Last week, the California Supreme Court heard the case Cal Fire Local 2881 v. CalPERS which challenged the 2013 law (the California Public Employees’ Pension Reform Act or PEPRA) that eliminated state employees’ ability to add up to five years of employment toward their pension benefit calculation by paying a fee. Known as “airtime” because employees didn’t actually have to work, the practice was popular among government workers who wanted to take a break from their jobs to care for their families or work on political campaigns. PRI filed an amicus brief on the side of the state.
Originally, the program wasn’t supposed to provide employees with a financial benefit – it was to be a wash for the worker and for the state. But in practice, it wasn’t. Workers were allowed to purchase airtime credits at a discount, resulting in a financial windfall for employees and a loss for California taxpayers. Analysis showed that CalPERS was selling $1.00 worth of benefits for between $0.72 and $0.89. In other words, for every dollar of airtime credit purchased, the program saddled the state with additional unfunded future liabilities.
Setting aside the outrageous idea of buying fake work years in order to earn higher pension benefits, the case challenged the “California Rule” which says that public employers are largely barred from reducing pension benefits that were promised at the time a worker was hired.
In its amicus brief, PRI made the following arguments:
- The Legislature never intended to grant vested contract rights to sell airtime credits at no cost to the state;
- Even if the purchase of airtime credits was a contractual right, Cal Fire’s claim still fails because the revocation of the airtime credit couldn’t have had a “substantial” impairment of employees’ pension rights because the program was supposed to be cost-neutral; and
- Even if PEPRA did impair any contract rights by repealing the airtime credit program, the repeal was reasonable and necessary to maintain the solvency of California’s pension systems and is thus constitutional.
There’s no denying that California’s public employee pension systems are in staggering financial trouble. The twin problems, wrote PRI’s senior fellow Wayne Winegarden in PRI’s study California’s Pension Crowd-Out (2016), are unwise expansion and contribution shortfalls. Winegarden’s analysis showed that without dramatic fixes, California will be faced with the dilemma of either imposing the largest tax increase in its history or making devastating spending cuts, including service reductions and layoffs.
Maura Dolan of the Los Angeles Times reported that in Wednesday’s argument, “it appeared the court might dispense with the dispute issue by concluding the airtime benefit did not amount to a vested pension right.” I hope Dolan’s hunch is correct.
The California Supremes will have a decision in 90 days.
PRI’s amicus brief can be downloaded here while Wayne Winegarden’s study California’s Pension Crowd-Out can be found here.
Rowena Itchon is senior vice president of the Pacific Research Institute.
