Clar­ity Nears on Cal­i­for­nia Rule Af­ter Lat­est Rul­ing on Pen­sions

The Bond Buyer - - Front Page - By Kyle Glazier

A Cal­i­for­nia ap­pel­late court’s de­ci­sion this week is a small vic­tory for ad­vo­cates of a less strin­gent in­ter­pre­ta­tion of the state’s con­sti­tu­tional lim­its on pen­sion ad­just­ments, at­tor­neys said Tues­day.

The Court of Ap­peal in Cal­i­for­nia’s First Ap­pel­late District handed down a de­ci­sion in Alameda County Deputy Sher­iffs’ As­so­ci­a­tion et al. v. Alameda County Em­ploy­ees’ Re­tire­ment As­so­ci­a­tion, a case re­lat­ing to the anti-spik­ing pro­vi­sions of the Public Em­ploy­ees’ Pen­sion Re­form Act of 2013.

The de­ci­sion is an­other blow to a long-run­ning in­ter­pre­ta­tion of the so-called “Cal­i­for­nia Rule,” a 60-year-old state Supreme Court rul­ing gen­er­ally read to mean that ex­ist­ing em­ploy­ees’ ben­e­fits can­not be re­duced, even for for­mu­las in fu­ture years of em­ploy­ment, with­out of­fer­ing pen­sion plan par­tic­i­pants a com­pa­ra­ble ad­van­tage in turn.

“What the net re­sult is, is that yes, rea­son­able mod­i­fi­ca­tions have to be made,” said mu­nic­i­pal bank­ruptcy and re­struc­tur­ing ex­pert James Spi­otto, manag­ing di­rec­tor of Chap­man Strate­gic Ad­vi­sors LLC. “Should be al­lowed.”

The state Supreme Court will ul­ti­mately de­cide to what ex­tent public pen­sions can be changed in the ef­fort to com­bat un­der­fund­ing.

The plain­tiffs ar­gued that the county can’t legally al­ter the fu­ture pen­sion cal­cu­la­tion for­mula for cur­rent em­ploy­ees, be­cause that re­moves an ex­ist­ing ben­e­fit with­out of­fer­ing them a new one.

The trial court did not rule in their fa­vor, and they ap­pealed.

The Court of Ap­peal said in its unan­i­mous 3-0 Mon­day de­ci­sion that while it was send­ing the case back to the trial court to fur­ther con­sider the spe­cific facts of this case, it does not ac­cept the ar­gu­ment that pen­sion­ers are ab­so­lutely re­quired to be given com­pen­sa­tion any­time a pen­sion right is re­duced.

In that anal­y­sis, the court said it largely agreed with an­other group of ap­pel­late judges in the 2016 Marin As­so­ci­a­tion of Public Em­ploy­ees v. Marin County Em­ploy­ees’ Re­tire­ment As­so­ci­a­tion de­ci­sion.

“Much of Marin’s vested rights anal­y­sis—in­clud­ing its re­jec­tion of the ab­so­lute need for com­pa­ra­ble new ad­van­tages when pen­sion rights are elim­i­nated or re­duced—is not con­tro­ver­sial, and we do not dis­agree with it,” said Mon­day’s opin­ion, au­thored by As­so­ci­ate Jus­tice Ti­mothy Rear­don.

Case law de­fines a “rea­son­able pen­sion” as one which is sub­ject only to “rea­son­able mod­i­fi­ca­tion,” the court said, and re­manded the case to the trial court for a de­ter­mi­na­tion as to the rea­son­able­ness of PEPRA’s ef­fects on the Alameda pen­sion­ers specif­i­cally.

Spi­otto said the case is con­sis­tent with the Marin de­ci­sion and others across the coun­try that are in­creas­ingly ac­knowl­edg­ing that un­der­funded pen­sion sys­tems re­quire some flex­i­bil­ity to al­ter ben­e­fits in or­der to re­main fis­cally sound.

“That’s what I think the trend is in all the de­ci­sions across the United States,” he said. “You can’t live with an in­flex­i­ble rule.”

Spi­otto is a mem­ber of the Re­tire­ment Se­cu­rity Ini­tia­tive, a group that con­cerns it­self with the long-term health of public pen­sion sys­tems and which has gen­er­ally praised pen­sion re­form leg­is­la­tion passed in var­i­ous states over the past two years.

Chuck Reed, a spe­cial coun­sel at the firm of Hop­kins & Car­ley who was pre­vi­ously mayor of San Jose, said that the Alameda de­ci­sion ul­ti­mately just helps clear the way for the state’s top court to have its say.

“The sig­nif­i­cance of this de­ci­sion is limited since the Supreme Court will get the last word soon and noth­ing will likely hap­pen on re­mand to the trial court un­til we get a de­ci­sion from the Supreme Court,” Reed said.

“How­ever, it is an­other de­ci­sion dis­agree­ing with the most ex­treme in­ter­pre­ta­tion of the Cal­i­for­nia Rule as­serted by the public em­ployee unions,” he added.

Reed is also a mem­ber of the RSI. The Supreme Court of Cal­i­for­nia has al­ready ac­cepted the Marin case, as well as an­other pen­sion rights case filed by Cal Fire Lo­cal 2881, but has not yet sig­naled when it will take them up. It had pre­vi­ously in­di­cated it was wait­ing for var­i­ous cases, in­clud­ing Alameda, to make their way through the ap­peals process. ◽

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