The state Supreme Court last Thursday struck down one of the biggest efforts yet to force California public employees into 401(k) plans, giving unions another win in their effort to protect defined benefit retirement plans from elected leaders who want to rein in pension costs.
The court sought to write a narrow decision, finding that former San Diego mayor Jerry Sanders failed to meet with unions while he campaigned heavily for a 2012 ballot measure that promised to put most new city employees in a 401(k)-style plan instead of a pension fund.
It was the second significant pension lawsuit that favored unions this year. In January, an appeals court held that government agencies must consider the financial harm they’re causing to public employees if they want to adjust pension benefits.
Union advocates celebrated the San Diego decision, calling it a victory against an initiative that they feared would weaken public pension plans in California.
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“You can’t avoid bargaining obligations by going to legislation,” said David Mastagni, a Sacramento attorney who represents public safety unions. “It’s an old trick that some public officials had come up with.”
That case, filed by the Alameda County Deputy Sheriff’s Association, is one of two that are expected to be heard by the state Supreme Court this year. Both of them relate to the California rule, the legal precedent that generally blocks California government agencies from modifying pension benefits once they’ve offered them.
Following last week’s ruling, San Diego must re-open a public employee pension program for union employees hired after the 2012 measure went into effect. That means that “thousands” of workers will join the city pension fund, said Cathleen Higgins, government relations director for the San Diego Municipal Employees Association.
During the recession, Sanders was one of a number of California elected leaders calling attention to the rising cost of public employee pensions.
In a 2010 press release that advocated for the measure, Sanders said traditional pensions were unaffordable for the city. He argued that public sector wages had caught up to private sector salaries, and city workers should not receive the defined-benefit pensions they had been given.
“Eliminating traditional pensions is a radical idea in municipal government, but we must acknowledge that we cannot sustain the current defined benefit system, which was designed in another era for completely different circumstances,” Sanders said.
Though citizens voted Proposition B into law in 2012, the court held last Thursday that Sanders should have met with union representatives before using his influence as mayor to sway the public.
“It’s unfortunate that the pension reform measure and reducing risk are in jeopardy, but in the big picture, proponents of measures just have to be more careful about who they include in drafting,” said Dan Pellissier, the president of the advocacy group California Pension Reform. “It would have solved the problem if the mayor had not used his influence to advance the campaign.”
Had the Court ruled in favor of the city, it would have set a precedent other local governments might have followed in pushing pension reform initiatives on the ballot without consulting with unions. The decision enforces the existing requirement that cities and counties confer with union representatives before modifying the benefits of government workers.
In the decision, however, the Supreme Court noted that its ruling concerned only the responsibilities of government officials.
“We are not called upon to decide, and express no opinion on, the merits of pension reform or any particular pension reform policy,” the court noted in the opinion document.
Outside of the court cases, some California government agencies are beginning to offer 401(k) plans. University of California workers since 2016 have been allowed to choose between a 401(k) plan and a pension. UC officials estimated that the new pension system will save nearly $1.5 billion over the next 15 years and reported that 37 percent of new UC employees are choosing the 401(k) option.
A bill this year would have offered state workers a similar choice between CalPERS and an alternate retirement plan. Senate Bill 1149, authored by Sen. Steve Glazer, D-Orinda, would have required public agencies to match employee contributions if they chose 401(k) plans, but failed early in committee.