Thursday, August 18, 2016
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C.A. Upholds Anti-‘Pension Spiking’ Legislation
By a MetNews Staff Writer
Legislation designed to prevent “pension spiking” by county employees does not impair vested contract rights of current employees, the First District Court of Appeal ruled yesterday.
Div. Two affirmed a Marin Superior Court judge’s ruling that amendments to Government Code §31461, effective Jan. 1, 2013, apply to persons who were employed on that date. The bill bars the inclusion of specified items and categories of compensation, received after the law’s effective date, from the calculation of pensions.
The use of “various stratagems and ploys to inflate [public employees’] income and retirement benefits,” Justice James Richman wrote for the Court of Appeal, “has long drawn public ire and legislative chagrin.”
Twenty of the state’s 58 counties, the justice noted, have created retirement plans for their employees under the County Employees Retirement Law of 1937. Employees of those counties have a vested right to a “reasonable pension,” he said, but do not have “an immutable entitlement to the most optimal formula of calculating the pension.”
Richman reasoned:
“Here, the Legislature did not forbid the employer from providing the specified items to an employee as compensation, only the purely prospective inclusion of those items in the computation of the employee’s pension. Neither the statutory change, nor the implementation of that change by the county pension agency, amounts to an impairment of the employee’s receipt of a ‘reasonable’ pension upon retirement.”
The legislation excludes from the calculation of “compensation earnable” for pension purposes “[a]ny compensation determined by the [retirement] board to have been paid to enhance a member’s retirement benefit,” and specifically excludes unused vacation and sick leave, or compensatory time off, in excess of that which the employee earned “in each 12-month period during the final average salary period,” among other things.
The plaintiffs in the case ruled on yesterday include several unions representing Marin County employees. The county was among the first to act to implement the new legislation, and the suit was brought within three weeks after the law took effect.
They contended that the county’s retirement system, known as MCERA, “repeatedly communicated and committed to MCERA members” that various items of compensation not designated as base pay, including “standby pay, administrative response pay, call-back pay” and cash payments in lieu of health insurance, would be treated as employment income for the purpose of calculating pension benefits.
Gov. Jerry Brown sought and received leave to have the state intervene in order to defend the law. Judge Roy O. Chernus ruled that the unions failed to state a cause of action and dismissed the action.
Richman, writing for the Court of Appeal, cited cases holding that public employee pension rights may, prior to an employee’s retirement, be modified, but not “destroyed” by the appropriate public authorities. “The right to modify inheres in the inalienable rights of government,” he said.
Prior decisions, he said, do not impose a rule argued for by the plaintiffs, that the loss of a particular benefit must be counterbalanced by the creation of an equivalent benefit. And even if that is the rule, it is being complied with because employee paychecks are “no longer being reduced by deductions to cover those sums in funding the employee’s retirement,” he said.
“Put simply, the new benefit is an increase in the employee’s net monthly compensation,” he wrote. “Put even more simply, it is more cash in hand every month.”
The case is Marin Association of Public Employees v. Marin County Employees’ Retirement Association, 16 S.O.S. 4235.
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