Justices issue mixed ruling on state employee retirement benefits

The state Supreme Court ruled narrowly Thursday against a union of Alameda County sheriff's deputies over the legality of a 2013 law that limited their retirement benefits, but the justices affirmed public employees are entitled to them under ordinary circumstances.

The ruling upholds the Public Employees' Pension Reform Act's right of government agencies "to close loopholes and foreclose opportunities for abuse," Chief Justice Tani G. Cantil-Sakauye wrote for the court.

That's a victory for Gov. Gavin Newsom, whose deputy legal affairs secretary -- Rei R. Onishi -- said during oral arguments in May some county employees took cash payments during their last years on the job that artificially inflated their salaries and counted toward their retirement benefits, a practice the attorney labeled as "pension spiking."

Cantil-Sakauye wrote government agencies are permitted under the law to limit such abuses, and remanded the case to the 1st District Court of Appeal.

"The Legislature must have the authority, discretion, and flexibility to address such problems without being required to, in effect, extend the life of the loopholes and the opportunities for abuse for the duration of the careers of current employees by providing comparable advantages," she wrote.

"Because requiring comparable advantages under these circumstances would significantly undermine the Legislature's constitutionally permissible purpose, the contract clause imposes no such requirement," Cantil-Sakauye added. Alameda County Deputy Sheriffs Association et al. v. Alameda County Employees' Retirement Association et al., 2020 DJDAR 7952 (State Sup. Ct., filed February 16, 2018).

But the high court rejected the state's bid to reexamine what's known as the "California Rule," a judicial doctrine which allows public employees to continue accruing benefits on the same terms as when they were hired. Various cities and counties have sought to slash pension liabilities, citing financial pressures, but the rule restricts their ability to trim retirement benefits.

David E. Mastagni, a partner with Mastagni Holstedt APC in Sacramento who represents the deputies' union, said in a telephone interview the ruling was "a disappointing outcome for my clients in this case, but it's a very positive ruling for public employees generally in that the court is affirming the California Rule."

Steven M. Berliner, a partner with Liebert Cassidy Whitmore who represents government agencies, said in a phone interview the ruling was a disappointment.

"It basically leaves everything intact," he said. "It upheld all the legal principles that have protected employee pensions."

While local government can eliminate abusive practices, Berliner said he regarded the ruling as "not much of a win. ... They kind of left the rules the way they are. I don't see any change in the landscape that is significant for public employees."

With the California Rule in place, the Legislature cannot consider more extensive changes that would limit public employee retirement benefits, he added.

Other attorneys who represent government agencies said they weren't expecting the state Supreme Court to eliminate the California Rule, so they were less disappointed.

Justice Mariano-Florentino Cuellar, in a short concurrence, emphasized the ruling only applied to "this particular situation."