Cal Fire Local 2881 v. Cal. Pub. Employees' Retirement System

IN THE SUPREME COURT OF CALIFORNIA

CAL FIRE LOCAL 2881 et al., Plaintiffs and Appellants, v. CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM, Defendant and Respondent;

STATE OF CALIFORNIA, Intervener and Respondent.

S239958

First Appellate District, Division Three A142793

Alameda County Superior Court RG12661622

March 4, 2019

Chief Justice Cantil-Sakauye authored the opinion of the court, in which Justices Chin, Corrigan, Liu, Cuéllar, Kruger, and Zelon* concurred.

* Associate Justice of the Court of Appeal, Second Appellate District, Division Seven, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.

CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM S239958

Opinion of the Court by Cantil-Sakauye, C. J.

In late 2012, our Legislature enacted the California Public Employees’ Pension Reform Act of 2013 (PEPRA, Stats. 2012, ch. 296, § 15; see Gov. Code, §§ 7222 et seq.), substantially revising the laws governing public employee pensions.1 This decision addresses the constitutionality of one of the changes effected by PEPRA, the elimination of the opportunity for public employees to purchase additional retirement service credit. The amount of a public employee’s pension benefit is typically calculated as a fraction of the employee’s annual compensation near the end of his or her career. The size of the fraction is generally determined by the employee’s years of public employment, known as “service credit,” and his or her age at retirement. The greater the service credit of an employee and the greater his or her age at retirement, the larger the fraction. Beginning in 2003, many public employees were granted the opportunity to purchase up to five years of service credit by making appropriate payments to their pension fund. This

1 Unless indicated otherwise, all further statutory citations are to the Government Code.

CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM Opinion of the Court by Cantil-Sakauye, C. J.

purchased credit, known as additional retirement service (ARS) credit, is treated like ordinary service credit upon an employee’s retirement. Participating employees could therefore receive pension benefits calculated on the basis of up to five years’ more public employment than they actually worked. PEPRA effectively repealed the statute granting public employees the opportunity to purchase ARS credit, although it did not alter the rights of employees who had already purchased such credit. The parties present two issues for decision. The first is whether the opportunity to purchase ARS credit was a “vested right” — that is, a right protected by the constitutional contract clause. The terms and conditions of public employment are ordinarily considered to be statutory rather than contractual, and they are subject to modification at the discretion of the governing legislative body. Constitutional protection can arise, however, (1) when the statute or ordinance establishing a benefit of employment and the circumstances of its enactment clearly evince an intent by the relevant legislative body to create contractual rights or, (2) when, even in the absence of a manifest legislative intent to create such rights, contractual rights are implied as a result of the nature of the employment benefit, as is the case with pension rights. The second issue, which arises only if we conclude that the opportunity to purchase ARS credit is entitled to constitutional protection, is whether the Legislature’s elimination of that benefit in PEPRA constituted an unconstitutional impairment of public employees’ vested rights.