In 2012, the Legislature enacted the California Public Employees’ Pension Reform Act of 2013 (PEPRA), which made several revisions to the laws governing public employee pensions to address existing underfunding of the public pension systems, including provisions addressing pension spiking. The Court’s decision upholds the law, finding that the challenged provisions added by PEPRA “were enacted for the constitutionally permissible purpose of closing loopholes and preventing abuse of the pension system in a manner consistent with [the County Employees Retirement Law of 1937’s] preexisting structure.”
The Court’s decision is the second narrow ruling in recent years upholding portions of PEPRA, following the Court’s 2019 decision in Cal Fire v. CalPERS, in which the Court upheld the elimination of the ability to purchase “additional retirement service” credit, commonly referred to as “airtime.” The Court’s narrow ruling again does not upend the “California Rule,” but is still an important ruling for public employers, including school districts. For decades, the California Rule has guaranteed public employees the benefits of their pensions — courts have found that public employees have vested rights in their pension benefits, and that these pension benefits are protected compensation. Essentially, the California Rule means that pension benefits in California cannot be reduced unless offset by a benefit such that the employee is not disadvantaged. In this case, however, the Court effectively found that the benefits should not have been available in the first place because of the spiking, and as such, the reduction of benefits did not need to be offset by another benefit.
In upholding the Legislature’s elimination of pension spiking, the Court wrote that “it would defeat this proper objective to interpret the California Rule to require county pension plans either to maintain these loopholes for existing employees or to provide comparable new pension benefits that would perpetuate the unwarranted advantages [of spiking] provided by these loopholes.”
California’s pension systems continue to put significant cost pressure on many public employers. While the Court’s ruling benefits school districts, it applies only to the County Employees’ Retirement Law, and will not directly impact CalSTRS member benefits. The decision maintains some important existing relief, but unfortunately it will not significantly soften the financial burden of pension obligations for school districts and county offices of education.