California Supreme Court Rules Unanimously That "Air Time" is not a Vested Pension Right

Several news outlets reported today (3/4/19) that the California Supreme Court ruled unanimously that the practice of CalPERS allowing annuitants to purchase extra retirement credit, so-called "air time," is not a vested pension right.

The Court ruled in Cal Fire Local 2881 v. CalPERS (S239958) avoiding the constitutional question of the extent to which the “California rule” does or does not allow public entities to change and reduce pension accrual rules during the course of a public employee’s career. The specific issue presented was whether or not Governor Edmond G. Brown Jr.’s Public Employees’ Pension Reform Act of 2013 (“PEPRA”) violated public employees’ rights under the state and/or federal Constitutions’ “contract clause” when California closed access to Additional Retirement Service Credit purchases, commonly known as “air time.”

Since “air time” as authorized by Government Code § 20909 requires the employee purchasing the extra credit to pay for its presumed cost (a bargain for the employee since the plan’s actuarial assumptions were too optimistic and therefore financially unrealistic), the Supreme Court – like the Court of Appeal previously – was able to avoid the constitutional question by simply holding that the withdrawal of the right to purchase air time (after a final grace period when any incumbent employee could exercise the right to do so) was not a “vested right” in the pension plan provided to that employee.

The Court still has to confront the constitutional question in another pending case Alameda County Deputy Sheriff’s Assoc. v. Alameda County Employees’ Retirement Assoc. (S247095), which challenges whether PEPRA’s limitation on final-year-of-employment “spiking” of compensable pay through abnormal amounts of overtime, surrender of accrued vacation and the like is a violation of the California rule.

The California Rule has its origins in a case from 1955 called Allen V. City of Long Beach. The California Rule holds that workers enter a contract with their employer on the day they begin work and the pension benefits they are offered as part of that contract cannot be diminished, unless replaced with similar benefits. To cut or reduce pension benefits without an equivalent benefit to offset the cut would be a violation of the employment contract. California courts have continued to uphold the precedent of the California Rule in multiple cases over the past six decades.