Cal Fire Arguments Launch Battle Over Future Of California Pension Law Kevin Wiemer Associate Attorney Mastagni Holstedt, A.P.C.

GARY MESSING
Founding Partner
GREGG ADAM
Founding Partner
YONATAN MOSKOWITZ
Attorney
Messing Adams & Jasmine LLP

As followers of PORAC’s updates know, the future of public employee pensions in California is being vigorously contested in the courts. On December 5, the California Supreme Court heard arguments in CAL FIRE, Local 2881 et al. v. CalPERS et al. (“CAL FIRE”), the first of five cases pending before the state Supreme Court that collectively will go a long way toward deciding what protection public pensions receive under California law going forward.

All of these cases involve legal challenges brought against the Public Employee Pension Reform Act of 2012 (“PEPRA”). Notably, none of these challenges contest the main focus of PEPRA: increased contributions by current employees and lower tiers of benefits for new employees. Unions and employees have largely embraced increased contributions and lower new tier benefits. Instead, the five cases before our state Supreme Court challenge portions of PEPRA that attack benefits promised to employees who began working before PEPRA took effect. These cases, at different stages before the court, raise complex legal questions. But central to them all is: What does the California Rule stand for and to which pension promises should it apply?

The California Rule

The California Rule is an interpretation of the “Contract Clause” in Article 1, Section 9 of the California Constitution. California’s Contract Clause is modeled on the federal Constitution’s Contract Clause, and both generally prohibit the government from passing laws that infringe on contract rights (with certain limitations).

The California Rule is a special interpretation of these clauses that developed over many public employee pension rights cases. The rule prevents public employers from changing pension promises made to current employees unless the government can meet a stringent test. Beginning with Allen v. City of Long Beach in 1955, the California Supreme Court has required the employer, among other things, to show that the change to pension rights is 1. reasonable, 2. “bear[s] some material relating to the theory of a pension system and its successful operation” and 3. provides “comparable new advantages” to offset any change that has a detrimental impact on a particular employee’s pension. Notably, the California Rule is followed, in one form or another, in approximately a dozen other states.

The five cases before the California Supreme Court all turn, to one degree or another, on the continuing validity of this rule.
Three of these cases are on appeal from the First District Court of Appeal in San Francisco and involve changes made by some county retirement boards under the county Employees’ Retirement Law to what compensation elements count toward calculation of an employee’s pension: Marin Association of Public Employees, et al. v. Marin County Employees’ Retirement Association, et al. (“MAPE”); the CAL FIRE case; and Alameda County Deputy Sheriffs’ Association v. Alameda County Employees Retirement System (“ACDSA”).

Another case, Hipsher v. Los Angeles County Employees’ Retirement Association, et al. (brought by a former firefighter), involves whether a new felony forfeiture rule enacted under PEPRA can be applied to an employee who began work before PEPRA was passed. Disregarding the Allen line of cases and the California Rule, the court of appeal in Hipsher ruled that the county retirement board could significantly reduce the pension benefits earned by the employee after he pleaded guilty to federal felony gambling charges. The court of appeal declined to follow a prior Supreme Court case, Wallace v. Fresno, from 1954, which invalidated an effort to similarly deprive a retired employee of previously earned pension benefits after a felony conviction.

The fifth case, McGlynn v. State of California, involves a group of judges elected in the primary election of June 2012, before PEPRA was enacted, but who did not take their judicial office until January 2013, after PEPRA took effect. The judges were expressly promised pension benefits that existed at the time they were elected (i.e., pre-PEPRA). Subsequently, however, in 2014, more than a year after taking office, they were advised that they would receive a lower PEPRA pension formula.

The first decision will likely be issued in CAL FIRE. That case involves Government Code Section 20909, which was enacted by the Legislature in 2003. The statute expressly provided that an employee who performed five years of state service could purchase up to five years of additional retirement service credit (“ARSC”). The service credit would not reduce the minimum age or service requirements for retirement and the employee had to pay the entire cost of the benefit (including both the employer and the employee share). Critically, the statute provided that the employee could make the purchase of ARSC “at any time prior to retirement.” PEPRA eliminated the benefit, even though many employees were still performing the five years of requisite service in order to be eligible to make the purchase. One employee who sued was only 16 days short of securing five years of service when the benefit was withdrawn. Each plaintiff argued that they had relied on the existence of the benefit in continuing to work for the state.

Both the trial court and the court of appeal upheld PEPRA against the challenge.

In the parties’ briefs, the union argued that the elimination of Section 20909 violated the California Rule and a near-unbroken line of case law going back to 1955 because a benefit was eliminated and no comparable offsetting benefit was offered in return. Unusually, once the case arrived in the Supreme Court, the governor himself took over the defense of PEPRA from Attorney General Xavier Becerra (perhaps because the latter faced re-election in November 2018). Governor Brown has taken an aggressive posture: arguing, in spite of existing case law, that California law only protects pension benefits already earned and gives the Legislature free rein to reduce pension benefits prospectively.
Multiple amici groups (friends of the court) filed briefs on both sides of the case. This included many PORAC-member peace officer associations that advocated in favor of maintaining the California Rule.

This set the stage for oral argument on December 5 in Los Angeles. The seven justices (six permanent members of the court and one justice sitting in a temporary capacity while Governor Brown’s final appointment, Josh Grobin, awaits confirmation) were vigorous in their questioning of the advocates for each side. (The video of the argument will be posted at courts.ca.gov/35333.htm.) Some justices questioned why ARSC could not be freely withdrawn before an employee made the purchase of the service credit. Others seemed dubious about the governor’s argument that pension benefits may be freely changed going forward. Most of all, the justices seemed to be seeking help in drawing a line over what benefits are protected by the Contracts Clause and what are not. Justice Goodwin Liu pointed out that employees rely on many benefits, such as continuing healthcare benefits, in agreeing to begin or keep working for a public employer.

Many believe that the court could reach a narrow decision in CAL FIRE and simply determine that the right to purchase ARSC was not a pension benefit at all but simply an option and therefore not subject to the more dynamic protections of the California Rule. This would defer determination of the broader challenges raised in the Alameda case or another case. It is doubtful that the court will ultimately decide all five of these cases on their merits. What is more likely is that it will decide two or three of the cases and remand the others back to the lower courts for a determination consistent with any rulings it does an issue.
Much remains speculative, but it is fair to say that 2019 is shaping up as the year of pension decisions in California.

Gary Messing, Gregg Adam and Yonatan Moskowitz of Messing Adam & Jasmine LLP are PORAC LDF panel attorneys. In April 2015, after practicing at Carroll, Burdick & McDonough for many decades, Messing, Adam and panel attorney Jason Jasmine formed a new law firm predominately representing public safety unions and their members in their labor relations. Messing and Adam appeared before the Supreme Court for the oral argument. Adam argued. Moskowitz contributed research and briefing.