The California Rule on Public Employee Pensions Under Attack: Will We Still Call It The “California Rule” If It Is No Longer The Rule In California?

By: Steven M. BerlinerDanny Y. Yoo Feb 19, 2019


Most public employees in California are eligible to enroll in a state or county retirement system.  These retirement systems are governed by state statutes, known primarily as either the Public Employees’ Retirement Law (“PERL”) or the County Employees’ Retirement Law (“CERL”), depending on the retirement system in question. 

While the legislature enacts statutes to provide benefits in retirement, the California courts have developed what is known as the “California Rule” regarding vesting of these benefits. This judicially created rule states that public employees in California have vested rights in their pension benefits, and therefore begin earning this deferred form of compensation from their very first day of employment. While they may not remain employed long enough to actually receive benefits, as long as they do remain employed, they have the right to keep earning this deferred compensation to be paid after they retire. The courts have held that these pension benefits cannot be modified unless: (1) the modification maintains the integrity of the system; (2) bears some relation to the theory of the pension system; and (3) if the modification results in some disadvantage, it is accompanied by a comparable new advantage. Practically speaking, this makes it difficult for the state legislature to revise pension statutes in order to allow reductions in benefits that had previously been promised to public employees. The result is that promises made years or decades earlier generally cannot be modified despite current exploding costs being absorbed by public employers. 

On September 12, 2012, Governor Jerry Brown signed into law the Public Employees’ Pension Reform Act of 2013 (“PEPRA”) in order to address the looming crisis of increasing pension costs. PEPRA primarily changed the pension benefits that employees hired after its enactment could expect. However, PEPRA also modified some of the pension benefits for existing public employees under both the PERL and CERL. Some of these changes include the discontinuation of the right to purchase service credit not related in any way to prior employment (known as “airtime”), as well as the discontinuation of certain types of compensation in pension calculations, among others. There are currently several cases before the California Supreme Court, which will analyze whether PEPRA changes to existing employees’ pension benefits violated the California Rule. 

On December 5, 2018, the California Supreme Court heard oral argument in Cal Fire Local 2881 v. CalPERS, which it chose to hear first. The state intervened in the case to defend PEPRA. In this case, public employees are challenging PEPRA’s elimination of “airtime.” The appellate court held that employees did not have a vested right to purchase airtime because there was no express language in the statute, or its legislative history, that unambiguously stated an intent by the Legislature to create a vested pension benefit.  Alternatively, the appellate court held that it was permissible to eliminate “airtime” because a pension system was established to compensate for actual work and that, in fact, the option to purchase “airtime” was detrimental to the successful operation of the pension system because it does not relate to any work performed. Finally, the appellate court held that while a comparable new advantage “should” be provided, the term “shall” in prior decisions was not a mandate. If upheld, this decision would mark a serious erosion of California public employee pension vesting principles.  

During oral argument before the California Supreme Court, the justices directed questions at both attorneys to address whether the opportunity to purchase airtime was a vested right. The employees argued that the opportunity to purchase airtime was a vested right upon one’s acceptance of and/or continued employment. The justices challenged this notion because any such rule may be overbroad and may apply to any employment benefit offered to an employee.  Interestingly, the justices did not question either side on whether there needed to be a comparable new advantage provided to employees in exchange for the elimination of the right to purchase “airtime.”

On the other side, the state argued that the legislature never intended for this opportunity be to a vested right, neither expressly nor impliedly. The justices seemed to concede that there was no express language that created a vested right, but questioned whether the legislature could ever create an implied right to a benefit and if so, how. The state responded that there appears to be an implied right to a “substantial, reasonable pension,” but that purchasing “airtime” was not necessary to providing a substantial, reasonable pension.

While it is usually difficult to predict a court’s final ruling based on the questions the justices ask during oral argument, the court could be signaling its direction here given the questions it did not ask. Specifically, the justices did not ask about the heart of the California Rule; whether alternative benefits must be provided whenever a vested right is impaired. Given the other cases pending before the Supreme Court and the nature of the justices’ questions in Cal Fire, the court appeared to signal that it will likely issue a narrow ruling related to airtime itself, allowing major components of the California Rule to be argued in later cases. In any event, even if the Supreme Court overturns the California Rule in full and allows pension benefits to be modified more easily, there is unlikely to be an immediate impact on California public employees nor relief to public employers facing ever-increasing pension costs. Any change to public employee pension benefits must first come from the state legislature. While overturning the California Rule would, in theory, make it easier to modify pension benefits, it would still be up to the state legislature, not individual public employers enrolled in these pension plans, to first make modifications to the state statutes. Absent such statutory change, these benefits will remain largely untouchable, regardless of the court’s ultimate decision.

DOR/AFSCME Student Services Meeting

AFSCME Council 57, Local 2620 met with DOR Labor Management on January 17, 2019 in Sacramento to follow up on the Issues/Concerns of the new Student Service Program.

The Meet and Confer team want to first thank all who responded to our short survey sent in early January. Your input was incredibly helpful and directed our discussion at the table.

The State confirmed that the Student Services Program met the 15% requirement that was mandated. Thankfully, there won’t be a need to return the money to Federal Government. The goal for the remainder of the year is to serve 18,000 youth between the ages of (16-21) by June. DOR is currently on target to achieve that goal, having currently served 8500 PE cases. They identified that the quantity of the federal requirement is being met, but the goal now is to enhance the quality of services being provided as the program is not ending and will be a part of DOR services.

DOR acknowledged our survey responses and were glad to hear your full honest input about the program. The department stated that they are looking at ways to help support staff who have been impacted by the transition.

Some of the ways the state is looking at supporting staff are with:

  • Innovations to AWARE
  • Streamline process to eliminate excessive data entry
  • Enhanced telework/telecommute process
  • Develop a committee that will review the impact the program has had on counselors and try to identify resolutions
  • Looking at caseload sizes and working with Managers to equalize cases for Counselors


Meet and Confer Team

Denise Dorsey, Occupational Chair                                       Julissa Barton, Steward

Tisha Hill-Smith, Steward                                   Cliff Leo Tillman, Jr., Senior Business Agent

We Won!!!

Background

On September 26, 2017, AFSCME Local  2620  (“Union”)  filed  a  grievance with California Correctional Health Care Services (“CCHCS”) at the California Men’s Colony (“CMC”) on behalf of Bargaining Unit 19 (“BU19”) employees. When the parties were unable to resolve the grievance at the lower levels of their procedure, the Union moved it to arbitration. The Arbitrator held hearings at CMC on June 15, August 21, 22, and 23, 2018, in San Luis Obispo, CA. Both parties were present at the hearings and represented by counsel. Each had a full opportunity to examine and cross-examine witnesses, present evidence, and argue its position. Neither party objected to the conduct of the hearing. A court reporter recorded the proceedings. At the close of the hearing the parties asked to file post-hearing briefs. The Arbitrator declared the hearing closed when he received the last brief on December 7, 2018.

Award

  1. CCHCS violated, Article 6.4.C and 6.4.D when it denied and canceled alternate work schedules for BU19 employees at the California Men’s Colony.
  • CCHCS violated 6.4.C in January 2017 when it instituted a blanket policy of denying AWS to all new and existing BU19 employees.
  • To remedy the violation, CCHCS will cease and desist from pursuing a policy of denying AWS to all BU19 employees. CCHCS will communicate with BU19 employees informing them that, in accordance with Article 6.4, it will consider any request for AWS and not unreasonably or arbitrarily deny it.
  • CCHCS violated 6.4.D on March 5, 2018, when it cancelled the existing AWS of all BU19 without an operational need to do so.
  • To remedy the violation, CCHCS will restore the AWS it cancelled on March 5, 2018 to each BU19 employee at CMC whose AWS it cancelled. Each employee will be entitled to the AWS he or she had at the time of the cancellation. Each employee has the right to decline the AWS. CMC will notify the Union of all AWS restored and declined.
  • CCHCS will have 60 days from the date of this Award to return all BU19 employees to their pre March 5, 2018 AWS schedules.

Thank you for all your hard work.