City Can Change Retiree Health Benefits: CA Supreme Court

The state's highest court denied to hear an appeal over the benefits

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    The California Supreme Court declined to hear an appeal over the city of San Diego’s ability to change retiree health benefits.

    The high court’s denial leaves in place a Court of Appeal ruling that states the benefits may be changed like any other term or condition of employment and are not “vested,” according to San Diego City Attorney Jan Goldsmith.

    Court documents show that plaintiff Denise Dailey brought the case against the city four years ago, claiming that her retiree health benefits were improperly capped at $8,880 per year -- $600 less than the cost of her premiums, she says.

    Dailey and her attorney alleged that that all members of the city’s pension system would have to vote to enact such a change because the benefits fall under the city’s retirement system.

    However, the Court of Appeal found the retiree health benefit does not fall under the retirement system because it is not a mandated benefit and is not funded by any assets of the pension plan.

    The court also looked to a precedent that said the health benefits are an employee benefit, not a vested contractual right.

    That means moving forward, health benefits won’t be completely guaranteed for city employees headed toward retirement.

    Goldsmith said this Supreme Court action has statewide significance. Other cities and the state of California itself can take this ruling as guidance on how to handle the health benefit unfunded liability, which the state controller determined was $42.1 billion. That figure that does not include the unfunded liability of local governments.

    “This series of court successes on retire health amount to San Diego’s biggest legal victory,” Goldsmith said in a release. “We have cleaned up a terrible financial mess caused by prior city councils granting benefits without paying for them. This City faced over a $1 billion unfunded liability.”

    In 2011, a memorandum of understanding between the city and labor unions cut down the retiree health benefit, saving the city and taxpayers more than $700 million over the next 25 years, according to Goldsmith.

    The city will also have the ability to negotiate the benefits in the future.