Fitch: CA Pension Case Highlights Legal Obstacles to Reform
Many observers had expected the litigation to provide an opportunity for legal clarification of the so-called California Rule, which provides that pension benefits are a vested contractual right and cannot be impaired for existing public employees and retirees. Lower courts had generally supported this position in earlier Measure B litigation, but such cases had yet to come before the Supreme Court of California.
Local government pension reform in California could see increased attention under a voter initiative targeting the November 2016 general election. Signature gathering recently began for the Voter Empowerment Act of 2016, which would amend the state's constitution to permit local voter initiatives to address public employee compensation and retirement benefits. The measure was sponsored by San Jose's former mayor, among other proponents, and appears designed to overturn the California Rule.
The likelihood of approval for the new initiative is uncertain, particularly given anticipated strong opposition from public employee unions. However, ongoing legal battles over pension reform can be expected regardless of the initiative's outcome and will continue to challenge efforts to reduce pension liabilities in California and other states.