California Court Upholds Elimination of Pension Benefit
Published: January 11, 2017
For more than 10 years, CalPERS eligible employees had the option of purchasing up to five years of CalPERS service credit beyond the years they had worked. These credits, when purchased, provided an increase in the pension benefits paid to state employees during their retirement, so that a worker who retired after 25 years could receive a pension based on up to 30 years of contributions. In 2013, the California Legislature eliminated this option in an effort to strengthen the state’s public pension system and address solvency issues.
Cal Fire Local 2881 and its members quickly filed a lawsuit against CalPERS to compel it to continue to provide the option to purchase service credit, claiming the Legislature’s elimination of the purchase option was a violation of the contracts clause of the California Constitution. (Cal. Const., art I, § 9.)
On Dec. 30, 2016, the appellate court rejected Cal Fire Local 2881’s claim, upholding the trial court’s ruling that the Legislature’s modification “did not impair or violate any pension right of plaintiffs because, even if this option could be deemed a vested benefit, ‘the Legislature lawfully eliminated that benefit as a permissible modification to the pension plan.’”
The court provided multiple reasons for its ruling.
The firefighters argued that the state broke its contractual promise to them as vested CalPERS members when they eliminated the benefit. CalPERS has previously written that “promised benefits may be increased during employment, but not decreased, absent the employees’ consent.”[1] The court found CalPERS’ interpretation should be given significant weight, but that the court must still defer to previous California Supreme Court rulings over CalPERS’s interpretation. The appellate court wrote that even vested pension rights can be reduced or eliminated in California under certain conditions. Referencing the California Supreme Court’s ruling Betts v. Board of Administration of Public Employees’ Retirement System (1978) 21 Cal.3d 859, 863, the appellate court wrote that even vested pension rights can be reduced or eliminated in California as long as employees still receive a pension that is “substantial” and “reasonable.”
The court wrote that case law says that the state “should” provide a new compensation benefit to offset the loss of a benefit to CalPERS employees, but not that it “must” do so. Further, the court noted employees were given a window in which to exercise their option to purchase up to five years of service credit, so nothing in the new law destroyed CalPERS vested members’ right to purchase credit so much as shortened the timeline to do so. And lastly, the court found that since employees personally paid for the additional service credits they received, this was not a case where the Legislature was taking away a benefit.
The court wrote that “[w]hile plaintiffs may believe they have been disadvantaged by these amendments, the law is quite clear that they are entitled only to a “reasonable” pension, not one providing fixed or definite benefits immune from modification or elimination by the governing body.”
Cal Fire Local 2881 is expected to appeal to the California Supreme Court.
The court’s ruling is available at http://www.courts.ca.gov/opinions/documents/A142793.PDF.