Losing the Battle but Winning the War to Protect Public Pensions

September 23, 2020 by Stephanie Platenkamp

The California Supreme Court recently issued a long-awaited decision with far-reaching impact in Alameda County Deputy Sheriff’s Association et al., v. Alameda County Employees’ Retirement Association et al. The key issue in this case was whether some of the changes mandated by the Public Employees’ Pension Reform Act of 2013 (PEPRA) unlawfully modified collectively bargained pension rights. The primary purpose of PEPRA was to reduce so-called “pension spiking” which supposedly allows employees to manipulate their income to produce inflated compensation during the “final compensation period” which is used to determine their monthly pension benefit. The case ultimately raised the question of whether California law would continue to protect public pensions from cuts made after employment had begun.

The Court held that the Legislature could amend public pension law in response to perceived pension abuses, even if those changes reduce bargained-for pension benefits. However, the Court upheld the traditional protection for public pensions, ruling that pension benefits promised to employees can only be reduced if replaced with something of equal value, except in very narrow circumstances.

Despite this requirement, the Court affirmed PEPRA’s exclusion of various types of pay, such as on-call and terminal pay, from inclusion in the calculation of pension benefits. Some of the excluded forms of compensation had been treated as pensionable by the county retirement associations for many years. Nevertheless, the Court concluded that it was reasonable and constitutionally appropriate to exclude these types of pay since they had been used to “spike” pensions; the Court further reasoned that no alternative comparable advantage was necessary to replace the excluded forms of pay as that would undermine the very purpose of PEPRA.

The unions lost the battle to protect certain pension-enhancing benefits that were allowed before PEPRA was passed. However, the war to protect the fundamental constitutional guarantees applicable to public pension plans was won. No doubt, there will continue to be challenges to public employee pension benefits in the future as the onslaught on public sector workers continues but given the Court’s decision in this case, those skirmishes should be less existential for those looking forward to retirement security.

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