Are California pensions ‘sacrosanct?’ State Supreme Court hears challenge to Jerry Brown’s law

California public employee unions defended pension practices banned by one of former Gov. Jerry Brown’s marquee laws during arguments at the California Supreme Court on Tuesday in a case that could help determine whether local governments can adjust retirement offerings for current workers.

The hearing was the latest at the high court stemming from Brown’s Public Employees’ Pension Reform Act, which among other things compelled civil servants to pay more money into their pension plans and banned certain practices that workers had used to inflate retirement earnings, sometimes called “pension spiking.”

“One person’s pension spiking is another person’s expectation of a promise,” David Mastagni, an attorney representing the Alameda County Deputy Sheriff’s Association, said at the hearing.

The deputies’ union challenged Brown’s law in 2012 by suing its retirement fund. The lawsuit sought to restore workers’ ability to count on-call pay, extra pay for working outside normal hours and cashouts of accumulated leave balances toward their pensions.

At stake in the case is the durability of the so-called California rule, a set of legal precedents that for decades have been interpreted as protecting public pensions from reductions. Attorneys on each side of the issue raised the California rule in court filings before Tuesday’s teleconference hearing.

In their eventual ruling on the Alameda case, the justices could focus narrowly on the end-of-career benefits that the Alameda deputies’ union and unions from two other counties, Contra Costa and Merced, want to restore.

Or the court could address more broadly the question of whether public pensions are “sacrosanct,” as attorney Timothy Talbot argued on behalf of the Contra Costa Deputy Sheriff’s Association.

Rei Onishi, an attorney for Gov. Gavin Newsom’s office, likened pensions to other types of pay that are subject to modification.

Onishi said employees obtain only the right to have their pensions calculated according to formulas in place when they retire, which in this case fall under the County Employees Retirement Law. He made an analogy to Internal Revenue Service rules, which he said can change without disrupting employment contracts.

“Employees don’t have a reasonable expectation of the salary they have not earned yet, (or) to the pensionability of pay items that they haven’t yet earned,” he said.

Justice Joshua Groban put the question of scope to Onishi directly.

“Are you arguing that any pension modification is appropriate as long as the employee hasn’t retired yet,” Groban asked, “or are you arguing something more narrow based upon what happened here?”

“I think I’m arguing something more narrow,” Onishi responded, “which is first that prospective-only changes to compensation that has not yet been earned (don’t) implicate the contract clause. And I think that principle alone decides this case.”

Justice Mariano-Florentino Cuéllar seemed skeptical of Onishi’s argument.

“Employees that are currently working might view this as not prospective because they’re arguing that they have a set of expectations that are being violated,” Cuellar said.

End-of-career promises are particularly important for law enforcement officers, since the “wear and tear” of the work limits how long they can keep doing the job, Mastagni said.

“Those employees need to have a substantial pension so they can survive,” Mastagni said.

Groban, who was a senior adviser to Brown before he joined the court at the beginning of last year, asked Mastagni if, in a hypothetical “doomsday scenario” involving a massive economic downturn, Mastagni would contend it’s better to let a city or county go bankrupt than to make changes to pensions of current employees.

“I don’t believe it goes that far,” Mastagni said. In that scenario, the pension system should be looked at in the context of the county’s budget as a whole, not as the make-or-break factor, he said. He suggested changes could be addressed through contract negotiations.

Onishi said that as the coronavirus prompts local governments to consider furloughs and other cost-saving measures, the issues in Tuesday’s case have “never been more important.”

“The state respectfully requests that this court allow (the 2013 law) to finally put an end to egregious pension spiking practices that for years now have been ripping off taxpayers, unlawfully piling debt onto future generations and undermining the public’s trust,” he said.

Last year, the court upheld Brown’s pension law against a similar challenge from the union that represents Cal Fire firefighters. The union, Cal Fire Local 2881, lost its effort to restore its members’ ability to augment their retirement income by purchasing years of service credit through California Public Employees’ Retirement System.