Your retirement security: Important CA Supreme Court Decision

Dear OCEA member,

On July 30, 2020, the California Supreme Court issued a decision in a case with potentially devastating impacts on the retirement security of every OCEA member and that of every public sector worker in the state.

In Alameda County Deputy Sheriff’s Association v Alameda County Employees’ Retirement Association et. al. (Alameda), the question was decided as to whether changes mandated by the Public Employees’ Pension Reform Act (PEPRA) unlawfully infringed upon vested pension rights. The Alameda plaintiffs argued that they were entitled to pension benefits calculated without regard to PEPRA based on settlement agreements entered into prior to enactment of PEPRA. Their argument hinged on the "California Rule," which holds that pension benefits promised to employees can only be reduced if they are replaced with something of equal value. Ultimately, the Court ruled against the plaintiffs and affirmed PEPRA’s constitutionality and the California Rule in modified form.

For background, pension formulas and benefits are determined based on a worker’s date of hire. Upon retirement, pension payments are calculated based on a worker’s final average salary. Retirement systems, such as OCERS and PERS, identify pay items as pensionable and non-pensionable. Some public employees, including the Alameda plaintiffs, were able to inflate their pay in their final years of work, by taking lump sum cash payments for their unused vacation or sick time in a practice called “pension spiking.”

In 2013, PEPRA effectively halted the practice of “pension spiking” by changing the definition of “compensation earnable” to only include compensation earned for services rendered during normal working hours. However, public employees continued to inflate their final average salary in a manner inconsistent with PEPRA by using the California Rule as a shield and vested settlement agreements as an anchor.

Prior to the Alameda decision, the California Rule had been regarded as “iron clad." The Alameda Court clarified that, going forward, it may be possible to make pension changes but only if those changes are for a constitutionally permissible purpose, such as eliminating abuses like the practice of "pension spiking."

How will the Alameda ruling affect OCEA members?
First, the Alameda decision preserves the California Rule while affirming PEPRA’s constitutionality. That means your current retirement formulas are protected. Our members’ retirements are secure. This is especially good news for our classic members (2.7%@55 and similar formulas) in the County, Court, Cities and Districts. Had the California Rule been struck down, challenges to pension agreements by employers would have proliferated putting the retirement security of every public worker at risk.

While pension reform proponents may continue to challenge the California Rule, the Alameda Court signaled that any proposed pension disadvantage must address loopholes or systemic abuses, and not the pensionary promises made upon the date of hire. You and your coworkers have dedicated your careers to serving the public. Part of the pay for your service is your pensions – money that you set aside – along with our employers – that allow you to retire with dignity. OCEA will always fight to make sure pension promises are kept.

Second, with regard to its review of its compensation earnable calculations, OCERS has identified only a few current pay items that may have been affected by PEPRA and clarified by the Alameda decision: on-call pay, standby pay, and canine pay.

Publication Date: August 21, 2020