SAN JOSE, Calif., Aug. 18, 2016—A game-changing decision this week by the California First District Court of Appeal is good news for pension reformers, according to the Retirement Security Initiative (RSI). In Marin Association of Public Employees v. Marin County Employees’ Retirement Association, the Court rejected rigid interpretation of the California Rule of vested rights, ruling that although an employee has a vested right to a pension, their only right is to a ‘reasonable pension,’ one without benefit spiking.

“Pension reformers in California have been advocating for years that some reasonable modifications to future pension benefits accrued for future work by current employees could be permissible under the California Constitution,” said RSI Board Member and former San Jose Mayor Chuck Reed. 

The Court summarized its ruling:

“ . . . 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.  And the Legislature may, prior to the employee’s retirement, alter the formula, thereby reducing the anticipated pension.  So long as the Legislature’s modifications do not deprive the employee of a ‘reasonable’ pension, there is no constitutional violation.”

The case arose out of legislation enacted in 2012, the Public Employees’ Pension Reform Act (PEPRA) in which some actions to spike pension benefits were prohibited in future years of service.  Plaintiffs alleged they had a vested right to continue spiking practices that had been in place for years. 

The Court described the Plaintiffs’ position as stated in their opening brief:

 “[P]ublic employees earn a vested right to their pension benefits immediately upon acceptance of employment and . . . such benefits cannot be reduced without a comparable advantage being provided.” 

The Court rejected Plaintiffs’ rigid interpretation of the California Rule of vested rights and upheld PEPRA based on a series of California cases often cited by opponents of pension reform as prohibiting any modification of benefits for current employees.

“The big question for pension reformers is whether or not the California Supreme Court will agree,” said Reed. “If it does, the legal door will be open for Californians to begin to take reasonable actions to save pension systems and local governments from fiscal disaster.”