Tag Archive for: California Rule

California Supreme Court Finally Rules on Case Affecting Pensions

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On Thursday the California Supreme Court issued its ruling in the case Alameda County Deputy Sheriff’s Association vs Alameda County Employees’ Retirement Association. In plain English, this was a case where attorneys representing government unions were challenging pension reforms enacted by California’s state legislature in 2013. The ruling, which had the potential to empower dramatic changes to pension benefit formulas, was measured. But it is generally considered a victory for the plaintiffs.

Pete Constant, CEO of the Retirement Security Initiative, which advocates “fair and sustainable public sector retirement plans,” found the ruling encouraging, stating “the court has confirmed that the public interest is of utmost concern when determining whether public pensions need reform.”

What advocates for financially sustainable pensions are up against is the so-called “California Rule,” an interpretation of California contract law that dramatically limits the ways in which elected officials, or voters in a ballot measure, can modify pension benefits for public employees. The prevailing interpretation of the California Rule is that it prohibits changes to pension benefit formulas for active public employees, even for work they have not yet been performed.

In practical terms, obeying the California Rule means that whatever pension benefit package was in place on the date a public employee was hired must be maintained throughout their career. If it is changed, the employee must be given a compensatory new benefit of equal value.

Pension benefit formulas for California’s state and local public employees are typically calculated based on three variables – how many years the employee worked, how much the public employee earned in their final year of employment, and a “multiplier” that is applied to the product of these two values. For example, a public employee who has worked for 30 years, making $100,000 in their final year of work, whose pension “multiplier” was 3 percent, would get a pension equal to 30 x $100K x 3%, or $90,000.

During Jerry Brown’s second eight year stint as Governor of California, he consistently advocated for pension reform, claiming the unforeseen and escalating costs to fund public employee pensions were putting an unsustainable burden on civic budgets and taxpayers. The reform he pushed through the California State Legislature, the Public Employee Pension Reform Act of 2013 (PEPRA), was an attempt to curb what were seen as abuses in public pension systems. Passage of PEPRA immediately generated litigation by attorneys representing public sector unions.

In an earlier case decided in 2019, Cal Fire Local 2881 v. California Public Employees’ Retirement System, the court upheld PEPRA’s prohibition of the purchase of so-called “airtime,” which manipulated a pension calculation variable by increasing the number of years an employee worked.

In this case, the court upheld PEPRA’s amended definition of another pension calculation variable, how much they earned in their final year of employment. This PEPRA provision was designed to “exclude or limit the inclusion of additional types of compensation in an effort to prevent perceived abuses of the pension system.”

The various ways in which PEPRA attempted to end these practices that critics refer to as “pension spiking” have been repeatedly challenged by public employee unions in court. Relying on the California Rule, the union argument might reduce to this: “if pension spiking was a common and accepted practice at the time we were hired, then we relied on the ability to eventually spike our pensions back when we made the decision to enter public service. It is a vested right which cannot be taken away.”

The court did not agree. Buried in its nearly 100 page opinion was the following: “They [the provisions of PEPRA] were enacted for the constitutionally permissible purpose of closing loopholes and preventing abuse of the pension system… Further, it would defeat this proper objective to interpret the California Rule to require county pension plans either to maintain these loopholes for existing employees or to provide comparable new pension benefits that would perpetuate the unwarranted advantages provided by these loopholes.”

The implications for future reform are mixed. Jon Holtzman, a partner with the Renne Public Law Group and an expert on the laws governing public sector pensions, was encouraged, saying, “This is a very positive ruling. The court concluded there was not a contractual right to spiking. A more notable aspect of the decision is they once and for all dispelled the notion that if you take away a benefit that you must give a comparable benefit.”

There are two ways this ruling chips away at this core element of the California Rule. First, as noted, the court does not recognize the obligation to “perpetuate the unwarranted advantages provided by these loopholes” by providing a comparable benefit when the loophole is closed. The second way this ruling undermines the California Rule is more ambiguous.

The concurring opinion summarizes this ambiguity. Justice J. Cuellar writes “The test the court applies here is merely a specific application, fit for this situation, of a more general inquiry: whether a reduction in pension rights without any comparable new advantages is ‘reasonable’ and ‘necessary’ to further ‘an important state interest…'”

There’s a lot to unpack here. First, the ruling does not invalidate the prevailing interpretation of the California Rule, it makes clear the court is looking at a specific application – namely, what constitutes pension eligible pay when calculating a retirement pension. Secondly, it is implying that if the plaintiff can demonstrate that a provision of PEPRA, or any other pension reform that might come along, requires unnecessary or unreasonable reductions to pension benefits in pursuit of “an important state interest,” then the California Rule may still be applicable, preventing those reforms. Finally, though, what constitutes an “important state interest?”

This question awaits another court case for further clarification, and it could be the answers continue to arrive only in the context of specific applications of the question. Yet on this question hinges the ability of pension reformers to enact more meaningful modifications to public sector pension formulas. At what point does modifying public sector pensions become an “important state interest?” When they’ve become too expensive? They’re already too expensive. Or when the burden of paying them propels an agency into bankruptcy? And what if instead of bankruptcy, agencies – cities and counties and special districts – simply cut services and staff in order to cover operating deficits, and leave the pensions intact?

Pete Constant, commenting on the limited scope of today’s ruling, said “with the uncertainty we’re seeing today, this would have been a good time for the California Supreme Court to issue a broad decision.”

Carl DeMaio, the former San Diego City Councilman who has spent decades pushing for pension reform, was less subtle. In a blistering press release, he said “By crafting a narrow ruling that sidesteps the fundamental flaws with the notorious California Rule, the California Supreme Court seems hell bent on forcing California taxpayers to bear the excessive costs of unsustainable pension payouts for state and local government employees.”

They’re both right. The economic uncertainty ahead for California’s public agencies, as Constant warns, will demand further action to reduce pensions. Pension payouts, as DeMaio says, are excessive and unsustainable.

Future reforms, either initiated by the legislature, citizen initiatives, or bankruptcy courts, may have to take aim at more substantial elements of pension benefit formulas. To list just a few: reducing the multiplier for future work, reducing the cost-of-living adjustment for retirees, requiring active public employees to personally contribute more to the pension system via payroll withholding.

The ruling this week did not go far enough. But it reinforced earlier precedents that make clear the California Rule will not apply in all cases, and it left open the door to define an “important state interest” in a manner that is broad enough to empower more substantial reforms in the future.

This article originally appeared on the website California Globe.

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Pension Reform Waits for California Supreme Court

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With markets fitfully advancing after a nearly two year pause, the need for pension reform again fades from public discussion. And it’s easy for pension reformers to forget that even when funds are obviously imperiled, with growing unfunded liabilities and continuously increasing demands from the pension funds, hardly anyone understands what’s going on. Unless you are sitting on a city council and facing a 10 percent budget deficit at the same time as your required pension contribution is increasing (again) by 20 percent, pension finance is eye-glazing arcana that is best ignored.

But when your local government has reached the point where it’s spending nearly as much on pensions as it spends on base salaries, and pension finance commands your attention, you still can’t do much. Pension reforms were approved by voters in San Jose and San Diego, among other places, but their impact was significantly reduced because of court challenges. Similarly, a moderate statewide pension reform passed by California’s legislature and signed by Governor Brown in 2013 has been repeatedly challenged in court.

The primary legal dispute is over what is referred to as the “California Rule.” According to this interpretation of California contract law, pension benefit accruals – the amount of additional pension benefit an employee earns each year – cannot be reduced, even for future work. Reformers find this appallingly unfair, based on the fact that when California’s public employee pension benefit accruals were enhanced, the enhancement was applied retroactively. Suddenly increasing a pension benefit by 50 percent or more, not only for future work, but for decades of work already performed, is a big part of why California’s pension funds are in the precarious shape they’re in today.

While pension benefits can be changed for new employees, there are over a million state and local government employees in California who are already working and whose pension benefit formulas – even for future work – cannot be changed unless the California Rule is struck down. Several active court cases are challenging the California Rule, and because of the decisive impact the eventual rulings in these cases may have, pension reformers have largely put their efforts on hold. So what’s the latest?

Earlier this year, in the case Cal Fire Local 2881 v. CalPERS, the California Supreme Court struck down one of the challenges to the state’s 2013 pension reform act. The plaintiffs argued that the ability of retirees to purchase so-called “airtime”was a constitutionally protected vested benefit that could not be taken away. Purchasing “airtime” was a common practice whereby upon retirement, a pension recipient could make a payment and in exchange have more years of service added to their pension formula, increasing their annual pension for the rest of their life. This was however a narrow ruling, only stopping purchases of airtime. The ruling did not address the larger issue of the constitutionality of the California Rule.

Additional cases pending before the California Supreme Court that could be decided next year are coming with lower court opinions of great interest to reformers. In the case Marin Association of Public Employees v. Marin County Employees’ Retirement Association, the appellate court opinion included the following: “While a public employer does have a ‘vested right’ to a pension that right is to a ‘reasonable’ pension – not an immutable entitlement to the most optional formula of calculating the pension. The legislature may prior to the employee’s retirement, alter the formula, thereby reducing the anticipated pension.” If the California Supreme Court embraces that opinion in a broad ruling, it is possible the California Rule could be the casualty.

For two decades now in California, when it comes to pensions, “reasonable” has become a contentious word. Back in 1999, pension benefit formulas were still reasonable and financially sustainable. But starting in 1999, in most state and local government agencies, pension benefits were increased by roughly 50 percent, at the same time as the age of eligibility was lowered. Also beginning around this time, pension “spiking” became more common, where not only could “airtime” be purchased, but overtime pay, on-call pay, call-back pay, vacation and sick leave sold back, and recruitment bonuses could all be added to the base salary when calculating retirement pensions. These many changes are the reason California’s state and local public employee pension funds are financially stressed and demanding increasing payments that government agencies cannot afford.

The following information, recently compiled by Retirement Security Initiative, provides details on the recently settled Cal Fire Local 2881 v CalPERS case, along with four active cases before the California Supreme Court. Depending on how they are decided, options for pension reformers in the coming years could be greatly expanded.

California Pension Cases before the State Supreme Court

SUMMARY STATUS – DECIDED:

Cal Fire Local 2881 v. CalPERS
In March 2019, the California Supreme Court upheld one of Governor Brown’s (modest) changes to retirement benefits in PEPRA for public employees: eliminating the opportunity to purchase “airtime.” The court determined that this perk was different than the core pension benefit and therefore able to be modified.

PENDING:

Alameda County Deputy Sheriff’s Association, et al. v. Alameda County Employee’s Retirement Association
The Deputy Sherriff’s Association (and others) are challenging the elimination of overtime pay, on-call pay, call-back pay, vacation and sick leave sold back, recruitment bonuses, and other items from pension calculations. The appellate court upheld most of the modifications under the same reasoning of Marin. Both sides have asked for the Supreme Court to review.

Marin Association of Public Employees v. Marin County Employees’ Retirement Association
Four local unions challenged the elimination of callback and standby pay from their pension calculations. In a departure from California Rule, appellate court ruled the modifications were legal and employees only have a right to a reasonable pension. Court of Appeal sided against the unions. It is currently pending in the California Supreme Court.

Hipsher v. Los Angeles County Employees Retirement Association
The PEPRA law allows the modification of public pension benefits for public employees who are convicted of a felony for behavior while performing official duties. The court of appeals upheld the ability to alter the benefits in these narrow circumstances but requires due process for public employees. It is now awaiting review from the California Supreme Court.

McGlynn v. State of California
Six trial judges petitioned for retirement benefits for when they were elected in 2012, rather than when they took office in January 2013, which was after PEPRA changes. All courts have sided with the state. It is now pending review from the California Supreme Court.

DETAILED STATUS – DECIDED:

Cal Fire Local 2881 v. CalPERS
Supreme Court Case: S23995

Summary:  This case presented the following issues: (1) Was the option to purchase additional service credits pursuant to Government Code section 20909 (known as “airtime service credits”) a vested pension benefit of public employees enrolled in CalPERS? (2) If so, did the Legislature’s withdrawal of this right through the enactment of the Public Employees’ Pension Reform Act of 2013 (PEPRA) (Gov. Code, §§ 7522.46, 20909, subd. (g)), violate the contracts clauses of the federal and state Constitutions?

The Supreme Court’s decision in March 2019:  “We therefore affirm the decisions of the trial court and the Court of Appeal, which concluded that PEPRA’s elimination of the opportunity to purchase ARS credit did not violate the Constitution.”

Notable quotes from the Supreme Court’s opinion:  “We conclude that the opportunity to purchase ARS credit was not a right protected by the contract clause. There is no indication in the statute conferring the opportunity to purchase ARS credit that the Legislature intended to create contractual rights. Further, unlike core pension rights, the opportunity to purchase ARS credit was not granted to public employees as deferred compensation for their work, and here we find no other basis for concluding that the opportunity to purchase ARS credit is protected by the contract clause. In the absence of constitutional protection, the opportunity to purchase ARS credit could be altered or eliminated at the discretion of the Legislature.” (page 3)

“In this regard, plaintiffs argue that a contractual right with respect to the opportunity to purchase ARS credit should be found because public employees reasonably expected that the opportunity would continue to be made available for the duration of their employment. The only cited basis for those “reasonable expectations,” however, is the belief that the opportunity to purchase ARS credit would continue to exist in the future because it “was in effect for ten years.” The argument proves too much. We have never held that statutory terms and conditions of public employment gain constitutional protection merely from the fact of their existence, even if they have persisted for a decade. Such a rationale would directly contradict the general principle that such terms and conditions are not a matter of contract and are generally subject to legislative change.” (page 35)

“Because we conclude that California’s public employees have never had a contractual right to the continued availability of the opportunity to purchase ARS credit, the question of whether PEPRA worked an unconstitutional impairment of protected rights does not arise.” (page 45)

Undecided Questions:  Two major issues remain open, perhaps to be decided in the other pending cases:
1) The degree of protection for unearned benefits for future work by current employees.
2) The circumstance under which vested benefits can be changed once vested and whether a “comparable” benefit must be provided.

DETAILED STATUS – PENDING:

Alameda County Deputy Sheriff’s Association, et al. v. Alameda County Employee’s Retirement Association
Supreme Court Case: S247095
19 Cal. App. 5th 61 (1st Dist. 2018), review granted, 413 P.3d 1132 (Cal. Mar. 28, 2018).

Summary:  This case includes the following issue: Did statutory amendments to the County Employees’ Retirement Law (Gov. Code, § 31450 et seq.) made by the Public Employees’ Pension Reform Act of 2013 (Gov. Code, § 7522 et seq.) reduce the scope of the pre-existing definition of pensionable compensation and thereby impair employees’ vested rights protected by the contract clauses of the state and federal Constitutions?

In the courts below:  Deputy Sheriff’s union and others sued challenging the elimination of overtime pay, on-call pay, call-back pay, vacation and sick leave sold back, recruitment bonuses, and other items from pension calculations. The appellate court upheld most of the modifications under the same reasoning of Marin, but held some of the changes were illegal and would send others back to the trial court for further review. Both sides of this case asked the State Supreme Court for review.

Status:  Briefing in Progress. Supplemental Briefs in response to friends of the court briefs. As of October 17, 2019, the most recent document was filed May 29, 2019.

Marin Association of Public Employees v. Marin County Employees’ Retirement Association
Supreme Court Case: S237460
2 Cal. App. 5th 674 (1st Dist. 2016), review granted, 383 P.3d 1105 (Cal. Nov. 22, 2016).

Petition for review after the Court of Appeal affirmed the judgment in an action for writ of administrative mandate. The court ordered briefing deferred pending the decision of the Court of Appeal, First Appellate District, Division Four, in Alameda County Deputy Sheriff’s Assn. v. Alameda County Employees’ Retirement Assn., A141913[, or further order of the court].

Four local unions challenged the elimination of callback and standby pay from their pension calculations. In a departure from California Rule, appellate court ruled the modifications were legal and employees only have a right to a reasonable pension.

Court of Appeal conclusion:  “As will be shown, while a public employer does have a “vested right” to a pension that right is to a “reasonable” pension – not an immutable entitlement to the most optional formula of calculating the pension. The legislature may prior to the employee’s retirement, alter the formula, thereby reducing the anticipated pension.” Marin Ass’n. of Pub. Emps. v. Marin Cnty. Employees’ Ret. Ass’n, 206 Cal. Rptr. 3d 365, 380 (Cal. Ct. App. 2016), appeal pending in California Supreme Court, 383 P.3 1105 (2016).

Hipsher v. Los Angeles County Employees Retirement Association
Supreme Court Case: S250244

Petition for review after the Court of Appeal modified and affirmed the judgment in an action for writ of administrative mandate. The court ordered briefing deferred pending decision in Alameda County Deputy Sheriff’s Assn. v. Alameda County Employees’ Retirement Assn., S247095, which includes the following issue: Did statutory amendments to the County Employees’ Retirement Law (Gov. Code, § 31450 et seq.) made by the Public Employees’ Pension Reform Act of 2013 (Gov. Code, § 7522 et seq.) reduce the scope of the pre-existing definition of pensionable compensation and thereby impair employees’ vested rights protected by the contracts clauses of the state and federal Constitutions?

The California Rule is described in Hipsher v. Los Angeles County Employees Retirement Assn., 24 Cal.App.5th 740, 754-754 (2018) “… with respect to active employees any modification of vested rights must be (1) reasonable, (2) bear material relation to the theory and successful operation of a pension system and (3) be accompanied by a ‘comparable new advantage,’” but that court noted that, after the Marin decision, there is no “must” related to a modification of a comparable new advantage and a modification need not be so accompanied. Id. At 754.

McGlynn v. State of California
Supreme Court Case: S248513

Petition for review after the Court of Appeal affirmed the judgment in an action for writ of administrative mandate. The court ordered briefing deferred pending decision in Alameda County Deputy Sheriff’s Assn. v. Alameda County Employees’ Retirement Assn., S247095, which includes the following issue: Did statutory amendments to the County Employees’ Retirement Law (Gov. Code, § 31450 et seq.) made by the Public Employees’ Pension Reform Act of 2013 (Gov. Code, § 7522 et seq.) reduce the scope of the pre-existing definition of pensionable compensation and thereby impair employees’ vested rights protected by the contracts clauses of the state and federal Constitutions?

Six judges who were elected to the superior court in mid-term elections in 2012, but who did not take office until January 7, 2013, maintain they are entitled to benefits under the Judges’ Retirement System II (JRS II), which were effect at the time they were elected, rather than at the time they assumed office.

Court of Appeal conclusion:  “We conclude, as did the trial court, that the judges did not obtain a vested right in JRS II benefits as judges-elect, but rather obtained a vested right to retirement benefits only upon taking office, after PEPRA went into effect. We also conclude PEPRA’s provisions pertaining to fluctuating pension contributions do not violate the non-diminution clause of the California Constitution (Cal. Const., art. III, § 4), nor do they impermissibly delegate legislative authority over judicial compensation (Cal. Const., art. VI, § 19).” (pages 1-2)

ADDITIONAL REFERENCES

CalPERS Annual Valuation Reports – main search page

Moody’s Cross Sector Rating Methodology – Adjustments to US State and Local Government Reported Pension Data (version in effect 2018)

California Pension Tracker (Stanford Institute for Economic Policy Research – California Pension Tracker

Transparent California – main search page

The State Controller’s Government Compensation in California – main search page

The State Controller’s Government Compensation in California – raw data downloads

California Policy Center – How much will YOUR city pay CalPERS in a down economy?

California Policy Center – California Rule Does Not Protect “Airtime”

California Policy Center – Resources for Pension Reformers (dozens of links)

California Policy Center – Will the California Supreme Court Reform the “California Rule?”

This article originally appeared on the website California Globe.

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California Rule Does Not Protect “Airtime”

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Earlier this week the California Supreme Court ruled in the case CalFire vs CalPERS. The case challenged one of the provisions of California’s 2014 pension reform legislation (PEPRA) which had eliminated the purchase of “Airtime.”

This was the practice whereby retiring public employees could purchase “service credits” that would lengthen the number of years they worked, which would increase the amount of their pensions, even though they hadn’t actually worked those additional years. While the amount these retirees would pay was always estimated to cover how much they’d eventually get back, with interest, in their pensions, in practice these estimates were always too low.

The plaintiffs in the case argued that airtime was protected by the “California Rule,” which, the argued, prevents pension benefits from being reduced unless some other benefit of equal value is offered in return. But the court found that the California Rule wasn’t applicable in this case, setting an interesting precedent for other pending cases.

According to attorney and pension law expert Jonathan Holtzman, this ruling is a breakthrough.

“This is the first case in which, ever, where the court has attempted to define a principled basis for vesting doctrine – to analyze in a rigorous manner the legal basis of the vesting doctrine,” Holtzman said, “Although it does not resolve the issue, the case leaves wide open the question whether vesting protects prospective benefits of current employees.  It takes a narrow view of what constitutes a pension benefit. The Unions’ position has been that every part of the pension benefit is vested.  It is very clear [from this ruling] that is not valid.

Holtzman went on to explain that this ruling will make it harder to argue that many retirement benefits are protected by the California Rule.

“The court recognizes that the only potential basis for a benefit that does not constitute deferred compensation to become vested is as a matter of contract.  And the court points out in clear terms that there is a presumption against benefits created by statute from becoming vested.  The Court also strengthens the requirement that the legislative intention to “vest” a benefit must be unmistakable. They are saying you have to have explicit legislative intent that a benefit is contractual before you can say it is subject to the California Rule.”

“Vesting is always an implied question. The court will ask ‘did you unambiguously intend that the benefit would last forever?’ The promise that a benefit will last forever doesn’t have to explicit, but it does have to be ‘unambiguously intended.’ That is a tough standard for any benefit to meet.”

There are several pension related cases working their way up through California’s courts. The next big one is the Alameda County Deputy Sheriffs’ Assn. v. Alameda County Employees’ Retirement Assn. But in the wake of the ruling in CalFire vs CalPERS, it is possible the California Supreme Court will throw this one back down to the appellate court. Again, from Jonathan Holtzman: “After you get a major decision like this it is not unusual for the court to remand those cases to give the courts of appeal another shot at those cases in light of the decision.”

The Alameda case is similar to the CalFire case in that it is a challenge brought by unions representing public employees affected by the PEPRA legislation. In this case, what is at issue is not purchases of airtime, but the practice known as pension spiking, whereby various forms of ancillary pay are included in determining an employee’s final compensation. Just as airtime increases the years worked, which increases a pension, spiking increases the final pay, which also increases a pension. But it is likely that the CalFire ruling strengthens the possibility that spiking will not be considered subject to the California Rule, and therefore having the California Supreme Court consider this case would be redundant.

At this point, there is no active case, anywhere in California, that concerns the third and biggest variable affecting pensions, the “multiplier.” When pensions are calculated at the end of a public employee’s career, the formula used goes like this: Years worked, times final salary, times the “multiplier.”

The multiplier is a percent, always in the low single digits, that represents the amount of pension that is earned for each year of work. For example, if someone had worked 10 years, had a final salary of $100K, and a multiplier of 2.0 percent, upon becoming eligible for retirement, their pension would be $20K. If their multiplier were 3.0 percent, their pension would be $30K.

As a matter of historical fact, the significance of the multiplier was demonstrated in a financially visceral manner in the years between 1999 and 2005. During this six year period, pension multipliers were raised across virtually all government agencies in California. It started during the boom of 1999, then once the market crashed, it continued anyway because it wouldn’t be fair to deny one agency the perk that had been awarded to some other agency. The impact was a financial catastrophe in slow motion, still unfolding.

Public safety employees, for example, had their multiplier raised from 2 percent to three percent. Overnight, the amounts of their future pensions increased by 50 percent. And in an act that is astonishing for many reasons, one of which is its absolute indifference to financial caution, this increase to the multiplier was awarded retroactively. If you don’t know about this, or don’t yet appreciate what it meant, pay close attention.

Prior to the pension benefit perks of 1999-2005, if you worked for 30 years in public safety, you would earn a pension equivalent to 30 (years) times your final salary, times a 2 percent multiplier. One would expect that if that multiplier were raised, it would be raised for work from now on. That is, if you’d worked for 15 years through 1999, then worked another 15 years from 2000 through 2014, your pension would now be calculated as follows: 15 years times final salary times 2 percent, plus, 15 years times final salary times 3 percent. That would be a financially prudent way to increase a benefit. But the experts at CalPERS and the other pension funds, plus the union leaders they goaded into demanding all this, were not financially prudent.

Instead they changed everything affected by the multiplier, forward and backward in time. If you retired in 1998 after a 30 year career, you’d get a pension equal to 30 times final salary times 2 percent. If you retired in 1999 after a 30 year career, you’d get a pension equal to 30 times final salary times 3 percent. The collective impact of this change, because it was retroactive, is far more than 50 percent. It is possibly the biggest single factor as to why pension contributions have become an unaffordable burden on cities, counties, the state, and the taxpayers who support all of it.

The other reason that the retroactive pension increases of 1999-2005 are astonishing – and a moral outrage – brings us back to pension reform efforts today. To restore solvency to public sector pensions without raising taxes and cutting services, the multiplier has to be reduced. It is important and helpful to eliminate purchases of airtime that artificially increase years worked. It is also helpful to eliminate pension spiking that artificially increases pension eligible final compensation. But without lowering the multiplier, we can’t get there. Here’s the moral outrage: Nobody wants to reduce the pension multiplier retroactively. They only want to reduce it for future work. But even that supposedly violates the California Rule.

How is it right, that the single biggest determinant of how much a pension will cost, the multiplier, was permitted to be boosted retroactively back when financial fantasy manifested itself in the form of an internet stock bubble, but now that financial reality has struck, it is impermissible to lower it, and only prospectively? The reason is the California Rule. Or is it?

It is possible, and only perhaps a stretch, to argue that even the multiplier is not a core benefit destined to last forever. It can be argued that raising the pension multiplier in legislation does not mean it cannot be lowered in the future unless it is, at the least, “unambiguously implied,” in the text of that legislation. One might therefore argue that even the multiplier is not subject to the California Rule.

These are the questions that have been opened up by the CalFire vs CalPERS ruling. At first glance, it appeared the court sidestepped the question of the California Rule. But they created a standard for invoking the California Rule that is likely to mean most of the current court challenges to PEPRA will probably be rejected. And they guarantee that if and when a case truly does challenge the California Rule, it will not be an incremental reform that is at stake.

The larger question at this point, is where would such a transformative reform come from? Here in California, the alliance between the pension bankers and the government unions is more powerful than ever.

This article originally appeared on the website of the California Policy Center.

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