In 1975, through a Los Angeles City Charter amendment, the LA Department of Water and Power (DWP) and the City of Los Angeles entered a “reciprocal benefits arrangement between their retirement systems” (Reciprocal Arrangement). In the beginning, a roughly equal number of employees transferred between the entities. However, in 2009, to avoid layoffs, City employees were encouraged to transfer to DWP which had separate funding.
Facing financial imbalances and disproportionate employee transfers from the City to DWP, DWP’s retirement board suspended the Reciprocal Arrangement. The City then formally suspended the arrangement in 2013 by adopting an Ordinance. As a result, employees transferring from DWP to City retirement after January 1, 2014 could no longer receive City retirement credit for their previous DWP employment. In 2016, several City employees petitioned for a writ against the City and others for, in part, “unconstitutional impairment of vested contractual rights in violation of the California Constitution.” The International Brotherhood of Electrical Workers, Local 18 intervened, on the City’s side. Local 18 represented DWP employees.
City employees and their unions (City Employees) asserted that the 2013 Ordinance impaired employees’ vested retirement benefits in violation of the contract clause of the California Constitution.
The trial court determined that the City Employees had failed to establish that they had a vested contractual right to the Reciprocal Arrangement. The City Employees appealed.
The California Court of Appeal found that the Reciprocal Arrangement did not grant the City Employees a form of deferred compensation akin to vested pension benefits. The Reciprocal Arrangement was available to employees regardless of years of service. Thus, unlike pension benefits, the terms of the Reciprocal Arrangement were not proportional to years of service, a hallmark of deferred compensation. A legislative change, like the 2013 Ordinance that ended the Reciprocal Arrangement, that has the effect of lowering expected pension benefits does not necessarily impair vested rights. The diminished rights the City Employees complained about were not their rights to the pension benefits, but rather to the terms of the Reciprocal Arrangement, which were never akin to deferred compensation, nor constitutionally guaranteed. The Court concluded that any rights employees had under the Reciprocal Arrangement were not vested rights, and the City Council could modify those terms as it did in adopting the 2013 Ordinance.
The Court affirmed the superior court’s denial of the petition for writ of mandate.
American Federation of State, County and Municipal Employees v. City of Los Angeles & International Brotherhood of Electrical Workers, Local 18, 2025 Cal.App. LEXIS 197.