Wednesday, December 5, 2018

Update on Supreme Court Oral Arguments in the Cal Fire Pension Case

The California Supreme Court heard oral arguments today in Cal Fire Local 2881, et al. v. California Public Employees’ Retirement System,  one of the three major cases in the California Supreme Court challenging the constitutionality of the Public Employees’ Pension Reform Act (“PEPRA”).  The Court has not yet scheduled oral arguments in the other two cases, Marin Association of Public Employees v. MCERA (“Marin”) and Alameda County Deputy Sheriffs’ Association v. ACERA (“ACDSA”).  Cal Fire challenged PEPRA’s elimination of “air time,” which is additional service credit employees could purchase in lieu of working. The issues before the Court were: (1) was the option to purchase additional service credit a vested pension benefit of public employees enrolled in PERS?; and (2) if so, did the Legislature’s withdrawal of this right violate the contracts clauses of the California and U.S. Constitutions?

The Court focused on the first issue when questioning Cal Fire's attorney. Chief Justice Cantil-Sakauye and Justice Liu inquired into whether pension benefits should be treated differently than other public employment benefits, such as health benefits and vacation accruals. The justices indicated that pension benefits are distinguishable from other employment benefits as deferred compensation.  The Justices asked whether the right to purchase air time was a form of deferred compensation, which employees became entitled to upon accepting public employment, or more akin to other benefits, which were subject to modification or elimination during an employees’ employment, like vacation accrual rates, or salaries. The tenor of the justices' questions suggested that the Court was seeking to establishing a limiting principle to distinguish deferred compensation  from other employment benefits and how to treat "air time."

The Court’s questions for the State’s attorney focused largely on the second issue, discussing the California Rule, as well as the differing rules the First District laid out in the ACDSA and Marin cases. Under the California Rule, vested pension benefits may only be modified if the change is related to the theory of a pension and any detrimental changes are offset by comparable new advantages. By contrast, the court in Marin ruled the State could reduce pension benefits without providing offsetting new advantages, so long as a reasonable benefit remained. During oral arguments, Justice Liu asked the State’s attorney if he believed the State had the power to reduce employees’ future pension benefit accruals. At first, the State’s attorney said the State could reduce benefits, so long as they left a reasonable benefit. When Justice Cuellar pushed him on the question of what a “reasonable” benefit would be, the State’s attorney admitted the State believed it had the power to completely eliminate employees’ future pension benefits without providing any offsetting advantages.  The justices appeared skeptical of the State's extreme contention that the Legislature could reduce or eliminate the formula for current employees' future pension accruals.

The Court could issue a broad ruling addressing the California Rule or decide the Cal Fire appeal solely on the issue of whether employees had a vested right to purchase air time. If the Court determines that no vested right existed, the Court may delay  deciding the fate of the California Rule, i.e. any reductions in pension benefits be offset by new advantages, until it decides the ACDSA appeal.

David Mastagni and Issac Stevens, lead attorneys for ACDSA, attended the arguments in Los Angeles.