The California Supreme Court on Monday upheld a decision by state lawmakers to rollback one way for public workers to pad their pensions, but avoided ruling on the larger issue of whether retirement benefits can be taken away once promised.
At issue in the unanimous decision was a provision of a 2012 pension reform law that eliminated the ability of public workers to pay for more years of service for a more lucrative pension when they retire. The law, backed by former Gov. Jerry Brown, sought to rein in costs and end practices viewed as abuses of the system.
Attorneys for a union argued that the elimination of additional retirement service credits violated a long line of California court rulings that have made pension benefits for existing employees sacrosanct. Those court decisions established the "California Rule," which says workers enter a contract with their employer on their first day of work that entitles them to retirement benefits that can never be diminished unless replaced with similar benefits.
Critics of the rule, along with employee unions, were keeping a close eye on the lawsuit because it had the potential to upend the California Rule. But the justices sidestepped the issue by ruling that additional retirement service credits were not "core pension rights" that lawmakers were contractually bound to honor.
"In the absence of constitutional protection, the opportunity to purchase ARS credit could be altered or eliminated at the discretion of the Legislature" and the court had "no occasion in this decision to address, let alone to alter, the continued application of the California Rule," Chief Justice Tani Cantil-Sakauye wrote in an opinion joined by the six other justices.
A group representing public employee unions downplayed the court's decision to uphold the elimination of retirement service credits.
"The decision was not unexpected," Ted Toppin, chairman of Californians for Retirement Security, said in a statement. The group had filed a brief in the case. "More importantly, the Supreme Court leaves intact the California Rule, holding that vested benefits cannot be impaired. Thankfully, the decision protects the retirement security of California's nurses, teachers, firefighters, school employees and countless other public servants and retirees dependent on their hard-earned pensions."
Roughly a dozen states observe a variation of the California Rule, so a decision repudiating it could have implications beyond California.
The California Rule gives workers security that their retirement will be safe and predictable after a career in public service. But it also ties lawmakers' hands in responding to exploding pension costs -- a problem for the state, cities, counties, schools, fire districts and other local bodies.
Rei Onishi, an attorney for the governor's office, said during arguments before the state Supreme Court in December that the plaintiffs would have a tough time showing that the state Legislature intended state workers to have an "irrevocable right" to purchase additional credits for their pensions. The Legislature had broad authority to change pension benefits for existing employees unless it clearly indicated it intended a benefit to continue, he said.
The justices are considering several other pension cases, so they will likely address the California Rule at some point, said Chuck Reed, the former mayor of San Jose who has warned about the dangers of unfunded pension debt.
"They are very much aware of the serious question, so I don't see them ducking the opportunity to get some clarification on the California Rule," Reed said in a phone interview on Friday.
Reed backed a measure that passed in San Jose in 2012 that cut benefits for new hires, and he has also proposed a statewide ballot measure to limit public pension benefits. He said that measure was on hold pending the outcome of pension cases before the state Supreme Court.