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Court targets ‘spiking’ with accrued vacation- CalMatters

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In summary

Some California retirees are losing income as their pension funds make adjustments to comply with a 2013 law that attempted to curtail “spiking.”

A California Supreme Court decision three years ago was supposed to be the final word on former Gov. Jerry Brown’s marquee pension limit law, but judges are still sorting it out — and making decisions that could mean thousands of dollars a year to government retirees.

Last week a state appeals court affirmed a Ventura County Employees’ Retirement Association’s decision undoing a perk that had allowed government workers to increase their pensions  in a way banned by Brown’s 2013 law.

The changes add up. Ventura’s retirement fund has estimated that some retirees could lose a couple hundred dollars a month once it complies with the pension  law and begins adjusting its vacation “cashout” policy and striking some other incentives, according to the Ventura County Star. 

Some of those affected retirees are urging the pension board to instead apply the new rules only to people who left civil service after 2020 — when the state Supreme Court upheld Brown’s law — rather than when the law itself took effect a decade ago. That’s in keeping with policies several other retirement boards have adopted. 

“This can be the difference between whether they eat or pay a utility bill or purchase a prescription they need,” Tracey Pirie, a retired Ventura County Sheriff’s Department manager, told the board that oversees her pension fund earlier this week.

When the California Supreme Court  upheld Brown’s Public Employees’ Pension Reform Act in July of 2020, it directed the state’s 20 county-run pension funds to comply with it. The law reduced the potential retirement income of government employees hired after 2013 by changing pension formulas. It also restricted a variety of financial incentives that had counted toward workers’ pensions, including standby pay and large amounts of accrued vacation.

Since the 2020 decision, county funds have been recalculating how much they owe members whose pensions were calculated with the incentives that Brown’s law capped.

The process proved to be exceedingly complex. Pension funds in Sacramento and Los Angeles counties, for instance, this month reported they’re still making adjustments. In some cases, retirees are getting money back because they paid into the system for benefits they won’t receive.

Leave cashouts in California pensions

The Ventura case at the 2nd District Court of Appeals turned on a narrow question: How many hours of leave could employees cash out in their final years on the job and apply toward the formula that determines their monthly pension income.

The 2013 law caps that amount at the number of hours an employee accrues in one year and is permitted to cash out. For instance, employees who accrue 200 hours of leave in one year could cash out that amount of time and apply the extra income toward their pension if their contract allows it. 

Until 2020, the Ventura fund permitted workers to choose a 12- or 36-month period to calculate their average income. Those dates did not have to align with a calendar year, and an employee over a 12-month period could cash out unused hours of personal leave in amounts that exceeded a single year’s vacation buydown allowance. 

The appeals court upheld the Ventura retirement fund’s decision to prohibit such “straddling. — or, as the Ventura retirement fund’s attorney Ashley Dunning labeled it, “pension spiking.”

A group of retirees sought to retain the previous policy, arguing that Ventura County’s leave cashout policies were already more stringent than state law allows. For instance, the lawsuit named retired Ventura County Counsel Leroy Smith, who accrued 368 hours of leave each year. The county capped his pensionable leave cashout at 200 hours in one year, which was far less than the time off he accrued every year. 

David Mastagni, a Sacramento lawyer who represents public safety unions and argued on their behalf in the 2020 pension case at the California Supreme Court, characterized the appeals court ruling as narrow. He said several other disputes are unfolding around the state on similarly niche questions. 

He also said current employees could bargain to lift the amount of hours they can cashout in a single year, which would create a situation in which someone like Smith could have counted more hours toward his pension formula.

“The ironic thing is if in their next contract the union negotiates that they can cash out an additional 40 hours per year, then it’s going to be perfectly legal,” he said. 

Today’s ruling gives counties the right to prevent “abuse of the pension system,” but stops short of ending a half-century of precedent. “It’s probably great news for pension lawyers.”

Climate activists and some lawmakers want two of California’s pension funds to shed about $15 billion of fossil fuel holdings. They say the move would reduce oil and gas companies’ political power, but opponents say it would be a bad move financially.

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