California Police Chief- Fall 2013 - 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 8 California Police Chief | www.californiapolicechiefs.org 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