The Supreme Court’s Chance to Reform the “California Rule”

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

If only all workers enjoyed a form of the “California Rule”—that is that a worker’s retirement rights or even work positions or salaries remain in place despite changing financial circumstances surrounding their employment situation.

That’s not the business world but workers in the public sector as protected by the California rule when it comes to retirement benefits.

The practical circumstances that affect the private sector may intrude on the public sector when the California Supreme Court decides the case of Cal Fire Local 2881 et al. v. California Public Employees’ Retirement System et al. The court heard arguments yesterday specifically over the issue of “airtime”—a situation in which a public employee can purchase service credits to boost their retirement payouts. The question is whether an employee’s purchase of “airtime service credits” amounts to a vested pension right.

The court very well might make a narrow decision on that issue but the supreme issue before the court is whether, despite the “California rule” established by a court sixty years ago, can a government employer ever reduce a future pension benefit for public workers?

The issue is important to state and local budgets. Pension payments are the fastest growing section of most government budgets and threaten to cut off basic government services or force tax increases. The Stanford Institute for Economic Policy Research, using 2016 figures, pegged state and local pension debt at $1.013 trillion using market calculations, equivalent to $78,265 per household.

Many of the local government tax increases in the recent election may have touted other causes, but at their core, most were really about bringing in revenue to deal with pension costs.

No one wants to deny public workers the benefits they have earned. But when the costs of pensions exceed revenues, government officials should have the ability to alter generous benefits for future work.

Employees would be part of negotiations and taxpayers should also be informed about possible changes to the retirement system. After all, if the pension funds are low and officials turn to taxpayers to increase the pension fund that means less money the taxpayers have to invest in their own retirements. Most private business workers do not enjoy the court protection of anything like the California Rule.

The court has an opportunity to bring some reasonable reform to the state and local government pension systems. A narrow decision on airtime is most likely, but basic services are at the crossroads…and so are the taxpayers.

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