Beach background with towel and flip flops and the word Retirement written in sand (studio shot - directional light and warm color are intentional).

On December 20, 2016, the California Court of Appeal for the Third Appellate District reaffirmed the purpose and spirit of the Public Employees’ Pension Reform Act (“PEPRA”) as a law designed to “limit,” rather than “shield,” public employees’ retirement compensation.  In the recent case, San Joaquin County Correctional Officers Association v. County of San Joaquin, the San Joaquin County Correctional Officers Association (CCOA) argued that PEPRA shielded its members, by prohibiting the County from eliminating a pension “pickup” prior to 2018. The Court disagreed.  It found that the County could eliminate the pickup at any point, as long as it did so in accordance with collective bargaining laws.

  1. Employer Pickup under the County Employees Retirement Law of 1937

Under the County of San Joaquin’s retirement system, CCOA members receive a pension benefit and post-retirement cost of living adjustments (COLA). By default, the County Employees Retirement Law (“CERL”) requires increases in COLA contributions to be shared equally between counties and their contributing members.  Prior to PEPRA, the law allowed, but did not require, a county to pay for, or “pick up,” the employee’s share of this contribution.* At the same time, section 31581.2 of the CERL specified that a pickup agreement did not create a vested right for members and that a county could repeal such agreement at any time, subject to meet and confer requirements under the Meyers-Milias-Brown-Act (“MMBA”).  In accordance with the CERL, and prior to PEPRA’s passage, the County of San Joaquin agreed to pick up employees’ shares of COLA contributions.

In September 2012, the County and CCOA negotiated a new memorandum of understanding.  As part of the 2012 negotiation, the County sought to end its COLA pickup, requiring CCOA members to pay their default half of COLA contribution increases.  The County imposed this change following bargaining impasse.

Rejecting the County’s decision to impose this change, CCOA argued that PEPRA prevented the County from imposing the benefit reduction until January 2018.  In support of its arguments, CCOA largely relied on Government Code section 31631.5, which was added to the CERL when PEPRA was implemented.  Under the PEPRA, all “new members,” as defined, are required to pay 50% of the normal cost of the retirement benefits.  However, for those who are not “new members,” section 31631.5 states that counties can require these classic or legacy members to pay 50% of the “normal cost of benefits” up to specified, percent-based limitations for each membership category.  According to the statute, effective January 1, 2018, employers can impose this requirement after meeting and conferring in good faith, through all impasse procedures.  However, the statute also provides that it does not apply to bargaining unit members that are already paying at least 50% of the normal cost and does not modify a county’s authority, as it existed on December 31, 2012, to change the amount of member contributions.  CCOA argued that this statute prohibited the County from changing its COLA pickup, viewing the pickup as part of the “normal cost of benefits.”

The Court denied the CCOA’s argument that this new PEPRA statute sheltered bargaining unit members from the pickup elimination.  The Court did not determine whether the COLA was part of the “normal cost of benefits,” finding the argument irrelevant to the legal issue presented.  Instead, the Court determined, because the County had the authority to repeal its pickup agreement under section 31581.2 of the CERL, at any time, as of December 31, 2012 (and prior), it could repeal the agreement through bargaining despite any time-delayed easing implemented by PEPRA.

Though the legislature delayed giving effect to some provisions of PEPRA, the Court explained that this was done to “ease the transition” and allow changes to be negotiated gradually.  However, the gradual effect of PEPRA was not intended to provide a “shield” to retirement system members, insulating them from properly, and lawfully, imposed pension increases until 2018.  Under the CERL, the County had the “right to reduce any contributions it chose to make toward what would otherwise have been the employee’s half-share of COLA payments.”

  1. Employer Paid Member Contributions under the Public Employees’ Retirement Law

Notably, like the CERL, the Public Employees’ Retirement Law (“PERL”) allows CalPERS contracting agencies to pay all or a portion of a classic member’s “normal contributions.” This is commonly referred to as an employer paid member contribution or “EPMC.”*  Also, like the CERL, the PERL provision that allows employers to cover a classic member’s default contribution, specifies that the contracting agency retains the authority to increase, reduce, or eliminate its payment of the member’s contribution.  Section 20516.5 of the PERL is similar in language to section 31631.5 of the CERL, and both sections were enacted as part of the PEPRA.  Accordingly, applying the reasoning from the Court in San Joaquin County Correctional Officers Association v. County of San Joaquin, PEPRA does not prohibit CalPERS employers from reducing or eliminating employer paid member contributions at any time, in accordance with the PERL, through proper bargaining and impasse procedures.

*After PEPRA, both the CERL and PERL limit employer pickups and employer paid member contributions to classic employees.  PEPRA does not allow employers to pay the member contribution of PEPRA-defined “new members.”