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California Justices Punt on Major Revamp of State Pension Rules

Tani Cantil-Sakauye, chief justice of California. Credit: Diego M. Radzinschi / ALM

The California Supreme Court on Monday held that state and local agencies can strip the ability of public employees to buy "service credits" that can boost pension benefits beyond the actual number of years of employment.

The unanimous court declined, however, to revisit the so-called California Rule, a 70-year-old doctrine that bars the Legislature from repealing any vested "core pension rights."

The decision means the issue of the sanctity of public pensions will surely return to the justices as state and local government agencies grapple with soaring employee retirement costs. At least three related pension cases are pending before the state's high court.

At issue in Monday's decision was a firefighters union's challenge to the state's 2012 repeal of a nine-year-old law that allowed workers to buy up to five years of service time to increase the years of service determining their pension benefits.

The union argued that so-called "air-time" credits—which are not tied to actual years on the job—constituted a vested contractual right.

Writing for the court, Chief Justice Tani Cantil-Sakauye said the Legislature never intended to create a contractual right for employees to purchase service credits.

"Further, unlike core pension rights, the opportunity to purchase additional retirement service credit was not granted to public employees as deferred compensation for their work, and here we find no other basis for concluding that the opportunity to purchase ... credit is protected by the contract clause," Cantil-Sakauye wrote in a 45-page opinion. "In the absence of constitutional protection, the opportunity to purchase retirement service credit could be altered or eliminated at the discretion of the Legislature."

Read the decision: Cal Fire Local 2881 v. California Public Employees' Retirement System

Because the court found that public employees have no vested right to buy air time, justices were under no obligation to consider larger issues surrounding the California Rule's broad protections of pension payments, Cantil-Sakauye said.

"The state and many amici urge us to use this decision as a vehicle to reduce the protection afforded pension rights by modifying or abandoning the California Rule, while plaintiffs and many other amici urge us to leave the California Rule intact," the chief justice wrote. "We have no occasion in this decision to address, let alone to alter, the continued application of the California Rule."

Sixteen groups, most representing labor groups, cities, counties and taxpayers associations, filed friend-of-the-court briefs in the case.

Plaintiffs CAL FIRE Local 2881 were represented by San Francisco firms Messing Adam & Jasmine and Carroll Burdick & McDonough. California Public Employees' Retirement System attorneys Preet Kaur, Gina Michelle Ratto and Wesley Kennedy represented the defendant.