Increase in Retirement Age for California Employees Upheld

(CN) – A federal judge on Wednesday ruled against claims by a state workers’ union that California’s pension system unfairly changed the terms of a pre-existing collective bargaining agreement.

The case goes back to the Golden State’s budget crisis in 2013, when lawmakers passed a law that raised the retirement age to 62 for its state workers’ pension plan CalPERS, the largest pension fund in the nation. The year before, the American Federation of State, County and Municipal Employees Local 101 had negotiated a contract that set the retirement age at 60.

The union said the change violated the Contract Clause of the U.S. Constitution by retroactively impairing the union’s contract rights and sued CalPERS, Gov. Jerry Brown and other state administrators.

In her ruling for summary judgment in favor of the state, U.S. District Judge Beth Labson Freeman found the change to the contract was legal.

“The court’s ruling is based solely on its application of the relevant authorities addressing the Contract Clause.” Freeman wrote in the ruling. “Under those authorities, a change in law constitutes a substantial impairment of a contractual relationship only if the asserted impairment is outside the reasonable expectations of the parties. Based on the undisputed facts in this record, amendment to PERL [Public Employees’ Retirement Law] clearly was within the reasonable expectations of AFSCME and the district when they negotiated the collective bargaining agreement.”

The case was first taken to an arbitrator who ruled that CalPERS had to abide by the 2012 agreement. CalPERS refused and continued to comply with the 2013 law. In her review of the arbitration, Freeman said the state’s pension fund had no obligation to comply with the union’s arbitration award.

“AFSCME’s reliance on the arbitrator’s ruling to establish that the CBA creates a freestanding pension obligation, independent of the 2012 District-CalPERS contract, is unavailing,” Freeman wrote. “The arbitrator’s decision may not be asserted against defendants, who were not parties to the arbitration, under the doctrines of res judicata or collateral estoppel, and AFSCME has not demonstrated the existence of special circumstances warranting an exception to the normal rules of preclusion.”

Freeman concluded that the original state law from 1962 that allowed for possible legislative changes was fully incorporated into the 2012 agreement. She ruled that such changes could be reasonably expected and did not signify a major impairment to the contract since it did not apply to older workers.

“However, AFSCME bargained for those future employees’ participation in CalPERS under the applicable state law, PERL,” Freeman wrote. “Accordingly, future employees’ pension benefits are subject to PERL not because pension rights generally are governed by statute in California, but because the CBA negotiated by AFSCME and the district expressly incorporated the 2012 District-CalPERS contract and, by extension, the provisions of PERL. Thus, while the bargain negotiated by AFSCME certainly protects the pension rights of previously hired employees, it does not curtail the California Legislature’s authority to amend PERL as applied to new employees and in fact it expressly recognizes the Legislature’s authority to do so.”

The AFSCME is represented by Susan Garea of Beeson, Tayer and Bodine. The defendants are represented by California Deputy Attorney General Benjamin Glickman.

 

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