California Police Chief- Fall 2013 CPCA_2017_Spring Magazine.v3 | Page 8

LEGAL
My Pension is Safe, Right?
Definitely, Maybe…
By: James Touchstone, General Counsel for California Police Chiefs Association
N
o financial issue, particularly to those who are
close to retirement, is likely more important than a
person’s anticipated pension benefits. The public
and Legislature have devoted increasing attention to the
looming pension crisis for both state and local pension
funds in California. Some analysts estimate that these
pension programs were underfunded by approximately
$475 billion as of 2008. More recently, California Pension
Tracker, a project by the Stanford Institute for Economic
Policy Research which compiles data concerning CalPERS,
estimated that as of 2015 CalPERS was underfunded by
$228.2 billion dollars, utilizing an actuarial basis, and was
underfunded a staggering $969.5 billion utilizing a market
basis analysis. Under either scenario, most analysts would
be significantly concerned with these numbers.
The California Governor and the Legislature certainly
were when they were advised by The Little Hoover
Commission in 2011 that, “California’s pension plans are
dangerously underfunded, the result of overly generous
benefit promises, wishful thinking and an unwillingness
to plan prudently.” In response to these dire warnings,
the Legislature enacted AB 340 and AB 197, the California
Public Employees’ Pension Reform Act, commonly
known as “PEPRA,” which went into effect on January 1,
2013. PEPRA, among other things, addressed the issue of
“pension spiking,” whereby an employee increases his or
her retirement allowance by increasing final compensation
through inclusion of various non-salary items, such as
unused vacation, leave and sick-time pay, clothing and
equipment allowances or service credits. PEPRA amended
Government Code section 31461, subd. (b), to state that
“compensation earnable” did not include such items for
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those persons in the 1937 Act County Retirement System
who had not yet retired. PEPRA also added Government
Code section 7522.34, which affected “pensionable
compensation” of members of CalPERS. After PEPRA
took effect, local municipalities took action to effectuate
its provisions. Inevitably, legal challenges to the changes
made to the various pension systems made pursuant to
PEPRA followed.
Currently, there are three separate cases pending in
the courts of appeal and the California Supreme Court
addressing legal challenges to PEPRA and local regulations
enacting changes to various pension systems authorized
by PEPRA. On January 18, 2013, individuals employed
by various governmental entities in Marin County and
five employee organizations filed a lawsuit entitled Marin
Association of Public Employees v. Marin County Employees’
Retirement Assn. The plaintiffs sought declarative and
injunctive relief that Assembly Bill 197, one of the bills that
enacted PEPRA and MCERA’s actions effectuating those
changes were unconstitutional impairments of vested
contract rights and were therefore unenforceable. The trial
court concluded that the application of the new formula to
current employees did not amount to an unconstitutional
impairment of the employees’ contracts, and dismissed the
case. Plaintiffs appealed.
The First District Court of Appeal ultimately concluded
that the California Legislature did not act impermissibly
when it amended Government Code section 31461 to
exclude specified items and categories of compensation
from the calculation of pensions for current employees.
The Court explained that while a public employee does
have a “vested right” to a pension, the vested right is only