High court to hear Brown pension reform Dec. 5

As he requested, Gov. Brown will get a chance before leaving office to defend a public employee union challenge to his pension reform that some think could result in a ruling allowing pension cuts.

The state Supreme Court yesterday announced oral arguments scheduled Dec. 5 in Los Angeles on a firefighter appeal to allow employees to continue boosting their pensions by purchasing up to five years of “airtime,” credit for years in which they did no work.

If the court finds airtime is a vested right, the court could modify the “California rule” that prevents cuts in the pensions of current workers, limiting most cost-cutting reforms to new unvested hires, which can take decades to yield significant savings.

The airtime case, Cal Fire Local 2881 vs. CalPERS, one of five similar challenges to the pension reform, was fully briefed last January. Brown’s legal office replaced the state attorney general in the defense of the airtime ban.

“As the end of Governor Brown’s term in office draws closer, we respectfully urge the Court to calendar this matter for argument as soon as possible,” the governor’s legal affairs office said in a letter to the Supreme Court last July 6.

The Supreme Court said in September that Cal Fire oral arguments might be held as soon as November. The arguments on Dec. 5 are during the last regularly scheduled week of oral arguments before Gov.-elect Gavin Newsom is sworn in Jan. 7.

“This move was animated in large part by Governor Brown’s deep concern for the fiscal integrity and solvency of public pension systems throughout the state,” said the governor’s legal office letter in July, referring to taking over defense of the reform.

“It was the same concern that motivated him to help develop the Public Employees’ Pension Reform Act of 2013, and sign it into law,” said the letter.

Brown has left a seat vacant on the seven-member Supreme Court for a record 14 months. Former Supreme Court Justice Kathryn Werdegar gave notice in March last year that she would retire in August.

If no appointment is made before Dec. 5, a key vote on pension reform could come from one of the rotating appeals court justices brought up to hear more than 100 cases so far.

The six current members of the Supreme Court are evenly split between three appointees made by Brown, a Democrat, and three appointees made by former Republican governors.

“It’s not something I want to do too quickly,” Brown said in January, one of his few publicly reported remarks about the vacancy. “It’s very important now. I have appointed three. The fourth could be very decisive. So I want to understand how that decisivness should work.”

Among the speculation is that Brown may appoint an aide he wants to retain as long as possible, wanted a four-year delay in a retention election for the new election by waiting past the September deadline for the ballot this month, or may appoint his wife Anne Gust Brown.

The California rule has been cited as courts overturned several cost-cutting pension reforms approved by voters. For example, a Pacific Grove limit on payments to CalPERS in 2010 and a San Francisco ban on supplemental pension payments in 2011.

In 2012, a superior court overturned a key part of a San Jose measure approved by 69 percent of voters that would have cut the cost of pensions that current workers earn for future work, while protecting pension amounts already earned.

The plan pushed by former San Jose Mayor Chuck Reed, a Democrat, would have given current workers the option of paying more to continue earning the same pension, up to 16 percent of pay, or choosing a less costly pension that would pay less in retirement.

A superior court overturned the option citing the California rule, a series of state court decisions believed to mean the pension promised at hire becomes a “vested right,” protected by contract law, that can only be cut if offset by a comparable new benefit, erasing cost savings.

Reed, now on the board of the bipartisan Retirement Security Initiative pension reform group, said pensions have been losing ground. CalPERS had a debt or funded liability of $90 billion in 2012, when the Brown reform legislation was approved, and $138 billion in 2016.

He said five different lawyers have filed five friend-of-the court briefs outlining five different approaches to modifying the California rule. One of the questions in the Cal Fire case is whether the Supreme Court will rule on vested rights and the California rule.

The Supreme Court summary says the Cal Fire case presents two issues: 1) Was the option to purchase airtime a vested pension benefit (2) and if so, did the legislation ending airtime purchases violate the contracts clause of the state and federal constitutions?

If the court finds that airtime is not a vested benefit, the court might also decide there is no need to rule on whether the airtime ban violates the contracts clauses and the California rule.

“This is the California State Supreme Court and this is a real big issue, and I would be very surprised if they didn’t take the opportunity to be more expansive than narrow,” Reed, a lawyer, said yesterday. “But I’m only guessing.”

Gregg Adam, a Messing Adam & Jasmine attorney for Cal Fire, said “our client is excited that oral argument is scheduled,” and the case has been extensively briefed by the parties and friends of the court.

“A narrow ruling is certainly possible,” Adam said in an email. “The Governor argues additional retirement service credit is not the type of pension benefit that the California Rule protects. If the Court agrees with him, the opinion will be short.

“We hope the Court reaches the larger issue. The benefit was integral to employees’ retirement security. It also encouraged diversity and education in state service. So we think it falls squarely within the category of benefits protected by the California Rule.

“The California Supreme Court has led on this issue and, especially at this time, we’re going to encourage it to continue to do so.

“With respect to Alameda, the Court will determine when it is ready to resolve the issues in that case, which may or may not be affected by any ruling in Cal Fire.”

Alameda County Deputy Sheriff’s Assn. v. Alameda County Employees’ Retirement Assn. was consolidated with similar Contra Costa and Merced county cases challenging a part of the reform that prevents “spiking” by boosting the final pay on which pensions are based.

The Supreme Court designated the Alameda case as the lead for three other similar cases challenging parts of the governor’s reform. The governor’s office had no comment yesterday on the pension cases.

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 9 Nov 18

3 Responses to “High court to hear Brown pension reform Dec. 5”

  1. moore Says:

    In both Kern and Allen vs. City of Long Beach, the court stated that changes in a pension system that reduces benefits without comparable advantageous off-sets must relate to maintaining the integrity of the pension system. In both cases, there was no claim by the city that the integrity of the pension system was at risk, so the reductions were disallowed.

    I believe the court will follow that analysis and examine whether at the time that the state adopted PEPRA, did it meet the foundation requirement, that w/o the reductions the pension system was at risk of creating costs and deficits that could not be sustained. I believe that the state legislature met that standard and the reductions will be upheld even if the court finds that the employee’s had a vested right to the benefit that was eliminated by PEPRA.

    Kern cited several cases wherein it had allowed a reduction of a vested benefit(in one case pensions were reduced from 2/3 of salary to 1/2 and the reduction was approved by the court).

    Per Kern and Allen, agencies may now reduce vested benefits by showing that w/o the reductions, the pension system is unsustainable. And that is what the appellate courts that sustained the reductions in the cases before the court have held. Nothing new.JMM

  2. moore Says:

    The point that I want to make is this: to reduce vested pension or OPRB the city or county must make a factual case to show that if it cannot reduce vested benefits w/o off-sets, the plan is and will become more and more unsustainable. Here in Pacific Grove where the experts showed that by 2020 it will pay 100% plus of annual salary to CalPERS, that is a no brainer, but staff and the city atty. lie about the state of the law because their jobs depend upon them lying. Sonoma county and Palo Alto, the same.

    Another thought: if Ca. gov pensions are 70% funded and employees receive that 70% their pensions would exceed social security and other private pensions by four to five times, in other words still grand theft on a grand scale;

  3. moore Says:

    I note a post by “The Chief Investment Officer” in today’s(Sunday) Index. It claims that the California Rule states that vested benefits may not be reduced w/o off-setting benefits. That is the preface to the rule, the second part is that vested benefits may not be reduced unless the reductions are required to maintain the integrity(sustainability) of the pension system. In the cases cited, there was no evidence, or even a claim that the sustainability of the pension system was in jeopardy(See both Kern and Allen v. City of Long Beach which both state the rule and note the absence of an “not sustainable claim”)JMM

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