By Ed Mendel
Monday, March 3, 2014

A federal appeals court last week gave Sonoma County retirees another chance to show that an implied contract gave them vested rights to retiree health care, preventing the benefit from being cut to $500 a month.

The majority ruling in a 2-to-1 vote of a 9th Circuit panel said retirees have a “heavy burden” showing county intent to create a lifetime contract, which the dissenting justice said is not supported by dozens of labor agreements submitted to a lower court.

Another 9th Circuit federal panel unanimously ruled Feb. 13 that Orange County retirees do not have an implied contract preventing the county from separating their health care from a pool with active workers, sharply increasing premiums paid by retirees.

And a state Appellate panel published a unanimous ruling Jan. 23 that upheld a cap on San Diego retiree health care payments, rejecting an attempt to relitigate a federal court ruling that the city’s police retiree health care is not a contractual vested right.

“After five years of litigation with the POA (Police Officers Association), making the city expend time, energy, money and resources to defend the exact same case in this action is an example of precisely the type of vexatious litigation the doctrine of collateral estoppel was designed to prevent,” said the state Appellate panel.

Compared to the attention given public pension costs, retiree health care has been a sleeper issue. Most government employers did not calculate or report retiree health care debt until accounting rules changed a decade ago.

Most still do not pre-fund retiree health care like pensions, investing annual payments to get earnings that reduce long-term costs and debt passed to future generations.

An example of what can happen is a generous state worker retiree health care plan: It’s long-term debt is already much greater than pension debt, and in five years it may be taking more money from the state general fund than pensions.

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