California v. U.S. Dep't of Labor

Decision Date19 August 2016
Docket NumberNo. 2:13-cv-02069-KJM-DB,2:13-cv-02069-KJM-DB
PartiesSTATE OF CALIFORNIA, et al., Plaintiffs, v. UNITED STATES DEPARTMENT OF LABOR, et al., Defendants.
CourtU.S. District Court — Eastern District of California
ORDER

In 2012, California passed a law that substantially reformed the pension system for public employees, the California Public Employees Pension Reform Act (PEPRA). Soon after PEPRA was passed, two California transit agencies subject to PEPRA submitted applications for federal funding under the Urban Mass Transportation Act of 1964 (UMTA). UMTA requires that before the federal government can approve a grant, the U.S. Department of Labor (DOL) must provide a specific certification: that arrangements between the transit employers applying for funds and their employees include provisions necessary for the preservation of certain employee rights and for the continuation of the employees' collective bargaining rights, among other things.

The DOL denied the two transit agencies' requests because, as DOL determined, PEPRA allowed for neither preservation of the transit employees' pension rights nor a continuation of their collective bargaining rights over pensions. The two transit agencies successfully challenged the DOL's decisions under the Administrative Procedure Act (APA) in this court in 2013, and the matter was remanded to the DOL for reconsideration. The DOL issued new decisions in 2015, again denying certification. Again the transit agencies sought relief in this court. The DOL moved to dismiss or for summary judgment, and the transit agencies likewise sought summary judgment in response. Those motions are now pending. A union of the transit agencies' employees, the Amalgamated Transit Union (ATU), filed an amicus curiae brief in support of the DOL's decisions.

The court held a hearing on those motions on May 13, 2016. Kathleen Kraft and Stephen Higgins appeared for the plaintiffs, Sacramento Regional Transit District (SacRT) and Monterey Salinas Transit (MST). Ryan Parker and Susan Ullman appeared for the DOL. Benjamin Lunch, who represents ATU, observed the hearing. The DOL's motion is denied in part, the transit agencies' motion is granted in part, the plaintiffs are granted leave to amend their supplemental complaint, and the parties are both allowed short supplemental briefs as explained below.

I. BACKGROUND
A. The Urban Mass Transportation Act of 1964

Congress enacted UMTA to further the United States' interest in "the development and revitalization of public transportation systems." 49 U.S.C. § 5301(a). Among other purposes, UMTA is meant to provide federal funding for public transportation and "promote the development of the public transportation workforce." Id. § 5301(b)(1)-(8). UMTA prompted a nationwide shift away from private to public operation of mass transportation systems. See Jackson Transit Auth. v. Amalgamated Transit Union, 457 U.S. 15, 17 (1982); Kramer v. New Castle Area Transit Auth., 677 F.2d 308, 310 (3d Cir. 1982).

UMTA allows state and local transportation agencies to obtain federal grants. Transportation agencies can obtain these grants only with a certification from the DOL. Section 13(c) of UMTA, 49 U.S.C. § 5333(b), specifies what this certification entails: "[T]he interests of employees affected by the assistance shall be protected under arrangements the Secretary of Labor concludes are fair and equitable." Id. § 5333(b)(1). These arrangements "shall include provisions that may be necessary for," among other things, (1) "the preservation of rights, privileges, and benefits (including continuation of pension rights and benefits) under existing collective bargaining agreements or otherwise," and (2) "the continuation of collective bargaining rights." Id. § 5333(b)(2)(A)-(B). The first requirement, "preservation," is commonly cited as section 13(c)(1) of UMTA, and thesecond requirement, "continuation," is commonly referred to as section 13(c)(2) of the same law.

B. The California Public Employees' Pension Reform Act (PEPRA)

As summarized in this court's previous orders, in 2012, the Governor of California signed PEPRA into law. California v. U.S. Dep't of Labor (Remand Order), 76 F. Supp. 3d 1125, 1130 (E.D. Cal. 2014); California v. U.S. Dep't of Labor (Enforcement Order), ___ F. Supp. 3d ___, 2016 WL 98746, at *1-2 (E.D. Cal. Jan. 8, 2016). As elected officials often do, the Governor issued a press release describing PEPRA as a "sweeping reform" that limited pension benefits for state employees, increased the retirement age, required state employees to pay for half of their pension costs, and stopped abusive pension practices. Office of Gov. Edmund G. Brown, Jr., Press Release (Aug. 28, 2012).1

This court, of course, looks to PEPRA's relevant sections, which provide that employees hired after January 1, 2013 are "new" employees and must pay half of the costs of their defined benefit retirement plans: "Equal sharing of normal costs between public employers and public employees shall be the standard." Cal. Gov't Code § 7522.30(a). Employees hired before January 1, 2013 are "classic" employees and may also be required to pay the same fifty percent share after good-faith collective bargaining. Id. § 20516.5(c). PEPRA sets January 1, 2018 as the effective deadline for collective bargaining on this contribution requirement. See id. Beginning on that date, a public employer "may require that members pay fifty percent of the normal cost of benefits." Id. § 20516(b), (c).

PEPRA also makes changes to the way retirement benefits are calculated, both for new and classic employees. If a public employee's retirement benefits are calculated as a percentage of his or her pre-retirement compensation, PEPRA sets specific limits on the amount of the employee's compensation that can be used in that calculation: Public employees may no longer purchase "nonqualified service credit" or "airtime."2 Cal. Gov't Code § 7522.46. For new employees,PEPRA defines a percentage-based formula for the calculation of retirement benefits; benefits are calculated using a multiplier that increases with the employee's age at retirement, from one percent at the earliest retirement age, fifty-two, to a maximum of two-and-one-half percent at age sixty-seven. See id. § 7522.20(a). Previously, the earliest retirement age was fifty, and the multiplier reached its maximum value at age sixty-three. 2013 Administrative Record (AR) 1321. PEPRA also prevents "pension spiking"—pre-retirement, short-term increases in an employee's wages to inflate pension benefits—by calculating benefits for new employees based on the employee's highest average annual salary in the three years leading up to retirement. Cal. Gov't Code § 7522.32. For new employees, the final level of compensation that may be taken into account excludes unused vacation time, ad hoc payments and bonuses, and other amounts. Id. § 7522.34(c).

C. The Plaintiff Transit Agencies

SacRT is a special regional mass transit district based in Sacramento. Remand Order, 76 F. Supp. 3d at 1129. It operates dozens of bus routes, thousands of bus stops, almost forty miles of light rail track, fifty light rail stations, more than thirty bus-to-light-rail transfer stations, and eighteen park-and-ride lots. Id. at 1130. It relies heavily on federal funding. Id. at 1130-31.

Many of SacRT's approximately one thousand employees are represented by the ATU. Id. 1129-30. SacRT alleges it has authority under California statute to establish an independent retirement system for its employees. Id. Through collective bargaining with the ATU, SacRT established a pension plan for its unionized employees.3 Id. The plan is a defined benefit plan, meaning SacRT pays a fixed benefit to retirees under a formula: a retiring employee's benefits are calculated as a percentage of his or her pay multiplied by the number of years he or she worked for SacRT, known as the number of years "in service." See 2013 AR 407-27. SacRT funds these benefits entirely; employees do not contribute to the plan fund. See 2013 AR 402, 416. A member of the retirement plan is eligible for retirement if he or she has worked ten years or more at age fifty-five or if he or she has completed twenty-five years of service, regardless of age. 2013 AR 413. Benefits for employees who retire at age fifty-five with twenty-five years of service are calculated using a two percent multiplier, and benefits for employ-ees who retire at age sixty or later with thirty or more years' service are calculated using a two-and-one-half percent multiplier. Id. Cash received in lieu of unused vacation time, ad hoc payments, or shift differentials, and other amounts may be used in calculating benefits. 2013 AR 410. SacRT and ATU have negotiated over this benefit scheme in the past. 2013 AR 213.

MST is the consolidated transportation services agency for Monterey County, California. Remand Order, 76 F. Supp. 3d at 1133. Some of MST's employees are represented by the ATU. Id. For employees hired before June 30, 2011, MST agreed to fully fund pension contributions for its defined benefits plan. See 2013 AR 802-10, 24. Employees hired after June 30, 2011 pay half of the contributions. See 2013 AR 824. Under this plan, fifty-five is the normal age of retirement, and employees receive retirement benefits equal to the product of their final compensation, a percentage multiplier, and the number of years of their service. 2013 AR 793-94, 824, 829-31. The MST plan also allows employees to purchase airtime and allows bonuses, overtime, and other amounts to be included in the calculation of retirement benefits. See 2013 AR 794. The amount of compensation used in this calculation is the highest twelve-month average compensation. Id.

D. SacRT's and MST's Grant Applications, 2013 Complaint and Remand Order

This case concerns four applications for federal funding. The first was submitted by SacRT in November 2012, which, as noted above, required the DOL's...

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