Pensions

Can Public Workers Get Pension Benefits Without Actually Working? California Supreme Court Will Decide

California Supreme Court accepts appeal to lower court ruling that stopped workers from padding their pensions by an extra five years of service time.

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PAUL SAKUMA/POOL/EPA/Newscom

Instead of working additional years to qualify for a higher pension, some public employees in California simply can buy those better benefits.

It's a pension spiking technique known as "airtime purchases," and this week the California Supreme Court agreed to review a key ruling from last year that said the state was allowed to curtail the practice and only pay pension benefits for time actually worked. A union representing state firefighters initially sued to block that reform and is now appealing the December ruling from the state's First Appellate District Court.

It's the second major public pension case to make its way to California's highest court this year. Both are hugely important for governments and taxpayers in California, which has some of the nation's worst pension debt, and could be bellwethers for other states dealing with similar problems.

Here's how airtime purchases work. 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 larger pension than the rules suggest he or she should.

Usually, when you read stories about workers "spiking" pensions to get higher payouts, it's because they have artificially increased the first figure—usually because of provisions in union contracts that allow workers to cash in unused vacation or sick days, or by bosses sharply increasing workers' salaries in the final few years before retirement. Airtime purchases allow public employees to inflate the second figure as well, increasing their time on the job (for pension purposes) without actually putting in the time on the job. In short, it allows an employee to work until age 60, for example, but retire with a pension based on a formula that assumes he or she worked until age 65.

It's all legal, of course, but that doesn't mean that it makes good financial sense for governments or the taxpayers who end up having to cover those inflated pension costs.

That's why pension reforms signed in 2011 by Gov. Jerry Brown included a provision allowing local governments to ban airtime purchases. "Pensions are intended to provide retirement stability for time actually worked," Brown said at the time.

Cal Fire Local 2881, the union representing firefighters across the state, sued over the new rules, arguing that the state constitution prohibited any reduction in pension promises. In December, the state's First Appellate District Court said the state was within its authority to curtail the bonus pension benefit. "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.

That ruling—along with the First Appellate District Court's ruling in another pension case, in which the court said Marin County, California, was allowed to stop workers from cashing-in unused vacation days, sick days, and other benefits in exchange for a larger pension payout—dealt what could be a serious blow to the so-called "California Rule." As Steve Greenhut wrote in Reason shortly after the August ruling in the appeals court, the so-called California Rule isn't really a rule, but "a precedent derived from a variety of rulings that date back to 1955. Ultimately, it says that once a legislative body (city council, board of supervisors, the state Legislature) grants a pension-benefit increase, that increase is indeed immutable; it can never be rolled back."

In short: under the California Rule (a version of which exists in more than a dozen states), governments are obligated to come up with the money to pay their pension promises, no matter what other services have to be reduced or what taxes must be raised.

When it comes to airtime purchases, public sector unions argue that the additional cost created by allowing this bonus benefit is covered by the extra money kicked-in by workers who purchase it. Yes, workers do "purchase" the extra time, so they are fronting some of the cost, but if it was not a net benefit for them (and thus a net cost for governments and taxpayers), they would not be doing it and certainly would not be asking the state Supreme Court to allow them to keep doing it.

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  1. Sometimes I wish Upton Sinclair had won.

  2. The entire concept of a pension is ridiculous and needs to die. If my company tried to move us off of their 401K contributions and to a pension, I’d tell them to get bent. “We will pay you less now and more in the future, trust us.” Yeah… No. I’m not betting you are going to be around that long. All it is is a Ponzi scheme, just like Social Security.

    What the hell is wrong with people that they treat pensions like some sacred right. Get your head out of your ass.

    1. My company offers a pension and a 401K. I suspect that’s unusual as the last company I was at only had the 401K.

    2. Not only are they ponzi schemes, but they’re also golden handcuffs that play off an employee’s loss aversion.

      The last company I worked for had a pension plan for employees up until about two years before I started. All my coworkers told me how unlucky I am to have missed the boat. Except most of them are never going to leave despite making below market rate because of their pension plan.

      1. “The last company I worked for had a pension plan for employees up until about two years before I started. All my coworkers told me how unlucky I am to have missed the boat. Except most of them are never going to leave despite making below market rate because of their pension plan.”

        The big plus is that the public employees get to make more than the private sector AND get far better retirement deals. They will eventually learn that things that cannot afford to continue tend to not continue.

    3. Pensions made sense back when people worked for a single company over their entire life, and the company was stable enough that it was possible. But it requires the company to properly invest the pension funds. The problem with public sector jobs is that there is no investment. It’s all political promises. They’re not even ponzi schemes where new workers pay for the retirement of older workers, it’s the general public that gets taxed to pay for it.

      1. No company is stable enough to employ someone for their entire lifetime and then promise benefits for decades of retirement. My grandfather worked for Bethlehem Steel from late 40s to the mid-70s. No one in 1950s thought a giant like that could go bankrupt and default on its pensions, but it did exactly that in the early 2000s. My grandfather had demanded his pension in a lump sum when he retired, and therefore didn’t get his pension cut like the rest of the pensioners when PCGC took it over.

      2. It’s even worse because the unions directly contribute money and help elect the people who give them their sweetheart deals, and since those officials don’t have any skin in the game, it is very easy to just cave in and give the public unions whatever they want, including Constitutional amendments to protect their idiotic plans.

        Public unions are a damned racket.

        1. The teachers union in WA did this; they gave more than $21K in direct contributions to the election campaign for state Supreme Court judges, and through PACs, hundreds of thousands more. Now they have a bought court that slaps down charter schools and fines the state $100,000 a day for not “fully funding public education.” It should be noted that by “fully funding,” natch, they have no set figure in mind. Last year, the WEA demanded a 21% pay increase and went on an illegal strike. High-school dropout rates here are still higher than the national average, but sure, we’ll just throw more money at these cunts, that oughtta solve the problem.

          Oh, and there’s this shit.

  3. Both are hugely important for governments and taxpayers in California, which has some of the nation’s worst pension debt, and could be bellwethers for other states dealing with similar problems.

    I wonder if when historians sift through the ashes of the United States they will have the honesty to fully consider the impact of the parasitic class and their enablers in government? These lessons have been freely available to policy makers since the nation was founded and as often as possible have been ignored.

  4. Interesting that this story is running alongside the end of Calexit.

  5. “Can public workers get pension benefits without actually working?”
    All the time, Eric, all the time.
    Have you been in a California government building lately?
    At least this process is open and transparent. Otherwise, they have to sit in a government chair a few hours a day, unless “working remote”.

    1. State Government offices look like a ghost town after 12?

  6. How can the 6th largest economy in the world, per Calexiteers, be struggling with their pension debts?

    It’ll be hilarious seeing them beg the government to bail out their idiocy.

    1. It will be less hilarious when the feds agree to a bail out.

  7. If Cal state employees really want to live high they can follow the CalExit guy, Louis Marinelli, and go to Russia to retire. There they will get free medicine and lead the life they wanted while employed.

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