The California Supreme Court has agreed to review a lower court ruling that reversed long-standing prohibitions that prevented state and local governments and school districts in California from cutting public pension benefits, said a notice posted on the court’s website.

“The petition for review is granted,” the court said in a brief posting Tuesday in accepting labor unions’ appeal of an August decision by an appeals court in San Francisco that pension benefits can be reduced.

Up until the appeals court decision, California was one of a dozen or so states in which pension benefits for government workers were considered similar to a contract and could not be broken, said Harvey Leiderman, an attorney specializing in pension issues with Reed Smith in San Francisco. Mr. Leiderman is not involved in the case before the state Supreme Court, but he represents the retirement boards of Contra Costa, Alameda and Merced counties in related case.

Mr. Leiderman said the so-called California rule preventing government units from reducing pension benefits had been in effect for 50 years.

While a decision by the California Supreme Court would be valid only in California, it could potentially influence courts in other states, Mr. Leiderman said.

The appeals court decision resulted from a 2012 state pension reform law that banned “pension spiking” by government workers. It also reduced benefits for new employees.

Citing the new law, the $2.1 billion, Marin County Employees’ Retirement Association, San Rafael, Calif., said pay given to employees for being on an on-call status would no longer count toward pension benefits.

Unions representing employees in the Marin County pension fund sued and the case was dismissed by a trial judge. The unions appealed and in an August ruling, the appeals court said the Legislature can alter pension formulas for active employees and reduce their expected retirement benefits.

“While a public employee does have a ‘vested right’ to a pension, that right is only to a ‘reasonable’ pension — not an immutable entitlement to the most optimal formula of calculating the pension,” the three-member panel wrote.

Mr. Leiderman said the Supreme Court will now be able to clarify the issue.

“The reasoning of the appellate panel was not only inconsistent with 50 years of Supreme Court rulings, it was inconsistent with last year’s ruling by another panel of the same court in the San Francisco COLA ordinance case,” he said. “Where fundamental rights are at issue, confusion shouldn’t reign. We hope the court will provide an unequivocal rule of law for all to follow.”

In the COLA case, a different appeals court panel found that cost-of-living adjustments for retirees in San Francisco could not be reduced.

Despite the California Supreme Court’s decision to accept the Marin County pension fund case, the case may move slowly. The Supreme Court in its posting said it was waiting for another case to be resolved.

A lower court judge earlier this year upheld anti-spiking pension provisions put in place by retirement boards in Contra Costa, Alameda and Merced counties while at the same time allowing some employees to count on-call time for pension benefits. Unions are appealing that decision.

Legal observers say the state Supreme Court wants to consolidate all the outstanding cases before holding a hearing and making a final decision.

Source: Pensions & Investments