Second California appeals court rules pension benefits can be reduced

Case involves 2013 pension reform that eliminated CalPERS participants' right to buy retirement credits

By Randy Diamond | January 3, 2017 4:20 pm | Updated 4:24 pm
Pensions & Investments

A second California appeals court panel has said that vested pension rights can be reduced or eliminated in California as long as employees still receive a pension that is “substantial” and “reasonable,” court filings show.

The Dec. 30 decision by a three-member panel in San Francisco affirmed a state pension reform law that went into effect in 2013 and eliminated the right of participants of the $302.4 billion California Public Employees' Retirement System, Sacramento, to enhance their pension by buying retirement credits. A lower court in Alameda County in 2015 had ruled that the pension enhancement benefits could be eliminated.

The enhanced benefit, known as an airtime service credit, allowed CalPERS participants to increase their retirement benefit by up to five years by making additional contributions from their salary.

The panel cited another state appeals court's decision in August, which said the $2.1 billion Marin County Employees' Retirement Association, San Rafael, did not have to count pay given to employees for being on an on-call status toward retirement benefits.

That decision also cited the 2013 pension reform law, which applies not only to CalPERS but to most other public pension systems in California.

The law put in place anti-spiking provisions that prevent pension benefit increases from unused vacation and leave, bonuses, terminal pay, among other things.

These “anti-spiking” provisions apply to current workers.

“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,” the appeals panel wrote in August.

That decision put into question the so-called California rule, which held for five decades that pension benefits could not be cut.

The California Supreme Court has agreed to hear an appeal on the Marin County case, although no schedule has yet been set for oral arguments.

The latest case was filed by firefighter union Local 2281, which represents 6,000 firefighters across California.

Attorney Gregg McLean Adam, who represented the firefighters, said he believes there is a “strong basis” for the Supreme Court to also hear the retirement credit case.

But Mr. Adam said no decision has been made as to whether an appeal will be made.

CalPERS spokesman Wayne Davis said the pension fund would have no comment on the decision.