CalPERS Posts Retiree Information Database Online

CalPERS announced it is posting a searchable database containing information about all retirees in the system.  The database includes retirees's names,  monthly gross warrant, base allowance, Cost of Living Adjustment, years of service, retirement date, benefit formula, final compensation and last employer.  CalPERS explains its making the database available online because these features are public records and many news outlets have requested the information.  You can view and search there database here starting later today.

Court Rules Pension Impairments Unconstitutional Under Contract Clause

In a major ruling with statewide implications, the Monterey Superior Court ruled Friday that the City of Pacific Grove’s 2010 voter initiative and charter amendment capping the City’s contributions to CalPERS are unconstitutional. The Court’s ruling follows a challenge to the measures brought by the Pacific Grove Police Officers Association and Pacific Grove Police Management Association and supported by PORAC LDF. The Court also ruled that the measures violated the City Charter and the general law because voters cannot set employee compensation by initiative.

According to Pacific Grove Police Officers Association President Jeff Fenton, “Today’s ruling is about fairness. We went to court to ensure the City keeps the promises it made to employees and today the court said they have to.” The Court struck down the ordinance and charter amendment because they violate the Contract Clause of the California Constitution. The Contract Clause requires local governments to keep the promises they make to public employees. It also forbids them from impairing contracts with labor associations.

The case has major implications statewide because it establishes that cities and counties can’t go back on the pension promises they made to employees.  PORAC LDF contributed significant resources toward the police officers’ efforts. “We are deeply thankful for the help from our brothers and sisters in the law enforcement community and PORAC LDF toward achieving this victory,” Fenton said.

The Pacific Grove Police Officers Association and Police Management Association were represented by Mastagni Law attorney Jeffrey R. A. Edwards in the matter.

Court: Stockton Doesn't Have to Impair CalPERS Pensions for Bankruptcy Eligibility

The U.S. Bankruptcy Court in Sacramento ruled today that the City of Stockton is eligible for bankruptcy protection.  The ruling follows a trial when Wall Street bondholders challenged the City's bankruptcy, claiming the City should have to stop payments to CalPERS.  The Court said nothing in the federal Bankruptcy Code requires impairment of CalPERS benefits for a city to be eligible for bankruptcy. The Court also indicated it would be unconstitutional for the City to impair its contracts in any way except bankruptcy because the Constitution protects creditors.

In a press release, CalPERS praised the Court's decision, noting "Today’s action gives the City the opportunity to propose a forward looking plan of adjustment in the bankruptcy case that will allow them to restore long term financial stability and to provide essential services to the Stockton community through the City's valued public employees." CalPERS' also committed to continuing to protect and defend the integrity and soundness" of employees' pensions. Today's ruling clears the way for bankruptcy, but leaves open future challenges to the City's plan to pay back its debts.

CalPERS Sees Huge 13.3% Increase is Assets

The Sacramento Bee reports CalPERS beat forecasts and had another big year in investment returns, increasing the value of its portfolios by 13.3%.  The Bee reports CalPERS' stocks gained 17.2%, its real estate holdings went up 12.8%, and its private equity portfolio saw a 12.2% return.  CalPERS has been recovering strong from 2008-2009 when it saw significant losses because of the economy.  The 13.3% increase follows CalPERS' impressive 20.8% increase in 2011 and greatly exceeds the 4.5% estimate that Stanford relied on to make dire projections in December 2011.

Court of Appeal: Firefighter's Standby Pay Not Pensionable

In City of Pleasanton v. CalPERS (Nov. 29, 2012) 2012 WL 5984074, the Court of Appeal ruled "Standby Pay" does not count toward pension benefits.  The firefighter at the center of the case worked a 40-hour workweek.  However, he received 7.5% "Standby Pay" for being on call. At issue in the case was whether that 7.5% "Standby Pay" counts as pensionable earnings for his CalPERS retirement. The Fourth District found the "Standby Pay" was not pensionable because it was for services rendered outside of his normal working hours.  The Court said the payments could not be construed as holiday pay, shift differential pay, training premium pay, management incentive pay or off-salary-schedule pay because the 7.5% “Standby Pay” did not meet any of the definitions contained in CalPERS Regulation 571.  

Riordan Pulls the Plug on Plan to Gut LA Pensions

Former Los Angeles mayor and Republican gubernatorial candidate Richard Riordan announced today he would no longer try to qualify a local initiative for the ballot on Los Angeles to gut public employees' pensions.  Riordan's plan called for replacing the defined benefits pension most public employees have where employees earn credit for each year they work with a defined contribution plan where retirees would get an unpredictable about of money depending on the stock market and other investments.

The plan was widely criticized by labor groups.  The Los Angeles Police Protective League revealed Riordan never conducted a study on whether the plan saved the city money and that it could actually cost much more in the immediate future.  Other labor groups cited the changing public opinion on pensions since Governor Brown's statewide pension reform package passed in August.  Riordan pulled his plan today acknowledging he would be unable to gather enough signatures to put it on the ballot.

San Diego Mayor Under Fire at PERB

The Sacramento Bee reports San Diego mayor Jerry Sanders was "grilled" for more than five and a half hours during last week's hearing at the Public Employment Relations Board.  Sanders and the City face scrutiny at PERB over their attack on employee's retirement security.  PERB granted the unions' request for injunctive relief in February, but a San Diego Court stalled the process temporarily.  Then, in June, PERB won the right to proceed at the Court of Appeal.  Now, PERB is processing the complaint and an administrative law judge will rule whether the City violated the MMBA by putting the pension measure on the ballot without meeting and conferring with the unions.  Both sides are expected to appeal regardless of the outcome.

PERB Wins First Round in Challenge to San Diego's Pension Initiative

In San Diego Municipal Employees Association v. Superior Court (4th DCA, June 19, 2012) 2012 WL 2308142, the Court of Appeal found PERB has initial jurisdiction to review a ballot initiative affecting public employee pensions and the trial court erred by blocking the PERB process.

The case started after the “Comprehensive Pension Reform Initiative” (CPRI) qualified for the ballot in San Diego. The initiative amends San Diego’s charter to impact retirement benefits for employees. The Municipal Employees Association (Association) filed an unfair labor practice charge alleging the City failed to meet and confer as required under the MMBA before placing the CPRI on the ballot.

PERB issued a complaint against the City and authorized its general counsel to file for an injunction. However, the trial court denied PERB’s motion to enjoin the City from placing the initiative on the ballot. The trial court also granted the City’s motions to stay the administrative proceedings and quash PERB's subpoenas. The Association then filed a writ in superior court.

The City argued PERB did not have jurisdiction over the Association’s claims as it involved a dispute over the constitutional free speech rights. The Court found while constitutional rights may be implicated it was not sufficient to divest PERB of its exclusive initial jurisdiction to consider the Association’s claims. The City also claimed go through the PERB process since PERB had already sought temporary injunctive relief and its neutrality was compromised. The Court disagreed the City’s argument that going before PERB would be futile. The Court also found the trial court erred in ordering a stay of the PERB administrative proceedings and let PERB proceed with the unfair practice charge.

Lawsuits Filed to Stop Attacks on Retirement Security

Legal challenges are already underway to local pension initiatives passed by voters Tuesday in San Diego and San Jose.  The initiatives, both named "Measure B", attack public employees' pensions in those cities.

San Diego's Measure B creates a new retirement tier replacing defined benefits with a 401(k) and lowers public safety's maximum retirement benefit to 80% of salary.  The measure also caps city payroll at 2011 for five years, risking massive layoffs for the city.  

The legal challenge to the San Diego measure started even before the election.  Unions filed an unfair practice charge with PERB in February because city leaders refused to meet and confer about the changes.  PERB quickly granted their request for injunctive relief and filed a lawsuit in San Diego to stop the measure from going before voters.  While the court initially ruled against PERB, the case was promptly appealed and oral arguments are scheduled for June 13, 2012.  PERB also issued a complaint against the city.

The San Jose measure seeks to shift the city's contributions to the pension system to employees, likely 16% of their salaries.  It also provides that if the cost-shifting provision is struck down, as many expect it will be, the city can dramatically slash salaries to make up the difference.  The plan also limits disability retirements, lets the city council take away retirees' cost-of-living-adjustments, and prices retirees out of the city health insurance plan.

San Jose police and firefighters immediately filed lawsuits in state court to stop enforcement of the measure.  The firefighters lawsuit, Robert Sapien et al. v. City of San Jose et al. seeks declaratory and injunctive relief and a writ of mandate prohibiting enforcement of Measure B.  It argues the measure violates California state constitutional protections related to due process, the prohibition on breaking public contracts, and restrictions on seizing property.  The POA's lawsuit, San Jose Police Officers' Association v. City of San Jose et al. makes similar claims and also alleges violations of freedom of speech, separation of powers, the MMBA, the parties' MOU, and the California Pension Protection Act.  The City of San Jose also filed a preemptive lawsuit in federal court seeking a declaration that the measure is not unconstitutional.

Florida Police, Teachers Win Major Contract Clause Victory on Pensions

In George Williams et al. v. Rick Scott et al. (March 6, 2012, Fl. Cir. Ct.) Case No. 2011-CA-1584, Florida police officers, teachers and other public employees defeated attempts to unilaterally increase their employee contributions to Florida's pension system.  Read the full decision here.

On May 26, 2011, Florida's governor, Rick Scott, signed a bill unilaterally increasing public employees' contribution to that state's pension system by three percent (3%) and changing cost-of-living adjustments.  The bill effectively lowered all employees salaries and provided no new benefits to employees.  Florida's public employee labor unions never agreed to the changes and quickly filed a lawsuit challenging the constitutionality of the unilateral change to employees' pension benefits on Contract Clause grounds.  After initially losing an injunction, the employees' unions moved for summary judgment in late 2011.

The court found "the legislature is precluded... from abridging in any way the unconditional contract rights of the plaintiffs."  The court also found the three percent increase was "substantial as a matter of law" and noted the lifetime costs of employees ranged from tens to hundreds of thousands of dollars.  The court further stressed the state of Florida failed to prove a "compelling state interest" for the increase, noting "They merely produced evidence that the state faced a significant budget shortfall; this is not enough."  Indeed, the court noted the legislature could have made the same savings without violating its contract, but "All indications are that the Florida Legislature chose to effectuate the challenged provisions... in order to make funds available for other purposes."

As a result, the Court ordered the State to stop deducting the additional three percent from employees' salaries and reimburse millions of dollars withheld from employees since July 1, 2011.

PERB Files Lawsuit to Block San Diego Pension Initiative

On February 14, 2012, the Public Employment Relations Board filed a lawsuit in San Diego Superior Court to block the so-called "Comprehensive Pension Reform Initiative for San Diego."  PERB found the City put the initiative on the ballot without meeting and conferring with labor organizations as required by the MMBA.  PERB's lawsuit follows a decision to grant injunctive relief and issue a complaint after the San Diego Municipal Employees Association filed an unfair labor practice charge. A copy of the complaint/writ petition is available here.

PERB Moves to Stop San Diego Pension Initiative, Issues Complaint Against City

On February 10, 2012, the Public Employment Relations Board granted a request for injunctive relief to stop the so-called "Comprehensive Pension Reform Initiative for San Diego."  PERB also directed its General Counsel to "immediately initiate an action for appropriate injunctive and writ relief in San Diego Superior Court."  A copy of PERB's letter granting injunctive relief and complaint is available here.

The initiative seeks to replace defined benefits pension for most city workers with a 401(k) and reduce public safety benefits.  The initiative would also cap city payroll for five years and remove charter provisions requiring employee approval to change pension benefits.  PERB's Complaint alleges the city council placed the initiative on the June 2012 ballot without satisfying its duty to meet and confer, violating the Meyers-Milias-Brown Act.

California Supreme Court Issues Landmark Decision Affirming Public Employees' Vested Rights

In Retired Employees Association of Orange County, Inc. v. County of Orange (November 21, 2011) 2011 WL 5829598, a unanimous California Supreme Court ruled public employees can receive constitutionally-protected vested rights by way of implied contract terms.  The holding means public employers can be liable for promises made to employees, even if they do not formally adopt them by ordinance.  The case has been closely watched for its broad implications on labor relations, employee compensation, and pension benefits.

The case arose after Orange County substantially increased the cost of retirees' health insurance premiums by splitting retirees into a separate pool from active employees for calculating premiums.  The retirees filed suit in federal court, arguing they have a vested right to premiums calculated from a joint pool.  The County claimed the retirees have no vested rights because the MOUs under which they retired did not expressly indicate how the cost of retiree health benefits would be calculated.  The District Court sided with County, finding the County could not be liable because it did not explicitly confer vested rights through an ordinance.  The retirees appealed and the federal Court of Appeals asked the California Supreme Court to decide the issue.

The Court held the County could be held liable for its promises to employees, regardless of whether it expressly adopted them through an ordinance.  The Court reasoned employees could hold their employer accountable for the implied terms of a contract, such as the duration of a benefit.  As a result, the Court concluded, "[w]hether an implied term creates vested rights... is a matter of the parties' intent" and general contract principles apply to determine the intent.

The Court went on to reject the County's argument that vesting should be treated differently, noting "[n]either County nor amici curiae [] offer any legal authority for this distinction."  As a result, the Court concluded, "[v]esting remains a matter of the parties' intent."  Once intent is established, the implied terms are treated as part of the contract and are protected by the Contract Clause of the California and federal constitutions.

Court of Appeal Denies CalPERS Credit for Lump Sum Back Pay

In Molina v. Board of Administration (2011) 2011 WL 4491809, the Second District Court of Appeal rejected an employee's argument that back pay should be counted toward service credit under the Public Employee's Retirement Law (PERL).  After Molina was terminated from his job with the City of Oxnard, he filed an action for wrongful termination and subsequently settled for a lump sum.  Following the settlement, Molina requested CalPERS increase his pension entitlement, characterizing the settlement amount as “back pay.”  However, CalPERS refused to recognize the settlement amount as earnable compensation and denied his request.

The Court held the settlement amount could not count towards the employee’s “compensation earnable” because it did not meet PERL’s requirements to be “payrate” or “special compensation.”

Payrate must “either: (1) [be] paid to similarly situated employees; or (2) [be] paid in accordance with a ‘publicly available pay schedule for services rendered on a full time basis during normal working hours.’ (Gov. Code, § 20636, subd. (b)(1).)”

To qualify as special compensation, one must show the pay “(1) was available to similarly situated employees under a labor policy or federal requirement; or (2) was determined by the CalPERS Board to have been available to other, similarly situated employees as required by PERL. (Gov.Code, § 20636, subd. (c)(2); 2 Calif. Code of Regs., § 571(b)-(d).”

The Court noted CalPERS had advised Molina and the city "that a portion of the settlement payment could potentially be eligible for inclusion in Molina's pension, but only if Molina were reinstated for  a full year in a valid position under a legitimate salary based on a salary schedule."   That never happened.  As a result, the Court rejected Molina’s appeal, leaving his existing pension calculation unaltered.

Governor Releases "Twelve Point Pension Reform Plan"

On October 27, 2011, Governor Edmund G. Brown Jr. released his 12 proposed major reforms for state and local pension systems. The governor stated the proposals “would end system-wide abuses and reduce taxpayer costs by billions of dollars over the long term” and cut in half the cost to tax payers of state employee pensions.

The “Twelve Point Pension Reform Plan” and its explanation are set forth as follows:

1. Equal Sharing of Pension Costs: All Employees and Employers: Will require that all new and current employees transition to a contribution level of at least 50 percent of the annual cost of their pension benefits.

2. “Hybrid” Risk-Sharing Pension Plan: New Employees: The “hybrid” plan will include a reduced defined benefit component and a defined contribution component. The hybrid plan will be combined with Social Security to provide an annual retirement benefit of about 75 percent of an employee’s salary. The 75 percent target is based on 30 years for safety employees and 35 years for non-safety.

3. Increase Retirement Ages: New Employees: For most new employees, retirement ages will be set at the Social Security retirement age, now 67. The retirement age for new safety employees will be less than 67, but commensurate with the ability of those employees to perform their jobs.

4. Require Three-Year Final Compensation to Stop Spiking: New Employees: Eliminates one-year rule to discourage efforts in the last year of employment to increase the compensation used to determine pension benefits.

5. Calculate Benefits Based on Regular, Recurring Pay to Stop Spiking: New Employees: Will require that compensation be defined as the normal rate of base pay, excluding special bonuses, unplanned overtime, payouts for unused vacation or sick leave, and other pay perks.

6. Limit Post-Retirement Employment: All Employees: Will limit all employees who retire from public service to working 960 hours or 120 days per year for a public employer. It also will prohibit all retired employees who serve on public boards and commissions from earning any retirement benefits for that service.

7. Felons Forfeit Pension Benefits: All Employees: Will require that public officials and employees forfeit pension and related benefits if convicted of a felony in carrying out official duties, in seeking an elected office or appointment, or in connection with obtaining salary or pension benefits.

8. Prohibit Retroactive Pension Increases: All Employees: Will eliminate unfunded liability from increased pension benefits.

9. Prohibit Pension Holidays: All Employees and Employers: Will prohibit all employers from suspending employer and/or employee contributions necessary to fund annual pension costs to avoid repeat of past where many public employers stopped making annual pension contributions during wall street boom years.

10. Prohibit Purchases of Service Credit: All Employees: Will avoid the investment risk associated with allowing purchase of service credit for time not actually worked.

11. Increase Pension Board Independence and Expertise: Will add two “independent” persons with financial expertise to the CalPERS Board and require that persons and their family are not eligible for CalPERS pension. Will also replace State Personnel Board representative on the CalPERS board with the Director of the California Department of Finance. Intended to achieve greater independence and greater sophistication.

12. Reduce Retiree Health Care Costs: State Employees: New state employees will be required to work for 15 years to become eligible any retiree health care and required to work for 25 years to become eligible for the maximum state contribution. Will encourage local governments to make similar changes.

These proposals will have to be debated and passed by the California Legislature before Governor Brown can sign them into law.

Assembly Commits to Study Pension Reform in Future Legislative Sessions

The California State Assembly passed Senate Bill 827 to declare its intent to study pension reform in future sessions. The bill provides in its entirety:

"It is the intent of the Legislature to convene a conference committee to craft responsible, comprehensive legislation to reform state and local pension systems in a manner that reflects both the legitimate needs of public employees and the fiscal circumstances of state and local governments."

The current legislative session ends at midnight tonight.