State Supreme Court Gives Taxpayers a Small Victory in Pension Reform
[guest post by JVW]
The California State Supreme Court yesterday upheld a pension reform law that ended the ability of public employees to purchase service years as a way of arriving at vested pensions at an earlier date, but at the same time failed to address the looming issue of whether or not vested pensions can ever be reduced. The ruling in this case applies only to those employees who objected to the curtailment of the “airtime” purchase plan, which had been in place since 2003, in a pension reform bill signed into law by governor Jerry Brown in 2012. The unions had argued that the 2003 act made purchasing service credit an inviolate benefit for current employees and could only be denied to new hires. The court, in its decision, declared that the act of purchasing service credit was an “optional benefit” temporarily offered to employees and not a vested benefit to which they were permanently entitled.
The ruling on airtime purchases was not entirely unforeseen, even by public employee advocates:
“There was always some question about whether air time was a vested benefit,” said Ted Toppin, chairman of Californians for Retirement Security, a coalition of public employee unions, in a statement.
“The decision was not unexpected. More importantly, the Supreme Court leaves intact the California Rule, holding that vested benefits cannot be impaired.”
Though this decision of a unanimous court brings a modicum of sanity to pension payment calculations, it does very little to address the $331.7 billion (or, when using a much more modest rate of return for pension investments, $1 trillion) unfunded liability in California pension plans. Those who retired early after purchasing service years will not be affected, nor will those current employees who purchased service years prior to 2012 have their purchase cancelled. Left to be decided by the court is the issue of “pension spiking” — in which an employee in his final year(s) before retirement earns extra pay through overtime or by cashing in vacation and sick days in order to boost the baseline compensation upon which his pension will be calculated — which was also outlawed in the reform legislation, and could conceivably, with a favorable court ruling, be revoked retroactively.
These questions about current pension benefits are part of a reckoning with “the California Rule,” a 60-year-old law which holds that retirement benefits, once agreed upon at the time of an employee’s first day of work, can never be reduced (though, naturally, they can be raised). This fidelity to unsustainable promises could put the state in the position of simply having no way of paying off its extravagant obligations, once Sacramento gets through with taxing her citizens to the breaking point. The state of Illinois has if anything an even more stringent commitment to going broke by being constitutionally unable to reduce obligations while at the same time having apparently already reached the upper limit where increasing taxes seems to just drive more high earners out of the state. You can best bet that California and the rest of the nation will be watching to see what happens in the Land of Lincoln in order to get some idea of what is in store for us. I mean even left-wing judges have to understand that the funds to make good on the promises simply can’t be wished into existence by legislators or the judiciary, right? Meanwhile, many Golden Staters with the wherewithal to leave for locations less encumbered by fiscal schizophrenia have to start wondering if the time has finally come.
– JVW
It’s going to be really interesting to see what a statewide bankruptcy looks like.
JVW (54fd0b) — 3/5/2019 @ 2:35 pmWe’ll need the extra money to pay higher taxes, for the flood of “migrants” over the border, the flood that “some” on this site and elsewhere, loftily dismissed only a month or two ago as of concern only to the easily misled.
Then we were dismissively told “of course we don’t need a wall,” since the flow was at the “lowest level in years.” Because of course, things always stay the same.
Alas, even the LAT notes today –maybe a little nervously–that more than 76,000 migrants crossed last month, more than double the level of the same period last year. You do the math.
Harcourt Fenton Mudd (5e0a82) — 3/5/2019 @ 4:39 pmWishing all Californians the best of luck.
mg (8cbc69) — 3/5/2019 @ 4:40 pm“Trump to L.A.: Drop Dead”
Gary Hoffman (7ec1de) — 3/5/2019 @ 5:26 pmI’m still waiting for the first candidate who exclaims my father’s two rules for governance:
1. In a democracy, we’re all in this together.
2. There is no free lunch.
I will vote for that person. I doubt that he or she lives in California.
John B Boddie (66f464) — 3/5/2019 @ 5:44 pmFunny that state judges, pension beneficiaries themselves, get a say in this. Maybe none of them were planning to take advantage of that rule anyway. Normal plebs would have to recuse themselves.
Government pensions are controlled by beneficiaries, and paid for by non-beneficiaries. What could possibly go wrong?
Munroe (7674fe) — 3/5/2019 @ 6:08 pmThe employees got credit for time working on election campaigns… let that soak in
steveg (a9dcab) — 3/5/2019 @ 6:08 pm@5 I don’t think that person lives anywhere. Nobody want to Pay For The Stuff They Want. (or that in order to get the stuff they want, they also have to pay for some things other people want that they don’t because other person is paying for 1st person’s stuff that other person doesn’t want)
Nic (896fdf) — 3/5/2019 @ 9:45 pmIllhead Omar wants to defund the Department of Homeland Security which was created in response to 9/11. “Not one more cent.”
nk (dbc370) — 3/5/2019 @ 10:01 pmSorry. Wrong thread.
nk (dbc370) — 3/5/2019 @ 10:01 pmTaxes can always be imposed. A “windfall” pension tax on high payouts that was paid back into the pension fund might work.
BTW, did you know that it is common for a Santa Monica police sergeant to make $300K with benefits (and some make over $400K)? That 370 Santa Monica city employees make over 200K? These are generally fire and police, and a few manager types.
Imagine the pensions.
Kevin M (21ca15) — 3/6/2019 @ 9:19 am#6. Good point. The judges did have a chance to invalidate some pension outrages, on the basis that the taxpayers weren’t actually represented at decisions approving them. After all, it was argued in that case, everyone stamping “APPROVED had a pension and an interest in the decision.
The courts decided, (in their Wisdom), that it wasn’t really a conflict. No “five part test,” no presumption of unfairness was employed for this depressing decision. None of the stuff that you might expect if Exxon was involved.
But it was perhaps unfair to expect the courts to rescue the voters from themselves. After all, judges too have pensions too, and its hard for them to see over the hill.
Just as it was when Arnold asked the voters to approve some pension caps, and the LA Times–in its wisdom–opposed them as unneeded “at this time.” Then three years later it endorsed the “Bullet Train.”
Today, even people who didn’t think a “wall” was needed against pension abuses think we need one now. But they waited too long to become convinced.
Now, like a very fat person, its going to be painful to deal with the problem. And require lots of discipline. The new majority in California have no tolerance for pain and no discipline.
Harcourt Fenton Mudd (5e0a82) — 3/6/2019 @ 9:20 amThe moment we have a Democrat president and a Democrat Congress again, like Obama had in 2009, there will be a bailout bill where the state’s public pensions will be made good with federal debt.
They are just kicking the can down the road to that day.
Kevin M (21ca15) — 3/6/2019 @ 9:24 amMaybe CA needs a state Constitutional amendment that either ended the California Rule, or perhaps did something cruder like capped all public pensions to, say, twice the average public sector pay. Be sure to include a standing clause for its defense by proponents, or they’ll Prop 8 you asap.
Kevin M (21ca15) — 3/6/2019 @ 9:28 am11… public safety employees: come for the job that you can’t lose… stay for the spike and windfall at the end.
Colonel Haiku (e2ff85) — 3/6/2019 @ 10:05 am