PEPRA Case Overview from MCMEA'S Attorney Gregg Adam

In late 2012, the Governor signed the California Public Employees' Pension Reform Act, known generally as “PEPRA.” The provisions of this new Act described as pension “reform” were primarily geared towards new employees. It set out a series of new lower tier benefits for new public employees. However, additionally, the Legislature tried to make changes to the County Employees Retirement Law of 1937, with a view to limiting pension benefits.

As a result of the PEPRA changes, the Marin County Employees Retirement Association (MCERA) passed certain resolutions to comply with the Act. For example, MCERA decided that it would no longer count certain premiums such as administrative response pay, call-back pay, stand-by pay, cash in-lieu pay, and so-called hold harmless pay as “compensation earnable,” not only for new employees but for existing employees as well. Meaning they we not pensionable pay types.

Various Marin unions, including MCMEA, wrote to MCERA challenging this determination. We argued that it violated employees’ vested pension rights. Under the so-called “California Rule,” once an employee has been promised a certain level of pension, any modification to those benefits that result in a detriment must be offset by a comparable pension advantage. MCERA gave no comparable advantage to employees when it stopped including the premiums described above.

In January 2013, the various Marin unions filed a lawsuit challenging the legality of MCERA’s actions. The Marin County Superior Court ruled for MCERA finding, without much in the way of analysis, that the legislation was constitutional.

The unions appealed, but in August of 2016 the Court of Appeal affirmed the ruling against our claims. Rather than rule on narrow grounds, the Court of Appeal issued an unprecedented decision, which went against almost every vested pension case in the last fifty plus years. It argued that all of these courts had misunderstood the California Supreme Court’s original rulings on vested benefits cases from the 1950’s. It rejected the California Rule and held that pension benefits can be reduced without providing any offsetting comparable advantage. The only limits to this new theory is that the pension benefit remains “reasonable” and is not destroyed outright. The Court of Appeal provided no meaningful standards for practitioners to determine what constitutes a reasonable pension. It left open the possibility that pension benefits could be completely gutted, to a point just short of destruction, without offending constitutional law.

The unions filed a petition asking the California Supreme Court to review the case. By that time, Court of Appeal decision had already gained significant notoriety. Various anti-pension columnists were describing the decision as a “game-changer” that would allow public entities to reduce their pension costs by reducing the pensions themselves. Our petition for review was supported by hundreds of public sector unions, not only in California, but throughout the nation. In addition, neutral parties, such as the California State Teachers’ Retirement System also supported review.

Everyone described the Court of Appeal ruling as unprecedented and completely at odds with the conventional wisdom as to what California pension law stood for.

The matter is now pending before the California Supreme Court. The Court is awaiting a pension decision that is expected in early summer on some companion cases in Alameda, Contra Costa, and Merced counties. In the meantime, another panel from the First District Court of Appeal has sided with the Marin panel in also declaring pensions subject to much looser protections than previously thought. It is likely that we will brief the case in the latter half of 2017 and argue the case before the Supreme Court sometime in the latter half of 2018.

For updates on this case, and to see the briefing that lead to the grant of review by the California Supreme Court, you can visit http://majlabor.com/pepra.