In December 2016, the California Public Employees’ Retirement System (CalPERS) voted to lower its expected investment returns, reducing the pension fund’s expected annual rate of return from 7.5 percent to 7 percent over the next three years, according to The Bond Buyer.
Because it is the nation’s largest pension system, which includes more than 3,000 state, local government and school district employers, the vote could influence what happens to a 60-year old law governing pensions, known as the California Rule, in the state’s Supreme Court. The 1955 rule grants employees the right to continue earning pension benefits that are on par with those offered when they were hired.
Earlier in 2016, an appellate court ruled that the Marin County Employees’ Retirement Association could modify its pension formula to reduce unearned benefits for current employees. That decision opposes the California Rule, and upsets the pension business as usual, and so the matter will be taken up by the state’s Supreme Court.
California labor unions do not typically consider reducing future benefits for current employees because of the California Rule. But civic officials find long-term pension obligations unsustainable.
The city of Dallas, Texas, is looming bankruptcy due to its pension obligations and has appealed to courts to intervene. Courts in Alaska, Colorado, Idaho, Kansas, Massachusetts, Nebraska, Nevada, Oklahoma, Oregon, Pennsylvania, Washington and other states have cited the California Rule in their pension reform decisions, according to legal reviews.
Former San Jose Mayor Chuck Reed, board member of Retirement Security Initiative, a pension reform advocacy group, told Bond Buyer that the court’s decision could alter the legal framework for pensions.
However, there is no date set for the state’s Supreme Court to consider the California Rule and possibly overturn the California appellate court’s decision granting Marin County the authority to modify its pension calculation.
The judges are public employees entitled to pensions.