CA Public Pensions Law Blog

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.

CalPERS has updated the 2018 compensation limits for classic and new members, effective immediately.