Archive for the ‘California rule’ Category

Brown goes to court to finish pension reforms

January 16, 2018

While his lawyers urge the state Supreme Court to allow pension cuts, Gov. Brown is taking his time to fill a vacant seat that would make his appointees a majority on the high court, four of the seven justices.

The vacancy created by the retirement last August of Justice Kathryn Werdegar, who gave notice in March, is being filled by different justices temporarily brought up from the appeals court to hear each case.

“It’s not something I want to do too quickly,” Brown said at a state budget news conference last week. “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.”

Democratic appointees will be a majority for the first time since 1986, when voters ousted three Brown appointees (Chief Justice Rose Bird, Cruz Reynoso, and Joseph Grodin) after a campaign focused on death penalty reservals, the Associated Press reported.

Brown said last week he has a “hunch” the courts will modify the “California rule,” so “when the next recession comes around the governors will have the option of considering pension cutbacks for the first time.”

As the news conference wrapped up, Gov. Brown was asked to explain, as a lawyer and former state attorney general, why he thinks the courts may allow future governors to consider pension cutbacks during a recession.

Part of his reply: “There’s already been several lower court opinions through the court of appeals where judges, both liberal and conservative, have taken a position that employees are entitled to a reasonable pension but not entitled to any remuneration they can imagine.”

The Supreme Court has agreed to hear an appeal of a ruling that employees are entitled to a “reasonable” pension, not the pension offered at hire. It was written by an appeals court justice, James Richman, appointed by former Republican Gov. Arnold Schwarzenegger.

Joining in the unanimous ruling by a three-justice panel were two Brown appointees, Marla Miller and J. Anthony Kline, Brown’s legal affairs secretary from 1975 to 1980 during his first two terms as governor.

The Supreme Court also has agreed to hear a similar appeals court ruling that cited Richman in a firefighters challenge to a different minor part of Brown’s pension reform — the purchase of “airtime” to boost pensions rather than county system “anti-spiking” provisions.

This ruling was written by Justice Martin Jenkins, a Schwarzenegger appointee, and concurred in by Peter Siggins, a Schwarzenegger appointee, and Stuart Pollak, appointed by former Democratic Gov. Gray Davis.

Last week, a third appeals court panel issued a ruling in a three-county consolidation of anti-spiking cases that, “respectfully” parting ways with Richman and his colleagues, said pensions can be cut but only under tight limits if there is no new offsetting benefit.

This ruling was written by Justice Timothy Reardon, an appointee of former Republican Gov. George Deukmejian, and concurred in by Ignazio Ruvolo, appointed by Schwarzenegger, and Maria Rivera, a Davis appointee.

Whether judges should rule on their own pensions recently has been an issue in Arizona and Rhode Island. But recusal has never been much of an issue in California, where judges have the most generous CalPERS formula because they tend to enter the system at a later age.

The California rule is a series of state court decisions believed to mean the pension promised at hire, unlike pay, becomes a “vested” right. It’s protected by contract law and can’t be cut, unless offset by a comparable new benefit that could erase any cost savings.

The rule was cited as courts overturned three measures approved by voters: A Pacific Grove limit on contributions to CalPERS in 2010; a San Francisco end to supplemental pension payments in 2011, and a San Jose option for current workers in 2012.

Presumably because of the rule, key parts of a pension reform Brown pushed through the Legislature six years ago, which extended retirement ages and capped pensions, were limited to new hires who have no vested right to the benefits cut to reduce costs.

Minor parts of the reform covering employees hired before the reform drew union lawsuits, contending vested rights were violated by “anti-spiking” provisions for county systems and a ban on “airtime,” the purchase of service time to boost pensions.

Brown intervened when his legal secretary, replacing the state attorney general, filed a brief in November in the airtime suit. His attorney also gave an oral brief last month in the consolidated county cases.

Meanwhile, the Brown reform provides little immediate relief for struggling pension systems. Significant savings could take decades because key parts only apply to employees hired after the reform took effect on Jan. 1, 2013.

The California Public Employees Retirement System never recovered from huge investment losses a decade ago. With roughly only 68 percent of the projected assets needed to pay future pensions, CalPERS fears another major market plunge could be crippling.

CalPERS expects the Public Employees Pension Reform Act to save $29 billon to $38 billion over the next 30 years, not a major dent in a debt or unfunded liability that as of June 30, 2016, was $138.6 billion over the same period.

A third of CalPERS state and local government workers, more than 285,000, are now under the reform, said Amy Morgan, CalPERS spokeswoman. The state CalPERS contribution this fiscal year is expected to be reduced $48 milllion by new hires since June 2016.

The state budget proposed by Brown last week (see chart) expects to contribute $6.2 billion to CalPERS in the new fiscal year beginning in July. A series of four rate increases that began in 2012 for employers, but not employees, is scheduled to continue until 2024.

The budget summary lists Brown’s retirement accomplishments: the pension reform, a long-delayed plan to more than double the California State Teachers Retirement System employer rates, and an investment fund to help pay for state worker retiree health care.

Retiree health care, one of state government’s fastest-growing costs, has been only pay-as-you-go. The debt or unfunded liability for state worker retiree health care last year was $72 billion, more than the state worker pension debt of $59.5 billion in 2016.

In the past the Legislative Analyst’s Office and others have suggested retiree health care may not have the same protection as pensions. Now employee contributions to an investment fund, as bargained with unions, may ensure retiree health care is vested.

If the high court softens or eliminates the Californa rule, the Brown legislation six years ago that drew the union legal challenges will, intentionally or not, add to the governor’s list of retirement reforms.

In his proposed budget at the end of his first two terms as govenor in 1982, Brown called for lower pensions for new hires, arguing that state workers could retire at age 62 and receive more from CalPERS and Social Security than their final salary.

That reform never happened.

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 16 Jan 18


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