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.
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