LOS ANGELES — A recent court ruling in California may have placed a crack in a rigid interpretation of public pension vesting that favors public employees.
The
its of existing employees, said advocates of changes to the state's pension structure.
A series of court rulings have interpreted the California constitution to mean that pension benefit arrangements of current employees can't be modified, even prospectively for years they have yet to work. They have hampered cities and the state's ability to deal with mounting pension liabilities through pension reform.
In Marin Association of Public Employees v. Marin County Employees' Retirement Association, the court rejected the rigid interpretation of that "California Rule", ruling that although an employee has a vested right to a pension, their only right is to a "reasonable pension," one without benefit spiking.
The ruling, affirming the trial court, is good news for pension reformers, according to the Retirement Security Initiative, an advocacy organization focused on limiting the burden of public sector retirement plans on governments' ability to function.
"Pension reformers in California have been advocating for years that some reasonable modifications to future pension benefits accrued for future work by current employees could be permissible under the California Constitution," RSI board member Chuck Reed, the former San Jose mayor, said in a statement.
In its ruling, the appeals court said that while a public employee does have a "vested right" to a pension, that right is only to a "reasonable" pension—not an immutable entitlement to the most optimal formula of calculating the pension.
It further found that "the Legislature may, prior to the employee's retirement, alter the formula, thereby reducing the anticipated pension. So long as the Legislature's modifications do not deprive the employee of a "reasonable" pension, there is no constitutional violation."
The case arose out of a 2012 state law. The Public Employees' Pension Reform Act prohibited attempts to spike pension benefits in future years of service.
Plaintiffs alleged they had a vested right to continue practices that had been in place for years.
"Public employees earn a vested right to their pension benefits immediately upon acceptance of employment and . . . such benefits cannot be reduced without a comparable advantage being provided," they argued.
The court rejected their interpretation of the "California Rule" of vested rights and upheld PEPRA based on a series of cases often cited by opponents of pension reform as prohibiting any modification of benefits for current employees, RSI said.
"The big question for pension reformers is whether or not the California Supreme Court will agree," said Reed, now special counsel with Hopkins & Carley, a San Jose law firm. "If it does, the legal door will be open for Californians to begin to take reasonable actions to save pension systems and local governments from fiscal disaster."
Reed, a Democrat, has tried to promote a statewide pension reform measure, but has yet to get one on the ballot.
