Court overturns part of S.F. workers’ pension cuts

A state appeals court has overturned part of the pension cutbacks for city employees that San Francisco voters approved in November 2011, a reduction of cost-of-living increases for retirees when their pension fund was earning more than previously expected.

A lawyer who challenged the measure said the ruling would help about 23,000 workers who retired after November 1996 and would also cover current employees after they retire.

The reduction was part of Proposition C, sponsored by Mayor Ed Lee, backed by labor unions and approved by more than two-thirds of the voters. The ruling doesn’t affect the measure’s central provision, which required city employees to contribute 7.5 percent of their salaries to the pension fund, a percentage that will rise when the fund is dwindling and drop when it is thriving.

The provision challenged by retirees was a partial rollback of the cost-of-living increases city voters first approved in November 1996 and enhanced in 2002 and 2008. Adding to the annual inflation adjustments pensioners were already entitled to receive, the new provisions gave them an additional increase of up to 3.5 percent in years when the city retirement fund’s earnings were higher than anticipated.

Prop. C allowed the added cost-of-living increases only in years when the retirement fund was considered “fully funded.” While the ballot measure argued that it merely clarified the previous voter-approved laws, the First District Court of Appeal said Friday it was actually a cutback that would eliminate the increased payments in some years when the fund had exceeded its projected earnings.

That violates the vested rights of employees who retired after November 1996, when the new benefits were first approved, Justice Henry Needham said in the 3-0 ruling. The ruling overturned an earlier decision in the city’s favor by Superior Court Judge Richard Kramer.

“Upon accepting public employment, one acquires a vested right to a pension based on the system then in effect, and to additional pension benefits conferred during his or her subsequent employment,” Needham said.

He said the same rights don’t apply to pre-November 1996 retirees, whose subsequent pension increases could be reduced. David Clisham, a lawyer for employees and retirees who filed the suit, said he disagreed with that part of the ruling but considered it an important victory overall for 23,000 former city workers and for current employees.

“It keeps these people up with the cost of living,” Clisham said.

The city attorney’s office was not available for comment. The city could appeal the ruling to the state Supreme Court.

Bob Egelko is a San Francisco Chronicle staff writer. E-mail: begelko@sfchronicle.com Twitter: @egelko