Recently, the City of San Bernardino declared bankruptcy. Already news analysts are speculating that there will be cuts in pensions to some of the city employees as a way of bringing the city out of its fiscal crisis. Other cities voted to curb pension benefits in recent elections.
Why is the possibility of cutting pensions for public employees an issue?
First of all, PERS is a contract between the state of California and many of public employees in the state.
The key constitutional issues of the state changing the terms of the PERS contract are the Contracts Clause and the Takings Clause (5th and 14th Amendments of the Federal Constitution):
Contracts Clause - “No state shall…pass any law impairing the Obligation of Contracts”
Takings Clause – if the state interferes with property rights (such as wages or pension), it may be required to provide “just compensation.”
The first question in a court case of this type is whether the contract was whether the breaking of the contract caused participants to the contract trouble in preparing for retirement, difficulty in paying bills, etc.
If the court concludes that contract was broken to that extent, the court next considers whether the impairment served an important government purpose, such as the protection of its citizens from harm.
A court considers whether the law was foreseeable or even plausible at the time the contract was made. It can also take into consideration that when the state is faced with a budgetary deficit, the legislature has many alternatives available to it, such as reducing state services not governed by contract and raising taxes.
If the impairment to the contract is not really necessary to protect the citizens, the court will rule in favor of those who brought suit on the impairment of contract (i.e. the employees).
Bottom line: To win on the questions the court asks, employees will need to show that they have relied upon the pension system promised them when they became members of PERS. They will need to show that the state of California has alternatives to cutting our pensions. And, they will need to show that the idea of cutting pensions drastically was not foreseeable at the time they joined PERS. There is no sure way to tell how the courts will rule, but by emphasizing these themes will force the courts to recognize the value of the contract the government makes with public employees and the consequences of breaking the contract.
Why is the possibility of cutting pensions for public employees an issue?
First of all, PERS is a contract between the state of California and many of public employees in the state.
The key constitutional issues of the state changing the terms of the PERS contract are the Contracts Clause and the Takings Clause (5th and 14th Amendments of the Federal Constitution):
Contracts Clause - “No state shall…pass any law impairing the Obligation of Contracts”
Takings Clause – if the state interferes with property rights (such as wages or pension), it may be required to provide “just compensation.”
The first question in a court case of this type is whether the contract was whether the breaking of the contract caused participants to the contract trouble in preparing for retirement, difficulty in paying bills, etc.
If the court concludes that contract was broken to that extent, the court next considers whether the impairment served an important government purpose, such as the protection of its citizens from harm.
A court considers whether the law was foreseeable or even plausible at the time the contract was made. It can also take into consideration that when the state is faced with a budgetary deficit, the legislature has many alternatives available to it, such as reducing state services not governed by contract and raising taxes.
If the impairment to the contract is not really necessary to protect the citizens, the court will rule in favor of those who brought suit on the impairment of contract (i.e. the employees).
Bottom line: To win on the questions the court asks, employees will need to show that they have relied upon the pension system promised them when they became members of PERS. They will need to show that the state of California has alternatives to cutting our pensions. And, they will need to show that the idea of cutting pensions drastically was not foreseeable at the time they joined PERS. There is no sure way to tell how the courts will rule, but by emphasizing these themes will force the courts to recognize the value of the contract the government makes with public employees and the consequences of breaking the contract.
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