Court of Appeal Protects Pension Rights for City & County of San Francisco Retirees

Protect Our Benefits v. City & County of San Francisco, is a classic case illustrating how the vested rights doctrine works.

Beginning in 1996, retired employees of the City and County of San Francisco (City) have been eligible to receive a supplemental cost of living allowance (COLA) increase of their pension benefits.  The supplemental COLA has been adjusted at times and has only been paid when the retirement fund’s earnings from the previous year exceeded projected earnings.  In November 2011, voters passed Proposition C which, among other things, restricted payment of the supplemental COLA.  Under Proposition C, the supplemental COLA would only be paid when the retirement fund is “fully funded” based on the market value of the fund’s assets for the previous year.

A group of retired City employees challenged Proposition C’s restriction on payment of the supplemental COLA.  They argued that Proposition C harmed current and future pensioners because there may be some years in which the fund will earn more than projected, but will not be “fully funded” under a market value measurement. 

In March 2015, the Court of Appeal held that the restriction cannot be applied to current City workers, or to City workers who retired after 1996.  Workers hired, or retired, after 1996 were promised the supplemental COLA in exchange for their work as public servants for the City.  As a result, they have a “vested right” to the supplemental COLA.  The Court of Appeal found that Proposition C was unlawful because it did not offer a “comparable advantage” to pensioners or employees in exchange for the impairment of the “vested” COLA right.  Workers who retired before 1996, on the other hand, did so without the expectation that they would receive the supplemental COLA. 

We will update this story should the City decide to appeal the decision to the California Supreme Court.  For more information on public sector pension issues, please contact your labor law counsel.

By Jake White | May 6, 2015

Legal Developments