Monday, March 4, 2019

Court Decision Expected Today on Public Pensions

UCRS is a public pension system and, therefore, is potentially affected by the case described below:

California Supreme Court to decide whether government can cut pensions

By MAURA DOLAN, MAR 04, 2019 | LA Times

The California Supreme Court will decide Monday whether the state government may rescind an employee benefit that enlarged pensions even after decades of rulings that have shielded public retirement plans from cuts.

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.

The “California Rule,” which a dozen other states have followed, has stymied state and local lawmakers now wrestling with hundreds of billions of dollars in pension shortfalls.

Public employers want the court to redefine the rule to make pension reform easier.

Under current law, pensions are treated as contracts protected by the California Constitution.

The formula for calculating retirement income generally can be changed only if it is neutral or advantageous to the employee, courts have ruled. It cannot be reduced, except for new hires

Monday’s decision will come in one of five pension disputes before the court. The court could reaffirm the California Rule, redefine it or simply determine that the repeal at issue does not amount to a violation of the rule.

The justices will determine whether the state acted legally when it enacted a law in 2012 rescinding a benefit that allowed workers to buy retirement credits.

That benefit, created by the Legislature in 2003, permitted employees to pay a fee to add an extra five years onto 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.

Unions sued to block the 2012 repeal, arguing it violated the California Rule.

During a hearing in December, Chief Justice Tani Cantil-Sakauye said past court rulings protecting public employee pensions were based on concepts of deferred compensation. She suggested the air time law was different.

By deciding the air time benefit did not amount to a pension promise, the court would allow 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, and the California Supreme Court may choose to rule more narrowly. Courts generally prefer incremental change in the law.

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.

No comments: