Pension “Spiking”: The State and local public employers obtained a critical ruling in the cases challenging AB 197, California’s anti-pension spiking law. In “phase one” of the litigation, Contra Costa Superior Court Judge David B. Flinn concluded that AB 197 did not change the existing definition of “final compensation” under the County Employees Retirement Law of 1937 (CERL). He held that, to be included in “final compensation,” CERL required that cash payouts of vacation and other leave time must be both “earned and payable” in the final compensation period. The Judge held that county retirement board policies to the contrary had violated CERL. Upcoming is “phase two” in which the Judge will decide whether the County retirement boards, through settlement agreements and written policies, could nonetheless create vested rights to the cash payouts.
Retiree Health Benefits as Vested Rights. Meanwhile, the U.S. Court of Appeals for the Ninth Circuit heard argument for the second time in Retired Employees Association of Orange County, Inc. v. County of Orange, Case No. 12-56706, a closely-watched appeal that will provide important federal precedent regarding how the legal standard for vested rights—announced by the California Supreme Court in November 2011—should be applied in practice.
Retiree Health Benefits – Prefunding. And on the legislative front, San Francisco voters overwhelmingly approved a reform to that jurisdiction’s retiree health care trust fund plan that is intended to shore up the fund’s fiscal sustainability by moving to a fully prefunded model with new restrictions on the city’s ability to make withdrawals.