The state Supreme Court heard oral arguments Wednesday in a case that could have implications for the pensions of Marin public employees and quite possibly the pensions of public employees throughout the state.
The case, Cal Fire Local 2881 v. California Public Employees’ Retirement System, involves a right granted to many public employees by the California Legislature in 2003 to add to their years of service used for calculating their pensions by paying a one-time fee. This is often referred to as purchasing “air time.”
After the Legislature withdrew this right by passing the Public Employees’ Pension Reform Act (PEPRA) of 2013, Cal Fire Local 2881 filed a legal challenge.
A similar case, Marin Association of Public Employees v. Marin County Employees’ Retirement Association, is pending before the state Supreme Court. In that case, Marin Association of Public Employees filed suit after Marin County Employees’ Retirement Association reacted to PEPRA by excluding standby pay, administrative response pay, callback pay and cash payments for waiving health insurance from the calculation of members’ final compensation.
In its 2016 ruling on that case, the Court of Appeal wrote, “While a public employee does have a ‘vested right’ to a pension, that right is only to a ‘reasonable’ pension — not an immutable entitlement to the most optimal formula of calculating the pension.
“And the Legislature may, prior to the employee’s retirement, alter the formula, thereby reducing the anticipated pension. So long as the Legislature’s modifications do not deprive the employee of a ‘reasonable’ pension, there is no constitutional violation.”
Gregg Adam, one of the attorneys representing MAPE and the attorney who presented the oral argument for Cal Fire Wednesday, has said that this ruling challenges the so-called “California rule,” the legal precedent that prohibits government agencies in California from cutting retirement benefits without providing employees with comparable pension compensation.
The California Rule gives workers security that their retirement will be safe and predictable after a career in public service. But it also ties lawmakers’ hands in responding to exploding pension costs — a problem for the state, cities, counties, schools, fire districts and other local bodies.
In a sign of the case’s importance to the governor, Jerry Brown had an attorney from his office, not the state attorney general’s office, argue before the high court.
After Wednesday’s hearing, Adam said, “I think it was tough for both sides. The court asked very challenging questions that went to the heart of the matter and extended more broadly to future rules and pensions in general.”
Timothy Talbot, an attorney representing the Contra Costa Deputy Sheriff’s Association in another of the five cases pending before the Supreme Court with implications for the California rule, said, “I thought the justices had difficult questions for both sides. They were sincerely trying to understand how this particular ‘air time’ benefit fits into the whole pension scheme and what level of protection it is entitled to under current California law.
“There were questions and assertions by both sides on the broader question of the California rule and changes to vested rights,” Talbot said, “but my sense was the majority of the argument focused on this air-time benefit.”
Several of the justices appeared skeptical that the ability to purchase “air time” constituted a traditional pension benefit. Employees had to work for five years before they could make the one-time credit purchase.
Chief Justice Tani Cantil-Sakauye asked, “How does it directly affect (your pension) if you only have the opportunity to purchase?”
Associate Justice Goodwin Liu asked if health care benefits, vacation accrual, and transit subsidies could also considered to be similarly vested benefits.
Adam said, Liu “was concerned that the rule that we were asking for would cover too many elements of what an employee gets. I argued that we were really only asking that the benefit in front of the court be considered a pension benefit.”
Talbot said Rei Onishi, the attorney who made the oral arguments on behalf of California Public Employees’ Retirement System, argued that pensions can be modified because employees are only entitled to a substantial and reasonable benefit. Talbot said the justices asked Onishi to define what that would mean in real terms; one justice asked if that meant a pension could be reduced to one dollar.
“Mr. Onishi didn’t really answer the question,” Talbot said, “but he didn’t say that would be wrong.”
The justices have 90 days to issue a ruling. Adam said depending on what the justices decide, the Marin case might be sent back to the Court of Appeal.
The Marin case was granted review by the Supreme Court more than year ago, but in an unexpected move earlier this year, the court deferred action on the case pending a decision in Alameda County DSA, et al. v. Alameda County Employees Retirement System, another case involving the California rule. Lawyers have submitted briefs for that case and are awaiting a date for oral arguments.
Pension hawks such as Marin’s Citizens for Sustainable Pension Plans are watching the Supreme Court hearings with much anticipation.
“I’m pretty certain the state Supreme Court judges will find that air time is not a vested benefit,” said Jody Morales of Lucas Valley, the group’s founder. “That might well open the door to challenges to other benefits now considered ‘vested,’ such as those adopted after the contracts were agreed to.”
