As the League anticipated
, the Court found that employees enrolled as classic members of CalPERS did not have a “vested” right to purchase up to five years of service credit (commonly known as “airtime”) to add to their pension benefit, and therefore upheld the Legislature’s elimination of airtime as part of the Public Employees’ Pension Reform Act. The Court’s conclusion is consistent with the arguments the League made in its amicus brief.
“The League applauds today’s California Supreme Court decision upholding a key provision which amended the law governing the state’s public employee retirement system,” said Carolyn Coleman, executive director, League of California Cities. “While today’s decision lets stand reforms important to the fiscal health of the system, more work must be done to address the challenge of escalating pension costs for local governments. The League stands ready to partner with the Administration, Legislature and stakeholders to ensure a strong defined benefit retirement system for California’s public sector workers and retirees.”
In reaching its conclusion that airtime was not a vested pension benefit, the Court noted that there was no evidence to clearly demonstrate that the Legislature intended to create a vested right when it enacted the airtime statute. Furthermore, the Court found that airtime could not be considered to be vested as “deferred compensation” because it was not meaningfully tied to actual public service. It noted that the same amount of airtime was available to all employees who had completed the five years necessary to qualify to receive a pension in the first place.
Additionally, the Court explained that even if airtime was viewed as a contractual offer, there were two things employees had to do to accept the offer – (1) file a written election with the employee’s pension board and (2) make appropriate payments to the retirement system – and therefore the Legislature was entitled to revoke that offer for all employees, including plaintiffs, who had yet to make the written election and the payments.
Since the Court concluded the benefit was not vested, it had no occasion to address prior precedent now commonly referred to as the “California rule,” which provides that modifications to vested pension benefits must bear some material relation to the successful operation of a pension system and any resulting disadvantages to pensioners must be offset by comparable new advantages.
The League is working on a full analysis of the case, and more information on the case and its impact on cities will be forthcoming. In the meantime, you can access the opinion online