State Supreme Court to consider public pension cuts

The state Supreme Court last week agreed to hear an appeal of a groundbreaking ruling that allows cuts in the pensions earned by current state and local government workers, including judges.

When judges have an obvious conflict of interest and excuse themselves from ruling on a case, the legal term is “recuse.”

“Then she took a couple of questions and sat down. She gave no legal citations, no elaborate arguments. Nothing.” — John Moorlach.

But the seven Supreme Court justices seem unlikely to recuse themselves from a possible landmark ruling on this Marin County pension case, mainly because there is no clear alternative.

There is at least one well-publicized example of how judges ruling on their own pensions creates the appearance of self-serving, if not what President-elect Trump called a “rigged” system.

As Orange County unsuccessfully tried to overturn a retroactive pension increase for deputy sheriffs, an attorney arguing the case for the deputies in 2011 reminded the judges they were ruling on their own pensions.

“Miriam A. Vogel, a retired Court of Appeal justice, clearly told her former colleagues that the court’s decision would affect every pension in the state of California: ‘(I)t would affect yours, it would affect mine,’” former Orange County Supervisor John Moorlach (now a state senator) wrote in the Orange County Register.

“Then she took a couple of questions and sat down. She gave no legal citations, no elaborate arguments. Nothing,” Moorlach wrote.

The Arizona supreme court had an obvious way to avoid ruling on their own pensions earlier this month. Two appeals court judges sued to overturn reform legislation in 2011 that increased their pension contributions from 7 percent of pay to 13 percent.

In Rhode Island last year, an embattled judge who refused to recuse herself approved a settlement of union suits against major cost-cutting reforms.

Four Supreme Court justices appointed before 2011 recused themselves, leaving the decision to a panel of one Supreme Court justice and four lower-court judges who took office after 2011 and were not affected by the reform.

The panel overturned the reform on a 3-to-2 vote, costing the Arizona Public Safety Personnel Retirement System an estimated $220 million in back payments and adding $1.3 billion to the pension debt or “unfunded liability.”

The majority ruled that the pension promised at hire becomes a contract that can’t be cut, the Associated Press reported. The minority, including Justice Clint Bolick, said freezing contributions could jeopardize the pension plan.

Arizona switched new judges and elected officials to 401(k)-style plans in 2013, limiting pensions from the system to police, firefighters and correctional officers. A pension reform approved by voters earlier this year is projected to save $475 million.

In Rhode Island last year, an embattled judge who refused to recuse herself approved a settlement of union suits against major cost-cutting reforms after accepting a state motion to have a jury hear the cases.

A nationally known lawyer, David Boies, and others urged Superior Court Judge Sarah Taft-Carter to recuse herself because the ruling could affect her pension in addition to the pensions of her son, mother and uncle.

In California, some union suits challenging cost-cutting reforms in retiree health care have been filed in federal court, where judges have no state conflict.

“If my financial interest should require disqualification, then all other state judges would be similarly required to recuse themselves,” Taft-Carter toldthe New York Times. “Plaintiffs brought this case the way they did to try to avoid federal jurisdiction,” Boies said.

The settlement retained 92 percent of the $4 billion savings expected from reforms that increase the retirement age, shift workers to a federal-style hybrid plan combining smaller pensions with a 401(k)-style plan, and suspend cost-of-living adjustments, the Providence Journal reported.

The Journal said giving the cases to a jury would make it more difficult for unions to prove that pensions are implied contracts. The leader of the reforms, Treasurer Gina Raimondo, who became governor, argued that pensions created by statute can be amended like statutes.

Landmark guidelines issued in a retiree health care case five years ago seemed to show federal court deference to state law and may foreshadow how the state Supreme Court will view the new pension case.

An agreement negotiated with Orange County unions in 2008 separated active and retired worker health care premiums, ending a pool begun in 1985 that raised county costs but cut payments by retirees because their age-related coverage costs more.

The Marin County appellate court ruling in August gave new hope to cost-cutting pension reformers, and alarmed pension advocates.

When the cut was upheld by a district court and appealed by retirees, the federal 9th circuit court asked the state Supreme Court: “Whether, as a matter of California law, a California county and its employees can form an implied contract that confers vested rights to health benefits on retired county employees.”

The state Supreme Court unanimously said in 2011 that a contract with vested rights “can be implied under certain circumstances from a county ordinance or resolution” if an intent to do so can be shown by evidence.

A federal district court, following the new state guidelines, again ruled that Orange County can end the retiree health care pool. The federal 9th circuit panel upheld the ruling in 2014.

The Marin County appellate court ruling in August gave new hope to cost-cutting pension reformers, and alarmed pension advocates, by breaking with what has become known as the “California rule”:

Pensions offered at hire become vested rights, protected by contract law, that can only be cut if offset by a comparable new benefit, which erases employer savings and limits most reforms to new hires without vested rights.

The reform also exempts new judges from some of the cost-cutting provisions, lower pensions and a cap on total pension amounts

The rigid contract rule created by California judges in previous rulings (not by legislation, as reformers like to point out) has only been adopted by a dozen states. There is no similar rule for the remaining private-sector pensions regulated by a 1974 federal law.

With a section on the “emergence of the unfunded pension liability crisis,” the unanimous ruling by a three-member appellate panel in the Marin County case is aimed at allowing flexible cuts in growing pension costs that are taking funding from basic government services.

The bipartisan Little Hoover Commission and other reformers argue that allowing cuts in the pensions earned by current workers in the future, while protecting pensions already earned, is urgently needed to cut budget-devouring costs and make pensions affordable in the future.

Observing the California rule, Gov. Brown’s modest pension reform only applies to new hires, taking decades to yield significant savings. The reforms cover CalPERS, CalSTRS and county systems, but not UC and the half dozen troubled big-city pension systems.

The reform also exempts new judges from some of the cost-cutting provisions, lower pensions and a cap on total pension amounts. Judges often seem to be treated like a special case by the Legislature and the California Public Employees Retirement System.

Among CalPERS plans only judges have the most generous pension formula because they tend to enter the system at a later age and retire late. And only judges are eligible for retiree health care that pays 100 percent of the premium after 10 years of service, not 20 years like most state workers.

In addition, the main judges plan was 100 percent funded last year, far above 68 percent for the average CalPERS plan this year.

Judges hired before Nov. 9, 1994, are still in the only CalPERS pay-as-you-go plan with no investment fund. An annual CalPERS letter urging “prefunding” of the old plan said long-term costs would be cut and retirees assured of a pension check, if legislative funding is delayed.

Lawmakers and judges can clash. A superior court judge awarded judges back pay with 10 percent interest of about $5,000 per judge and a pension increase, ruling that a five-year salary freeze did not keep pace with increases in state worker pay as required by law.

Brown pushed legislation this year to end the link with state worker pay, Courthouse News Service reported, which would force judges to “beg” lawmakers for pay raises. Compromise legislation kept a modified state worker link, but sharply cut the back pay interest to about 0.5 percent of pay.

The Marin County case accepted by the Supreme Court last week is a union challenge to “anti-spiking” provisions in Brown’s reform legislation that prevent pensions from being boosted by stand-by duty, in-kind health care and other things.

The Supreme Court said it will delay action on the Marin case until an appellate court rules on similar union challenges to Brown’s “anti-spiking” reform in a consolidation of cases from Alameda, Contra Costa and Merced counties.
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Ed’s Note: Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com.