When it comes to vested rights in retirement benefit plans, talk is cheap

For the last half-century, California courts have struggled with the question of when, if ever, a public employer can change retirement benefit plans for current employees. For many years, urban legend held that under the so-called “California Rule,” changes were possible only when benefits were exchanged for an equivalent benefit. The rule has been significantly eroded as it applies to pensions but essentially has been rejected in the area of retiree health benefits.

A new California Court of Appeal decision is the most recent in a line of cases holding retiree health benefits aren’t vested unless (1) the law enacting them says so or (2) written extrinsic evidence exists in the record proving unmistakable legislative intent to vest them in perpetuity. In the process, however, the court also rectified an understandable, but incorrect, reading of an earlier California Supreme Court decision addressing retiree medical benefits.

Background on important 2011 ruling

The problem the new case addresses arose because of an important 2011 supreme court ruling colloquially known as the REAOC decision (for the plaintiff, the Retired Employees Association of Orange County). There, the court ruled that in limited circumstances, courts may find an implied vested right to health benefits for retired public employees.