California’s generous public employee pensions, shielded for decades by the state’s courts, may soon no longer be sacrosanct.
In a potentially huge win for advocates of cutting government pensions, an appeals court in August declared that public retirement plans were not “immutable” and could be reduced. The three-judge panel said the law merely requires government to provide a “reasonable” pension.
That unanimous ruling, now before the California Supreme Court, could be a vehicle for reducing a shortfall amounting to hundreds of billions of dollars in state and local pension systems. If upheld, the decision could lead to the kinds of cutbacks previous courts blocked.
Emory University Law Professor Alexander Volokh called the decision “a big change from what the doctrine has been so far” and expressed doubt that it would be upheld. University of Minnesota Law Professor Amy B. Monahan described the ruling as “novel” and the outcome “hard to predict.”
The decision has attracted national attention because of California’s influential role in pension law. Like California, other states are facing massive shortfalls in public pensions and wrangling with ways to head off staggering debts.
Standing in the way have been decades of court decisions that created what is called the “California Rule.” It guarantees government workers the pension that was in place on the day they were hired.
The formula for calculating retirement income generally can be changed only if it is neutral or advantageous to the employee, courts have ruled. It cannot be reduced, except for new hires.
“It is a rule that makes it extremely difficult for states to reform their pensions,” Volokh said, “and lots of states have really big pension problems now.”
My Reason Foundation blog post on the decision, which describes the decision and its underlying caselaw in detail, is here.