In a case closely watched by public agencies, their unions, and
pension hawks, the California Supreme Court this morning
unanimously upheld the “California Rule” that prevents most
reductions to pensions for existing employees. However, the
decision itself found in favor of the pension systems and against
the union plaintiffs, by finding that the changes in question
served “the constitutionally permissible purpose of closing
loopholes and preventing abuse of the pension system.”
The case consolidated three lawsuits brought by public employee
unions against the 1937 Act pension systems in which they
participate and is referred to by the first alphabetically,
Alameda County Deputy Sheriffs Association v. ACERA. The
plaintiffs argued that changes made in 2012 to prevent pension
spiking, whereby workers use accrued sick time and other one-time
pay to increase their pension, not only violated the contracts
they had with their retirement systems that allowed that
behavior, but also violated the state constitution by taking away
benefits that were in place when they were hired.
The Court ruled against the plaintiffs on both points, but did so
without striking down the California Rule altogether. The
decision, written by Chief Justice Cantil-Sakauye, noted that the
California Rule is “a standard established in a long line of
California Supreme Court decisions,” but noted that long line of
decisions also outline exceptions to the general prohibition
against changing pension benefits for existing workers.
The first exception is if a change that imposes disadvantages is
accompanied by changes that grant comparable new advantages. If
that the changes are not accompanied by comparable advantages,
the agency’s purpose in making the changes must be sufficient to
justify the impairment of pension rights, for example to
accommodate changing conditions and maintain the integrity and
continued successful operation of the pension system. As the
decision states, “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 decision is only a few hours old, and the interpretation of
the full 100-page opinion, along with one concurring opinion,
will no doubt be the subject of much speculation and
interpretation in the days and years to come.
