State law’s elimination of purchasable service time in pensions was unconstitutional, employees to argue

Attorneys for state employees will argue to the California Supreme Court on Wednesday that lawmakers unconstitutionally rolled back a pension provision that allowed workers to purchase service time which would count toward their eventual earnings.

The ability to purchase so-called "airtime" was introduced by the Legislature in 2003 under Government Code Section 20909. It allowed eligible public employees to buy up to five years of credit in addition to the years they worked, boosting their pension payments in retirement. The provision was eliminated by the Public Employees' Pension Reform Act of 2013. The law was passed with the goal of preserving the pension fund's solvency and the pension system.

The plaintiffs, firefighters and their union, Cal Fire Local 2881, sued the California Public Employees' Retirement System, alleging the rollback violates the contracts clause of the California Constitution by eliminating a vested contractual right.

"We believe that public employees should be able to rely upon promises made to them regarding their compensation, particularly when the promises involve pension rights and other vested benefits," said Gary M. Manning, who represents the Cal Fire union.

The plaintiffs unsuccessfully argued to the trial court and 1st District Court of Appeal that the right to purchase airtime was a term and condition of employment workers considered part of their compensation while working for the state.

The state, intervening on the behalf of CalPERS, the pension system, argued the measure was meant as an optional benefit which would be cost-neutral to public employers because workers would pay the cost up front when buying airtime. In reality, the state argues, employees used the program to inflate their service years and retire early, also exacerbating staff shortages.

"Allowing employees to inflate their pensions with airtime undermined the principle that public pensions rewarded faithful public service and fueled cynicism about public employee pensions. ... And because the actuarial assumptions being used to price airtime failed to account for early retirements, ... airtime was wildly underpriced," wrote the governor's legal affairs secretary, Peter A. Krause.

The firefighters face a series of legal hurdles both lower courts found they failed to clear. The most significant is parties asserting a contract clause violation must prove an unambiguous violation and that the airtime benefit was intended as a vested one.

The plaintiffs rely heavily on a CalPERS 2011 publication called, "Vested Rights of CalPERS Members: Protecting the Pension Promises Made to Public Employees," which lists airtime purchases among its benefits.

Lower courts found the publication was not enough, and precedent required evidence of legislative intent that the benefit be a vested right.

Those courts also found the Legislature was within its power to modify the pension plan because purchasing airtime was an additional benefit rather than one integral to a pension's purpose.

"In other words, pension benefits are 'deferred compensation that has been earned through the performance of work,' not, as here, an option to purchase nonqualifying service credit wholly unrelated to actual services provided or work performed," wrote Justice Martin J. Jenkins for the unanimous 1st District panel.

Jenkins also wrote that the reform did not rob eligible state employees of the chance to buy airtime because they were allowed a 15-week period to do so before the benefit was eliminated.

"To the extent plaintiffs lost out on the opportunity to purchase the airtime service credit, such loss was, accordingly, a product of their own doing," he wrote.

The case is Cal Fire Local 2881 et al. v. California Public Employees' Retirement System et al. (State of California), S239958.