Appeals courts to revisit ‘California rule’ cases

The California Supreme Court has sent four remaining cases concerning the so-called California rule back to the state Courts of Appeal.

The cases had been on hold pending the California Supreme Court’s decision in another case involving the $8.3 billion Alameda County Employees’ Retirement Association, Oakland, Calif., $8.3 billion Contra Costa Employees’ Retirement Association, Concord, Calif., and $778 million Merced County Employees’ Retirement Association.

The court released its opinion in that case July 30, relaxing but not eliminating the rule that is used to determine the degree to which public employee pension plans for existing employees can be changed. The California rule stems from a series of state court decisions that have influenced the calculation of public pension benefits in California and nearly a dozen other states.

The court’s most recent action leaves its ruling in Alameda and another, much narrower 2019, opinion as its final words on the California rule.

Two of the cases will be fully reconsidered by the Courts of Appeal based on the Alameda decision, said Timothy K. Talbot, a principal at law firm Rains Lucia Stern St. Phalle & Silver who represents the Contra Costa County Deputy Sheriffs Association, which was involved in the Alameda case, in an email.

One of the cases, McGlynn vs. State of California involving a judges’ pension plan, was dismissed by the California Supreme Court. The $411.5 billion California Public Employees’ Retirement System, Sacramento, was also a defendant.

Though CalPERS was a named defendant in the case, the dispute was really between the plaintiffs and the state over the proper interpretation of a 2013 California pension reform law, said Matthew Jacob, CalPERS general counsel in a written statement. “Of course, CalPERS is always pleased when a case it is defending is dismissed,” he added.

Another case, the Marin Association of Public Employees vs. Marin County Employees' Retirement Association, challenging a new policy for calculating pension benefits that was based on the California pension reform law, was dismissed by an appellate court on Monday, said Gregg McLean Adam, partner in the law firm Messing, Adam & Jasmine, an attorney for one of the plaintiffs in that case.

The cases still before the Courts of Appeal are Hipsher vs. Los Angeles County Employees Retirement Association and Wilmot vs. Contra Costa County Employees’ Retirement Association, both involving pension benefits forfeited after criminal convictions.

Mr. Adam said that while the plaintiffs in Marin Association vs. MCERA lost their case, it was still a success. The appellate court decision in the Marin case that came out in 2015 “was so out in left field, it would have destroyed all protections for pension accruals.”

However, the Alameda case left the “California rule bent but not broken” with a good deal of ambiguity on what changes to pension benefit calculations pension systems can make, he said. “We will get a brand new round of pension litigation,” Mr. Adam said.

Roland M. Katz, executive director of the plaintiff, the Marin Association of Public Employees, a public employees union, said he was relieved that the appellate court decision in the association’s case was not allowed to stand.

The appellate court had ruled in the Marin case that held that public employees have a vested right to their pension but only to a reasonable pension and that the state legislature can change the formula for calculating pension benefits as long as the law does not deprive public workers of a “reasonable” pension, Mr. Katz said.

“Had the Court of Appeal’s decision stood, any time a pension system attempted to make a change in pension benefits, the superior court (trial court) would have to decide what is a reasonable benefit,” he said.

Ashley K. Dunning, partner at law firm Nossaman, who represents $2.3 billion Marin County Employees’ Retirement Association, said that county pension plans in California are determining how they will implement the Alameda decision.

As the California Supreme Court recognized in the Alameda case, the county retirement boards subject to the California pension reform law have historically applied the underlying statutes in somewhat different ways from one another, Ms. Dunning said in an email.

“The Alameda Court clarified that boards have less discretion in that regard than was originally thought,” she said. “Because of those historic differences, though, the boards’ initial implementation of Alameda will not be uniform. They are starting the process from different places.”