A state appeals panel has agreed a group of Los Angeles municipal employees aren’t entitled to certain pension benefits under the state constitution in connection with a now-rescinded agreement between the city and its Department of Water and Power.
Justice Natalie Stone wrote the California Second District Appellate Court opinion; Justices Gonzalo Martinez and John Segal concurred.
According to Stone, the issue is the ending of a reciprocal benefits agreement between the city and DWP that was in effect from 1980 to 2013. Under that deal, employee pension contributions and interest, service credit and liability transferred when workers moved from the Water Power Employees’ Retirement Plan to Los Angeles City Employees’ Retirement System or vice versa. Workers maintained their contribution rate and retirement benefit calculations incorporated total service under both plans.
Although there was a balance in employee transfers for many years, conditions shifted during an economic downturn in 2009 when the city, seeking to avoid layoffs, suggested employees transfer to DWP or other autonomous departments. Having earlier ended a mechanism for correcting funding imbalances, DWP found the WPERP unfunded liability grew by about $183 million between 2004 and 2010, while LACERS saw a proportional drop.
In May 2010, the WPERP Board suspended the agreement, but the City Council voted to veto that suspension in October. The next month the retirement board filed a Los Angeles County Superior Court lawsuit. In December 2012, a judge rejected the city’s motion to end the lawsuit based on an argument only the city could implement or remove the reciprocal agreement. The Second District Appellate Court then denied the city’s request to overturn the decision, finding the city didn’t demonstrate how reciprocity was a benefit to which LACERS or WPERP members were entitled.
After the parties settled that lawsuit, the DWP withdrew from the deal, after which the city adopted a December 2013 ordinance suspending the agreement. That prompted a December 2016 lawsuit from the Coalition of City of Los Angeles Unions, which argued a diminishment of vested retirement benefits violated the California Constitution’s contract clause and alleging the city ordinance violated Los Angeles Administrative Code by forcing certain workers to forfeit health benefits.
In September 2018, Los Angeles County Superior Court Judge Mary Strobel granted International Brotherhood of Electrical Workers Local 18 the right to intervene. That union argued the opportunity to transfer between the pension systems wasn’t a vested right and, even if it were, the city’s elimination wasn’t an unconstitutional impairment of such a right.
Strobel denied the coalition’s petition in May 2022 and entered judgment in favor of the city, LACERS and Local 18 that July. The coalition appealed, but that motion was dismissed with prejudice as to LACERS, leaving only the claims against the city. The appellate panel took note of the financial implications for employees who transferred starting in 2014, but noted any employees who transferred at any time while the agreement was in effect “would not experience any change in pension benefits as a result of the 2013 ordinance,” Stone wrote.
The panel further observed that “the terms and conditions of public employment are generally established by statute rather than by contract,” Stone wrote. “Consequently, most terms and conditions of public employment, including compensation and benefits, are not protected by the contract clause and may be” changed or lessened through legal mechanisms.
While pension rights are considered vested, Stone wrote, not all employee benefits related to pensions have contract clause protections, and decisions of such are subject to independent review of a state appellate court, as is interpretation of municipal ordinances.
The legal question focused on whether the reciprocal agreements’ terms could meet the definition of deferred compensation required to establish a vested right.
“The opportunity to transfer between DWP and the city and to take advantage of reciprocity between their pension systems was available to employees regardless of years of service,” Stone wrote. “Thus, unlike pension benefits, the opportunity to avail oneself of the terms of the reciprocal arrangement is not proportional to years of service, a hallmark of deferred compensation.”
The workers argued the ending of the agreement undermined the value of the work they’d already done — since they would lose credit if they transferred — but the panel said “the fallacy” of that position is benefits can only be lost if an employee chooses to transfer and then opts not to, under current terms, purchase the employee and employer contributions.
“While the city employees assert that advancing along certain career paths sometimes requires moving between DWP and other city departments, they concede employees do not have a constitutionally protected right to transfer between DWP and the city,” Stone wrote. And even in the event a worker faces a choice between involuntary transfer or losing a job altogether, there is no protected right to stay in a position in order to maximize retirement payouts.
The Coalition is represented by Rothner, Segall & Greenstone. The firm did not respond to a request for comment.
Los Angeles is represented by Kronick, Moskovitz, Tiedmann & Girard.
IBEW Local 18 is represented by Schwartz, Steinsapir, Dohrmann & Sommers.