Court rejects Marin unions’ challenge to ‘pension spiking’ reforms

Aug. 19--A state appeals court has upheld the Marin pension board's interpretation of a 2013 state law aimed at eliminating "pension spiking."

"The suit was about Marin County Employees' Retirement Association's implementation of the legislation," said Jeff Wickman, the association's retirement administrator.

The association was sued by four labor organizations -- the Marin Association of Public Employees, the Marin County Management Employees Association, Service Employees International Union 1021 and the Marin County Fire Department Firefighters' Association.

The Marin County Employees' Retirement Association, commonly known as the pension board, is a multiple-employer governmental pension plan whose members include the county of Marin, the city of San Rafael, Marin Superior Court, Marin City Community Services District, Southern Marin Fire Protection District and Novato Fire District.

MCERA has an unfunded pension liability of $402.8 million; the county of Marin's share amounts to $243.6 million. The 1st District Court of Appeal in San Francisco noted in its decision Wednesday that in May 2011 the Congressional Budget Office estimated California's unfunded liabilities at between $2 trillion and $3 trillion.

Wickman said that when the Legislature passed AB 197 in 2012, "One of the things it did was clarify what it thought should be included in the compensation that MCERA uses to calculate pension benefits.

"One of the things they said in the bill was that items paid outside the normal work schedule shouldn't be considered pensionable items," he said.

As the court noted in its decision, Marin County was one of the first pension organizations to implement the Pension Reform Act. On Dec. 18, 2012, MCERA's board reacted to the legislation by announcing a new policy for the calculation of retirement benefits -- a move aimed at so-called pension spiking.

Pension spiking occurs when a governmental agency includes additional pay as part of a calculation in order to drive up an individual's pension benefits.

The Marin pension board agreed that effective Jan. 1, 2013, it would begin excluding standby pay, administrative response pay, callback pay and cash payments for waiving health insurance to be factored into pension benefits.

In their suit challenging MCERA's action, the Marin labor groups asserted that it was unfair to change the rules now.

In the suit, they stated, "Over the years, MCERA and employers who participate in MCERA, such as the county, have repeatedly communicated and committed to MCERA members that these and other elements of compensation would be included in the calculation of members' final compensation and encouraged MCERA members to plan their retirement based on the idea that these pay items would be included in the determination of their pension benefits."

They added that the value and costs of these benefits had also been a factor in determining the wage and benefit packages offered to MCERA members through collective bargaining and in some instances had led to employees accepting lower wages or other benefits.

But the court rejected these arguments. In its ruling, it wrote, "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. And the Legislature may, prior to the employee's retirement, alter the formula, thereby reducing the anticipated pension. So long as the Legislature's modifications do not deprive the employee of a 'reasonable' pension, there is no constitutional violation."

Wickman said, "Obviously, we're pleased that the court of appeals said that our implementation of AB 197 was correct. We'll wait to see if whether or not there is a petition to the state Supreme Court to look at the decision; it's not necessarily over yet."

Rollie Katz, executive director of the Marin Association of Public Employees, said, "We are reviewing with our legal counsel. The decision seems to be contrary to long-standing legal precedent including state Supreme Court decisions. We are considering our options."

Gregg Adam, one of the plaintiffs' attorneys, said, "It's fair to say my clients are disappointed by the decision. We think it is well outside the norms of California. We'll be exploring our appeal options."

The plaintiffs will have 40 days to decide whether to submit a request to the state Supreme Court to review the case.

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