A legal plea to reject 'California rule' on pensions

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The California Business Roundtable filed an amicus brief with the state Supreme Court urging the court to reject the California Rule, a series of rulings that have prevented the state and its local governments from enacting pension reforms.

The roundtable, an organization that represents the senior leaders of the state's largest employers, filed the friend of the court brief Friday in the pension reform case of Cal Fire Local 2881 v. the California State Employees’ Retirement System and the State of California.

“The California Rule has delivered a strong one-two punch: first, it caused state and local governments to be blindsided by unexpected pension obligations, and second, it robbed them of the only tools they had to deal with the problem,” argued Karen Hewitt, a Jones Day partner, in the brief. “As long as the California rule exists, the pension crisis cannot be solved.”

In its brief, the roundtable asks the state’s high court to reject the California Rule and overrule any cases that have adopted it because the rule infringes on the Legislature’s sovereign right and duty to protect public employers, public employees, and California citizens.

The California Rule is a series of court rulings beginning in 1955 that have been interpreted to mean that pension benefits established on the date of hire cannot be reduced unless a comparable benefit is added.

“We support the Governor and the Roundtable in their efforts to protect the interests of public employees, taxpayers and residents by ensuring that State and local governments can take necessary and reasonable steps to ensure that their pension plans are sustainable,” said Chuck Reed, former San Jose mayor and chair of Retirement Security Initiative, a national pension reform advocacy group.

The state’s highest court is considering the case that challenges the Public Employee Pension Reform Act passed by the state in 2012. Gov. Jerry Brown is defending PEPRA in the litigation brought by the public employee unions.

The high court agreed to hear the Cal Fire case and the Marin Association of Public Employees v. Marin County Employees’ Retirement Association in 2016. Both sides have been anticipating a ruling this year from the high court.

The Roundtable's attorneys argue in the brief that the California Rule is unconstitutional, because it creates contractual rights without any evidence of legislative intent; and that the court should give pension benefits the same constitutional protection as salary.

Treating pensions similar to salaries would give employees a contractual right to any benefits that they have earned through past services, while giving employers the freedom to prospectively modify the rate at which employees earn benefits for future services, according to the brief.

The roundtable’s attorneys used “air time,” a pension spiking practice that allowed employees to buy extra years of service that are credited to their pension benefits, as an example of the infringement on legislative intent. The practice was eliminated in PEPRA and its elimination is one of the issues being challenged by Cal Fire in its lawsuit.

Public employee unions claim that the right to buy “air time” is protected from change by the California Rule even though the option to buy “air time” was not created as part of a contractual agreement, the roundtable’s attorneys argued in their brief.

The roundtable attorneys argue that the California Rule violates both contractual law by creating contractual rights that violate the reasonable expectations of the parties and constitutional law by assuming every contractual impairment automatically violates the California and federal contract clauses.

The attorneys also argued that elements of the rule have been expressly rejected by 14 states and implicitly rejected by 19 states.

“It has had – and will continue to have – devastating economic consequences on California’s public employers,” according to the brief.

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Public pensions Pension reform Litigation California