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California Supreme Court Hears Oral Argument in Highly Anticipated Pension Reform Case

December 6, 2018
The California Supreme Court heard oral argument on Wednesday, Dec. 5 in Cal Fire Local 2881 v. California Public Employees’ Retirement System — a case that may have important implications for cities struggling to address rising pension costs.
 
As the League previously reported, the case involves a challenge to a provision of the California Public Employees’ Pension Reform Act (“PEPRA”) that eliminated the option for employees enrolled in CalPERS to purchase up to five years of service credit (commonly referred to as “airtime”) to add to their pension benefit. In deciding the case, the California Supreme Court has an opportunity to reconsider longstanding precedent known as the “California rule,” which often prevents employers from modifying pension benefits for employees enrolled in CalPERS or another public pension system. However, the Court could decide the case on narrower grounds.

The California rule applies only to pension benefits that are “vested,” meaning that they are constitutionally-protected contract rights. If the Supreme Court rules that the option to purchase airtime was not a vested contractual right, then the lawsuit fails.

At oral argument, the union’s attorney argued that all aspects of a pension benefit as it exists on the first day of an employee’s employment become vested because each aspect is a part of the promise made to induce the employee to accept the position and therefore constitutes a form of deferred compensation.  The state’s attorney countered this argument by citing California Supreme Court precedent holding that there is a presumption against finding that statutes — as opposed to contracts — create vested contractual rights. The state’s attorney pointed out that there was no language in the statute to indicate that the Legislature intended for the benefit to vest such that it could not be eliminated or modified in the future. 

The questions from the Bench seemed to indicate that the Court will agree with the state’s argument on this point when it issues its ruling next year. If the Court does agree with the state that the right was not vested, it is not necessary for the Court to address the California rule, since the rule does not apply to benefits that are not vested. 

The Court has four other cases pending on its docket that implicate the California rule. Three of those cases are being held in abeyance pending the outcome of this case. The one remaining case — Alameda County Deputy Sheriff’s Association v. Alameda County Employees’ Retirement Association — is fully briefed and can be set for oral argument anytime.

Under the California Rules of Court, once oral argument is held and the Court takes the case under submission, it has 90 days within which to issue an opinion. The League will continue monitoring both cases and will provide further updates as they are available.


 
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