The “Not-So” Sustainable Retirement System Initiative – ShelvedCategories: California Developments
Public Retirement Journal, by Amy Brown, August 21, 2014
Although there is a huge focus on PERS in California, sometimes something so juicy, egregious, crazy, dramatic (fill in appropriate adjective here) compels us to step outside our PERS cubby and cover the goings-ons of other retirement systems like the 37 Act – those county systems that are governed by a similar body of law but an entirely different set of decision makers. Lately this takes us to Ventura County.
Let’s give you an overview and then get to the good news. Keep in mind, just because this has nothing to do with you PERS members out there directly, it does further compel the discussion of possible statewide pension reform, or at least continue to pick away at defined benefits.
The local ballot initiative proposed in Ventura called for all new employees hired after January 1, 2015 to be placed in a 401(k)-style plan, including public safety employees. Ventura’s proposal would impact all new hires, but otherwise is similar to the measure that passed in the City of San Diego which exempted public safety employees. (As a side note, the Public Employment Relations Board (PERB) threw out the San Diego measure because it ruled the City did not negotiate in good faith when it sought to place this on the ballot.)
Ventura’s proposal also applied a five year freeze on “pensionable” pay for existing public safety members as well as general Tier 1 and PEPRA Tier 1 employees. When you have people who don’t know pension law writing initiatives, you run into vague and incomplete proposals that make a lot of attorneys rich trying to figure out intent. Case in point: there is nowhere in the 37 Act law or the PEPRA where “pensionable pay” is defined. The 37 Act references “compensation earnable” and “final compensation” and the PEPRA defines “pensionable compensation.” Okay, okay, we may be splitting hairs here because the real issue is that the proponents – a group of taxpayer associations along with Supervisor Peter Foy – gathered more than enough signatures to qualify for the November ballot. They collected 41,000. They only needed 26,000.
For all intents and purposes, we thought it was given the green light but figured it would face legal challenges after it passed, similar to the way most of these attacks on pensions have gone down. Not in our wildest dreams did we think that a judge would step in and ban it from ever seeing the political light of day on a November ballot. But that’s precisely what happened last week.
The judge ruled that “allowing this measure to be considered on the November ballot would only result in a waste of public resources,” according to his official order. He also mentioned that if the voters approved it, the measure could not be implemented.1
We here at the Alert had the opportunity to find out what happened in court when we chatted with the attorneys for the plaintiffs suing to block the initiative from appearing on the ballot. Deborah Caplan and Chris Waddell from the law firm Olson Hagel & Fishburn let us in on this win. They concluded that there were several challenges: 1) Ventura’s system is part of the state County Employees Retirement Law (CERL) and can only be changed by the Legislature; 2) issues of compensation, including retirement benefits are exclusively delegated to the board of supervisors by the State Constitution and state law, and allowing an initiative would run afoul of that exclusive delegation and impermissibly interfere with essential government functions; and 3) the initiative as written was unreasonably vague, as it purported to acknowledge “vested rights” of existing workers but repealed the current defined benefit plan without replacing it with any post-initiative system to ensure that those rights were honored. Caplan and Waddell did a lot of legislative history research at the State Archives to trace the development of that law and to confirm that legislative authorization is needed to make changes, since no provision specifically says that. The same goes for PERS law so in that regard, it’s very similar.
In particular, the attorneys found that Ventura had sought such legislative authorization in 1978 when it wanted to impose a new retirement system for new employees, and that the Legislature had consistently interpreted the membership provision as automatically enrolling all new employees in the existing system unless legislatively altered. They also provided the court declarations from Tracy Towner, chair of Ventura’s current system (VCERA) and Doug Rose, past President of SACRS (State Assn of County Retirement Systems) who talked about the structure of the defined benefit plan, the confusion caused by the initiative, and the financial costs of closing a DB plan.
Bottom line: they won because scrapping the defined benefit plan without state authorization and no replacement plan to guarantee ongoing benefits was, in a nutshell, unconstitutional.
The initiative’s backers argued unsuccessfully that, as a matter of public policy, voters must be allowed to use initiatives to affect compensation and this did not unreasonably interfere with the supervisors’ authority as they would inevitably just adapt to any changes imposed by the initiative. They also argued that the supervisors could “fix” any omissions in the initiative and it was therefore not unreasonably vague. The judge did didn’t buy the exclusive delegation argument or the vagueness argument, holding only that a local measure couldn’t be used to alter the requirements of the 37 Act. And more good news: the judge’s analysis will apply to all 20 counties who operate under the 37 Act, and the limitations he found will prevent unilateral changes in those counties not only by initiative but also by the board of supervisors. The breadth of this ruling is a huge blow to pension reform advocates.
So, that’s the last of this topic, right?
The taxpayer groups supporting the initiative have stated publicly that the judge’s decision demonstrates the need for a statewide initiative. Guess what folks, get ready for more “Chuck Reed-type” conversations on the issue in the months and year to come.
Published by Amy Brown, the Public Retirement Journal provides a very timely source of valuable information and insight into public retirement, health care and related benefits. The Journal seeks out, and interviews, those people shaping public retirement policy and helps our readers understand just what they have planned in this field.
For more information, please visit http://www.publicretirementjournal.org