California

Public Workers Can Get Pensions Only for Time They Actually Worked, Court Rules

Before 2011 reforms, state workers could purchase an additional five years of service time to boost pension payouts and retire earlier.

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PAUL SAKUMA/POOL/EPA/Newscom

In 2011, when Gov. Jerry Brown signed a bill closing a series of pension-boosting loopholes in California, he offered a comment that should have been anything but controversial.

"Pensions are intended to provide retirement stability for time actually worked," the governor said.

"Time actually worked" being the key part of the sentence. That's because one of the reforms Brown signed into law did away with a practice known as "airtime purchases," in which public workers in California were able to boost their pensions by purchasing an additional five years of service time without having to actually work for those years.

In California, like in most other cities and states where defined benefit pensions are offered to public employees, a worker's pension is based on a formula that takes into account the worker's final salary (sometimes an average of his or her salary over the last five years or so) and the amount of time working in the public sector. Play around with either of those two numbers and an employee can end up with a much larger pension than the rules suggest he or she should.

There's no shortage of stories about public workers "spiking" their pensions by boosting that first figure, but in California it was possible, until 2011, to artificially inflate the second figure too. With an "airtime purchase," an employee could work until age 60 but retire with a pension based on a formula that assumes he or she worked until age 65.

Unions didn't share Brown's opinion that pensions should reflect "time actually worked" and sued the state in an effort to maintain the sweet pension perk. They pointed to longstanding set of court precedents—collectively known as "The California Rule"—that prohibit state and local governments in the state from reducing pension promises to current workers.

It's been five years since Brown signed those reforms into law, but last month the Third Division of the First District Court of Appeals unanimously agreed that the state was within its authority to end "airtime purchases," the Orange County Register reports.

"While plaintiffs may believe they have been disadvantaged by these amendments, the law is quite clear that they are entitled only to a 'reasonable' pension, not one providing fixed or definite benefits immune from modification or elimination by the governing body," the appeals court ruled.

The ruling comes on the heels of an August ruling from the same court that tossed out a union-backed challenge to pension benefit changed imposed on public workers in Marin County, California. The county decided to stop allowing workers to cash-in unused vacation days, sick days, and other benefits in exchange for a larger pension payout—that's a form of "spiking" that alters the first figure in the pension formula.

In that case, the court ruled that concluded pension benefits can be reduced if they are determined to be "unreasonable. An appeal is heading to the California Supreme Court later this spring (a date for oral arguments has not been set), in what could be a major blow to public sector unions in California and an important signal to courts in other states.

On its own, the new ruling does not mean anything beyond the scope of the specific case in question, but taken together with the ruling in last year's Marin County case, it's can be seen as part of a developing trend of courts taking a skeptical look at the so-called "California Rule."

Like the California Rule itself—which originated there but has been written in state law in 12 other states over the past few decades—what happens with these legal challenges is unlikely to state in California.

As I wrote in December, denting the power of the California Rule would be a significant step towards helping cities and states get out from under the crushing debt of future pension bills. Increasingly, it looks like courts will get to be the final arbiter of what can and cannot be paid.

The legal challenge over Brown's prohibition on airtime purchases demonstrates how the tide is turning against public workers and the unions that represent them. Perks like that are hardly available to private sector workers—go ahead and ask your boss to make five years' worth of contributions to your 401(k) without you having to actually work those years and see what happens—but unions have been gaming the pension system for years without much resistance. Indeed, Brown was only pressured into closing that loophole because the state's pension fund was in such dire straits that something had to be done.

That unions challenged that reform seems tone-deaf, but they would surely argue that they are only sticking up for their members' best interests. The important detail here is that some courts are no longer going along with it.

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  1. I think if the average person knew what was really going on with public employee pensions, they all would stop tomorrow.

    1. The average person thinks government employees work for them, when reality is exactly opposite. You work for them. You fund your own retirement, AND pay taxes to fund theirs.

    2. I think if the average person knew what was really going on with cops shooting unarmed people, it would stop tomorrow.

      I think if the average person knew what was really going on with warrantless mass surveillance, it would stop tomorrow.

      I think if the average person knew what was really going on with drone strikes in the Middle East, they would stop tomorrow.

      I think if the average person knew what was really going with airport security theater, it would stop tomorrow.

      1. Hugh, what’s your point?

        1. All of that information is out there, freely available to the average person. No fucks are given.

      2. ……what was really going on on college campuses……

        1. Pillow fights. Please say it’s pillow fights.

      3. None of this ever impacts an “average person”, so good luck trying to get the “average person” to give a shit.

    3. Have you met the average person?

      1. FFS, the average person barely has an IQ of 100. And half of all people are even worse!

          1. Yes and no… average doesn’t equal median, UNLESS the data is normally distributed. In that case the average and the median will be identical. IQ is pretty close to a normal distribution.

    4. Every so often you see an expose of some pubsec union’s outrageously generous contract (unlimited sick days, no excuses! work whatever hours you feel like!) and the public raises a stink for about five minutes and somewhere down the line the union negotiates itself even more goodies.

  2. Who cares about the budget?

    The important thing is to send Democrats to Sacramento to show Trump how we feel about immigration and LGBT.

  3. I’m almost sad these were overturned. California’s kind of like the disaster popcorn movie of economics. This removes some of the thrill.

    1. Oh, not to worry. There’s plenty more stories where that came from.

      Right now, the left is lining up against the LA Times for alleging that the high speed rail project is over budget and behind schedule.

      “The Times reported Friday that the confidential risk analysis said that the total cost of building a 118-mile initial segment from Merced to Shafter could rise from an original budget of $6.35 billion to a range of $9.5 billion to $10 billion. The report cited significant delays in land acquisitions and environmental approvals, warning that the construction work could be delayed by as much as seven years past its original completion date of this year.

      ‘Federal warning of higher bullet-train costs prompts sharp opinions, plans for congressional hearings ”

      http://www.latimes.com/local/c…..story.html

      Again, with progressives, what is actually happening is nowhere near as important as what people think.

      You can’t have people focusing on something that might endanger saving the planet.

      1. So, almost $850,000/mile.

        1. Small price to save the planet.

        2. I wonder how many people you could fly from SF to LA for $850,000.

          1. Let’s see – SF to LA is approx 400 miles. $340,000,000

            $300 round trip fare – 1,133,333.

            Let’s say there’s 2,500/day – 453 days worth of transport for those 2,500 flyers in just this construction cost alone.

            Oh, and the flight takes 1.5 hours (plus security time) – how long will this train take?

      2. the total cost of building a 118-mile initial segment from Merced to Shafter could rise from an original budget of $6.35 billion to a range of $9.5 billion to $10 billion.

        A high speed bullet train from Merced to Shafter? 10 billion is nothing. It will pay for itself in just a few centuries.

      3. Having it end in Shafter is so appropriate. Someone involved in the project must have a sense of humor.

        1. Mercy!

    2. We’ll always have Illinois.

      1. Which is why my girlfriend and I are already planning on leaving. And she’s a teacher!

  4. These dedicated public servants could have made more money in the private sector. And this is the thanks they get for their sacrifice. Sad.

  5. Does this mean that Governor Moonbeam is a union buster?

    1. Nope:
      ? 32005. Ralph C. Dills Act. – California Code of Regulations

  6. The really disturbing part is how fervently these workers feel/believe that they are entitled to this money. So what if the taxpayers can’t afford it? So what if their pensions are more than the average salary of the people they “serve”? They fucking deserve this money God fucking dammit!

    No shame whatsoever.

    1. Back in the 2008-2009 time frame when people were losing their jobs or taking mandatory pay cuts or unpaid furloughs, the police union here was demanding the 5% pay increase they were entitled to as a condition of a new contract. No shame, indeed.

    2. The deserve it because they are union members and without unions we’d all be working 60 hours a week for 5 bucks a day and no vacations. So unions deserve immunity from criticism forever.

  7. Can someone familiar with the CA rules please elaborate? How do you an extra 5 years? How does an “airtime purchase” work? The whole concept is so hard to believe.

    1. /you an/you buy an/

    2. I found this at a website called “fatwallet.com”

      https://www.fatwallet.com/forums/finance/1247185

    3. I bought airtime before the program ended. Xerty’s comment in the posted fatwallet link is fairly accurate. A few points about the article:

      1. You aren’t (or weren’t) “given” airtime, you “bought” it. In theory this means that you pay the net present value of an annuity to start upon your retirement in return for that annuity. So, in theory it isn’t a “benefit ” at all. “ask your boss to make five years’ worth of contributions to your 401(k) without you having to actually work those years” should read “pay your boss $10k to put in your 401k.

      2. Except it shouldn’t. Reality parts ways with theory when you consider all the ways you can manipulate the final pension numbers. It starts out stacked in the employee’s favor because the annuity is valued at a higher interest rate than government bonds. The COLA insulates you from inflation risk. This is why it is seen as a benefit.

      3. Back to theory: the unions characterize this as a purchase for value, which means the employees aren’t being denied a bargained benefit but are only being denied the opportunity to purchase a financial product. This makes the union case very weak (good for taxpayers) but also very weak precedent (bad for libertarian jurisprudence).

      So, what do I think as a CA state employee? The more we can do to rein in the excess, the greater chance I will die before it all falls apart. I’ve given up any real hope we will fix anything.

      1. comme ci comme ?a

        I did a break-even spreadsheet. The cost was quite high, ($10,000 to $20,000 in my case) Comparing my estimated pension with and without airtime*, I would “break even” at about age 82. After that, the increased pension would be pure profit.

        However, if I died five or ten years after retiring, it would be all gone. No cash value, it ends just like a normal pension would. A bad risk, considering my family medical history.

        *In my case, I was considering purchasing “military time” where the employee can purchase one year pension for each year in the military. The costs and benefits are the same as airtime. I don’t know if military time is still available.

  8. “the law is quite clear that they are entitled only to a ‘reasonable’ pension”

    Argh! Again with the r-word!

    1. Drink!

      1. If you insist

        *slams flask of whisky*

    2. ‘Reasonable person standard’ – the cause of and solution to most of the judiciary’s problems.

  9. I’m pretty sure the final arbiter of what the plans will pay is what the taxpayers are willing to shill out, contracts be damned. When the bill finally comes due for the CA taxpayer, the retired government employees are going to get the Lando Calrissian treatment from the state.

    1. They’ll be played by Billy Deeeeeeeeeee Williams in the inevitable Lifetime movie about the abused single-mother government employee?

  10. I’m shocked that a Democratic governor even thought about something that unions didn’t like, let alone sign it into law. It’s like I’m taking crazy pills.

  11. It’s time for public employees to be weaned from defined benefit plans and be required to join defined contribution plans like the rest of us peons.

    Why do governments need to fund pension plan managers who are often forced to do politically correct investing and do not necessarily look out after government employee retirement fund growth. In addition, union-government agreements, not natural markets set the return rates on pension funds. If these rates are not met, then tax payers are on the hook for even more money to fund “promised” payouts. It’s a racket of the worse sort.

    In addition if government employees were required to participate in defined contribution plans, they will think twice about jerking the economy around and shafting their retirement funds.

  12. Airtime purchases happen in Nevada too:

    Last year, Bertral Washington collected $308,452 in pay and benefits for working full-time as fire chief of Pasadena, California.
    So why is he in a book about Nevada government waste?

    Well, despite being only 44 years old and working full-time, Washington also collected a $105,000 annual retirement check from the Nevada Public Employees’ Retirement System (NVPERS) ? a payment made possible, in part, due to the generous support of Nevada taxpayers.

    He should be writing us all thank-you letters.

    Washington retired from the Clark County Fire Department in 2014. Because of immensely favorable rules governing such pensions for Nevada police and fire workers, Washington was able to immediately begin drawing a 25-year pension after only 20 years of service by “purchasing” an additional five-year entitlement.

    http://www.npri.org/docLib/201…..ys_RGB.pdf

  13. Does “holding up a shovel” count as “actual working time”?

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