Retirees: Here is a recent pension related ruling from the California Supreme Court. Ruling lets the air out of “air time” but leaves “California Rule” intact.
Joe Flynn, Retiree
California Supreme Court curbs a pension benefit but preserves ‘California Rule’
By Maura Dolan L A Times
The California Supreme Court made it clear Monday that state and local governments may reduce pension costs by repealing certain benefits without running afoul of constitutional protections for public pensions.
In a unanimous decision written by Chief Justice Tani-Cantil Sakauye, the court upheld California’s 2012 repeal of the “air time” benefit that allowed state workers to buy credits toward retirement service.
Unlike pensions, which are a form of deferred compensation, the opportunity to buy retirement credits was not protected by the contract clause of the California Constitution, the court said.
The court said it found no evidence “that the Legislature intended to create contractual rights” when it made the retirement credits benefit available to workers in 2003.
“Unlike core pension rights, “ the court said, the opportunity to purchase retirement credits was ”not granted to public employees as deferred compensation for their work.”
A term or condition of public employment is not constitutionally protected “solely because it affects in some manner the amount of a pensioner’s benefit,” the court said.
Although the court ruled for the state on the benefit, it refused requests by the state and pension reformers to dilute decades-old legal protections for public-employee protections.
For more than 60 years, California has adhered to a legal rule that guarantees workers the pensions that were in place the day they were hired.
Known as the “California Rule,” the protective legal doctrine has stymied state and local lawmakers wrestling with hundreds of billions of dollars in pension shortfalls.
Ted Toppin, chairman of Californians for Retirement Security, expressed gratitude that the court left the California Rule intact.
“Thankfully, the decision protects the retirement security of California’s nurses, teachers, firefighters, school employees and countless other public servants and retirees dependent on their hard-earned pensions,” Toppin said.
Created by the Legislature in 2003, the “air time” benefit permitted employees to pay a fee to add an extra five years to their work history for pension purposes.
Known as air time because the employee does not actually work, the benefit was offered to workers with at least five years of state service.
An employee of 20 years could qualify for a pension based on 25 years of contributions, which was particularly attractive to workers who took a break from their government jobs to take care of family or work on political campaigns.
As part of pension reform law, the state repealed the air-time benefit in 2012. Unions sued, arguing the repeal violated the California Rule.
Under current law, pensions are treated as contracts protected by the California Constitution. Monday’s decision did not alter that, but made it clear that a benefit that simply affects a pension may not be untouchable.
The formula for calculating retirement income generally can be changed only if it is neutral or advantageous to the employee, courts have ruled in the past. It cannot be reduced, except for new hires
By deciding the air-time benefit did not amount to a pension promise, the court allowed public employers to shave retirement costs without toppling a bedrock legal principle protective of workers.
A similar case before the court involves pension spiking. A three-judge Court of Appeal panel decided in 2016 that Marin County had the right to bar workers from spiking their pensions
Pension spiking occurs when an employee’s pay is inflated during the period on which retirement is based — usually at the end of a worker’s career.
This can be done by cashing in years of accumulated vacation or sick pay or volunteering for extra duties just before retirement.
In some cases, spiking has created pensions higher than the workers’ salaries.
The Court of Appeal in that case ruled that public retirement plans were not “immutable,” and could be reduced. The law merely requires government to provide a “reasonable” pension, the intermediate court said.
That decision was a major departure from the California Rule.
By distinguishing the air-time and pension-spiking cases from pension precedents, the court could pursue a middle ground, allowing government to reduce some pension costs but still leaving protections for workers in place.