GROWING every day) by the Public Sector Union/Elected-Official COLLUSION …. that has resulted in the granting of the LUDICROUSLY excessive Public Sector Pension & Benefits.
    —————————

    You seem to asking me to deny making ANY money in Private Sector employment. That’s a bit much to ask, isn’t it?

  24. spension Says:

    TL… as I predicted, you don’t deny being involved in corruption.

  25. Tough Love Says:

    spension

    (1) To be perfectly clear ………. I am not “involved in corruption.”

    (2) To be perfectly clear ………. you’re an idiot.

  26. spension Says:

    And here come the usual insults from TL… when he loses on the facts, he can’t stay logical, and gets all emotional and hysterical.

    You put involved in corruption in quotes, meaning it is a falsehood.

    Once again, you don’t deny being involved in the rampant corruption that pervades the private sector in the US.

  27. Tough Love Says:

    spension,

    (1) I am not involved in corruption (is that better?).

    (2) You’re an idiot (no change there).
    ————————————————
    P.S. W/o the Private Sector … that you so hate……… there would be no money to pay the Public Sector who you so love.

  28. SeeSaw Says:

    TL, without the public sector to purchase the goods and services provided by the private sector there would be no millionaires and billionaires. The perceived pay-to-play collusion between public -sector unions and legislators, that you gripe about, is penny ante in comparison with the fact that this whole country is operated at the behest of the large corporations and rich donors who fund the political campaigns and expect results. Stop trying to start a civil war among the citizens,of this country! There is no such thing as the “public-sector and the taxpayers”–every citizen in this country who works for a wage and/or buys any commodity or service is a taxpaper!

  29. Tough Love Says:

    Seesaw,

    With the exception of a small number of large Capital-Building projects, almost every increase in taxes these days ….. no matter what the stated purpose ……… is to be able to continue to fund the out-sized Public Sector pension & benefit promises.

    Sure, both Public and Private Sector workers are taxpayers, but some are more equal than others.

  30. spension Says:

    TL Says “P.S. W/o the Private Sector … that you so hate……… there would be no money to pay the Public Sector who you so love.”

    More of your hysterical emotions, TL… putting words in my mouth that I have not once uttered nor agree with in any way.

    I don’t hate the Private Sector, I hate the fact that the Private Sector in the US has a huge amount of corruption.

    Putting false words in others’ peoples’ mouths is part of your corrupt behavior, TL.

  31. Tough Love Says:

    spension,

    What a laugh, coming from you, the person with a PHD in claiming others stated something that they did not.

    Didn’t you say THIS about me (which couldn’t be further from the truth)…………. “Pension hawks like Tough Love are all in for spend and tax, spend and tax for their buddies like military retirees, most of whom never have seen battle outside of bureaucratic infighting.”

    in a comment addressed to CalPERSon timestamped March 7, 2018 at 10:31 am at this link:

    https://calpensions.com/2018/03/05/how-more-generous-pensions-boosted-city-costs/

    Crawl back under your rock.

  32. spension Says:

    Uh… take a logic course… pension hawks *like* TL were my words. Said nothing about *you in particular*. You are quite emotional, and logic doesn’t seem to influence you.

    And of course you have to sink to new insults, like crawling under rocks. That is because you can’t be logical and analytical, only emotional.

    In contrast *you* specifically said… “spension,…. W/o the Private Sector … that you so hate………”…

    You will never find a place where I say I “hate” the Private Sector, becuase (1)I don’t…. and (2)I have never posted that sentiment.

    Thank goodness some people in the world care about facts and logic, and aren’t all weepy, hysterical, and emotional like you are TL.

  33. S Moderation Douglas Says:

    Mr. Love @ 6:25 pm,

    “…almost every increase in taxes these days ….. no matter what the stated purpose ……… is to be able to continue to fund the out-sized Public Sector pension & benefit promises.”

    Or, are they going to backfill the market losses from 2008/09? I believe the trend in most cities and states is that less than half the current contributions are going toward normal costs. The huge increases are in unfunded liabilities directly tied to market losses, and there, they are not even paying enough to cover the interest, let alone pay down the principal.

    If cities had to pay only normal costs, they would be affordable, even with a lowered discount rate.

    “out-sized Public Sector pension & benefit promises.” Is your opinion.

  34. Tough Love Says:

    Quoting S Moderation Douglas ……….

    “If cities had to pay only normal costs, they would be affordable, even with a lowered discount rate.”

    A patently absurd statement

    In CA where you live, the NORMAL COST alone……….. if calculated using the SAME assumptions and methodology that the US Gov’t requires of Private Sector DB pension Plans in their valuations ……… would be 35% to 45% of pay for non-safety workers and 50% to 60% of pay for Safety workers.

    Compare that to what Private Sector worker typically get from their employers ……. typically 3% of pay into a 401K plan plus the employer’s 6.2% of pay Social Security contribution on the emplyee’s behalf.

    And you call the MULTIPLES greater PUBLIC(than Private) Sector funding requirements “affordable” ………. how absurd ?

  35. S Moderation Honestly Says:

    “out-sized Public Sector pension & benefit promises.” Is your opinion.

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