U.S. High Court Lets Stand Cut in State Pension Funds

The U.S. Supreme Court refused Monday to intervene in a dispute over state employee pension funds, letting stand a $1.9-billion cut in pension fund payments to help balance the 1991-92 California state budget.

The decision, made without comment, is expected to have little impact, in part because voters last month approved Proposition 162, a state constitutional amendment intended to protect public pension funds from raids by future governors and Legislatures.

If the high court had taken up the case and struck down the statute, Gov. Pete Wilson and the new Legislature would be facing an even worse deficit than the $3 billion already anticipated for the current fiscal year.

“We’re pleased with the decision,” said Wilson spokesman Franz Wisner in Sacramento. “If (the justices) had overturned the previous decision, there’s a possibility the state would have been another $1.9 billion in the hole.”

Wisner pointed out that the decision last year to cut payments into the pension fund was “part of the comprehensive plan to bridge a record $14-billion budget shortfall. . . . Never before had any state in the entire U.S. ever experience as large a shortfall as we did last year. And the actions taken didn’t take one dime away from individual pension accounts.”

The largest state employee union, the California State Employees’ Assn., was disappointed by Monday’s Supreme Court action, a spokesman said.

The union was hoping that the entire 1991 pension statute would be struck down, because the law has meant greatly reduced retirement benefits for state workers hired after June 30 of that year. The union calculates that the new system almost cuts pension benefits for the newer employees in half.

But in March, a state appeals court rejected the suit, brought by the board governing the $64-billion Public Employees Retirement System. The appellate court in effect declared that the $1.9-billion pension fund cut was not a raid on retirees’ benefits at all, because the same legislation gave employees a new guarantee against inflation--assuring them that retirement checks would fall no lower than 75% of their original buying power.

That was a reasonable exchange for the immediate loss of money to the pension fund, the court said.