Today, the California Supreme Court issued its decision in Cal Fire Local 2881 v. CalPERS, and affirmed the underlying trial court and Court of Appeal decisions. Cal Fire is one of four cases addressing the “California Rule,” which generally provides that employees are forever entitled to the pension benefits that were promised to them on the first day that they began their service. The California Rule poses significant problems for fiscally limited agencies because the rule essentially prevents decreases in an employee’s pension benefit. Although it was initially presumed that Cal Fire would provide the California Supreme Court with an opportunity to address the continued application of the California Rule, the decision makes such an analysis unnecessary as the California Supreme Court determined that the elimination of the opportunity for public employees to purchase additional retirement service (“ARS”) credit was not a vested right; therefore, there was no need to consider the validity of the California Rule.
Public employers are growing increasingly skeptical of Deferred Retirement Option Plans. So-called DROP plans allow employees who would otherwise retire in a defined benefit plan to continue working. However, rather than continuing to accrue credit for their extra years of service, their pension is paid out alongside their usual salary but is credited to a separate account with a city-guaranteed interest rate. The employee typically receives the money in the account, including an agreed-upon interest amount, in a lump sum when he or she retires. DROP plans were initially promoted as cost-neutral programs that would keep experienced employees around longer. That optimistic outlook, however, is shifting.
Last Wednesday, the California Supreme Court held oral arguments for Cal Fire Local 2881 v. CALPERS. This case, along with three others, addresses the “California Rule,” which provides that employees are forever entitled to the pension benefits that were promised to them on the first day they began their service. The California Rule has been known to pose problems for fiscally limited agencies because the rule essentially prohibits decreases of an employee’s pension benefit. This case, however, might show that the California Rule is not so inflexible.
As reported in the Sacramento Bee, last week the CalPERS Board unanimously voted to shorten the amortization period of future gains and losses from 30 years to 20 years. The new policy will become effective as of the June 30, 2019 actuarial valuations, with the first payments due in 2021.
CalPERS has updated the 2018 compensation limits for classic and new members, effective immediately.
Last week, CalPERS did something unusual: It wrote a retort to its critics. In an article titled “Critics Pick Their Facts but Ignore the Truth,” CalPERS responded to two editorials in two different newspapers. CalPERS called the editorial writers “serial critics of defined benefit plans” who “selectively mine the facts so they can advance their anti-pension platforms.”
An editorial ...
California Senate Bill 525, concerning public pensions, was signed into law in September and will take effect on January 1, 2018. The bill changes many provisions of the Government Code. Most of these revisions are minor “housekeeping” changes.
One substantial change affecting many public agencies is the amendment to Government Code section 20636, requiring public employers to report special ...
On October 2nd, Stanford University’s Institute for Economic Policy Research published a 193-page article summarizing “case studies” of 14 public entities—the State of California, three counties, six cities, three school districts, and one Special District (Bay Area Rapid Transit). The article, charting the entities’ past and predicted pension costs from fiscal years 2002-2003 to ...
On September 23rd, Governor Brown signed Assembly Bill No. 1309, which provides for assessments on employers that fail to report the hiring and payroll information of California Public Employees’ Retirement System (CalPERS) members working in retirement. The fine is 200 dollars per month for each annuitant employee the employer fails to report. The law will go into effect on January 1, 2018.
Details of ...
A new California appellate court decision affirmed the denial of retiree medical benefits and reinforced a 2011 California Supreme Court ruling that absent clear contractual language or convincing extrinsic evidence of intent, the presumption is that a Memorandum of Understanding (“MOU”) does not create rights that survive the term of the contract.
Specifically, the California Court of Appeal ...
Other AALRR Blogs
- “California Rule” Survives (For Now) — But “Airtime” Does Not
- Be Cautious About “DROP” Programs
- California Supreme Court Hears Cal Fire Oral Argument
- Amortization Period for New Debt Shortened to 20 Years
- New CalPERS Compensation Limits, Effective Immediately
- CalPERS Responds to Its Critics
- Senate Bill 525 Amends California Public Pension Laws
- New Stanford University Study Predicts Public Pensions Costs in California to Consume 14-17.5% of Operating Expenses by the Year 2030
- New Law Penalizes Employers Who Fail to Provide Information About Annuitants Working During Retirement
- Appellate Court Holds That MOU Does Not Provide Vested Interest in Retiree Medical Benefits