In Massive Blow To California Unions, A Second Court Rules That Pension Benefits Can Be Reduced

Tyler Durden's picture

Back in September, we noted that, in a surprisingly logical decision particularly for a state like California which is typically devoid of all reason, a court upheld the rights of Marin County (and it's taxpayers) to reduce final year salary levels utilized to calculate pension payments.  The ruling was meant to protect taxpayers against "salary spiking," a practice whereby union employees artificially drive up their final year salary, by taking cash vacation payouts or 1x bonus payments for example, in an effort to game the annual pension payment they'll then receive in perpetuity. 

Now, according to Pension & Investments, a second California court in San Francisco has made a similar ruling, finding that while a public employee does have a "vested right" to a pension it is only to a "reasonable pension."

A second California appeals court panel has said that vested pension rights can be reduced or eliminated in California as long as employees still receive a pension that is “substantial” and “reasonable,” court filings show.

 

The Dec. 30 decision by a three-member panel in San Francisco affirmed a state pension reform law that went into effect in 2013 and eliminated the right of participants of the $302.4 billion California Public Employees' Retirement System, Sacramento, to enhance their pension by buying retirement credits. A lower court in Alameda County in 2015 had ruled that the pension enhancement benefits could be eliminated.

 

The enhanced benefit, known as an airtime service credit, allowed CalPERS participants to increase their retirement benefit by up to five years by making additional contributions from their salary.

Meanwhile, the San Francisco court cited the Marin Country decision from August which found that employees have a right to a pension but "not an immutable entitlement to the most optimal formula of calculating the pension."  The August decision in Marin County was pivotal because, for the first time, it brought into question a 5-decade California rule which held that pension benefits could not be cut.

The panel cited another state appeals court's decision in August, which said the $2.1 billion Marin County Employees' Retirement Association, San Rafael, did not have to count pay given to employees for being on an on-call status toward retirement benefits.

 

That decision also cited the 2013 pension reform law, which applies not only to CalPERS but to most other public pension systems in California.

 

The law put in place anti-spiking provisions that prevent pension benefit increases from unused vacation and leave, bonuses, terminal pay, among other things.

 

These “anti-spiking” provisions apply to current workers.

 

“While a public employee does have a 'vested right' to a pension, that right is only to a 'reasonable' pension — not an immutable entitlement to the most optimal formula of calculating the pension,” the appeals panel wrote in August.

 

That decision put into question the so-called California rule, which held for five decades that pension benefits could not be cut.

The California Supreme Court has agreed to hear an appeal on the Marin County case, although no schedule has yet been set for oral arguments.

* * *

For those who missed it, below is our note on a previous California court's decision regarding a Marin County public pension.

Many public employees utilize a tool, known as "salary spiking," to boost their annual pensions payment in retirement and we taxpayers get to foot the bill.  So what is "salary spiking?"  Typically, a public employee's pension benefit in retirement is equal to some percentage of their highest annual pay which is often their final year on the job.  Fortunately for public employees who plan ahead, there are all sorts of fun games that can be played to "spike" your final year salary so that you actually earn more in retirement than you did on the job.  In fact, a recent report by the Los Angeles Times found that there are 60 ways to "spike" your final year salary in California including taking cash payouts for accrued vacation time, special 1x bonuses related to graduate degrees (though we're sure you really needed that extra degree as you head off into retirement), "longevity" bonuses, etc. 

One example of salary spiking comes from former Ventura County CEO, Marty Robinson, who offered up a textbook example of how to stick it to taxpayers by planning ahead.  Robinson's official salary heading into her final year on the job was $228,000.  That said, Robinson "spiked" her final year salary by cashing out $34,000 in unused vacation pay, taking an $11,000 bonus for a graduate degree and collecting more than $24,000 in extra pension benefits the county owed her.  Adding all the 1x payments, Robinson earned nearly $300,000 in her final year which entitled her to an annual pension payment of $272,000 or the rest of her life...nearly 20% higher than the salary she received for actually working. 

But, as the Los Angeles Times pointed out, Robinson is not alone:

Former Sheriff Bob Brooks, for instance, added a $30,500 "longevity" bonus (for working more than 30 years), which boosted his pension to $272,000 a year, almost 20% higher than his base salary.

 

Former Undersheriff Craig Husband added nearly $92,600 in unused vacation time, resulting in a $257,997-a-year pension, nearly 30% above his working pay.

 

Fire Capt. T.N. Roberts, for instance, padded his final year's pay by nearly $130,000, resulting in a pension 84% higher than his base compensation. He gets $159,598 a year in retirement pay.

In fact, the problem is pervasive.  In Ventura County, 84% of the retirees receiving more than $100,000 a year are receiving more than they did on the job. In Kern County, 77% of retirees with pensions greater than $100,000 a year are getting more now than they did before.

Well, turns out that the party might be over for the "salary spikers" in California.  In a surprisingly logical decision, particularly for a state like California which is typically devoid of all reason, a court upheld the rights of Marin County (and it's taxpayers) to reduce final year salary levels utilized to calculate pension payments.  According to Bloomberg, the court found that while a public employee does have a "vested right" to a pension it is only to a "reasonable pension."   

“While a public employee does have a ’vested right’ to a pension, that right is only to a ’reasonable’ pension-- not an immutable entitlement to the most optimal formula of calculating the pension.

Of course the Marin Association of Public Employees intends to take their fight to the Supreme Court in an effort to defend their right to manipulate pension benefits and defraud taxpayers of billions.

As we've noted multiple times, public pension funds around the country are currently underfunded by about $2 trillion.  The under-funding has ballooned materially since the "great recession" as asset returns have suffered while pension liabilities have grown due to lower discount rates.

Pension Underfunding

 

Meanwhile, taxpayers have been forced to cover the difference through higher contributions while employee contributions have remained fairly flat. 

Pension Contributions

 

We eagerly await the next court's decision on this topic and wish the best to California taxpayers.

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froze25's picture

Contracts can be verbal, no paper required. Who determines what is "generous"? That is subjective and a matter of opinion, that is why terms are spelled out in the contract.

svs9000's picture

At one point you were a 3 week member too buddy.

Your "issue" is a personal attack on my wallet.

froze25's picture

Your wallet is poorly made and ugly, there is your personal attack on your wallet.

francis_the_wonder_hamster's picture

"Your right, to hell with contract law."

It was Obama who said "to hell with contract law" when during the GM and Chrysler bankruptcies, he laid out a deal where union pensions were kept intact while senior secured bondholders (many of them retirees who depended on that income) got screwed.

That set the precedent for screwing 240+ years of contract law.

Contract law clearly states that there is a heirarchy of who gets paid first in the case of a bankruptcy.  These pensions will drive every single municipality in the country, without exception, into bankruptcy.  And you are suggesting that the pensions be upheld no matter how badly it illegally screws senior bondholders and taxpayers?

Obama would be proud of your stance.

froze25's picture

Actually I'm in favor of bankruptcy at least then we would have a clean out of the system. All they are doing now is anything possible to pay the banksters at the expense of the workers. At least with bankruptcy and default all involved parties get screwed not just the Tax payer and the worker.

francis_the_wonder_hamster's picture

The reason Obama was able to pull off the GM/Chrysler pre-pack bankruptcies is because of the banks.  Bondholders ould have objected to getting screwed over and forced the bankrupcty into court, where they likely would have won.  However, the bondholder "votes" were to go against their own self-interest and approved the pre-pack deal.  This happened because the banks and their clients (who they voted on behalf of (investor proxy is included in fine print in a lot of account docs)), unanimously voted to approve this.  It was a total conflict of interest.  Why?

Because the banks at that time were in the middle of receiving their TARP funds, and I can pretty much guarantee that the unholy deal between Obama and Wall Street included supporting this wonderful PR move for Obama (as well as no prosecution for the banksters).

So now we are stuck with the following: ask an Obama supporter what he's actually accomplished and they'll say Obamacare and "saving the auto industry".  I don't think I need to elablorate on here on Obamacare, but for the luv of gawd, he didn't "save" diddly squoat.  The auto industry still went through bankruptcy, the beneficial owners just changed.

38BWD22's picture

 

 

froze25

Yes, but it's California, where any sensible person would/should have carefully thought through STATE EMPLOYMENT.

And California voters shoould have thought some more as well.

Liberalism is a fraud.


francis_the_wonder_hamster's picture

"Liberalism is a fraud.

Correction, Progressivism is a fraud."

These schemes and Progressive politics have nothing in common with Liberalism.

EmployedMillenial's picture

As a young Californian in the private sector....fuck 'em

Handful of Dust's picture

My guess is this is the tip of the iceberg and there's going to be a massive flood of penion bankruptcies and court cases. Trump and the GOP get to choose the next couple of Supremes so when these pension cases trickle up to the SC we'll see how they decide. For many years in the early 19th century the Supremes said pensions are a "gift" and can be altered or even revoked at any time.

Although they moved away from that position when a more worker-friendly court got in place, it's possible the court will become common sense middle of the road and not too far in either direction. However, there is no doubt many of these plans are unrealistic and should not be raping taxpayers the way they do imo.

I always funded my own freaking pension and health insurance, so I feel I should not have to fund everyone else's pension, as well as pay for their diabetes, high bolood pressure, obesity drugs, etc, and purple escalade and Roller Scooter as well.

francis_the_wonder_hamster's picture

It may not matter what the Supreme Court rules.  Simple math dictates that taking more out of a system than is being put in is unsustainable.  These pensions, like social security, were ponzi schemes the moment they were hatched.  It was just a matter of time for the math to work out.  

That time is almost here......

PS.  Europe won't admit it, but they've already crossed over the shark barrier too.  Importing millions of immigrants just accelerated the process.

Kayman's picture

I have a problem with public snivel servants earning more than the poor taxpayer that has to fund this theft.

divingengineer's picture

Pension spiking is BS. Every person who retires on any pension spikes it their last year. They save up their vacation time, sick leave, all the overtime they can get, etc. 

It isn't just the Chiefs doing it. EVERY person who retires on a public pension spikes it. They are aided by people within their organizations so they can make as much in retirement as possible.  One hand washes the other. 

So imagine how much money we are talking about in total. 

froze25's picture

Ican't speak for other states but in NY State retirement system Vacation time and sick time get paid out but don't get figured into the pay out equation, it's based on the 3 best earning  years someone works including overtime. That's not all workers just the ones in the NY State system. I think counties and local municipalities, not sure about NYC and Teachers.

jimsoong25's picture

They must have reformed it then.  About ten years ago, I read an article that said that NYPD personnel were allowed to work as much overtime as they wanted the final year before retirement to pad their income.  In the article, an example was a cop who raised his retirement salary from around $75K to $104K annually.

I can't understand why ANY government employee at ANY level would be allowed to retire at FULL pay.  After all, it is RETIREMENT.  I wonder if that includes benefits as well, such as healthcare.  Military personnel only get a small fraction of what these folks are pulling in.  Seriously, a sheriff is pulling in over $200K per year in retirement?  Good grief.

froze25's picture

NYPD isn't part of the NY State retirement system. They have their own thing going with the City.

Bay Area Guy's picture

My reading of the court ruling is that a pension can be reduced to the amount that the final year base salary warrants.....the base salary, not the amount that includes unused vacation, sick pay and overtime. San Francisco used to allow this and also used to allow police and fire sworn officers to retire at the salary they had not in their last year, but on their last DAY of service. The result was every firefighter retired as a battalion chief or higher and every cop went out at as a District Captain or better. Even San Francisco knew that was impossible to maintain and unilaterally changed it. Employees bitched mightily, but the decision stuck.

froze25's picture

That's reasonable and should of been the agreement in the beginning.

warpigs's picture

froze25 what the fuck are you even talking about? Your analogy sucks a dick. The fact that people chose these jobs based on criteria almost all other citizens knew were fucked and not realistic, is not the tax payers fault. The morons who chose to buy into such an unsustainable system are at fault.

 

People are living long and longer and states are sinking to the bottom of the sea with this bloat! 

 

God dammit. You must live in CA or love that fucking trash system. You are part of this overall problem.

 

This seems legit: be a fireman for 10 yrs and then kick it in retirement with a 200k pension, or whatever the hell they get. Swell I tell ya...

 

If I could reach through the screen and punch you, I would.

froze25's picture

Lol, of course you would. No common worker gets to retire in 10 years with a health pension.

yellowsub's picture

Gov't Pension is a bigger ponzi than social security...

silverer's picture

I would like you to state a few things: Who is responsible for the failure to deliver (the fraud), and who should be on the hook for it? Do you believe the laws should be changed to allow pensioners to sue the government representatives and managers personally?

froze25's picture

I think the workers have the capacity to sue them personally now but good luck proving they broke the law. Fraud is a bitch to win in court.

J 457's picture

froze, the pension payouts are out of control.  It's not like the CA. public employees take a "pay cut" for working in the public sector.  Fact is they do better than most in the private sector, excluding the pension plan.  Bottom line, they need to pay their fare share in contributions- that's all- just like I'm forced to do with this Social Security tax they take from me twice a month.  Speaking as one native to and living in CA. for decades, I'm disgusted by these county and state employees that continue to suck the lifeblood out of the economy.  My kids schools are crumbling.  My streets are failing.  My infrastructure is faling apart, and somehow my firefighter neighbor works two days a week for $210k a year.  It's not sustainable, and the house of cards will fall.  It's not if, it's when.  Twice a year I write a massive property tax bill and I (like many) count the days to when I sell out and leave this state...and the forthcoming pension crisis.    

FIAT CON's picture

If something seems to good to be true, well you know the rest.

" So the Idea of having it made" if you can get a job for the .gov might be over.

 

Kickaha's picture

Take a look at your hypothetical.  Then compare the compensation packages enjoyed by public sector employees with those imposed by the labor market on private sector employees in similar positions.  Be sure to factor in the value of public sector-style fringe benefits.

Once you do, you will have to amend that hypothetical as to provide for a guy who is only worth $10/hr. but is gobsmacked to fall into a job that pays $20.00/hr., plus the full panoply of every conceivable fringe benefit, including a defined benefit pension plan of the sort that has become extinct in the private sector, all courtesy of a screwball system where local elections are ignored by most voters, except for the employees, who are happy to go to the trouble of voting for local candidates who are copacetic with the idea of increasing compensation annnually for all public employees at a time when private sector workers have seen their compensation packages cut by 66% or more in many instances, and people consider themselves lucky if they have not had a salary cut on top of the forced conversion from a defined benefit plan over to a 401k.

It is disingenous at best to suggest that those public sector workers had ever the expectation of drawing full pensions upon retirement.  They've seen the carnage among their friends and neighbors and know fully well that taxpayers are financially incapable of forking over the fortune it will take to make good on those pension promises.  Their legal position is better with those generous plans in place, but the legal right to actually draw the money is subject to bankruptcy laws.

At some point, the taxpayers will revolt and elect local politicians who run on the "i'll declare bankruptcy" platform.  All it would take is a couple of cities around the country to go that route for voters to see how easy it is.

I've heard people say forever that public employees deserve their fringe benefits and pensions because they gave up the chance of working in the private sector and becoming millionaires.  It is now, and always has been, a load of putrescent garbage.  People seek out the government jobs because they can't stand the competition in the private sector and know they have no chance of being successful on their own merits.

Xena fobe's picture

Your hypothetical guy didn't just get lucky either. Someone gamed the system to get him in.  There are too many applicants and there is no testing any more.  The hiring criteria is deliberately subjective and there is no legitimate oversight process.  It's done deliberately to empower hiring supervisors and managers. 

Omen IV's picture

NOT Fraud - Risk!

 

contracts can be abrogated via Bankruptcy in private business and other means to include legislation / court orders  - or merely the enterprise fails

 

The state is no different but has been gamed for 50 years by politicians and obsequious bureaucrats who created value for themselves not the citizens

 

The pensions should be reduced 75% across the board - let these people drop dead!

 

there is nothing special about someone who moves paper from the right side of the desk to the left - nothing

 

burn them all

froze25's picture

Bankruptcy and debt default is the answer to this and that is what is avoided by the state. Venezuela is still making bond payments while the people are starving. There is no good reason to screw the workers to keep the banksters safe.

Not My Real Name's picture

Stop with the "don't screw the workers" bullshit. Those government "workers" are living high on the hog, retiring as young as age 50, many with six-figure pensions, and earning more in retirement than they ever did while "working" --all at the taxpayers' expense. 

 

Korprit_Phlunkie's picture

There is no fucking way that a pension should be higher than what an employee was making when they were actually producing. Do you understand even the simplest of mathematics? Not hard stuff like second grade, just the simplest.

Korprit_Phlunkie's picture

People take these jobs based on payment and benefits.

If only this was true but this is where the fault lies. at a certain point an evil deon rat politician decides to run for governor and promises the public unions he will raise their pensions to an unsustainable point if they will deliver the votes of their members to elect the evil bastard. Thats how it works if you still haven't figured it out.

FredFlintstone's picture

Here is a definition of fraud for you: Get to the office at 7:00 am, read the paper, search the internet, go get some coffee, take a leak, bullshit with colleagues, "whoops it's 10:00 am and time for my morning break". Take a long lunch and repeat in the afternoon. Claim you worked through lunch and leave the office at 3 pm. Repeat for 30 years except for the 5 weeks of annual vacation. Oh, sometimes required to bully and harass the public for which you serve. Cash in your sick time to spike your last years income on which your pension is based. Retire at age 50 and then live another 40 years to continue to be a drain on society.

 

 

dot.dot's picture

Dude!  You've got the schedule down cold.

I used to work as a staff engineer at a local state university and you described the typical day to the T.  Funny thing is I got so bored with it and all the bullshit politics (not to mention idiot boss) I quit after seven years.  SOmetimes I wonder if I was crazy for quiting.  It was easy money, but I just couldn't stand all the assholes who had worked there their entire adult lives.  My God they were obnoxious idiots.  They all thought they had real jobs.

Croesus's picture

@ froze25:

Bullshit. These people stick it to the taxpayers whose interests they're supposed to be looking out for.

It's unethical as all hell.

Nameshavebeenchangedtoprotecttheinnocent's picture

Now you're just being silly.

All the scammers in the article are likely lifers & this gaming of the system didn't exist 30yrs ago when they started on the job. They didn't forgo private sector work because of some carrot 30 yrs down the road. People take jobs like this because of the perceived 'security'. They don't have to worry about getting laid off unless they really, really fuck up.

This gaming of the system is what's fraudulent. As a taxpayer I really feel these bastards have been screwing us for way too long. I'm glad a court finally saw reason.

 

Xena fobe's picture

There is no shortage of qualified applicants applying for govt jobs.  Govt does not have to offer this level of benefits to attract workers. In fact, these jobs are only open to relatives of current employees.  And if a retiree is making over $100,000 pension, he has done damn well his whole career.  He is set for life without that pension.  Make it need based. 

CapnJackDaniel's picture

Private sector has risks too brother, way it goes

In Ze No's picture

Did you read the article?  This is primarily in response to salary spiking.

HedgeJunkie's picture

As a former tax preparer for a CPA firm in Commiefornia, I will attest that government workers in similar positions to private positions, make 2/3 more per year than the private sector.

So do NOT give me bullshit about earning sacrifices.  I've done your tax returns.  (Fifteen years ago.  And I'm certain that the 2/3 has grown to 4/5, particularly in the facist failed State of Commiefornia.)

If you work for local government, in any capacity, I have absolutely no compassion for you.  Active or retired.  And the only ones I have any compassion for are those career military vets, who will, eventually, be totally fucked over to fund you parasites.

Fuck you and die.

steelhead23's picture

I share Tyler's interest in this litigation and consider pensions that provide more than 50% of an employee's highest salary to be absurd.  The real problem here is the letting of absurd employment contracts and that fault lies with city leaders, usually politicians who measure decisions with a political risk yardstick.  Shoot, they don't have to raise the revenues to pay for the retirement benefits offered at the beginning of employment, they only have to raise the revs to pay salary and bennies.  Those retirement obligations are for the next sucker to deal with.  And if they fight the police or firefighter unions on pension benefits, they might strike, injuring the pols future.  This results in outrageous pension benefits for employees and financial ruin for the city/state. The only way I see to fix this dynamic would be to force all contracts through some regulating agency, perhaps the pension fund itself, so that the pols aren't making the final decision on pension benefits.

Also, pols tend to be cheerleaders.  If times are bad, they'll be better tomorrow - and if they are good, we're all going to heaven.  They seldom recognize financial risk until it is too late.  Hence, they are terrible at making long-term financial decisions.

drendebe10's picture

Geeee, that's tooooo baaaad....  Hahahahahaha.

Meat Hammer's picture

I live in the Sacramento area. Not only are these public employees totally incompetent and useless, they're so fucking stupid that they brag about salary spiking during casual conversation. I've told a handful of them what assholes they are for reaching into my pocket to fund their lavish retirement. They just laugh. Public employees are the worst kind of liberal assholes in this state. Smug, entitled, and arrogant.

Fuck. Them. All.

King Tut's picture
King Tut (not verified) Jan 4, 2017 6:52 PM

Who determines what "reasonable" is? The judges that also get a nice fat taxpayer-funded pension?

gregga777's picture

The unions, the corrpupt political parasites and the corrupt courts determines what "reasonable" is.  It's way past time for all productive people to move out of Kalifornia.

 

froze25's picture

Actually the people decided when they voted for the politicians that made the deal and voted them back in afterwards.

JamesBond's picture

Spot on analysis. No sympathy for California taxpayers.

jb

Elco the Constitutionalist's picture
Elco the Constitutionalist (not verified) froze25 Jan 4, 2017 7:26 PM

That is a straw man with the assumption of legitimate elections. An assumption that is particularly unlikely given what we KNOW of California elections.

froze25's picture

Yeah, they keep voting in leftist commies in the cities. The whole State isn't blue.

MrTouchdown's picture

No! They need to stay there and suffer with all the other assholes that made this farce possible. Like their 30 year old children that still live with them.