By Robert D. Klausner
The highly charged battle in California over the closure of all defined benefit plans has begun focusing in earnest on the language contained in the proposed constitutional amendment. By way of brief background, a constitutional amendment has been proposed which would require that all public employees (state, county and city) hired on or after July 1, 2007 be required to be enrolled in a defined contribution plan with self-directed investment options. This would necessitate the closure of all current defined benefit retirement systems to new hires.
The proposed amendment expressly forbids defined benefit retirement benefits. The amendment does not provide any exceptions. A review of the proposal reveals that this would leave employees without a meaningful disability or death benefit. Under California law, and the law of most jurisdictions, death and disability are an integral part of the retirement benefit. To provide a traditional annuity-type death or disability benefit to employees hired after July 1, 2007, if the California proposal is adopted, would be unconstitutional.
Supporters of the measure argue that they could still provide such benefits. The precise and unusually limited language of the proposal, however, leaves no room for interpretation. This means that the only death or disability benefit available to a public employee who is disabled or dies in the line of duty would be the account balance then existing. In the case of a two or three year employee, the sum total of benefits to care for the employee or survivors would be a one time payment of a few thousand dollars.
It is plainly apparent that in their haste to advance this legislative initiative, the drafters gave no forethought to the consequences of a defined contribution only retirement benefit. The proposal also limits the ability of California’s home rule cities and counties to chart their own course of conduct in the area of employee benefits. The proposal is a significant erosion of that home rule authority and quite possibly creates an irreconcilable conflict with other provisions of the state constitution.
Courts throughout the United States have held that the goal of the courts in interpreting legislation is to divine the intent of the legislature. The primary tool is the language of a statute or constitutional provision itself. If the language is clear, the courts must give deference to that plain language and the interpretive process ends. Given the precise and limiting nature of the California pension initiative, there is no room for the courts to adopt the strained construction urged by the measure’s proponents. In any piece of legislation, the language used is critical.
A strong response by public employees and retirement fund trustees resulted in a temporary halt to the process. The battle is by no means over and continues throughout the country. Alaska voted to close its defined benefit plans effective July 1, 2006. Studies are underway on this issue in 11 other jurisdictions. Whatever the proposal, the precise language used will be the key to its success or failure.