SAN JOSE, Calif., January 9, 2017— A second decision by the California First District Court of Appeal that rejects a rigid interpretation of the California Rule of vested rights get Californians one step closer to saving the state from financial disaster, according to the Retirement Security Initiative. The ruling, in Cal Fire Local 2881 v. CalPERS, states that although an employee has a vested right to a pension, their only right prior to retirement is to a "substantial or reasonable pension." A different panel of judges issued a similar ruling in Marin Association of Public Employees v. Marin County Employees’ Retirement Association in August 2016.
“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. “It now seems it may be possible to do so.”
The Appeals Court quoted the California Supreme Court on vested rights to explain its ruling:
“Although vested prior to the time when the obligation to pay matures, pension rights are not immutable. For example, the government entity providing the pension may make reasonable modifications and changes in the pension system. This flexibility is necessary ‘to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system and carry out its beneficent policy.”
The case arose out of legislation enacted in 2012, the Public Employees’ Pension Reform Act (PEPRA), in which the opportunity for an employee to buy additional years of service credits was eliminated. Plaintiffs alleged they had a vested right to continue what is referred to as “buying airtime” because it had been permitted for years.
Plaintiffs claimed they had a vested contractual right to purchase up to five years of airtime service credit that is not subject to elimination or destruction by legislative amendment or repeal “even before the benefit has been accessed or the time for retirement has arrived.”
The Appeals Court rejected plaintiffs’ assertion that “Public employees obtain a vested right to the provisions of the applicable retirement law that exist during the course of their public employment. Promised benefits may be increased during employment, but not decreased, absent the employees’ consent.”
The Appeals Court noted that “California law is quite clear that the Legislature may indeed modify or eliminate vested pension rights in certain cases.”
“The big question for pension reformers is whether or not the California Supreme Court will agree,” said Reed. “The Marin County case has already been accepted by the Supreme Court and this case is likely to go there as well.
“If the Supreme Court agrees with these appellate court decisions, the legal door will be open for Californians to begin to take reasonable actions to save pension systems and local governments from fiscal disaster,” concluded Reed.