Mastagni Holstedt Appeals Alameda County Deputy Sheriff’s Association PEPRA Decision to Supreme Court

David E. Mastagni and Isaac S. Stevens petitioned the California Supreme Court to review the First District Court of Appeals’ decision in Alameda County Deputy Sheriff’s Associationv. Alameda County Employees’ Retirement Association (“ACDSA”). The petition asks the Court to reverse the appellate court’s holding that detrimental changes to employees’ pension benefits need not be offset by comparable new advantages to be constitutional.

This case arose from the enactment of the Public Employees’ Pension Reform Act (“PEPRA”). On behalf of the ACDSA, we sued the Alameda County Employees Retirement Association (“ACERA”) in December 2012, after it announced plans to begin excluding forms of leave cash out and other pay items from ACDSA members’ pension calculations, supposedly to comply with PEPRA’s changes to the definition of “compensation earnable.” “Compensation earnable” is the pay used to calculate employees’ pension benefits.  The lawsuit alleged that, by excluding these pay items from members’ pension benefits, PEPRA infringed on members’ vested pension rights. The case was eventually consolidated with cases from Contra Costa County and Merced County asserting similar claims.

The trial court largely ruled against employees and unions in the case. According to the court, there was no vested right to pension that included terminal pay, and there was no basis for using the doctrine of promissory estoppel to require ACERA to continue including terminal pay in retirees’ pension benefits. We appealed.

While the case was on appeal, the First District issued a decision in a case raising issues very similar to ours, MarinAssociation of Public Employees v. Marin County Employees’ Retirement Association (“MAPE.”) The MAPE case also challenged the legality of excluding terminal pay from pension benefit calculations pursuant to PEPRA. In MAPE, the First District appellate court ruled that a detrimental change to vested pension rights did not need to be offset by a new advantage to survive scrutiny, so long as the remaining pension benefit was reasonable. Shortly thereafter, the First District issued a decision in Cal Fire v. California PublicEmployees Retirement System (“CalFire”), affirming the MAPE court’s decision that comparable new advantages were required when pension benefits were reduced.

The MAPE represented a radical departure from decades of case law protecting pension benefits from being reduced. In Allen v. City of Long Beach (1955) 45 Cal.2d 128, the Court ruled that the Constitution required any changes to vested benefits be material to the theory of a pension system, and any detriment resulting from such a change should be offset by a comparable new advantage. This principle is often referred to as the California Rule. Over the years, the courts repeatedly affirmed the validity of this rule, and required detrimental changes be offset by new advantages to survive constitutional scrutiny. By turning the requirement for a new advantage into a mere suggestion, the MAPE court made public employees’ pension benefits vulnerable to reductions in the future. Indeed, Governor Brown himself acknowledged that, when the next recession comes around he will “have the option of considering pension cutbacks for the first time in a long time.”[1]

The California Supreme Court granted review in the Cal Fire and MAPE cases while the ACSDA case was still pending in the appellate court. In granting review in MAPE, the Court ordered further proceedings in that case deferred until our case was decided.

The appellate court in ACDSA ruled on our appeal in early January.  The court issued a lengthy ruling, finding the trial court failed to include a vested rights analysis, and its analysis of PEPRA’s impact on the pensions of legacy members was incorrect.  In the ruling, the court cited the MAPE decision approvingly, ruling that PEPRA’s changes to employees’ pension benefits did not need to be offset by corresponding new advantages to be constitutional.  Beyond merely agreeing with the MAPE decision, the court in ACDSA went so far as to describe MAPE’s evisceration of California vested rights case law as “not controversial.”

While the court determined that legacy PEPRA members could be entitled to have the excluded pay items included in their pension calculations under a theory of promissory estoppel, it left the door open for the State to continue reducing employees’ pension benefits in this future. We appealed the decision to ensure the California Supreme Court had an opportunity to overturn the First District’s efforts to erode public employees’ pension rights.

The petition for review we filed this week asks the Supreme Court to review the appellate court’s ruling on the comparable new advantage issue, while leaving the estoppel ruling intact. As discussed in our petition, review is necessary to reverse the First District appellate court’s efforts to overturn decades of vested rights case law and protect public employees’ pensions in the future.

The State of California has also petitioned the Supreme Court for review, seeking to overturn the appellate court’s ruling on whether retirement associations had the authority to agree to include the pay items at issue in employees’ pension benefits to settle disputes over benefit calculations after the Court’s landmark ruling in Ventura. The State’s appeal thus challenges the appellate court’s ruling on promissory estoppel, while leaving its destruction of the California Rule intact.

By appealing the appellate court’s decision, the appeal ensured that the ACDSA has a seat at the table when the Supreme Court considers the First District’s ruling, and an opportunity to defend our clients’ rights to receive the pensions they spent decades working for. The Court will address this issue when it considers the MAPE and Cal Fire cases, and an adverse ruling on those appeals could supersede the appellate court’s decision in the ACDSA case. By appealing, the ACDSA ensured its objection to the First District’s attack on the California Rule would be heard. For similar reasons, we filed an amicus brief on behalf of the ACSDA and public safety associations across California in the Cal Fire case, asking the Court to affirm the continued existence of the California Rule. Be sure to check the blog to keep up to date on what happens. 

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[1] http://www.sacbee.com/news/politics-government/the-state-worker/article194434479.html

California Supreme Court Grants Review of CAL FIRE Airtime Credit Case

On April 12, 2017, the California Supreme Court granted CAL FIRE Local 2881's petition for review of the First District Court of Appeal's decision on December 20, 2016 to uphold the elimination of the “airtime credit” benefit in the Public Employment Retirement Systems (“PERS”).

The most significant part of the previous decision by the  Court of Appeal for the First District was the court's decision to adopt the ruling in Marin Association of Public Employees v. Marin County Employees’ Retirement Association (MAPE) regarding the authority of the Legislature to reduce retirement benefits if they do not destroy the pension. The MAPE ruling broke with a half century of precedent holding that any modification of a pension resulting in a detriment must include an offsetting advantage.

The California Supreme Court has now granted review of both the MAPE and Cal Fire rulings. This is a significant opportunity to right the ship and overturn the damage these decisions did to the California vested rights doctrine.

Our office is currently representing two law enforcement associations in separate pension-related appeals in the First Appellate District, including the Alameda Deputy Sheriff's Association. 2017 continues to be an important year for determination of pension rights.

Third Appellate District Upholds Elimination of Pension Pick Ups

In San Joaquin County Correctional Officers' Association v. County of San Joaquin the Court of Appeal upheld a County’s ability to force employees to pay a portion of cost of living (“COLA”) adjustments to their retirement program. This case involved two laws governing public employee retirement, the County Employees Retirement Law of 1937 (“CERL”) and the Public Employees’ Pension Reform Act of 2013 (“PEPRA”).

Prior to PEPRA’s passage, the default retirement program arrangement was that counties and county employees shared the cost of COLA contributions to retirement programs. However, as an option, CERL permitted counties to pay all of the cost of COLA contributions of its employees if it chose to do so. This was known as a “pickup.” This pick up was a common strategy employed by Counties to provide a benefit that was less expensive than a salary adjustment.  In 1975, San Joaquin was one of the counties that agreed to pay the employee share of COLA contributions as part of some of its MOUs.

PEPRA was passed in 2013 to reduce unfunded liabilities in public employee retirement systems. One of PEPRA’s provisions seeks to eliminates the pickups of the employee share of COLA contributions, but does not take effect until 2018.

In 2012, the County negotiated a new MOU with the San Joaquin County Correctional Officers’ Association which eliminated the pickup. The membership voted the MOU down and impasse procedures were engaged. Once impasse was reached, the County unilaterally imposed the elimination of its pick up as part of last best and final offer. The Association challenged the imposition arguing that PEPRA shielded them from such a change until 2018.

Rejecting the Association's challenge, the Court found counties have always had the power to eliminate or reduce pickup under CERL. The CERL permitted the pick up employee costs of COLA contributions, but did not require the pickups nor restrict the employers ability to modify or eliminate them. The court concluded, “In short, the County always has had the power to eliminate the COLA pickup, subject to labor laws, and those laws permitted the county to do so in the event of a bargaining impasse, which occurred. Nothing in PEPRA limited the County’s power in this regard.”

Interestingly, the court cited Marin Assn. of Public Employees v. Marin County Employees’ Retirement Assn. (2016) 2 Cal. App. 5th 674, 681, review granted Nov. 22, 2016, (MAPE) in explaining "the historical backdrop animating recent pension reform legislation in California", but "express[ed] no view" over MAPE's "interpretation of precedent regarding the validity of changes to retirement benefits."

First Appellate District Challenges Vested Rights Doctrine in Upholding Elimination of Airtime Credit

In Cal Fire Local 2881 v. California Public Employees’ Retirement System, the Division Three of the First District Court of Appeal upheld the elimination of the “airtime credit” benefit in Public Employment Retirement Systems (“PERS”). Airtime credit was a benefit available to CalPERS and some other PERS programs that allowed members who had already earned five years of service credit, to purchase another five years of “nonqualified retirement service credit.” The record reflected that PERS had been under charging for the benefit.  In 2013, the Public Employees’ Pension Reform Act of 2013 (“PEPRA”) was passed in what was billed as an effort to reign in unfunded pension liabilities. One of the provisions of PEPRA eliminated the ability to purchase airtime credit.

The court considered whether the ability to purchase airtime credit was a “vested benefit.” The court started its analysis with a general presumption against the granting of a vested benefit, unless its text or legislative history evidence an intent to be bound. Applying the reasoning in Employees Assn. of Orange County, Inc. v. County of Orange (2011) 52 Cal.4th 1171, the court held “there is nothing in either the text of the statute, or its legislative history, that unambiguously states an intent by the Legislature to create a vested pension benefit. This demonstration of intent, as we explained above, is required by California law.” The court found no such intent with respect to airtime.

Further, the court held no right was destroyed, noting PEPRA provided members with a seven month window to purchase the service credit, and that such applications would be honored if they were submitted prior to December 31, 2012. "Thus, nothing in the revised statutory scheme immediately destroyed plaintiffs’ right to purchase the airtime service credit ... To the extent plaintiffs lost out on the opportunity to purchase the airtime service credit, such loss was, accordingly, a product of their own doing."

The court also held that the elimination of airtime did not destroy any benefit because the cost of airtime was always intended to be borne entirely by the employee.  Because the benefit was established as cost neutral to the employer, "the employees, not the state, paid for this benefit" and therefore the court held "this simply is not a case where the state provided a retirement benefit to its employees in exchange for their work performance, and then took the benefit away."

Most significantly, the court endorsed Division Two of the First District's holdings in Marin Association of Public Employees v. Marin County Employees’ Retirement Association (MAPE) regarding the authority of the Legislature to reduce retirement benefits s long as they do not destroy the pension.  This superfluous basis for upholding the elimination of airtime is striking given that the Supreme Court had granted Review of MAPE.

MAPE broke with a half century of precedent holding that any modification of a pension resulting in a detriment must include an offsetting advantage.  On November 22, 2016, the California Supreme Court issued an order granting review of MAPE, holding, "The petition for review is granted. Further action in this matter is deferred pending the decision of the Court of Appeal, First Appellate District, Division Four, in Alameda County Deputy Sheriff's Association et al. v. Alameda County Employees' Retirement Association et al., A141913
 
Although the elimination of airtime is not particularly significant, the court's unnecessary adoption of the MAPE reasoning in the face of Supreme Court review could affect broader legal principles involving the California vested rights doctrine.  Our office currently is representing two law enforcement associations in two separate pension related appeals in the First Appellate District, including the Alameda Deputy Sheriff's Association.  2017 is shaping up to be an important year for determination pension rights.

LA Times Quotes David P. and David E. Mastagni on Supreme Court Pension Case

On November 22, 2016, the Los Angeles Times turned to David P. and David E. Mastagni for analysis about the pending California Supreme Court appeal in the MCERA pension case.  The LA Times asked about the Court's decision to consolidate the Marin and Alameda cases.

The Times wrote: "David P. Mastagni, who represents Alameda County deputy sheriffs in the pending case, said the Supreme Court’s decision to wait for a ruling “really to me signals they understand the gravity and significance of the issues.”

Given the complexity and importance of the dispute, he said, he was not surprised that the court of appeal has yet to schedule a hearing. The court is required to issue a decision within 90 days of a hearing.

David E. Mastagni, the elder lawyer’s son and law partner, said it was not uncommon for the California Supreme Court to postpone a decision until a lower court acts first in a similar case.

“It gives them a more complete record,” he said. “They want to have another fully developed factual background.”