Blog

Contact Us for More Information

Are You A Public Employee? If You Are, A Recent Court Ruling Could Affect Your Pension Benefits.

Posted by Corey F. Schechter | Feb 09, 2017 | 0 Comments

Contributing Author: Dianne Schechter

On December 30, 2016, a California appellate court ruled that the California Legislature's elimination of a public employee's ability to purchase "airtime" did not violate the California Contract Clause. Cal Fire Local 2881, et al. v. California Public Employees' Retirement System, et al, 2016 WL 7488338. The appellate court determined that the elimination of public employees' option to buy up to five years of retirement service credit did not violate any pension right because the option was not a vested benefit and, even if it was, the Legislature lawfully eliminated the benefit.

The facts of this case began in 2003 when the Legislature enacted Government Code section 20909.  This section allowed eligible public employees the option to purchase at cost up to five years of non-qualifying service credit (commonly referred to as "airtime"). To be eligible, the employee had to have at least five years of service, be presently employed, and cover the cost of the increased benefit due to the additional service credit.

This option was available to eligible employees from January 1, 2003 through the end of 2012. In 2012, the Legislature enacted the Public Employees' Pension Reform Act of 2013 ("PEPRA"), which eliminated the option provided under section 20909, effective January 1, 2013. PEPRA gave eligible members one last 15-week window to purchase airtime before the option ceased to exist.

The plaintiffs (a group of professional firefighters who were eligible to, but did not, purchase any “airtime” during the 15-week window before the elimination of this option) alleged they had a vested right to continue what is referred to as “buying airtime” because it had been permitted for years. 

Plaintiffs claimed that section 20909 clearly stated they had a vested contractual right to purchase up to five years of airtime service credit that is not subject to elimination by legislative amendment or repeal, even before the benefit has been accessed or the time for retirement has arrived.  However, the appellate court disagreed and determined that the statute's language and its legislative history did not create a vested contractual right to purchase the additional credit.

Even if this were a vested right, the Legislature can modify or eliminate vested pension rights in order to keep a pension system flexible to permit adjustments in accord with changing conditions and to maintain the integrity of the system.  Such changes have to be reasonable, and it is for the court to decide in each case whether the action constitutes a permissible change. To be “reasonable,” the change must relate to the theory of a pension system and its successful operation.

In this case, the appellate court determined that the Legislature had ample authority to eliminate the option, as doing so restricted the pension system to providing benefits based on work actually performed, which is its primary purpose. In other words, pension benefits are "deferred compensation that has been earned through the actual performance of work."

This change eliminated an option that allowed for the purchase of non-qualifying service credit that was completely unconnected to actual services provided or work performed. Therefore, the Legislature was eliminating something that was not related to the theory of a pension system and was, in fact, detrimental to its successful operation.

As previously noted, changes to employees' pension rights must bear some material relation to the theory of a pension system and its successful operation, and changes to the pension plan resulting in disadvantage to employees should be accompanied by comparable new advantages. However, and arguably most important to note, this is a recommendation, not a mandate. The Legislature is not required to provide a comparable new advantage.

The appellate court decided that there was no disadvantage to employees by eliminating their right to purchase airtime service credit. While it provided something valuable for those employees who purchased it, it was the employees, not the state, who paid for this benefit. Consequently, the appellate court reasoned that this was not a case where the state provided a retirement benefit in exchange for work, and then took the benefit away. Instead, this was a benefit that employees provided to themselves.

If you have questions regarding the new legislation or a prior purchase of airtime service credit, contact Butterfield Schechter LLP- San Diego's largest law firm focusing its practice on employee benefits.

About the Author

Corey F. Schechter

Corey Schechter practices in the areas of Employee Benefits, Employee Stock Ownership Plans, Pension and Profit Sharing Plans, ERISA, ERISA Litigation, Business Law, Qualified Domestic Relations Orders (QDROs), and Employment and Labor Law.

Comments

There are no comments for this post. Be the first and Add your Comment below.

Leave a Comment

Retirement Plans

We help establish a customized plan that meets regulatory requirements as a tax qualified plan. Following implementation, our attorneys can assist clients and their plan administrator with regular reviews and updates to help with regulatory compliance for the plan's operation, and continued effectiveness in meeting the client's specific goals.

ESOPs

We are dedicated to employee ownership. When you come to us for ESOP services, you receive influential legal counsel who stand beside you to help you stay informed, in compliance, and abreast of the latest developments-all to help you realize your plan goals as fully and effectively as possible.

QDROs

A QDRO is a specially designed court order that is required for the division of retirement benefits in a family law case. Many family law attorneys do not possess the expertise necessary to divide retirement benefits or stock options upon divorce. We have extensive experience in dividing qualified plans, government plans, IRAs and stock options between the employee spouse and non-employee spouse.

Butterfield Schechter LLP provides the information in this website as a service to its clients and visitors to the site. This website is for information purposes only and is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The information in this website is provided "as is," and while the information in this website is updated periodically, additional facts or future developments may affect subjects contained herein, and no guarantee is given that the information provided is correct, complete, or up-to-date. Seek the advice of professional counsel before acting or relying upon any article, form, or information in this web site. To ensure compliance with the requirements imposed by the United States Treasury and the Internal Revenue Service, we inform you that any federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of: (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing, or recommending to another person any transaction or matter addressed herein. Butterfield Schechter LLP has endeavored to comply with all known legal and ethical requirements in compiling this website. In the event that this communication does not conform with any laws or regulations of any state or country in which it may be received, Butterfield Schechter LLP will not accept legal representation based on this communication from a person in such a state or country. Electronic mail is provided as a convenience in communicating with the attorneys at Butterfield Schechter LLP. Contact by e-mail does not alone create an attorney-client relationship. Please remember Internet e-mail is not secure and messages sent to the firm or any of its employees or attorneys should not contain sensitive or confidential information. Thank you for visiting our site.

Menu