California Supreme Court Upholds Law Forbidding Pension Spiking

The following article appeared in the July 30, 2020 edition of the Los Angeles Times:

By Maura DolanStaff Writer  July 30, 2020 10:43 AM SAN FRANCISCO — 

The California Supreme Court on Thursday unanimously upheld a 2013 law that forbade public employees from padding their future pensions by cashing in years of vacation or sick pay or working longer hours before retirement.

The practice, known as “pension spiking,” can lead to a more lucrative retirement income than the pay earned while working.

In a decision written by Chief Justice Tani Cantil-Sakauye, said the law was enacted “for the constitutionally permissible purpose of closing loopholes and preventing abuse of the pension system.”

Public pension payments are calculated based on a worker’s highest year of earnings. Prior to the 2013 law, public employees were able to inflate their pay, usually at the end of their career.

Unions and public employee groups challenged the ban on spiking, contending it conflicted with decades of court decisions that created what is known as the “California Rule.” It guarantees government workers the pension that was in place on the day they were hired. Courts ruled that pensions were contracts.

The formula for calculating retirement income could be changed only in a way that was neutral or advantageous to the worker, except for new hires, courts said.

Former Gov. Jerry Brown championed the new pension laws, which were designed to alleviate a shortfall or hundreds of billions of dollars in state and local government pension systems. Unions quickly challenged the laws.

In a unanimous decision last year, the state high court said government could reduce pension benefits without running afoul of the California Rule.

The court upheld California’s 2012 repeal of an “air time” benefit that allowed state workers to buy credits toward retirement service.