2 Cal. App. 5th 674
Cal. Ct. App.2016Background
- Pension spiking prompted Legislature to amend CERL 31461 (AB 197) to exclude certain remuneration from compensation earnable, effective Jan 1, 2013.
- MCERA changed policy to exclude specific pay items from final compensation calculations, applying prospectively from 2013.
- Plaintiffs—union groups and individuals—sued to halt the policy as unconstitutional impairment of vested pension rights.
- Trial court sustained MCERA’s demurrer, ruling the amendment and policy were constitutional; plaintiffs appealed.
- Court conducts de novo review on contract-impairment issue, and limits ruling to pre-retirement modifications and prospective application; retirees not addressed.
- Court ultimately affirms judgment, holding Legislature may modify pension formulas before retirement so long as a reasonable pension remains and no destruction of pension rights occurs.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether AB 197’s 31461 amendment substantially impairs vested rights. | Plaintiffs claim vested rights to a pre-AB 197 pension formula cannot be diminished. | Legislature may modify pension terms before retirement if reasonable and related to system integrity. | No; amendments are not a substantial impairment when applied prospectively to pre-retirement rights. |
| Whether MCERA followed proper statutory procedure under 31542 for excluding items. | MCERA failed to follow individualized determination procedures. | 31542 contemplates prospective, systemic change, not individualized pre-retirement determinations. | Procedural requirements were not violated; approach was proper given prospective change. |
| Whether the demurrer ruling was procedurally defective or improper. | Demurrer order lacked explicit rationale for sustaining the demurrer. | Demurrer grounds suffice; de novo review applies; detailed memorandum not required. | Demurrer ruling not procedurally defective; affirmed on the merits. |
Key Cases Cited
- Allen v. Board of Administration, 34 Cal.3d 114 (1983) (modifications to vested pension rights must be reasonable and bear relation to system; offset by new advantages when disadvantageous)
- Kern v. City of Long Beach, 29 Cal.2d 848 (1947) (pension rights vest but may be modified pre-retirement; flexibility to adjust system)
- Miller v. State of California, 18 Cal.3d 808 (1977) (vested pension rights not destroyed; modifications must preserve substantial pension)
- Allen v. City of Long Beach, 45 Cal.2d 128 (1955) (modifications must be reasonable and may be offset by new advantages; pre-retirement changes permissible)
- In re Retirement Cases, 110 Cal.App.4th 426 (2003) (statutory changes to compensation earnable are not subject to contract rights; focus on statutory framework)