California Court of Appeal Strikes Blow to Employee Pension Rights

On January 22, 2015 the California Court of Appeal changed how the Legislature can change pension benefits under a contract.  The Legislature may change current contractual pension benefit formulas for new employees. But, the Legislature may not alter pension contribution requirements under a current contract.

In DeputySheriff’s Association of San Diego County v. County of San Diego the County and Deputy Sherriff's Association had a memorandum of understanding. The contract contained provisions related to pension benefits. The contract's pension formula for members was 3 percent at 55. The contract also required the employer to pay a percentage of the employee’s pension contribution.
 

The California Public Employees’ Pension Reform Act of 2013 went into effect on January 1, 2013. The Act required that new safety members receive less than 3 percent at 55. PEPRA also limits employer contributions. Employers may not cover an employee's required contributions. The DSA argued PEPRA unconstitutionally impaired the contract terms. If a contract is in place then the Legislature cannot alter it until it expires. 
 

The Court of Appeal did not agree with the DSA.  The Court said a benefit vests when the employee begins working under the terms of the contract. Future employees cannot claim a vested benefit until they begin working. Thus, the Legislature could alter the pension benefits for new members.
 

The Court of Appeal also found an impairment of the contributions under the contract. PEPRA's contributions provisions cannot conflict with current contract terms. PEPRA as applied here would change the terms of the agreement.  Therefore, PEPRA would not apply until the agreement expired on June 26, 2014.