Promised pension benefits in California can be cut, Jerry Brown’s attorneys argue

What is CalPERS? We explain in one minute

CalPERS, California Public Employees Retirement System, aims to build retirement and health security for state workers. Here's a quick look at the retirement system.
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CalPERS, California Public Employees Retirement System, aims to build retirement and health security for state workers. Here's a quick look at the retirement system.

Gov. Jerry Brown’s administration on Wednesday made an expansive legal case for allowing the state to adjust pension benefits for public employees.

Brown’s lawyers, defending one of the outgoing Democratic governor’s signature laws at a California Supreme Court hearing, argued the Legislature can adjust retirement benefits offered to current public employees as long the workers receive a “reasonable and substantial” pension.

That change would damage the so-called California Rule, the longstanding legal precedent that bars public agencies from cutting retirement benefits without offering workers additional compensation.

The case, Cal Fire Local 2881 vs. CalPERS, turns on a perk called “air time” that public agencies offered until Brown signed a 2012 law that banned it. Air time allowed employees to buy up to five years of service credit that would boost their pensions as if they had worked for that time. Brown’s staff in a recent court filing called it “fictional service credit.”

The union that represents state firefighters sued to reinstate air time for workers hired before 2013, contending that some employees chose to work for the state or elected to continue working for the state because they were promised the opportunity to use the benefit.

Stripping that opportunity from those workers, union attorneys argue, undermines the California Rule because it restricts a promised retirement perk.

“The state is arguing for a nonstandard,” Gregg McLean Adam, an attorney for the Cal Fire union. “We believe we are offering a clear rule, and we believe it’s a clear rule that has existed for 60 years.”

But the state’s Supreme Court justices questioned whether an option to buy service credit could be considered a vested and protected retirement benefit.

Some of their questions tuned on a 1977 state Supreme Court decision that held that public employees were not entitled to “maximum pension benefits.” In the case, Miller vs. California, a state employee was forced to retire three years earlier than he wanted, denying him the ability accrue additional years of credit for his pension.

“How does (air time) directly affect your pension if it’s only an opportunity?” Chief Justice Tani Cantil-Sakauye asked

The state offered air time from 2003 until 2013, and workers had a six-week window to purchase service credit after Brown’s law took effect. Rei Onishi, an attorney from Brown’s legal affairs office, contended that air time was not a guaranteed right, and that workers in 2013 had ample opportunity to take advantage of it.

Questions from the justices turned on hypothetical employees.

Justice Goodwin Liu noted that some people probably were aware of an opportunity to buy air time when they chose to work for the state, and counted on it in their plans to achieve a “reasonable and substantial” pension.

For other workers, particularly older ones who joined the state before air time was offered, the perk was “like a windfall for them; ‘I never thought it would be so good,’” he said.

He pressed Onishi on how far the state could go in cutting benefits from retirement packages, asking if the state could cut a pension accrual rate from 2 percent a year to 1.7 percent for current employees.

Onishi said the Legislature could make that change, although it would not apply to benefits workers have already accrued. That means employees with 20 years of service would receive a pension based on the formula for years they’ve already worked, and a lower rate for “prospective” years.

Other questions from justices reflected the high stakes nature of the case. Justice Mariano-Florentino Cuellar, for example, suggested the upcoming ruling could be applied to retirement health benefits that public agencies offer.

The lawsuit attracted briefs from a wide range of local governments, taxpayer advocates and unions. Some government agencies have been pressing the Legislature to give them more authority to roll back some retirement benefits, saying increasingly expensive pension plans are “crowding out” their ability to fund services.

Unions want to hold the line on pensions, arguing that Brown’s 2012 law already has them paying more to stabilize the underfunded California Public Employees’ Retirement System.

McLean, the union attorney, contended the state would be better off upholding the California Rule. Otherwise, he said, “chaos” would ensue while workers and unions try to sort out suddenly uncertain benefits.

The justices are expected to hand down a ruling next year.