Perpetuating the adage that “misery loves company”, San Jose Mayor Chuck Reed – whose fledgling attempt to undermine San Jose employees’ pension benefits has decimated his police force and public safety in general – has filed his much anticipated proposed ballot measure the “Pension Reform Act of 2014” (hereinafter “the Act”) with the Office of the Attorney General. [Click here for copy of Initiative] Reed’s apparent misrepresentations relating to San Jose’s Measure B have been well-documented. He has now joined forces with out of state billionaires (Texan John Arnold, former Enron executive) in an orchestrated effort to radically change longstanding legal precedents and eviscerate vested pension and healthcare rights for all California public employees.
In a tacit confession that Reed’s own San Jose Measure B will likely fail to survive the legal challenges initiated by San Jose’s labor unions (thus wasting millions in taxpayer dollars), the Pension Reform Act of 2014 “findings” acknowledge that “pension reforms adopted by local governments are at-risk of being overturned by the courts.”
Rather than acknowledging that such reforms are patently illegal, the Act suggests that the fate of these local reforms is “due to a lack of clarity in the law.” This mischaracterization of the law accompanies a specific representation in the Act (Section 3(d)) that it is intended to “[t]o supersede the portions of the California Supreme Court decisions in Kern v. City of Long Beach (1947) 29 Cal.2d 848, Miller v. California (1977) 18 Cal.3d808″ and related cases. Those cases protect current and prospective pension and retiree healthcare benefits. In other words, there isn’t a “lack of clarity”; Reed and the billionaires supporting the Act simply view longstanding Supreme Court decisions interpreting the Constitution as meddlesome.
While the Act acknowledges that employers will have to adhere to retirement and retiree healthcare benefits that have been earned for work already performed, the initiative both empowers and compels local governments to reduce retirement benefits for work performed in the future. Buried in the Act is a provision which specifically grants the employer the full power to modify, freeze or terminate a pension or retiree healthcare plan for all future services provided. (Section 12(k).
Translation: Public employee pension/retiree healthcare benefits and rights earned and accrued as of the effective date of the Act could be dramatically compromised by the modification or elimination of future benefits.
To accomplish this objective, the Pension Reform Act of 2014 proposes a radical amendment to Section 9 of Article I of the California Constitution (California’s Contracts Clause): “A bill of attainder, ex post facto law, or law impairing the obligation of contracts may not be passed. Section 12 of Article VII of the Constitution is deemed not to impair the obligation of contracts.” (proposed changes in italics). Modification of the Constitution by a group of radical politicians and out of state billionaires, through a super funded political and media campaign, is the only vehicle available to hijack California’s legal system.
The Pension Reform Act of 2014 is a direct repudiation of the recently passed and implemented California Public Employee Pension Reform Act of 2013 (“PEPRA”). PEPRA is a sweeping and comprehensive reconfiguration of California’s pension laws and has been implemented statewide. Despite the acknowledged fact that PEPRA dramatically reduces the liability for pension obligations, Reed and the billionaires behind the Act assert that “. . . attempts to reform the system through legislation and other initiatives have been inadequate.” The truth is that Reed and the City of San Jose have been unsuccessful in their ill-conceived and politically motivated attempts at thwarting California law. Rather than working within the current law and legal process, the supporters of the Pension Reform Act of 2014 simply want to change the rules to accommodate their own personal and political agendas.
As drafted by Reed, Section 12 of Article VII of the Act provides legal cover to politically driven moneyed interests and radical politicians with unprecedented powers to reduce or eliminate employee benefits prospectively. Moreover, provisions of the Act will restrict actions by fair minded local government officials that do not wish to disregard their legal and contractual commitments to public employees. For example, Section 12(i)(1)of the Act establishes some of the means by which the employer may reduce future retirement benefits, including:
(i) Reduce the rate of accrual for pension or retiree healthcare benefits to be earned in the future.
(ii) Reduce the rate of cost of living adjustments for pension or retiree healthcare benefits to be made in the future.
(iii) Increase the retirement age for payment of pension or retiree healthcare benefits to be earned in the future.
(iv) Require employees to pay a larger share of the cost of pension or retiree healthcare benefits.
(v) Other reductions or modifications of pension or retiree healthcare benefits agreed upon during collective bargaining.
While the Act provides no guidelines as to how this potentially perpetual change in benefits would actually work, there is an eerily similar dilemma to the new benefits provided in San Jose’s Measure B. Those provisions have yet to be approved by the IRS. There is one reality that has not worked its way into the language of the Pension Reform Act of 2014, the citizens of San Jose are facing unprecedented spikes in criminal activity while experiencing a mass exodus of police officers! All very predictable. Does anyone expect that the out of state billionaires supporting the Act will ever deal with criminal activity or a lack of police officers in their gated communities?
While public employees are the primary victims of the Act’s overhaul of the California Constitution, local governments may be surprised to discover that the law appears to compel each of them to suffer the same disastrous fate as San Jose.
· Section 12(g)(2): Any provision of a labor agreement executed within 12 months before the effective date of this Act, which is inconsistent with any provision of this Act, shall be invalid if a court determines by a preponderance of evidence that such provision of the labor agreement was entered into for the purpose of avoiding this Act.
· Section 12(g)(3): For the purposes of this subsection, there shall be a rebuttable presumption that any labor agreement renewed or extended more than 6 months before its expiration date during the 12-month period before the effective date of this Act was entered into for the purpose of avoiding this Act.
· Section 12(j)(1): For any pension or retiree healthcare plan with assets equaling less than 80 percent of the plan’s liabilities, as calculated by the plan’s actuary using generally accepted accounting principles, the government employer shall prepare a pension or retiree healthcare stabilization plan. (emphasis added)
· Section 12(j) (2) The pension or retiree healthcare stabilization plan shall specify actions designed to achieve 100 percent funding of the plan within 15 years while preserving basic government services. (emphasis added)
· Section 12(l) The power to amend the terms of a pension or retiree healthcare benefit plan as allowed under this Section may not be prohibited or limited by labor agreement, statute, resolution, ordinance, or any other act by an executive, legislative body, pension board, or any other governmental entity.
While the Act, if approved by voters, will likely be subject to a seemingly endless array of legal attacks from both labor and management, the authors took the liberty to protect their interests. They have built in a mechanism to defend its enforceability. Section 9 of the Act grants “formal authority to the proponents [of the Act] to defend this Act in any legal proceeding”.
Worried about the billionaires spending millions in litigation fees? Don’t fret, that’s been addressed in the Pension Reform Act of 2014. They won’t be spending their money; they have the taxpayers footing the bill! The Act requires the State to pay their legal fees and costs (Section 9(b)(4)).
The Pension Reform Act of 2014 needs to be fully understood by all taxpayers and especially our clients. Please feel free contact our office for additional information.