California Supreme Court to revisit pension reform issues

The California Supreme Court has granted review of a case challenging retirement reforms state lawmakers approved 11 years ago, marking a return of pension spiking questions to the high court for the first time since a 2020 ruling on an Alameda County case.

“Designating a 12- or 36-month final average compensation period that straddles multiple years to receive compensation for leave cash-outs greater than the amount a member could receive in one or three calendar years, respectively, is the type of manipulation that the [Public Employees’ Pension Reform Act of 2013] exclusions sought to eradicate,” the appeals court judges wrote in their ruling.

Public employees’ retirement benefits are calculated using either the last year, or prior three years of work, depending on which tier the employee fell in. Many local governments created second employee pension tiers with lesser benefits for new employees as part of pension reform in the years following the 2008 economic crash, as the so-called “California Rule,” a series of 1950s-circa court cases that established ironclad protections for public pensions, makes it difficult to make any changes to existing employee benefits.

California courts were kept busy hearing challenges brought by unions and others for several years after the Public Employees’ Pension Reform Act of 2013 passed.

The cases were followed nationally, because PEPRA was seen as presenting a challenge to the California Rule. Some other states have similar protections.
The state Supreme Court ultimately issued a narrow ruling in the case brought by the Deputy Sheriffs’ Association of Alameda County against the county’s employee retirement association.

In that ruling, the court affirmed the state’s right to eliminate pension spiking, a reform outlined in PEPRA.

Ashley Dunning, a Nossaman partner, and the lead attorney representing VCERA in the court and appeals case, called the high court’s decision to hear the case “surprising news for the California county retirement system community,” in an email client alert posted Monday.

Following the Alameda decision, numerous county retirement boards, including VCERA, took actions to implement the state Supreme Court’s direction that PEPRA’s changes to the County Employees Retirement Law of 1937 must be implemented by county retirement systems, Dunning wrote in a January Nossaman e-alert.

The 2020 Alameda decision upheld the constitutionality of changes to CERL that were adopted in connection with enactment of PERPA in 2013, Dunning said.