Court rules that public employees' retirement benefits can be reduced

By Joe Dyton | Sep 19, 2016

SAN FRANCISCO – California public employees recently learned they might have to reconsider how they handle their retirement after the 1st District Court of Appeal ruled that the legislature can trim public employee retirement benefits for anyone who’s still on the job.


The decision, which was unanimous, halted assumptions that employees’ benefits are untouchable once they start their job. The legislature justification was as long as the employee still received a “reasonable” pension, their rights weren’t being violated.


“My sense is the court didn’t intend to or view this as a ruling against employees, I think they just ruled on the law,” Stanford Professor of the Practice of Public Policy Joe Nation told the Northern California Record. “Of course, the conclusion of the court was that the pension had to be reasonable, but that doesn’t mean that it’s exactly what you are guaranteed on Day One. What this does is get this close to what things are like in the private sector.”


The main reason for this ruling is because the current system has left the state and its taxpayers with hundreds of billions of dollars of debt. The appellate court called the situation “the alarming state of unfunded public pension liabilities,” according to the East Bay Times.


Despite the debt situation, there’s a good chance state employees and their union attorneys will appeal the ruling all the way to the U.S. Supreme Court if necessary, according to Nation.


“The chance (of an appeal) is 100 percent; no doubt,” Nation said. “The question is what the legal strategy will be. I think what they’ll possibly do is point to previous court rulings and they would point to the support for the ‘California Rule’ and argue this court overstepped its bounds and therefore the Supreme Court has to overturn this or send it back to the court of appeal.”


Of course an appeal doesn’t guarantee an overturn of the original ruling. However, whether the ruling holds or not, public employees are going to be forced to reevaluate their retirement plans, given they could be reduced at any time.


“If I were in that position and whether I thought this ruling would stand or not, I think would look at the math,” Nation says. “I would look at the numbers and conclude like anyone out there who has looked objectively at the numbers and conclude that this is a house of cards. This is at some point, going to collapse; the question is how is it going to collapse and who is going to get hurt?


“I don’t think I’d want to be my retirement on hoping things stay the same,” Nation said. "I’d rather go to my union leadership and say, ‘Wait a minute, are you really acting on my best behalf by stonewalling and refusing to having an honest and open discussion about what we know is likely to happen?’”


Current employees aren’t the only ones who may want to take a look at their retirement situation. California’s pension debt is close to $1 trillion; a number that would take eight states' budgets set aside to fund, according to Nation. Nation is the project director at Stanford for, which tracks the financial states of California Public Employees' Retirement System. The big question is where things go from here.


“The state of California isn’t going to say, ‘We’re not going to fund schools, welfare and parks, we’re just going to give it all for pensions,’” Nation says. “It’s not going to happen. Change is coming; the question is what form it takes. We’re far better off and employees are better off to deal with it now than to let this thing fester and then have it be much worse in the end.”

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