For years, California state workers could sweeten a pension by piling on overtime or unused sick and vacation pay on a final year’s salary and go out the door with a bulked up retirement rate. When a fix was adopted to curb the abuse, public unions sued saying the change tampered with broad pension guarantees.
Now the state Supreme Court is coming down on the side of ending the spendthrift loophole, declaring in a unanimous opinion that the change pushed by then-Gov. Jerry Brown is legal. Known as spiking, the tactic often meant employees could earn more in retirement than they did during working years. Last year, the court also ruled against another practice that let workers buy extra years on the books to fatten pensions. The tactics are among the many reasons that California faces a chasm of debt estimated at nearly $179 billion in future pension obligations.
The court’s ruling was just as important in what it didn’t do. Under scrutiny was the so-called California rule, which largely forbids cutting promised pensions. The spiking issue teed up the larger question about whether lawmakers and employers could trim retirement checks in hard times. With the economy in a virus-caused tailspin, that idea is taking on currency.
But the high court wouldn’t go that far in allowing sweeping pension changes. It sidestepped a direct ruling on the California rule, followed by about a dozen other states, sticking only with the spiking issue. That caution will postpone major changes in meeting future retirement bills.
The upshot is a partial win for both sides. Workers can’t exploit spiking, but they’ll continue to enjoy the general protection against bigger inroads on pension plans. That outcome could have a restraining effect on state and local lawmakers when labor negotiations come up. It’s tempting to kick extra money into retirement pay to win agreement, but it’s hard to undo that future bill when financial trouble looms.
The court may be ending one pension abuse, but it’s circumventing a much larger question on California’s costly pension system.
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