Spanning May 2 to 4, the 2018 League of California Cities (LOCC) City Attorneys’ Spring Conference provided training on cutting-edge issues in municipal law, including comprehensive updates on litigation affecting cities. Titled “PERS’ Path Forward: Risks, Opportunities, and Options,” the session focused on strategies for California cities to address alarming increases in CalPERS pension costs. Renne Public Law Group (RPLG) Partner Jon Holtzman was joined by Mary Beth Redding of Bartel Associates. Christine Dietrick (City Attorney of San Luis Obispo and President of the LOCC City Attorney Department) served as the panel moderator.
The group began with an overview of three California Supreme Court cases that are presently touching on this issue: Cal Fire Local 2881 v. California Public Employees’ Retirement System (2016) 7 Cal.App.5th 115 (Cal Fire), Alameda County Deputy Sheriff’s Association et al. v. Alameda County Employees’ Retirement Association, et al. (2018) 19 Cal.App.5th 61 (Alameda), and Marin Association of Public Employees’ Retirement Association (2016) 2 Cal.App.5th 674 (Marin).
All three cases stem from changes to pension plans affecting current employees. All three also involve ancillary benefits that are not part of the core pension formula. Cal Fire involves “air time.” The other two cases involve benefits that “spike” the final compensation that is used to calculate pensions — such as cash out of vacation pay at the conclusion of employment. All of the cases arise from changes made by the state legislature under in 2013 under PEPRA.
In these cases, the Court may clarify a few critical issues: (1) the circumstances under which pension benefits other than the pension formula itself become vested; (2) the extent to which benefits for current employees, for service not yet rendered, are subject to change; (3) whether employers are required to offer a “comparable benefit” when such benefits are changed; and (4) the employer’s burden when benefits are changed due to economic reasons.
Holtzman said that the Court will almost certainly address whether the intent to vest benefits must be “unmistakable.” As all three cases involve “ancillary benefits,” rather the pension formula itself, Holtzman said the court may simply decide the benefits were not vested and put off consideration of the thornier issues involved in clarifying the so called “California Rule.” However, Holtman argued, the California Rule, as currently articulated by the unions, makes no sense. “It does not make sense to conclude that a benefit such as air time is a perversion of basic pension principles that led to a windfall, on the one hand, but that, in order to discontinue it, the employer must provide a “comparable benefit.”
The panel concluded its discussion with the actions cities can take to address the known and as-yet-unknown increase in PERS contribution rates. RPLG will continue to closely track updates in these cases.
RPLG practices throughout California, advising and advocating for public agencies, nonprofit entities, individuals and private entities in need of effective, responsive and creative legal solutions.