California Supreme Court Agrees to Review Another Appellate Court Ruling Allowing Modification of Public Pensions

Last week, the California Supreme Court agreed to review the California Court of Appeal’s December 2016 ruling in Cal Fire Local 2881 v. California Public Employees’ Retirement System, 7 Cal.App.5th 115 (Cal. Ct. App. 2016), that the Public Employees’ Pension Reform Act of 2013 (PEPRA) lawfully eliminated the right of CalPERS members to purchase up to five years of retirement service credit called “airtime.”  The Court of Appeal found no violation of the Contract Clause of the California Constitution, which prohibits legislation that impairs contractual obligations.

Generally, vested rights, defined as irrevocable private rights of a contractual nature, are protected by the Contract Clause. The California Court of Appeal, emphasizing plaintiffs’ heavy burden to demonstrate vested rights, determined that public employees’ option to buy airtime was not a vested right. It further held that even if the airtime rights were a vested benefit, they could lawfully be eliminated. The court ruled that the legislature can modify or eliminate vested pension rights in order to keep the pension system flexible and maintain its integrity, as long as the legislature’s changes are reasonable. We summarized this ruling in a recent Alert.

We reported in an earlier blog post that the California Supreme Court agreed to review a similar ruling made by a different California Court of Appeal in Marin Association of Public Employees v. Marin County Employees’ Retirement Association, 2 Cal.App.5th 674 (Cal. Ct. App. 2016). In that case, the California Court of Appeal had ruled that PEPRA’s exclusion of compensation paid to enhance pension benefits (commonly known as pension spiking) did not infringe upon public employees’ vested right to pension benefits, because this right attached only to “reasonable” pensions.

The Supreme Court deferred briefing on the Marin County appeal until a different California Court of Appeal issued a ruling in a pension modification case involving Alameda County deputy sheriffs’ benefits. No such ruling has been made yet, so the California Supreme Court could rule on the Cal Fire Local 2881 case before deciding the Marin County case.

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