California Supreme Court Rules in Favor of Pension Benefit Cuts

Despite the ruling, the court sidestepped a much larger issue, whether core pension benefits promised at the time of hire for public workers can be changed. 

The California Supreme Court has ruled that a provision of former Gov. Jerry Brown’s 2012 pension law reform is legal, and that Brown and the legislature could end the practice of California Public Employees’ Retirement System (CalPERS) members being able to pay to enhance their pension benefits.

Despite the ruling, the court sidestepped the larger issue of whether core pension benefits for public employees that are negotiated by their unions can be altered.

California courts have held repeatedly since at least the mid-1950s that the pension benefits promised public employees at the time of their hire could not be changed. A series of collective court decisions known as the California Rule protects public workers’ pension benefits.

As least 12 other states have similar laws, a point of controversy among some elected officials and advocacy groups, who would like to reduce pension benefits for public workers as pension costs soar. California and other states have changed the rules regarding pension benefits for new employees, but existing employees have held on to their earned pension benefits.

So, there was much attention on the case brought by California state firefighters over the Brown legislation’s elimination of  “airtime,” which was part of a plan by the governor to rein in spiraling pension costs.

The “airtime” referred to the fact that CalPERS members could buy five additional years of work credit without actually working those hours, enhancing their ultimate pension payout at time of retirement.

The court Monday compared the “airtime” as an optional benefit, not a core guaranteed contractual pension benefit, such as the formula for determining what percentage of pay each year will go towards retirement benefits.

“In addition to their salary or hourly pay, it is not unusual for public employees to be offered the opportunity to purchase different types of health insurance benefits from a variety of providers, to purchase life and long-term disability insurance; and to create a flexible spending account, by which certain medical and child care expenses can be paid with pre-tax income,” the court said. “We have never suggested this type of benefit is entitled to protection under the contract clause.”

The court made it clear, however, that the California Rule protecting vested pension benefits was not affected by its ruling.

“We have no occasion in this decision to address, let alone to alter, the continued application of the California Rule,” the court said.

The firefighters had argued that the airtime credit was part of a benefits package that prospective public employees took into consideration when deciding whether to enter public service.

Brown’s attorneys had said the state could take away the benefit because the legislature never considered it to be a vested right that was negotiated through collective bargaining.

Several other cases involving the rights of California pension systems to reduce benefits are also expected to be heard by the Supreme Court in the next several years. One case involves county pension systems altering the formula for calculating pension benefits, such as ending the accumulation of pension benefits for being on call. The court will then have another opportunity to weigh in on the California Rule.

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California Supreme Court Hears Pension Reduction Case

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