California Rule Mostly Upheld in Pension Decision
July 30, 2020
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.