CA Supreme Court Issues Ruling on Public Pension Benefits

On Behalf of Griswold LaSalle Cobb Dowd & Gin LLP

On March 4, 2019, the California Supreme Court, in a unanimous decision, declined to find a vested right to purchase additional service credit in CalPERS members.

From 2003 to 2012, CalPERS members could purchase up to five years of additional service credit after they retire. Purchasing additional service credit increased the size of the members pension, thereby, increasing pension costs. The League of California Cities published a Retirement System Sustainability Study and Findings in January of 2018, which found that the pension costs to California Cities were going to reach unsustainable levels. When the California Legislature enacted the California Public Employee’s Pension Reform Act of 2013 (PEPRA), the ability to purchase additional service credit was removed.

The removal of the ability to purchase additional service credit was legally challenged and eventually made its way to the California Supreme Court. There were two theories challenging its removal: (1) the right to purchase additional credit was contractual and thereby constitutionally protected; and (2) the constitutional protection made the purchase of additional a vested right which made its removal unconstitutional.

The Court reached its decision based on the general rule that the terms and conditions of public employment are governed by statute and not by contract. (White v. Davis (2003) 30 Cal.4th 528, 564). The Court goes on to explain that the continued validity of this rule had come into question because of the rise of public employment agreements.

The court determined that the Legislature generally has the right to modify statutory terms and conditions of public employment. However, the court also found that there are two exceptions to this general rule: (1) the contract clause protections applies to statutory terms and conditions of public employment when the statute or ordinance establishing the benefit and circumstances of its enactment clearly evince a legislative intent to create contractual rights; and (2) there are implied contractual rights in the statute.

The Court found no manifest intent by the Legislature to create a contractual right and found no implied contractual rights in statute creating the ability to purchase additional service credit. Because the Court found no contractual protections for the purchase of additional service credits, the Court found that the Legislature had the ability, under the general rule outlined above, to legislatively modify CalPERS members ability to purchase additional service credits.

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