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Oral Arguments in Pension Reform Case Offer Little Clarity on Whether California Supreme Court will Address the California Rule

May 6, 2020
As previously reported, the California Supreme Court heard oral arguments on Tuesday, May 5 in the case of Alameda County Deputy Sheriff’s Association v. Alameda County Employees’ Retirement Association
In light of the COVID-19 pandemic, the arguments were held remotely via video conference. As is often the case, the arguments offered little clarity on how the Court will rule.

At issue in the Alameda County case are provisions of the Public Employees’ Pension Reform Act (PEPRA) which are intended to curb the practice of pension “spiking” by excluding certain specified items of compensation — such as leave cash-outs, and on-call, and standby — from the amount that county retirement systems use to calculate employees’ pension benefits at retirement under the County Employee’s Retirement Law (CERL). Although the case involves county retirement systems, it could have important implications for cities.

The plaintiffs in the case claim that PEPRA cannot be applied to exclude the specified compensation items for employees employed prior to PEPRA (classic employees), because classic employees have a “vested” contractual right to have their pension benefits determined based on what was in place at the time they were hired.

During oral arguments, the state countered plaintiffs’ claims of a vested right, arguing that PEPRA did not change but merely clarified that those specified compensation items were not “pensionable” under the CERL. The state also noted that PEPRA applies only prospectively after its effective date — it does not affect the pension of those who retired prior to PEPRA, nor does it retroactively re-characterize the pensionable nature of items earned and included in an employee’s pension benefit prior to PEPRA’s effective date.

If the Court agrees with the plaintiffs that they have a vested right to the inclusion of the specified compensation items in the calculation of their pension benefit, the Court will need to address the “California rule.” The California rule provides that contractually-vested pension benefits are protected by the constitutional prohibition against the impairment of contracts, and therefore, cannot be modified except in limited circumstances where the modifications are necessary to protect the integrity of the pension system, and where any resulting disadvantages to the employee are offset by “comparable new advantages.”

However, if the Court sides with the state, and with the arguments made by the League in a friend-of-the-court brief, and determines that plaintiffs do not have a vested right to have the specified compensation items included in the calculation of their pension benefit, then it is not necessary for the Court to address the California rule, since the rule does not apply to benefits that are not vested.

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. Therefore, it is likely we will see a decision in this case later this summer. The League will continue to monitor the case and will provide updates as they are available. 

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