City Cannot Freeze Health Care Subsidy

The Superior Court of the State of California for the County of Los Angeles recently decided, in the case of Los Angeles City Attorneys Association v. City of Los Angeles, et al, the city did not have the right to offer plan participants the option of either freezing their retiree health subsidy at a set amount or contributing a percentage of pay to continue earning such benefits.

The city argued that its charter grants it the authority to modify the Los Angeles City Employees’ Retirement Systems (LACERS) in the manner previously mentioned, stating that the city may “modify…the benefits set forth in the [Los Angeles] Administrative Code [i.e., the Code] or change conditions of entitlement.”

On June 3, 2011, Section 4.1031.2 of the Code was updated to say that as of July 1, 2011, covered employees were required to contribute 4% to their retirement fund in exchange for retiree health care benefits. On June 14, 2011, updates to other sections of the Code added language that members of the plan who “did not contribute an additional 4% and retired after June 30, 2011, would receive a maximum monthly medical plan premium subsidy capped at $1,190 and no increases to the maximum subsidy would be provided,” instituting what was deemed as a “freeze ordinance.”

The Los Angeles City Attorneys Association filed a petition with the superior court March 8, 2012, asserting that since the adoption of the freeze ordinance, members of the association were subject to the frozen retiree health subsidy because “it rejected the economic concessions sought by the respondent city [of Los Angeles].” The association asserted to the court that “the city unconstitutionally impaired a contractual obligation to [association] members because a maximum medical plan premium subsidy is a vested right.”

The city responded that the law did not recognize a vested right that is “in conflict with the express provisions of the city charter, which reserves the city’s right to change the conditions of entitlement to the subsidy.”

The court found that the regulations—specifically Section 4.1103 of the Code—gave clear statutory language that “the medical plan premium subsidy ‘will be provided’…[demonstrating] a clear commitment on the part of the city and LACERS to provide a medical subsidy.” The court further found that the city’s actions to set the amount for the medical premium subsidy does not eliminate the fact that “its employees have a vested right” to such a subsidy in the first place. The court also pointed to the case of Betts v. Board of Administration, saying that like the pension rights in that case, “the vested right to a medical premium subsidy is vested upon the acceptance of employment.”

The court ruled that the freeze ordinance “constitutes an impairment of a vested right to a substantial and reasonable benefit” and directed the city to provide the health insurance premium subsidy with regard to the ordinance in question.

The full text of the ruling can be found here.