To: Members
From: Tom Dominguez, President
Re: Pensions/Courts of Appeal Ruling
Date: January 11, 2018
Please be advised of the following important ruling regarding pensions from the California Courts of Appeal.
FINALLY: A RATIONAL, WELL–THOUGHT-OUT RULING FROM THE COURTS OF APPEAL ON PENSIONS REGARDING VESTED RIGHTS
In the recent Marin and CalFire cases, the appellate court held that there is a vested right only to a “reasonable” pension and that no new comparable benefit must be granted in order for the legislature to reduce benefit calculations. Not only do these rulings undo the “California Rule” that protects our pensions, but they are also vague and leave pensions too easily reduced. Both the Marin and CalFire cases have been appealed and accepted by the California Supreme Court to be ruled on at a later date.
Yesterday, we received some good news. The appellate court ruled on a third, consolidated case involving three pension systems: Alameda, Contra Costa and Merced Counties – dubbed the “Three Counties” case. The justices in this case issued a detailed 70-page decision that could impact the future Supreme Court ruling. The Three Counties case was appealed because the retirement system(s) used parts of the Public Employees’ Pension Reform Act (PEPRA) of 2012 to justify eliminating pay items outside normal working hours – such as leave cash outs and “on-call” pay – as compensation earnable, and therefore pensionable. This is similar to what happened in the Marin case.
In the Three Counties case, the justices concluded that the trial court’s analysis of PEPRA’s effects on the pensions of legacy members (members hired before PEPRA was enacted 1/1/2013) failed to consider vested rights. After reviewing several decades of case law on vested rights, the justices agreed with the Marin case that vested rights jurisprudence requires only that detrimental pension modifications should be accompanied by a new, comparative benefit. However, the justices parted ways with the Marin case when it comes to application of the law. The justices wrote, “We believe that the Marin court improperly relied on its general sense of what reasonable pension might be, rather than acknowledging that the Supreme Court has expressly defined a reasonable pension as one which is subject only to reasonable modification.”
The appellate court has remanded this case back to the trial court with these specific instructions: the trial court should recognize that – since no corresponding new benefits have been provided, detrimental changes to legacy members can only be enacted with compelling evidence establishing that the required changes “bear a material relation to the theory of a pensions system and its successful operation.”
This ruling is a win for pensions because it essentially keeps the long-established “California Rule” in place by making it extremely difficult to change any existing member’s pension formulas.
There are many possible scenarios as to when, how, and even if this Three Counties case goes to the Supreme Court with the Marin and CalFire cases. AOCDS will keep you updated on this issue.