Type of reform:
Among other things, PEPRA eliminated the option—previously available to public employees under Government Code 20909—to purchase at cost up to five years of non-qualifying service credit, or “airtime”. Airtime allowed the purchasers to increase their pension benefits upon retirement by increasing their years of service.
California Fire Local 2881 v. California Public Employees Retirement System, No RG12661622 (Superior Court of California, Alameda County).
Status of litigation:
The plaintiffs sued, contending that the airtime option under Government Code 20909 was a vested benefit, and that removing airtime violated the contracts clause of the California Constitution. (Cal. Const. art. 1, § 9).
Under Government Code 20909, members of the California Public Employees Retirement System (CALPERS) were permitted to purchase up to five years of airtime (upon five years of employment by the state) at the present value cost equivalent to the projected increase in the employer’s liability. The airtime credit could be added to a member’s total amount of service credit when calculating that member’s retirement allowance. Upon the enactment of PEPRA in September 2012, the legislature notified all members that the option would expire on Jan. 1, 2013, thereby providing members with a final 15-week window in which to purchase the airtime credit. The plaintiffs were eligible to purchase the credit during that time but did not do so.
The plaintiffs sought a writ compelling CALPERS to comply with Government Code 20909, alleging that the elimination of the airtime purchase option was unconstitutional. The State of California intervened for the purpose of defending PEPRA. A writ hearing was held on Feb. 24, 2014. Following the hearing, the trial court entered judgment against the plaintiffs denying the writ and injunctive relief. Judge Emilio Grillo found that even if the purchase of airtime was a vested benefit, its elimination was a permissible modification to the pension plan. The trial court ended an Amended Final Order on June 5, 2014.
The plaintiffs filed an appeal to the First District Appellate Court on Aug. 20, 2014. The case was assigned to a panel of Justices Martin Jenkins, Justice Stuart Pollack, and Justice Peter Siggins. The panel heard oral argument on Dec. 21, 2016. On December 30, the court issued a unanimous opinion affirming the trial court’s decision.
First, the appellate court found that the language in 20909 showed that the legislature had not intended to create a vested right that could not be modified or eliminated: “[W]e agree with the trial court that the Legislature could have – and would have – used much clearer language if it had in fact harbored such intent.” (Opinion, p. 9)
The plaintiffs asserted that CALPERS provided materials to them in which it included the airtime option as an example of a vested benefit, but the court noted that CALPERS’ view did not mean that the benefit could never be modified. Rather, “California law is quite clear that the Legislature may indeed modify or eliminate vested pension rights in certain cases.” (Opinion, p. 10) Citing California Supreme Court cases Kern v. City of Long Beach (1947) 29 Cal.2d 848, 855, Wallace v. City of Fresno (1954) 42 Cal.2d 180, 183, and Miller v. State of California (1977) 18 Cal.3d 808, 814, the court noted that the “governing body may make reasonable modifications and changes before the pension becomes payable and until that time the employee does not have a right to any fixed or definite benefits but only to a substantial and reasonable pension.” [Opinion at 10-11 (citing Miller, 18 Cal.3d at 816)] Indeed, the court noted that modifications are necessary to keep pension systems flexible to “permit adjustments in integrity of the system and carry out its beneficent policy.” (Opinion, p. 12, citing Kern, 29 Cal. 2d at pp. 854-855.) Even CALPERS, the court noted, had published in its literature that airtime credits would be available “(unless repealed by future legislation).” [Opinion, p. 13 (quoting from CALPERs literature and adding emphasis)]
Modifications must be reasonable, however:
“[A]lterations of employees’ pension rights, must bear some material relation to the theory of a pension system and its successful operation, and changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages.”
[Opinion, p. 11 (citing, inter alia, Betts v. Board of Administration of Public Employees’ Retirement System (1978) 21 Cal.3d 859, 863, 864)]
The plaintiffs contended that this requirement meant that the legislature was required to provide an offsetting benefit. The court responded that, as it has been made clear by the courts, the requirement that there be an offsetting benefit is merely a recommendation.
“’Should” [provide some new compensating benefit], not ‘must,’ remains the court’s preferred expression. And ‘should’ does not convey imperative obligation, no more compulsion than ‘ought.’” [Lashley v. Koerber (1945) 26 Cal.2d 83, 90 . . . ; see People v. Webb (1986) 186 Cal.App.3d 401, 409, fn. 2 . . . (‘the word “should” is advisory only and not mandatory’)]
(Opinion, p. 14) Citing the recent appellate decision in Marin Assn. of Public Employees (2016) 2 Cal.App.5th 674, 699, the court held that “should” is a recommendation, and the state could eliminate airtime without an offsetting benefit. Finally, the court reminded the plaintiffs that they had a 15-week window in which to purchase airtime credit, once they knew the option would be eliminated by the first of the year. Yet, they failed to do so. “To the extent plaintiffs lost out on the opportunity to purchase the airtime service credit, such loss was, accordingly, a product of their own doing.” (Opinion, p. 15)
Accordingly, the appellate court affirmed the prior judgment.
Following the decision by the First Court of Appeals, the appellants filed petitions for review in the Supreme Court. The intervener and respondent State of California opposed review. On April 12, 2017, the California Supreme Court granted review. The matter is docketed as Case No. S239958.
On April 13, the petitioners/appellants requested an extension of time to file opening briefs until June 1, 2017. The Court granted the extension on April 19.
The petitioners filed their opening brief on the merits on June 1, 2017. They argued that the option to purchase additional service credit was a vested right. As such, the legislature’s elimination of such right was permissible only if the legislature (i) could show that it was necessary to preserve and maintain the existing pension system; and (ii) provided an offsetting comparable pension advantage in its absence.
On June 26, 2017, CalPERS requested an extension of time until August 2 to respond to the petitioners’ brief on the merits. The following day, intervenor the State of California requested a similar extension. On June 29, the Supreme Court granted the extension of time to respond to the petitioners’ brief on the merits.
On July 12, 2017, the Court entered an order granting the extension of time to respondents.
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