California wins a narrow ruling on pension benefits

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A California Supreme Court ruling delivered a narrow win for the state's 2012 retirement reform law, without touching on the so-called California Rule, a series of older rulings that taken together are viewed as state constitutional protection of existing employee pension benefits.

The court ruled Monday in CalFire Local 2881 et al. v. California Public Employees’ Retirement System et al. that the opportunity to purchase additional retirement service credit, colloquially known as “air time,” was not a right protected by the contract clause of the state constitution.

The unanimous opinion written by Chief Justice Tani Cantil-Sakauye also said that, in light of the justices' "air time" finding, “we have no occasion to address the second issue by the parties: whether the elimination of the opportunity to purchase ARS credit was an unconstitutional impairment of public employees’ vested rights.”

"It is not what I hoped for, but it’s a win, and you take these issues on one at a time," said Chuck Reed, former San Jose mayor and longtime advocate for easing the pressure rising pension costs place on local governments in California.

Reed, now a special counsel for San Jose law firm Hopkins & Carley, said he had hoped for a more expansive dismantling of the California Rule. He saw the ruling as a rejection of what he described as the union's all-encompassing view of protections under the California Rule.

“The unions have always maintained you can’t touch anything that has to do with pensions, because the California rule is all encompassing," he said. "That interpretation is clearly out.”

"We are disappointed and disagree with the court that the benefit we are arguing for didn't qualify for constitutional protection," said Gregg Adam, a partner at Messing, Adam and Jasmine, who represents the CalFire union local.

"I don't think the court made any sort of decision on the California Rule and, in fact, it went out of its way not to make a decision on the California Rule," Adam said.

There were comments in the ruling that both sides will see as beneficial to their cases, he said.

"The one thing that is clear is that the pension litigation will not slow down as a result of this case," Adam said.

The case is the first of several cases that had been seen as having the potential to weaken or solidify the state of the California Rule, a series of decisions since 1955 that have made it difficult for the state and local governments to reduce prospective pension benefits for existing employees.

The CalFire case challenged the constitutionality of the Public Employees’ Pension Reform Act of 2013, specifically on the "air time" issue.

“There are some good nuggets in the ruling for municipalities and pension reform,” said Karol Denniston, a partner with Squire Patton Boggs. “The one thing the court makes really clear is that the constitutional protections have been the exception not the rule. That is contrary to all the positions the unions have been taking.”

In arguing that the state employee’s vested rights are governed by statute, not contract and the constitution, it means there might be other benefits that could be considered to be protected by statute, and not the constitution, that could be modified, Denniston said.

“Contract clause protections of the terms and conditions of public employment have historically been the exception, rather than the rule,” the justices wrote. “The terms and conditions of public employment, unlike those of private employment, generally are established by statute or other comparable enactment, eg. charter provision or ordinance, rather than by contract. For this reason, public employees have generally been held to possess no constitutionally protected rights in the terms and conditions of their employment.”

It was a well-written decision that didn’t hide the analysis in legal jargon, Denniston said.

“This is an opinion that municipalities, who are trying to manage costs, can work with," she said.

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