Title: Cal Fire Local 2881 v. California Public Employees' Retirement System
Citation: N/A
Docket Number: S239958
State: California
Issuer: California Supreme Court
Date: March 4, 2019

IN THE SUPREME COURT OF 
CALIFORNIA 
 
CAL FIRE LOCAL 2881 et al., 
Plaintiffs and Appellants, 
v. 
CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM, 
Defendant and Respondent; 
STATE OF CALIFORNIA,  
Intervener and Respondent. 
 
S239958 
 
First Appellate District, Division Three 
A142793 
 
Alameda County Superior Court 
RG12661622 
 
 
March 4, 2019 
 
Chief Justice Cantil-Sakauye authored the opinion of the court, 
in which Justices Chin, Corrigan, Liu, Cuéllar, Kruger, and 
Zelon* concurred. 
 
 
*  
  Associate Justice of the Court of Appeal, Second Appellate 
District, Division Seven, assigned by the Chief Justice pursuant 
to article VI, section 6 of the California Constitution.
 
 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC 
EMPLOYEES’ RETIREMENT SYSTEM   
S239958 
 
Opinion of the Court by Cantil-Sakauye, C. J. 
 
 
In late 2012, our Legislature enacted the California 
Public Employees’ Pension Reform Act of 2013 (PEPRA, Stats. 
2012, ch. 296, § 15; see Gov. Code, §§ 7222 et seq.), 
substantially revising the laws governing public employee 
pensions.1  This decision addresses the constitutionality of one 
of the changes effected by PEPRA, the elimination of the 
opportunity for public employees to purchase additional 
retirement service credit. 
The amount of a public employee’s pension benefit is 
typically calculated as a fraction of the employee’s annual 
compensation near the end of his or her career.  The size of the 
fraction is generally determined by the employee’s years of 
public employment, known as “service credit,” and his or her 
age at retirement.  The greater the service credit of an 
employee and the greater his or her age at retirement, the 
larger the fraction. 
Beginning in 2003, many public employees were granted 
the opportunity to purchase up to five years of service credit by 
making appropriate payments to their pension fund.  This 
                                        
1  
Unless 
indicated 
otherwise, 
all 
further 
statutory 
citations are to the Government Code. 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
2 
purchased credit, known as additional retirement service 
(ARS) credit, is treated like ordinary service credit upon an 
employee’s 
retirement. 
 
Participating 
employees 
could 
therefore receive pension benefits calculated on the basis of up 
to five years’ more public employment than they actually 
worked.  PEPRA effectively repealed the statute granting 
public employees the opportunity to purchase ARS credit, 
although it did not alter the rights of employees who had 
already purchased such credit. 
The parties present two issues for decision.  The first is 
whether the opportunity to purchase ARS credit was a “vested 
right” — that is, a right protected by the constitutional 
contract clause.  The terms and conditions of public 
employment are ordinarily considered to be statutory rather 
than contractual, and they are subject to modification at the 
discretion of the governing legislative body.  Constitutional 
protection can arise, however, (1) when the statute or 
ordinance establishing a benefit of employment and the 
circumstances of its enactment clearly evince an intent by the 
relevant legislative body to create contractual rights or, (2) 
when, even in the absence of a manifest legislative intent to 
create such rights, contractual rights are implied as a result of 
the nature of the employment benefit, as is the case with 
pension rights.  The second issue, which arises only if we 
conclude that the opportunity to purchase ARS credit is 
entitled 
to 
constitutional 
protection, 
is 
whether 
the 
Legislature’s elimination of that benefit in PEPRA constituted 
an unconstitutional impairment of public employees’ vested 
rights. 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
3 
We conclude that the opportunity to purchase ARS credit 
was not a right protected by the contract clause.  There is no 
indication in the statute conferring the opportunity to 
purchase ARS credit that the Legislature intended to create 
contractual rights.  Further, unlike core pension rights, the 
opportunity to purchase ARS credit was not granted to public 
employees as deferred compensation for their work, and here 
we find no other basis for concluding that the opportunity to 
purchase ARS credit is protected by the contract clause.  In the 
absence of constitutional protection, the opportunity to 
purchase ARS credit could be altered or eliminated at the 
discretion of the Legislature.  We therefore affirm the decisions 
of the trial court and the Court of Appeal, which concluded that 
PEPRA’s elimination of the opportunity to purchase ARS credit 
did not violate the Constitution. 
Because we reach this conclusion, we have no occasion to 
address the second issue raised by the parties:  whether the 
elimination of the opportunity to purchase ARS credit was an 
unconstitutional impairment of public employees’ vested 
rights.  The scope of constitutional protection afforded public 
pension rights by our prior decisions, beginning with Allen v. 
City of Long Beach (1955) 45 Cal.2d 128 (Allen), has come to be 
referred to as the “California Rule,” in part because its breadth 
has not been widely adopted by other jurisdictions.  (See, e.g., 
Monahan, Statutes as Contracts? The “California Rule” and Its 
Impact on Public Pension Reform (2012) 97 Iowa L.Rev. 1029, 
1032, 1071-1074 (Monahan) [referring to our doctrine as the 
“so-called California Rule” and noting that, of the twelve states 
to adopt the rule, three have since modified it].)  The state and 
many amici urge us to use this decision as a vehicle to reduce 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
4 
the protection afforded pension rights by modifying or 
abandoning the California Rule, while plaintiffs and many 
other amici urge us to leave the California Rule intact.  
Because we conclude that the opportunity to purchase ARS 
credit was not a term and condition of public employment 
protected from impairment by the contract clause, its 
elimination does not implicate the Constitution.  For that 
reason, we have no occasion in this decision to address, let 
alone to alter, the continued application of the California Rule. 
I.  FACTUAL AND PROCEDURAL BACKGROUND 
A. State Employee Pensions 
 
Although a number of different pension plans cover 
public employees in California, governed by a variety of 
statutes, local regulations, and agreements, the plans tend to 
operate in a similar manner.  Here, we discuss provisions 
relating to state workers as an illustrative example.2  State 
employees are members of the California Public Employees 
Retirement System (CalPERS), the state pension system.  Both 
state employees and their employers are required to make 
contributions to CalPERS during the course of their 
employment.  (§§ 20170 [creating the Public Employees 
Retirement Fund]; 20176; 20671 et seq.; 20790 et seq.)  With 
some exceptions, a state employee does not become eligible to 
                                        
2  
Although we discuss state employee pensions, the ban on 
ARS credit enacted by PEPRA applies to all “public retirement 
system[s],” defined broadly by PEPRA as “any pension or 
retirement system of a public employer.”  (§§ 7522.04, subd. (j) 
[defining public retirement system]; 7522.46, subd. (a) 
[banning ARS credit for all public retirement systems].) 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
5 
receive a pension until he or she has worked for the state for at 
least five years and has attained the age of 50.  (§ 21060, subd. 
(a).)  Persons who leave state service without five years of 
service or who otherwise are “permanently separated” from 
state employment prior to taking retirement can elect to have 
their pension contributions returned to them, rather than 
remaining a member of CalPERS.  (§§ 20731, subd. (b)(3); 
20734.) 
Once vested state employees reach the minimum 
retirement age, they are eligible to retire and begin receiving 
monthly retirement benefits.3  (§ 21250 [benefits paid in 
monthly installments].)  As noted, the amount of the benefit is 
generally 
determined 
by 
the 
individual 
employee’s 
compensation, age at retirement, and years of service.  As an 
                                        
3  
The use of the term “vested” is potentially confusing here 
because the term is used in two different ways in discussing 
pensions.  As noted, public employees become eligible to receive 
a pension only after some minimum period of public 
employment, typically five years.  (E.g., § 21060, subd. (a).)  
Once an employee has become qualified to receive a pension by 
satisfying the minimum service requirement, he or she is said 
to be “vested” with respect to the receipt of a pension.  That is 
not the same as having a “vested right.”  That term has come 
to refer to a benefit of public employment whose repeal or other 
divestment is constrained by the constitutional contract clause.  
Public employees acquire a vested right in their pension at the 
inception of employment, even though they generally do not 
become vested with respect to its receipt until after five years 
of employment.  (E.g., Packer v. Board of Retirement (1950) 35 
Cal.2d 212, 214 [“a public employee, as a part of his 
compensation, obtain[s] a vested right to a pension upon 
entering his duties”].) 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
6 
example, the pension benefits of one subgroup of state and 
university employees are determined from a table in section 
21354.1.  The table sets a covered employee’s yearly pension 
benefit at 2 percent of the employee’s “final compensation,” 
multiplied by the member’s years of service credit, further 
multiplied by a number derived from the table.4  The latter 
number is determined by the member’s age at retirement and 
increases from a minimum of .550 at age 50 to a maximum of 
1.250, applicable to retirees of age 63 and over.  (§ 21354.1, 
subd. (a).)  The net effect is to grant a pension equal to 2 
percent of a member’s final compensation per year of service 
for retirement at age 55, rising to 2.5 percent of final 
compensation per year of service for retirement at age 63 or 
above; retirement between the ages of 50 and 55 results in a 
less generous pension benefit.  (Ibid.)  At least a dozen similar 
schedules are found in the Government Code, applicable to 
different categories of public employees but offering benefits 
calculated in the same general way.5 
                                        
4  
Generally 
speaking, 
“final 
compensation” 
is 
an 
employee’s annual compensation, determined in various ways 
for different systems.  For many state employees, final 
compensation is their highest compensation earned during any 
consecutive 12-month period of state service.  (§ 20035, subd. 
(a).)  For persons hired after the effective date of PEPRA, final 
compensation is the highest average annual compensation 
during any period of at least 36 consecutive months.  
(§ 7522.32, subd. (a).) 
5  
See §§ 21353, 21353.5, 21354, 21354.3, 21354.4, 21354.5, 
21362, 21363, 21363.1, 21366, 21368, 21369, 21369.1, 21369.2, 
21370.  Plaintiffs state in their opening brief that they and 
their fellow union members are covered by section 21363.4, 
 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
7 
B. Additional Retirement Service Credit 
 
State employees and other members of CalPERS were 
granted the opportunity to purchase ARS credit in 2003 by the 
enactment of section 20909 (Stats. 2003, ch. 838, § 1); teachers 
had been granted the opportunity in 1997 (Ed. Code, § 22826; 
Stats. 1997, ch. 569, § 2).  The concept of purchasing service 
credit did not originate with ARS credit.  Members who had 
performed military service or other “public service,” as defined 
by statute, had long been able to obtain pension service credit 
for that time by making appropriate payments to CalPERS.  
(§ 21020; See §§ 20997, 21010 et seq.; Marzec v. Public 
Employment Retirement System (2015) 236 Cal.App.4th 889, 
897.)  Section 20909, however, was the first opportunity for 
state employees to acquire “nonqualified” service credit, or 
service credit that did not reflect any type of service.  (See 26 
U.S.C. § 415(n)(3)(C) [defining “nonqualified service credit”]; 
§ 7522.46, subd. (a).)  Because ARS credit is untethered to 
actual service, it acquired the nickname “ ‘air time.’ ”  (Assem. 
Com. on Pub. Employees, Retirement and Social Security, 
Analysis of Assem. Bill 719 (2003-2004 Reg. Sess.) Apr. 23, 
2003, at p. 2.)6   
                                                                                                           
 
which provides for a pension of 3 percent of final compensation 
per year of service credit, regardless of the member’s age at 
retirement beyond the minimum age of 50.  (Id. subd (a).) 
6  
Limited excerpts from the legislative histories of PEPRA 
and section 20909 were included in the record before the trial 
court.  We have also consulted more complete legislative 
histories compiled and maintained by our library, based 
largely on materials in the files of the California State 
Archives. 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
8 
Under section 20909, a public employee with at least five 
years of public employment could, at any time prior to his or 
her retirement, make a one-time election to purchase from one 
to five years of ARS credit.  (Id. subds. (a), (b).)  These 
conditions of purchase are consistent with the requirements of 
federal tax law, which authorizes a tax-qualified retirement 
plan to provide for the acquisition of up to five years of 
nonqualified service credit after a member has participated in 
the plan for at least five years.  (26 U.S.C. § 415(n)(3)(B); see 
Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading 
analysis of Assem. Bill 719 (2003-2004 Reg. Sess.) as amended 
Aug. 18, 2003, p. 3 (hereafter, Sen. Rules Analysis).)  To 
acquire ARS credit, the member was required to pay CalPERS, 
either in a lump sum or installments, “an amount equal to the 
increase in employer liability, using the payrate and other 
factors affecting liability on the date of the request for costing 
of the service credit,” a figure calculated by CalPERS.  
(§§ 21050, subd. (a); 21052.)  In other words, the employee was 
required to pay the present value of the increase in his or her 
pension benefits that would result from the purchased ARS 
credit, at least to the extent that increase could be estimated 
from circumstances prevailing at the time the employee 
exercised the opportunity to purchase ARS credit. 
 
When section 20909 was enacted, the purchase of ARS 
credit was viewed as particularly beneficial to employees who 
joined public service comparatively late in life or who left 
public employment temporarily to raise children or to further 
their education, and therefore had been unable to acquire 
sufficient service credit for a “livable retirement income.”  (Sen. 
Rules Analysis, supra, at p. 4.)  It was anticipated that the 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
9 
financial burden on employees of purchasing ARS credit would 
be partially mitigated because ARS credit could, and 
presumably often would, be financed with funds withdrawn 
from tax-qualified retirement savings accounts, such as 401(k) 
accounts.  (Ibid.) 
The Legislature anticipated that ARS credit would be 
“cost neutral” to public agencies, since employees were 
required to pay CalPERS the full present value of the future 
benefits.  (Sen. Rules Analysis, supra, at p. 3.)  Yet even then, 
it was recognized that the eventual cost of ARS credit might 
exceed the purchase price paid by pensioners, most obviously 
for employees who experienced a significant increase in salary 
between the time of purchasing ARS credit and their 
retirement.  (State and Consumer Services Agency, Enrolled 
Bill Rep., Assem. Bill 719 (2003-2004 Reg. Sess.) p. 4.)  As the 
Department of Finance pointed out in opposing the enactment 
of section 20909, CalPERS was required to make a variety of 
assumptions in calculating the present value of ARS credit, all 
of which “contain a high degree of inaccuracy.”  (Department of 
Finance, Bill Analysis/Enrolled Bill Rep., Assem. Bill 719 
(2003-2004 Reg. Sess.) Mar. 24, 2003, at p. 2.)  In an analysis 
performed for the years 1997 to 2007, CalPERS found that, in 
practice, its methodology for calculating the price of ARS credit 
had underestimated its actual cost by 12 percent to 38 percent 
for various categories of state workers.  (CalPERS, Review of 
Additional Retirement Service Credit Purchases (undated) p. 
6.)  CalPERS recommended revising its calculations to increase 
prices accordingly.  (Ibid.) 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
10 
C.  PEPRA 
The centerpiece of PEPRA was a pension plan applicable 
only to newly hired public employees that is less expansive, 
and therefore less burdensome for the state and local 
governments, than the plans covering then-existing public 
employees.  As compared to existing employees’ pensions, the 
new plan increased the age at which employees could claim 
equivalent 
pension 
benefits, 
set 
a 
cap on 
the 
total 
compensation on which pension benefits could be based, 
required employees to pay one-half of the cost of funding their 
pensions, and required the annual compensation used to 
calculate pension benefits to be determined by averaging over 
a three-year period, rather than using a single year.  (§§ 
7522.02, subd. (b); 7522.10, subds. (c), (g); 7522.20, subd. (a); 
7522.30, subd. (a); 7522.32, subd. (a).)  All of these are less 
favorable than the equivalent benefits typically available to 
then-existing public employees. 
PEPRA also modified certain statutes governing the 
pensions of existing employees.  One of these provisions, 
section 7522.46, eliminated the purchase of ARS credit by 
public employees after December 31, 2012.  (§ 7522.46, subds. 
(a), (b); Stats. 2012, ch. 296, § 15.)  In clean-up legislation 
initiated by CalPERS the following year, this provision was 
incorporated into section 20909 itself, which now states, in 
part, “This section shall apply only to an application to 
purchase additional retirement credit that was received by the 
system prior to January 1, 2013, that is subsequently approved 
by the system.”  (Id. subd. (g), as amended by Stats. 2013, ch. 
526, § 13.) 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
11 
So far as we have been able to ascertain, there is nothing 
in the legislative history that explains the Legislature’s 
decision to terminate the purchase of ARS credit.  Its likely 
intent, however, can be inferred from a 12-point plan for 
pension reform that formed the foundation for PEPRA, 
published by Governor Edmund G. Brown, Jr. in October 
2011.7  In recommending the termination of ARS credit, the 
Governor’s plan stated, “Many pension systems allow 
employees to buy ‘airtime,’ additional retirement service credit 
for time not actually worked.  When an employee buys airtime, 
the public employer assumes the full risk of delivering 
retirement income based on those years of purchased service 
credit.  Pensions are intended to provide retirement stability 
for time actually worked.  Employers, and ultimately 
taxpayers, should not bear the burden of guaranteeing the 
additional employee investment risk that comes with airtime 
purchases.”  (Governor Edmund G. Brown, Jr., Twelve Point 
Pension 
Reform 
Plan, 
Oct. 
27, 
2011, 
p. 
4 
<https://www.gov.ca.gov/wp-
content/uploads/2017/09/Twelve_Point_Pension_Reform_10.27.
11.pdf> [as of Mar. 4, 2019]; all Internet citations in this 
                                        
7  
See Sen. Rules Com., Off. of Sen. Floor Analyses 
Conference Completed Rep., Assem. Bill 340 (2011-2012 Reg. 
Sess.) Aug. 28, 2012, p. 7 [“The comprehensive pension reform 
proposal contained in the Conference Committee Report is 
based on the Governor’s 12-Point Pension Reform Plan.  [¶]  
The Conference Committee Report includes 10 of the 12 points 
included in the Governor’s plan.”]. 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
12 
opinion are archived by year, docket number, and case name at 
.) 
D. This Litigation 
Plaintiff and appellant Cal Fire Local 2881 (Union) is a 
labor association whose members are employees of the 
California Department of Forestry and Fire Protection, known 
as “Cal Fire.”  The four individual plaintiffs are Cal Fire 
employees.  Plaintiffs filed a petition for a writ of mandate 
against CalPERS challenging the elimination of ARS credit, 
contending that the opportunity to purchase ARS credit was a 
vested right protected by the contract clause of the California 
Constitution.  The trial court approved a stipulation permitting 
the state to intervene. 
The trial court denied the petition, ruling that the 
opportunity to purchase ARS credit was not protected by the 
Constitution and, even if it were, its elimination was a 
“ ‘permissible modification to the pension plan’ ” because it was 
“materially related to the theory and successful operation of a 
pension system.”  (See Cal Fire Local 2881 v. California Public 
Employees Retirement System (2016) 7 Cal.App.5th 115, 123, 
129 (Cal Fire).)  The Court of Appeal affirmed on both grounds 
in a published decision.  (Id. at pp. 127, 129.)  That court based 
its conclusion that the opportunity to purchase ARS credit was 
not constitutionally protected on the absence of any indication 
of legislative intent to create a contractual right.  (Id. at 
pp. 127-128.)  It also held that the opportunity was properly 
eliminated, even if it was protected by the constitution, on 
reasoning similar to that of the trial court.  (Id. at pp. 129-131.) 
For the reasons discussed below, we agree with both 
courts that the opportunity to purchase ARS credit was not a 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
13 
benefit of employment protected by the constitutional contract 
clause.  Given that conclusion, we have no occasion to reach 
the further question whether, if it were so protected, its 
elimination 
would 
have 
worked 
an 
unconstitutional 
impairment of public employees’ contractual rights. 
II.  DISCUSSION 
 
Whether the opportunity for existing public employees to 
purchase ARS credit is a benefit of employment protected by 
the constitutional contract clause — that is, whether it is a 
vested right — is a question of law subject to our independent 
review.  (Board of Administration v. Wilson (1997) 52 
Cal.App.4th 1109, 1128-1129 (Wilson).) 
A.  Constitutional Protection of the Terms and 
Conditions of Public Employment Has 
Historically Been the Exception, Not the Rule 
The vested rights doctrine, the foundation of plaintiffs’ 
contention that PEPRA’s elimination of the opportunity for 
existing public employees to purchase ARS credit was 
unconstitutional, is grounded in the constitutional contract 
clause.  Both the United States and California Constitutions 
contain provisions that prohibit the enactment of laws effecting 
a “substantial impairment” of contracts, including contracts of 
employment.8  (Sveen v. Melin (2018) 584 U.S. __ , 138 S.Ct. 
                                        
8  
See United States Constitution, article I, section 10, 
clause 1 [“No state shall . . . pass any . . . law impairing the 
obligation of contracts . . . .”] and California Constitution, 
article I, section 9 [“A . . . law impairing the obligation of 
contracts may not be passed”].  As noted above, plaintiffs bring 
this challenge under the California Constitution. 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
14 
1815, 1821-1822 (Sveen); San Francisco Taxpayers Assn v. 
Board of Supervisors (1992) 2 Cal.4th 571, 584; see Allen v. 
Board of Administrators (1983) 34 Cal.3d 114, 119.)  
“The Contracts Clause restricts the power of States to disrupt 
contractual arrangements. . . .  The origins of the Clause lie in 
legislation enacted after the Revolutionary War to relieve 
debtors of their obligations to creditors.  [Citation.]  But the 
Clause applies to any kind of contract.”  (Sveen, 138 S.Ct. at p. 
1821.)  The federal contract clause restricts states from 
impairing their own contracts, as well as those between private 
parties.  (United States Trust Co. v. New Jersey (1977) 431 U.S. 
1 (United States Trust).)  In this context, the term “vested 
right” has come to refer to the terms and conditions of public 
employment that are protected from impairment by the 
constitutional contract clause.  (See ante, fn. 3.) 
Contract clause protection of the terms and conditions of 
public employment historically has been the exception, rather 
than the rule.  “[T]he terms and conditions of public 
employment, unlike those of private employment, generally are 
established by statute or other comparable enactment (e.g., 
charter provision or ordinance) rather than by contract.”  
(White v. Davis (2003) 30 Cal.4th 528, 564 (White).)  For this 
reason, public employees have generally been held to possess 
no constitutionally protected rights in the terms and conditions 
of their employment.  “[I]t is well settled in California that 
public employment is not held by contract but by statute and 
that, insofar as the duration of such employment is concerned, 
no employee has a vested contractual right to continue in 
employment beyond the time or contrary to the terms and 
conditions fixed by law.”  (Miller v. State of California (1977) 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
15 
18 Cal.3d 808, 813 (Miller).)  It is also “well settled that public 
employees have no vested right in any particular measure of 
compensation or benefits, and that these may be modified or 
reduced by the proper statutory authority.”  (Butterworth v. 
Boyd (1938) 12 Cal.2d 140, 150 (Butterworth).)  As we 
explained in Retired Employees Assn. of Orange County v. 
County of Orange (2011) 52 Cal.4th 1171 (Retired Employees), 
“ ‘the principal function of a legislature is not to make 
contracts, but to make laws that establish the policy of the 
[governmental body].  [Citation.]  Policies, unlike contracts, are 
inherently subject to revision and repeal.’ ”  (Id. at p. 1185.) 
In the eighty years since Butterworth, the growing 
prevalence of collective bargaining by public employees has 
dramatically increased the number of employees whose terms 
and conditions of employment are governed by express 
contracts, rather than solely by legislative enactments.  (See 
Meyers-Milias-Brown Act, §§ 3500 et seq. [regulating collective 
bargaining by local agency employees]; Ralph D. Dills Act, §§ 
3512 et seq. [regulating collective bargaining by state 
employees].)  At least for the term of their collective bargaining 
agreement, the employment of such employees is largely a 
matter of contract, not statute.  (See, e.g., Retired Employees, 
supra, 52 Cal.4th at p. 1182 [“our ‘often quoted language that 
public employment is not held by contract’ has limited 
force where, as here, the parties are legally authorized to enter 
(and have in fact entered) into bilateral contracts to govern the 
employment relationship”]; Vallejo Police Officers Ass’n v. City 
of Vallejo (2017) 15 Cal.App.5th 601, 612 (Vallejo Police) [“Like 
other 
contracts, MOU’s 
[memoranda 
of 
understanding] 
ordinarily cover distinct periods of time, and the obligations 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
16 
associated 
with 
them 
ordinarily 
terminate 
with 
the 
agreement”].) 
Yet the growing prevalence of public employment 
agreements has not altered the fundamental principle that the 
terms and conditions of public employment, to the extent those 
terms and conditions derive from legislative enactments, are 
not generally protected by the contract clause from repeal or 
revision at the discretion of the legislative body.  There 
continues to be a large number of public employees whose 
employment is not governed by an agreement.  Even for public 
employees covered by an express employment contract, the 
issue has continued application.  The covered terms and 
conditions of their employment may be immune from 
legislative modification during the term of the express 
agreement, but disputed issues continue to arise regarding the 
legislative body’s power to alter the terms and conditions of 
employment that are not covered by the agreement or to alter 
the terms and conditions established by the agreement after its 
expiration.  (See, e.g., Retired Employees, supra, 52 Cal.4th at 
pp. 1176, 1177-1178 [considering whether retirees could 
acquire a vested right in a health premium methodology not 
specified in their MOU]; Vallejo Police, at pp. 614-620 [finding 
no vested right to retiree medical contributions following 
expiration of MOU]; Chisom v. Board of Retirement of Fresno 
County Employees’ Retirement Ass’n (2013) 218 Cal.App.4th 
400, 414-416.) 
Our decisions have recognized two exceptions to the 
general rule permitting legislative modification of statutory 
terms and conditions of public employment.  The first, 
applicable to statutorily created employment rights generally, 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
17 
affords the protection of the contract clause to statutory terms 
and conditions of public employment when the statute or 
ordinance establishing the benefit and the circumstances of its 
enactment clearly evince a legislative intent to create 
contractual rights.  The second exception, which this court has 
historically extended primarily to pension rights, protects 
certain benefits of public employment by implication, even in 
the absence of a clear manifestation of legislative intent.  Both 
of these means for creating vested rights are invoked by 
plaintiffs, and we address them separately below. 
B. Manifestly Intended Contractual Rights 
1.  Terms and conditions of public employment are 
protected by the contract clause when the 
circumstances clearly evince a legislative intent to 
create contractual rights 
Notwithstanding the general rule that legislative 
enactments do not create rights protected by the contract 
clause, the United States Supreme Court has long recognized 
an exception when the legislation at issue manifests an intent 
to create contractual rights.  In United States Trust, supra, 431 
U.S. 1, the legislatures of New York and New Jersey had both 
approved a statutory covenant limiting the use of mass transit 
revenues to subsidize passenger rail transit, a covenant both 
states later repealed.  (Id. at p. 3.)  In evaluating bondholders’ 
claim 
that 
the 
states’ 
joint 
repeal 
of 
the 
covenant 
impermissibly impaired their rights under the federal contract 
clause, the high court recognized that “a statute is itself 
treated as a contract when the language and circumstances 
evince a legislative intent to create private rights of a 
contractual nature enforceable against the State.”  (Id. at p. 17, 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
18 
fn. 14.)  In United States Trust, the court found it “unnecessary 
. . . to dwell on the criteria for determining whether state 
legislation gives rise to a contractual obligation” because “[t]he 
intent to make a contract is clear from the statutory 
language . . . .  Moreover, . . . the purpose of the covenant was 
to invoke the constitutional protection of the Contract Clause 
as security against repeal [of the covenant legislation].”  (Id. at 
pp. 17-18, citations omitted.) 
We have recognized the same principle.  In Retired 
Employees, we held that the resolutions of a board of 
supervisors governing the terms and conditions of county 
employment could create implied contractual rights “when the 
language or circumstances accompanying [enactment of the 
resolutions] clearly evince a legislative intent to create private 
rights of a contractual nature.”  (Retired Employees, supra, 52 
Cal.4th at p. 1177; see also Youngman v. Nevada Irrigation 
District (1969) 70 Cal.2d 240, 246-247 (Youngman) [district 
employees successfully pleaded an implied contractual right to 
the implementation of a salary schedule].)9 
Retired Employees addressed the question, submitted to 
us by the Ninth Circuit Court of Appeals, “ ‘[w]hether, as a 
matter of California law, a California county and its employees 
can form an implied contract that confers vested rights to 
                                        
9  
Both Retired Employees and Youngman were decided in 
the context of local government employment.  Their rationale 
would appear to apply as well to legislative enactments at the 
state level, but for present purposes it is sufficient for us to 
assume, without deciding, that application. 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
19 
health benefits on retired county employees.’ ”  (Retired 
Employees, supra, 52 Cal.4th at p. 1176.)  The county had 
entered into a series of express contracts with its employees, in 
the form of MOUs, relating to their terms and conditions of 
employment, but these agreements did not expressly address 
the 
retiree 
benefits 
for 
which 
the 
plaintiffs 
sought 
constitutional protection.  Each of these MOUs had been 
ratified by a resolution of the board of supervisors.  (Id. at pp. 
1177-1178.)  We recognized the ordinary rule that public 
employment is a creature of statute, but we held that rule to be 
of “limited force” when “the parties are legally authorized to 
enter (and have in fact entered) into bilateral contracts to 
govern the employment relationship.”  (Id. at p. 1182.)  We 
ultimately “conclude[d] generally that legislation in California 
may be said to create contractual rights when the statutory 
language or circumstances accompanying its passage ‘clearly 
“. . . evince a legislative intent to create private rights of a 
contractual nature enforceable against the [governmental 
body].” ’  [Citations.]  Although the intent to make a contract 
must be clear, our case law does not inexorably require that 
the intent be express.  [Citation.]  A contractual right can be 
implied 
from 
legislation 
in 
appropriate 
circumstances.  
[Citation.]  Where, for example, the legislation is itself the 
ratification or approval of a contract, the intent to make a 
contract is clearly shown.”  (Id. at p. 1187.)  As the final 
sentence of that quotation suggests, the court found the 
existence of the MOUs critical to its conclusion that an implied 
contractual right could have been created.  (Id. at p. 1183 
[“Where the relationship is governed by contract, a county may 
be bound by an implied contract (or by implied terms of a 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
20 
written contract), as long as there is no statutory prohibition 
against such an agreement”].) 
2.  There is no indication that the Legislature intended 
to create a contractual right to purchase ARS 
credit  
Plaintiffs rely on Retired Employees, supra, 52 Cal.4th 
1171, in arguing for a vested right in the opportunity to 
purchase ARS credit, characterizing that decision as finding a 
contractual right if the benefits “were promised when 
employees provided service.” 
Before addressing this argument, it is important to make 
clear what is not at issue here.  The only change made by 
PEPRA relating to ARS credit was to eliminate the opportunity 
to purchase ARS credit after the end of 2012.  PEPRA does not 
purport to affect the rights of employees who took advantage of 
the opportunity to purchase ARS credit while it was still 
available.  Persons who actually purchased ARS credit 
therefore remain in precisely the same position as they were 
prior to PEPRA, and we need not consider their circumstances 
further.  What is claimed here to be a vested right is the 
opportunity to purchase ARS credit, rather than any of the 
rights conferred by its purchase. 
As discussed above, it was critical to Retired Employees’ 
holding that the legislative enactment on which the implied 
contractual rights were premised was a resolution approving 
an express contract of employment.  (Retired Employees, supra, 
52 Cal.4th at pp. 1183, 1187.)  The county board’s ratification 
of this contract provided the requisite clear manifestation of 
intent to create contractual rights.  Nothing of the sort 
occurred in connection with the opportunity to purchase ARS 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
21 
credit.  The Legislature did not engage in any sort of 
negotiation with the public employees covered by section 
20909, let alone ratify an express or implied contract reflecting 
its terms.  The Legislature simply enacted a statute granting 
the opportunity to purchase ARS credit.  As Retired Employees 
noted, such statutes, which announce a policy rather than 
create a contract, “ ‘are inherently subject to revision and 
repeal.’ ”  (Retired Employees, supra, at p. 1185.) 
Plaintiffs’ characterization of ARS credit as “promised 
when employees provided service” suggests the existence of an 
affirmative commitment by the Legislature to make the 
opportunity to purchase ARS credit available indefinitely, but 
they cite no persuasive evidence of such a commitment.  
Plaintiffs rely primarily on a clause of section 20909, the 
statute conferring the opportunity to purchase ARS credit, 
which states that “[a] member may elect to receive this 
additional retirement service credit at any time prior to 
retirement by making the contributions as specified in Section 
21050 and 21052.”  (Id. subd. (b).)  They contend that this 
provision manifests the Legislature’s intent to permit existing 
employees to exercise the opportunity to purchase ARS credit 
at any point prior to their retirement by (1) working for the 
five-year period and (2) thereafter making the required 
payments to CalPERS.  Although we recognize that the 
language, read in isolation, can be interpreted as plaintiffs 
urge, we agree with the trial court and Court of Appeal that 
this construction reads too much into subdivision (b). 
Rather than a commitment to maintain the opportunity 
to purchase ARS credit for the duration of the employment of 
existing public employees, this portion of subdivision (b), when 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
22 
read in the context of the remainder of section 20909, simply 
established that the one-time election to purchase ARS credit 
could be made at any point during an employee’s career and 
that the election to purchase was not complete until the 
required payments to the pension system had been made.  (See 
Elks Hills Power, LLC v. Board of Equalization (2013) 57 
Cal.4th 593, 610 [“ ‘ “[every] statute should be construed 
with reference to the whole system of law of which it is a part 
so that all may be harmonized and have effect” ’ ”].)  The 
remaining provisions of section 20909 establish conditions 
applicable to the purchase of ARS credit — the requirement of 
written notice, the maximum number of years available for 
purchase, the minimum service time required before a 
purchase can be made, the requirement to purchase in whole-
year increments, the limitation to one purchase event, 
restrictions on the applicability of ARS credit for non-pension 
purposes, and the type of employees eligible to make the 
purchase.10  (Id. subds. (a), (b), (d), (e).)  It is therefore 
                                        
10  
The full text of section 20909 follows: 
“(a) A member who has at least five years of credited 
state service, may elect, by written notice filed with the board, 
to make contributions pursuant to this section and receive not 
less than one year, nor more than five years, in one-year 
increments, of additional retirement service credit in the 
retirement system. 
“(b) A member may elect to receive this additional 
retirement service credit at any time prior to retirement by 
making the contributions as specified in Sections 21050 and 
21052. A member may not elect additional retirement service 
credit under this section more than once. 
 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
23 
consistent with the statute’s remaining provisions to read the 
portion cited by plaintiffs as establishing other, similar 
conditions, specifying the time during an employee’s career 
when ARS credit can be purchased and the manner of 
completing that election.  Given the existence of this more 
plausible reading, plaintiffs’ interpretation does not “clearly 
evince a legislative intent to create private rights of a 
contractual nature,” which is required before such rights will 
be found.  (Retired Employees, supra, 52 Cal.4th at p. 1177; see 
id. at p. 1187 [“the intent to make a contract must be clear”].)  
As the Court of Appeal persuasively explained, “this phrase 
                                                                                                           
 
“(c) For purposes of this section, ‘additional retirement 
service credit’ means time that does not qualify as public 
service, military service, leave of absence, or any other time 
recognized for service credit by the retirement system. 
“(d) Additional retirement service credit elected pursuant 
to this section may not be counted to meet the minimum 
qualifications for service or disability retirement or for health 
care benefits, or any other benefits based upon years of service 
credited to the member. 
“(e) This section only applies to the following members: 
“(1) A member while he or she is employed in state 
service at the time of the additional retirement service credit 
election. 
“(2) A member of the system defined in Section 20324. 
“(f) For purposes of this section, ‘state service’ means 
service as defined in Section 20069. 
“(g) This section shall apply only to an application to 
purchase additional retirement credit that was received by the 
system prior to January 1, 2013, that is subsequently approved 
by the system.” 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
24 
means just what it says and no more — to wit, eligible 
employees could opt to purchase the service credit at any 
time,” rather than being required to purchase ARS credit at a 
particular point in their public careers.  (Cal Fire, supra, 7 
Cal.App.5th at p. 127.)  To convert “this straightforward 
reading of this statutory phrase [into a] promise by the 
Legislature not to modify or eliminate the option to purchase 
service credit” would fly in the face of “the legal presumption 
against the creation of a vested contractual right.”  (Ibid.)  
Beyond this provision, plaintiffs have pointed to no text, 
legislative history, or other evidence suggesting that the 
Legislature intended to make ARS credit an irrevocable 
feature of the employment of then-existing public employees.11 
In arguing for an implied contract, plaintiffs rightly note 
that “[p]ension statutes have rarely, if ever, explicitly stated 
that a vested right is being created.”  As discussed below, our 
cases holding that the pension rights of public employees are 
protected by the contract clause have done so even without a 
manifest indication of legislative intent.  We have never held, 
however, that the constitutional protection afforded pension 
rights, which attaches even in the absence of manifest 
                                        
11  
In addition to citing section 20909, subdivision (b), 
plaintiffs contend that the Legislature should be presumed to 
have intended the creation of a contractual right in the 
opportunity to purchase ARS credit because the statute 
contains no affirmative indication that the opportunity was not 
contractual.  The argument disregards the requirement of a 
clearly evinced legislative intent to create contractual rights in 
Retired Employees, supra, 52 Cal.4th at p. 1177. 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
25 
legislative intent to create contract rights, extends generally to 
all other benefits of public employment. 
C.  Implied Contractual Rights 
Given the absence of circumstances clearly evincing a 
legislative intent to create a contractual right to purchase ARS 
credit, we turn to plaintiffs’ alternative argument that the 
opportunity to purchase ARS credit is entitled to the same type 
of constitutional protection as public employee pension rights. 
1.  The Constitution protects an implied contractual 
right for California’s public employees to receive 
statutory pension benefits because those benefits 
constitute deferred compensation 
Our decisions recognize that, through his or her service, 
a public employee acquires a constitutionally protected implied 
contractual right to receive statutory pension benefits upon 
retirement.  “A public employee’s pension constitutes an 
element of compensation, and a vested contractual right to 
pension benefits accrues upon acceptance of employment.  
Such a pension right may not be destroyed, once vested, 
without impairing a contractual obligation of the employing 
public entity.”  (Betts v. Board of Administration (1978) 21 
Cal.3d 859, 863 (Betts).) 
The rationale for the constitutional protection of 
statutory pension rights was established over a century ago in 
O’Dea v. Cook (1917) 176 Cal. 659 (O’Dea).  The plaintiff in 
O’Dea was the widow of a San Francisco police officer who died 
as a result of injuries suffered in the line of duty.  When she 
sought to claim her late husband’s pension benefits, which 
were created by the city charter (id. at p. 660), the trustees 
overseeing the pension plan refused her, citing an amendment 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
26 
to the plan that was enacted after the occurrence of her 
husband’s fatal injury but before his death.  O’Dea is 
recognized for rejecting the legal theory that public employee 
pensions constitute a gratuity, a legal argument that persisted 
well into the last century.  (Monahan, supra, 97 Iowa L.Rev. at 
p. 1052; see Dodge v. Board of Education (1937) 302 U.S. 74, 79 
[affirming a state court finding of no vested right to a teacher 
pension created by statute and characterizing the benefits as 
“gratuities”].)  But O’Dea was also the first decision to 
articulate the legal foundation for our subsequent decisions 
finding a vested right to public employee pensions.  In rejecting 
the 
gratuity 
theory, 
the 
court 
held, 
without 
further 
elaboration, “where, as here, services are rendered under . . .  a 
pension statute, the pension provisions become a part of the 
contemplated compensation for those services and so in a sense 
a part of the contract of employment itself.”  (O’Dea, at pp. 661-
662, italics added.) 
Although O’Dea went no further in articulating a basis 
for the legal protection of pension rights, the connection to the 
constitutional contract clause was subsequently recognized by 
Kern v. City of Long Beach (1947) 29 Cal.2d 848 (Kern).  There 
we observed that our decisions following O’Dea had held that 
“the right to a pension vests upon acceptance of employment.”  
(Kern, at p. 852.)  In reconciling this holding with the statutory 
nature of pension rights, Kern reasoned that the decisions “are 
not in conflict with language appearing in some cases to the 
general effect that public employment is not held by contract.  
[Citations.] . . .  [P]ublic employment gives rise to certain 
obligations which are protected by the contract clause of the 
Constitution, including the right to the payment of salary 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
27 
which has been earned.  Since a pension right is ‘an integral 
portion of contemplated compensation’ [citation], it cannot be 
destroyed, once it has vested, without impairing a contractual 
obligation.  Thus the courts of this state have refused to hold, 
in the absence of special provision, that public employment 
establishes tenure rights, but have uniformly held that pension 
laws such as the [city charter provision at issue in Kern] 
establish contractual rights.”  (Id. at pp. 852-853.)   
In justifying the constitutional protection given pension 
benefits, Kern did not rely on, or even inquire into, 
manifestations of legislative intent to confer contractual rights.  
Rather, the Kern court found that a contractual right to receive 
pension benefits is implied, despite their statutory foundation, 
because they constitute a form of deferred compensation.  As 
Kern explained, a public employee “is not fully compensated 
upon receiving his salary payments because, in addition, he 
has then earned certain pension benefits, the payment of 
which is to be made at a future date.  While payment of these 
benefits is deferred, and is subject to the condition that the 
employee continue to serve for the period required by the 
statute, the mere fact that performance is in whole or in part 
dependent upon certain contingencies does not prevent a 
contract from arising, and the employing governmental body 
may not deny or impair the contingent liability any more than 
it can refuse to make the salary payments which are 
immediately due.”  (Kern, supra, 29 Cal.2d at p. 855.)  Given 
their character as deferred compensation, the receipt of 
legislatively established pension benefits is protected by the 
contract clause, even in the absence of a manifest legislative 
intent to create contractual rights. 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
28 
Our subsequent decisions have confirmed that the receipt 
of pension benefits is granted constitutional protection because 
the benefits constitute a portion of the compensation awarded 
by the government to its employees, paid not at the time the 
services are performed but at a later time.  As stated in Miller, 
supra, 18 Cal.3d 808, “Pension rights, unlike tenure of civil 
service employment, are deferred compensation earned 
immediately upon the performance of services for a public 
employer ‘[and] cannot be destroyed . . . without impairing a 
contractual obligation.  Thus the courts of this state have 
refused to hold, in the absence of special provision, that public 
employment establishes tenure rights, but have uniformly held 
that pension laws . . . establish contractual rights.’ ”  (Id. at pp. 
814; see also, White, supra, 30 Cal.4th at p. 564 [“public 
employment gives rise to certain obligations, protected by the 
contract clause of the Constitution”]; Legislature v. Eu (1991) 
54 Cal.3d 492, 533 [“Decisions of this court have assumed the 
federal contract clause protects the vested pension rights of 
public officers”].)12 
                                        
12  
Decisions outside California have characterized public 
employee pension plans as “an implied-in-fact unilateral 
contract” and justified their constitutional protection on this 
ground.  (McGrath v. Rhode Island Retirement Bd. (1st Cir. 
1996) 88 F.3d 12, 17; see ibid. [characterizing this view as 
“fairly well settled” and “applied repeatedly to state and 
municipal pension plans”]; see also Moro v. State (Or. 2015) 
351 P.3d 1, 20-21; Taylor v. City of Gadsden (11th Cir. 2014) 
767 F.3d 1124, 1134; State ex rel. Horvath v. State Teachers 
Retirement Bd. (Ohio 1998) 697 N.E.2d 644, 653-654; 
Christensen v. Minneapolis Municipal Employees Retirement 
Bd. (Minn. 1983) 331 N.W.2d 740, 747-748.)  As explained in 
 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
29 
We have consistently recognized that elements of public 
employee compensation other than pension benefits also may 
be entitled to this type of implied contractual protection.  In 
Kern, for example, we stated that “public employment gives 
rise to certain obligations which are protected by the contract 
clause of the Constitution, including the right to the payment 
of salary which has been earned.”  (Kern, supra, 29 Cal.2d at p. 
853.)  To the same effect, we stated in White, that “although 
the conditions of public employment generally are established 
by statute rather than by the terms of an ordinary contract, 
once a public employee has accepted employment and 
performed work for a public employer, the employee obtains 
certain rights arising from the legislative provisions that 
establish the terms of the employment relationship — rights 
that are protected by the contract clause of the state 
Constitution from elimination or repudiation by the state.”  
(White, supra, 30 Cal.4th at p. 566.)  Our actual application of 
the contract clause to statutory terms and conditions of public 
employment outside the pension context, however, has been 
limited to the protection of earned salary (id. at pp. 565-566, 
570-571 [state employees are constitutionally entitled to 
receive compensation for work they have performed]) and the 
compensation “promised” to judges at the inception of their 
                                                                                                           
 
Hoefel v. Atlas Tack Corp. (1st Cir. 1978) 581 F.2d 1, “the 
modern view [is] that the promise of a pension constitutes an 
offer which, upon performance of the required service by the 
employee becomes a binding obligation.”  (Id. at p. 4.)  That 
view is consistent with the general approach, if not the express 
analysis, of our decisions. 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
30 
term of office.  (Olson v. Cory (1980) 27 Cal.3d 532, 538-539 
(Olson) [state judges are entitled to receive compensation set 
by legislation at the beginning of their judicial term].)13 
2.  The opportunity to purchase ARS credit was not a 
form of deferred compensation 
We first consider whether the opportunity to purchase 
ARS credit was a form of deferred compensation, in the nature 
of pension benefits, and entitled to contract clause protection 
on that basis. 
 
Pension benefits, the classic example of deferred 
compensation, flow directly from a public employee’s service, 
and their magnitude is roughly proportional to the time of that 
service.  Just as each month of public service earns an 
employee a month’s cash compensation, it also earns him or 
her a slightly greater benefit upon retirement.  In this way, 
pension benefits are, literally, earned by an employee’s work.  
Upon retirement, this additional component of his or her 
                                        
13  
Decisions of the Courts of Appeal have extended the 
principles developed in our pension cases to protect a wider 
range of public employment benefits.  (E.g., California League 
of City Employee Associations v. Palos Verdes Library Dist. 
(1987) 87 Cal.App.3d 135, 137 (California League) [finding 
contract clause protection for terms and conditions of 
employment that constituted longevity benefits].)  We have no 
occasion here to address the merits of that or similar decisions 
(see Retired Employees, supra, 52 Cal.4th at p. 1190 [accepting 
criticism of California League]), but we do not intend to 
suggest that implied contract clause protection is limited to the 
circumstances addressed in our own prior decisions. 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
31 
compensation is paid to the employee in the form of pension 
benefits. 
In contrast, the opportunity to purchase ARS credit, 
when it existed, was made available at the option of each 
individual employee.  If not taken advantage of, the 
opportunity expired upon an employee’s retirement or 
termination of employment.  Further, the amount of an eligible 
employee’s service was entirely irrelevant to his or her exercise 
of the opportunity.  Once the five-year qualification period was 
served, further public employment did not increase the amount 
of ARS credit that an employee could purchase or in any other 
way affect his or her opportunity.  In contrast with pension 
benefits, in which a critical determinant is an employee’s term 
of public employment, the factor that determined the benefit 
received through the purchase of ARS credit was simply the 
number of years of ARS credit an employee purchased.  And as 
noted, all vested employees, regardless of service time, had the 
same opportunity to purchase from one to five years of ARS 
credit.  In fact, the opportunity to purchase ARS credit was so 
unconnected to actual service time that a public employee who 
had worked just the minimum of five years’ public employment 
and was otherwise eligible to retire could, at least in theory, 
have doubled his or her pension benefit by purchasing five 
years’ ARS credit and retiring soon after.   
Plaintiffs argue that it was necessary for employees to 
“earn,” in a sense, the right to purchase ARS credit by working 
in public employ for five years.  (§ 20909, subd. (a).)  We are 
not 
persuaded, 
however, 
that 
the 
imposition 
of 
this 
requirement created a constitutionally protected right.  As the 
state points out, the five-year requirement was required to 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
32 
make section 20909’s authorization of ARS credit compliant 
with federal tax law, which limits the purchase of nonqualified 
service credit to persons who have participated in a pension 
plan for at least five years.  (26 U.S.C. § 415(n)(3)(B)(ii).)  
Further, five years of service is generally required for an 
employee to qualify to receive a pension.  (E.g., § 21060, subd. 
(a).)  The five year requirement simply precluded the purchase 
of ARS credit by employees who had not yet established their 
eligibility for a pension.  In light of these independent policy 
justifications for the existence of the requirement, we find no 
basis for concluding that the opportunity to purchase ARS 
credit was granted as deferred compensation for an employee’s 
work during the five-year period. 
 
The opportunity to purchase ARS credit was not different 
in form from a variety of other optional benefits offered to 
public employees in connection with their work.  In addition to 
their salary or hourly pay, it is not unusual for public 
employees to be offered the opportunity to purchase different 
types of health insurance benefits from a variety of providers; 
to purchase life and long-term disability insurance; and to 
create a flexible spending account, by which certain medical 
and child care expenses can be paid with pre-tax income.  We 
have never suggested that this type of benefit is entitled to 
protection under the contract clause. 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
33 
3.  There is no other basis to find implied contract 
clause protection for the opportunity to purchase 
ARS credit 
a.  Even if viewed as an offer of a unilateral 
contract, section 20909 was properly revoked by 
the Legislature 
 
Plaintiffs argue that opportunity to purchase optional 
benefits such as these is protected by the contract clause 
because it constitutes “an offer of a unilateral contract term for 
which performance is tendered by beginning and continuing 
employment.”  Except under the circumstances discussed 
above, statutory terms and conditions of public employment do 
not create contractual rights.  (Miller, supra, 18 Cal.3d at 
pp. 813-814.)  Yet even if we treat section 20909 as constituting 
an offer of a unilateral contract, the offer was revocable until 
accepted by the actual purchase of ARS credit; it did not 
require the state to make the opportunity to purchase ARS 
credit available for the duration of the careers of existing 
employees. 
A unilateral contract is one that is accepted by 
performance.  (Davis v. Jacoby (1934) 1 Cal.2d 370, 378-379; 
Los Angeles Traction Co. v. Wilshire (1902) 135 Cal. 654, 658 [a 
unilateral contract is “a mere offer that, if subsequently 
accepted and acted upon by the other party to it, would ripen 
into a binding, enforceable obligation”]; Civ. Code, § 1584.)  
Under ordinary principles of contract law, such an offer can be 
revoked or modified prior to acceptance — in other words, prior 
to the promisee’s performance of the act constituting 
performance.  (T.M. Cobb Co. v. Superior Court (1984) 36 
Cal.3d 273, 278; Civ. Code, § 1586; 1 Witkin, Summary of Cal. 
Law (10th ed. 2005) Contracts, §§ 166-167, pp. 202-204.) 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
34 
 
Under section 20909, to accept the “offer” to purchase 
ARS credit, a public employee must (1) file a written election 
with the employee’s pension board (id. subd. (a)) and (2) make 
appropriate payments to the retirement system (id. subd. (b)).  
Accordingly, even if section 20909 were treated as establishing 
the offer of a unilateral contract, the Legislature was entitled 
to revoke that offer as to all public employees who had yet to 
make a written election and the required payments.  In 
PEPRA, the Legislature did just that. 
Plaintiffs argue that engaging in public employment was 
sufficient to prevent revocation of the section 20909 offer 
because an offeror’s right to revoke or modify a unilateral 
contract ends once partial performance occurs.  (State of 
California v. Agostini (1956) 139 Cal.App.2d 909, 914 [“ ‘If an 
offer for a unilateral contract is made, and part of the 
consideration requested in the offer is given or tendered by the 
offeree in response thereto, the offeror is bound by a 
contract’ ”].)  We disagree, however, with the premise of their 
argument, 
that 
public 
employment 
constituted 
partial 
consideration for the acquisition of ARS credit.  The 
opportunity to purchase ARS credit was conditioned on public 
employment, but it was not offered in exchange for public 
service.  For those employees who had already been publicly 
employed for five years at the time section 20909 was enacted 
in 2003, no public service was required to qualify for an 
election to purchase ARS credit.  Such employees’ mere status 
as public employees on the effective date was sufficient.  Once 
other public employees had served the five years necessary to 
qualify to receive a pension, they were also qualified for full 
rights under section 20909.  Although continuing public 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
35 
employment was necessary to retain the qualification to make 
an election, that continuing service did not bring an employee 
any closer to acquiring ARS credit.  Performance — the 
consideration for the acquisition of ARS credit — required the 
filing of a written election and payment of the necessary sums. 
Our conclusion in this regard is bolstered by the 
requirement in section 21052, which sets the terms of payment 
for ARS credit, that an employee contribute the full amount of 
“the increase in employer liability” in order to acquire ARS 
credit.  (Id.)  An employee’s public service appears not to have 
been viewed by the Legislature as constituting partial 
consideration for an election under section 20909, since the 
employee received no offsetting credit for the value of that 
service in purchasing ARS credit. 
In this regard, plaintiffs argue that a contractual right 
with respect to the opportunity to purchase ARS credit should 
be found because public employees reasonably expected that 
the opportunity would continue to be made available for the 
duration of their employment.  The only cited basis for those 
“reasonable expectations,” however, is the belief that the 
opportunity to purchase ARS credit would continue to exist in 
the future because it “was in effect for ten years.”  The 
argument proves too much.  We have never held that statutory 
terms and conditions of public employment gain constitutional 
protection merely from the fact of their existence, even if they 
have persisted for a decade.14  Such a rationale would directly 
                                        
14  
In one prior decision, Betts, supra, 21 Cal.3d 859, we 
suggested 
that 
public 
employees’ 
“contractual 
pension 
 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
36 
contradict the general principle that such terms and conditions 
are not a matter of contract and are generally subject to 
legislative change.  (Miller, supra, 18 Cal.3d at pp. 813-814; 
Butterworth, supra, 12 Cal.2d at p. 150.) 
b.  The opportunity to purchase ARS credit was not 
entitled to constitutional protection solely 
because it involved the pension system 
Plaintiffs also argue that the opportunity to purchase 
ARS credit was protected by the contract clause because it was 
a “pension right,” enacted as part of the public employee 
retirement law and implemented through the pension system.  
As plaintiffs phrase it, the opportunity to purchase ARS credit 
constituted a vested right because, if an employee exercised 
that opportunity, “it increased the pension benefit.”  We have 
never held, however, that a particular term or condition of 
public employment is constitutionally protected solely because 
it affects in some manner the amount of a pensioner’s benefit. 
Our decision in Miller, supra, 18 Cal.3d 808, is 
illustrative.  The plaintiff in Miller was a state tax attorney 
who was forced to retire upon reaching the age of 67, the 
                                                                                                           
 
expectations” were relevant to determining the extent of their 
vested pension rights.  (Id. at p. 866; see similarly, Bellus v. 
Eureka (1968) 69 Cal.2d 336, 341, 350 [employee expectations 
relevant to interpreting terms of pension plan].)  It is one thing 
to consider employees’ expectations in determining the extent 
of protected rights.  It is a different matter, and simply 
circular, to consider employees’ expectations in determining 
whether a particular benefit is protected at all, at least when 
those expectations are based solely on the existence of the 
benefit. 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
37 
statutory age of mandatory retirement from state service.  At 
the time he began his state employment, and until a few years 
before his retirement, the mandatory age of retirement was 70, 
and the plaintiff’s pension benefit would have been less if he 
was required to abide by the lower retirement age.  (Id. 18 
Cal.3d at p. 811.)  Despite the impact on the plaintiff’s pension 
benefit, we declined to hold that he had a vested right to retire 
according to the mandatory age in effect at the time he joined 
state service.  (Id. at pp. 812, 815-817.) 
We began our discussion by reiterating the familiar 
principle that public employment in California is a creature of 
statute, not contract, and “no employee has a vested 
contractual right to continue in employment beyond the time 
or contrary to the terms and conditions fixed by law.”  (Miller, 
supra, 18 Cal.3d at p. 813.)  “In view of these long and well 
settled principles,” we concluded “that the power of the 
Legislature to reduce the tenure of plaintiff’s civil service 
position . . . by changing the mandatory retirement age was not 
and could not be limited by any contractual obligation.”  (Id. at 
p. 814.)  We distinguished cases involving pension rights, 
explaining that pension rights, “unlike tenure of civil service 
employment,” are “deferred compensation” and therefore 
protected by the contract clause.  (Ibid.) 
We then turned to a second question, whether the impact 
of 
the 
legislation 
on 
the 
plaintiff’s 
pension 
benefits 
“nevertheless work[ed] an impairment of any vested right to 
earn a larger monthly pension based upon continued state 
service until age 70.”  (Miller, supra, 18 Cal.3d at p. 815.)  
Drawing on decisions holding that “the right to pension 
benefits vests upon the acceptance of employment,” the 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
38 
plaintiff 
contended 
that 
“upon 
acceptance 
of 
public 
employment [he] acquired a vested right to a pension based on 
the system then in effect,” which allowed him to earn 
maximum benefits by working to age 70.  (Id. at pp. 815, 817.)  
We rejected the argument because the plaintiff had failed to 
satisfy the prerequisite for maximum benefits, that he work 
until age 70.  Although we recognized that it was the 
legislative enactment that mandated his retirement before he 
reached the age of 70, we found no vested right to achieve the 
maximum pension benefit because, as discussed above, 
“plaintiff had no vested contractual right to continue working 
for any specified period of time.”  (Id. at p. 817.)  “In short, [the 
plaintiff’s] membership in [the state retirement system] did not 
confer on him the right to remain in state employment beyond 
age 67 and he had no constitutionally protected right to 
continue in his position until age 70 in order to receive a larger 
retirement allowance. . . .  [¶]  [T]he power of the Legislature, 
unfettered by contract, reduced the mandatory age of 
retirement and thereby created the condition subsequent 
whose occurrence not only terminated plaintiff’s employment 
but also defeated his expectation of additional salary and a 
larger retirement allowance.”  (Ibid.) 
A second decision illustrating the same principle is 
Creighton v. Regents of University of California (1997) 58 
Cal.App.4th 237 (Creighton), which involved an early 
retirement program implemented to cope with budget cuts at a 
university laboratory.  Eligible employees, who were covered 
by a defined benefit pension plan, were given a three-month 
period to decide whether to accept immediate retirement in 
return for an additional five years of service credit.  When, two 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
39 
weeks into the three-month period, administrators concluded 
that the program was too generous, they reduced the offer to 
an additional three years of service credit for persons who had 
not yet accepted the offer.  This change naturally reduced the 
size of the pension benefits available to employees who took 
advantage of the program.  (Id. at p. 241.)  The plaintiffs, who 
accepted early retirement after the reduction of the offer, sued 
to obtain the benefit of the original proposal, contending that 
because the program concerned their pension plan they had a 
vested right to the terms of the original proposal.  (Id. at p. 
242.) 
The Court of Appeal rejected the claim.  The court 
accepted that the program constituted a “retirement benefit,” 
thereby distinguishing it from other types of compensation, but 
it held that the program was “different in kind from the 
benefits governed by the [line of cases granting constitutional 
protection to pension benefits], none of which concerned a one-
time, special, elective incentive offered to eligible employees 
during a short, specified ‘window’ period, in response to specific 
financial exigencies.”  (Creighton, supra, 58 Cal.App.4th at pp. 
243-244, fn. omitted.)  The document governing the early 
retirement program expressly stated that it “ ‘shall not be a 
vested or accrued Plan benefit.’ ”  (Id. at p. 244.)  Based on that 
provision, the court had “no difficulty in concluding that the 
language . . . clearly and unambiguously means that [the 
program] creates no vested right to either its additional age 
and service credits or the resulting enhanced pension 
payments.”  (Ibid.)  “Rather,” the court held, “it is a limited 
offer of enhanced benefits which, upon an eligible employee’s 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
40 
timely acceptance . . . , and with consideration . . . , creates a 
separate binding contract.”  (Id. at p. 245.) 
As Miller and Creighton demonstrate, a term and 
condition of public employment that is otherwise not entitled to 
protection under the contract clause does not become entitled 
to such protection merely because it affects the amount of an 
employee’s pension benefit.  In any event, although the 
purchase of ARS credit does increase the amount of a pension 
benefit, as plaintiffs argue, it does not affect the amount of the 
pension benefit that represents deferred compensation.  That 
portion of the pension benefit is the same for employees who 
elect to purchase ARS credit and those with the identical 
employment experience who decline to purchase it.  Acquiring 
ARS credit merely adds an amount attributable to the 
purchased service credit to the monthly benefit payable as 
deferred compensation.  Rather than compensation for public 
employment, the increase in pension benefits from the 
purchase of ARS credit is a return of, and perhaps a return on, 
the funds used to make the purchase. 
Plaintiffs cite Wilson, supra, 52 Cal.App.4th 1109, in 
support of their position, arguing the decision rejected a 
distinction between “pension benefits” and “pension rights.”  
Wilson addressed the constitutionality of a change in the 
manner in which the state made its contributions to the state 
pension fund, from funding on a current basis to funding a year 
in arrears.  (Id. at pp. 1117-1118.)  In the process, the court 
rightly rejected the state’s argument that the vested rights 
doctrine applies only to changes in pension benefits, as opposed 
to changes in other aspects of the pension system.  As the court 
noted, the doctrine applies to the “modification of any ‘vested 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
41 
contractual pension right,’ ” which prior decisions had held to 
include the manner of pension funding.  (Id. at p. 1145.)  
Although Wilson rightly held that “ ‘vested contractual pension 
right[s]’ ” encompass more than the benefits paid by a pension 
system, it did not attempt to define the scope of such rights, 
beyond the funding mechanism actually addressed in the 
decision.  For the reasons stated above, we conclude that the 
opportunity to purchase ARS credit was not a vested 
contractual pension right. 
c.  The opportunity to purchase ARS credit is not 
entitled to constitutional protection under 
Olson v. Cory 
We held in Olson, supra, 27 Cal.3d 532, that state judges 
are entitled under the contract clause to receive, for the 
duration of their term, the compensation established by statute 
for their position at the outset of their term, characterizing this 
as “[p]romised compensation.”  (Id. at p. 538.)  The plaintiffs in 
Olson were a group of current and former California judges 
who challenged an amendment to the statute governing 
judicial 
compensation 
that 
reduced 
their 
cost-of-living 
increases.  As a result of the legislation, judges would receive a 
five percent salary increase, rather than the fractionally 
greater increase that would have been available prior to the 
amendment.  (Id. at pp. 536-537.)  Olson found the legislation 
unconstitutional on two independent grounds:  (1) the statute 
violated our Constitution’s prohibition against the reduction of 
an elected state officer’s salary during his or her term of office 
(id. at pp. 537, fn. 2 & 543-544; see Cal. Const., art. III, § 4); 
and (2) the statute violated judicial officers’ vested rights 
under the contract clause. 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
42 
Our consideration of the contract clause issue began by 
acknowledging the case law holding that public employment “is 
not held by contract and therefore is not protected by the 
contract clause.”  (Olson, supra, 27 Cal.3d at p. 537.)  We 
distinguished those decisions, however, on the grounds that 
the matter at hand concerned “the right to compensation by 
persons serving their term of public office to which they have 
undisputed rights.”  (Id. at p. 538.)  We found the situation 
analogous 
to 
the 
circumstances 
in 
Sonoma 
County 
Organization of Public Employees v. County of Sonoma (1979) 
23 Cal.3d 296 (Sonoma County), which held that a state 
statute reducing public employee cost-of-living increases 
embodied in a memorandum of understanding ran afoul of the 
contract clause.  (Id. at pp. 302-303, 313-314.)  Characterizing 
“the elements of compensation for [public] office” to be 
“contractually vested upon acceptance of employment,” Olson 
held that the contract clause precludes the Legislature, during 
the term of a judicial officer, from reducing the benefits 
available at the commencement of his or her term.  (Olson, 
supra, 27 Cal.3d at pp. 538, fn. 3 & 539.)  We recognized that if 
a judge chose to enter a new term of office after the effective 
date of the challenged legislation, he or she would be subject to 
the reduced compensation established there.  (Id. at p. 540.) 
Olson does not support plaintiffs’ claim of a vested right 
to purchase ARS credit.  First, critical to Olson’s reasoning was 
the defined term of office served by judicial officers.  (See 
Olson, supra, 27 Cal.3d at p. 538, fn. 3 [distinguishing 
Millholen v. Riley (1930) 211 Cal. 29, because it concerned a 
public employee whose employment “apparently could be 
terminated at will”].)  Olson treated the statutory employment 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
43 
benefits available to a judge at the beginning of his or her term 
as, in effect, a contract for the length of the term, and its ruling 
was effective only for the duration of a judge’s term.  The 
decision anticipated that upon entering into a new term, 
judges would be subject to the statutory terms and conditions 
of employment then in effect.  (Id. at p. 540.)  Plaintiffs and the 
other employees affected by PEPRA’s elimination of the 
opportunity to purchase ARS credit do not have discrete terms 
of service.  They claim an open-ended entitlement to ARS 
credit for the duration of their public careers.  Second, Olson 
relied on the central role played by monetary compensation in 
the employment decision.  As the court noted, “[a] judge 
entering office is deemed to do so in consideration of — at least 
in part — salary benefits then offered by the state for that 
office.”  (Id. at p. 539.)  Compared to salary benefits, the 
subject of Olson, the opportunity to purchase ARS credit was a 
minor part of the benefits available to public employees.  
Although it might have been a desirable optional benefit for 
some employees, its significance was likely minimal in 
comparison to salary, vacation, health care, and pension 
benefits.  Even if Olson were to be applied outside the context 
of state officers serving for a fixed term, we would be unwilling 
to extend its holding to all of the terms and conditions of a 
public employee’s 
employment, 
without 
regard 
to 
the 
significance of those benefits.  As discussed above, we have 
never held that the terms and conditions of public employment 
are protected by the contract clause merely because of their 
existence.  If Olson were applied to protect a relatively minor 
benefit, such as the opportunity to purchase ARS credit, there 
would be little left of that principle. 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
44 
d.  A legal opinion expressed by CalPERS did not 
create contractual rights 
As a final note, plaintiffs argued in the courts below that 
the opportunity to purchase ARS credit should be found a 
vested right because CalPERS once characterized it as such in 
a publication.  (CalPERS, Vested Rights of CalPERS Members: 
Protecting the Pension Promises Made to Public Employees 
(July 2011).)  The publication presented this conclusion as the 
result of “[CalPERS’s] understanding of the current state of 
vested rights law in California.”  (Id. at p. 13.)  Plaintiffs do not 
explicitly repeat their argument in this court, but they cite the 
CalPERS publication occasionally in their briefs as supporting 
the protected nature of ARS credit rights.  Whether the 
opportunity to purchase ARS credit is a constitutionally 
protected right is an issue of constitutional law, not pension 
law.  With due respect to CalPERS, its interpretations of the 
state Constitution are not entitled to the same deference as its 
interpretations of California’s pension laws.  (See, e.g., 
Yamaha Corp. of America v. State Bd. of Equalization (1998) 
19 Cal.4th 1, 12 [agency entitled to deference when 
interpreting statutes and regulations within its “ ‘expertise 
and technical knowledge’ ”].) 
III.  DISPOSITION 
The state and many amici curiae have urged us to use 
this decision as an occasion to re-examine the California Rule, 
the doctrine developed in our prior decisions defining the scope 
of constitutional protection afforded pension rights.  Our 
holding that the opportunity to purchase ARS credit is not a 
vested right precludes such a re-examination.  Underlying the 
California Rule is the constitutional contract clause, which 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Opinion of the Court by Cantil-Sakauye, C. J. 
 
45 
prohibits state laws that impair contractual obligations.  
Because we conclude that California’s public employees have 
never had a contractual right to the continued availability of 
the opportunity to purchase ARS credit, the question of 
whether PEPRA worked an unconstitutional impairment of 
protected rights does not arise.  Necessarily, if there was no 
contractual right to ARS credit in the first place, a law 
eliminating ARS credit could not have impaired a contractual 
right.  Our decision in this matter therefore expresses no 
opinion on the various issues raised by the state and amici 
curiae relating to the scope of the California Rule. 
 
For the reasons stated above, we affirm the decision of 
the Court of Appeal. 
 
 
 
 
CANTIL-SAKAUYE, C. J. 
 
We Concur: 
CHIN, J. 
CORRIGAN, J. 
LIU, J. 
CUÉLLAR, J. 
KRUGER, J. 
ZELON, J.* 
 
 
________________________ 
*  
Associate Justice of the Court of Appeal, Second 
Appellate District, Division Seven, assigned by the Chief 
Justice pursuant to article VI, section 6 of the California 
Constitution.
 
 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC 
EMPLOYEES’ RETIREMENT SYSTEM 
S239958 
 
Concurring Opinion by Justice Kruger 
 
I concur in the majority opinion, which I have signed.  I 
write separately to expand briefly on a key element of the 
analysis:  why the opportunity to purchase additional 
retirement service (ARS) credits was not an employment 
benefit that vested by implication, as were the pension benefits 
at issue in Betts v. Board of Administration (1978) 21 Cal.3d 
859, Kern v. City of Long Beach (1947) 29 Cal.2d 848, and 
similar cases. 
Our cases concerning the vesting of public employee 
pension rights are most easily understood through the lens of 
ordinary contract law principles.  Under those principles, an 
implied-in-fact 
unilateral 
contract 
can 
arise 
from 
the 
government’s offer of an employment benefit in exchange for 
the public employee’s acceptance by entering into or continuing 
in public service.  When the benefit is one that will be provided 
only in the future—like a pension—the formation of such a 
contract vests the right to that benefit, making the 
government’s offer irrevocable as to employees who have 
worked for the deferred benefit and earned it as part of the 
employment bargain.  (Maj. opn., ante, at p. 28, fn. 12; Betts v. 
Board of Administration, supra, 21 Cal.3d at p. 863; Kern v. 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Kruger, J., concurring 
 
2 
City of Long Beach, supra, 29 Cal.2d at pp. 851–852, 855; see 
McGrath v. Rhode Island Retirement Bd., etc. (1st Cir. 1996) 88 
F.3d 12, 16–17; Moro v. State (Or. 2015) 351 P.3d 1, 20–22.)1   
Of course, not every statute or ordinance providing an 
employment benefit (or even every aspect of a statutory 
pension program) constitutes an implied offer for a unilateral 
contract, and thus not every future benefit is the subject of a 
vested right; if that were so, the implied-right exception would 
swallow the general rule that the terms and conditions of 
public employment are set by statute rather than contract.  
(Maj. opn., ante, at pp. 16, 35–36.)  Our cases have treated 
deferred compensation programs, such as pension plans, as 
special in this regard.  An understanding of why these 
programs create implied vested rights is important to our 
understanding of why the particular program at issue here 
does not.  
Deferred compensation programs provide a particularly 
clear case for formation of an implied unilateral contract.  
                                        
1  
We often ask whether a statute creates implied vested 
rights, but when the terms of a pension plan are set by statute 
for all public employers participating in the plan, it is the 
employer’s offer of employment subject to the plan, rather than 
the statute itself, that constitutes the contractual offer.  (See 
Moro v. State, supra, 351 P.3d at p. 21 [“Although the [Public 
Employee Retirement System] contract results from an offer 
and acceptance, the PERS statutes are themselves not an offer 
that employees can accept.  Instead, each participating 
employer offers a promise to its employees to provide 
compensation, including PERS benefits, in exchange for the 
employees’ services.”].)   
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Kruger, J., concurring 
 
3 
Monetary compensation, whether received periodically for 
work performed during the period or deferred until retirement 
in the form of a pension benefit, is the central consideration for 
which public employees, like other workers, enter and continue 
in employment.  An implied contractual promise protecting 
this type of pension right arises because neither party could 
reasonably understand a deferred compensation offer to be 
revocable at will after employment.  (See Brant v. California 
Dairies, Inc. (1935) 4 Cal.2d 128, 133 [intent of contractual 
parties determined objectively from their words and conduct]; 
Meyer v. Benko (1976) 55 Cal.App.3d 937, 942–943 [mutual 
assent to contract determined by “what the outward 
manifestations of consent would lead a reasonable person to 
believe”]; 1 Witkin, Summary of Cal. Law (11th ed. 2017) 
Contracts, § 767, p. 821.)  No reasonable employee would agree 
to defer significant portions of his or her compensation without 
a vesting guarantee, and no reasonable employer would 
imagine that employees had agreed to work on such terms.   
None of this is true of the opportunity to purchase ARS 
credits provided by Government Code section 20909.  For 
reasons the majority opinion discusses, the parties could not 
reasonably have understood that opportunity as an offer that 
could be accepted simply by employment in a participating 
California Public Employees’ Retirement System agency.  (Maj. 
opn., ante, at pp. 34–35.)  Among other things, no new service 
was required of public employees who had already served five 
years when section 20909 was enacted (a period corresponding 
to the general pension vesting period and to the requirements 
of federal tax law) and purchasers had to pay the full 
estimated value of the additional credits under Government 
CAL FIRE LOCAL 2881 v. CALIFORNIA PUBLIC EMPLOYEES’ 
RETIREMENT SYSTEM   
Kruger, J., concurring 
 
4 
Code sections 20909 and 21052.  Objectively speaking, a party 
looking at this arrangement would understand that the ARS 
purchase option was not offered in exchange for any period of 
public service but rather in exchange for the statutorily 
mandated purchase price.  (See Foley v. Interactive Data Corp. 
(1988) 47 Cal.3d 654, 677–678 [parties’ intent to agree on 
implied contractual terms is determined from their conduct]; 
Rest.2d Contracts, §§ 19, 30, com. d, p. 86, 71, com. b, p. 173 
[terms of offer and acceptance governed by objective 
manifestations of assent].)  The offer was one that could be 
accepted only by the employee’s election and actual purchase of 
ARS credits, not simply by staying on the job. 
For these reasons, I agree with the majority:  No implied 
unilateral contract arose simply from an employee’s entering 
or continuing in public service during the period the ARS 
program was in force.  As a consequence, the contract clause of 
the California Constitution did not protect the right to 
purchase ARS credits from later alteration or revocation.  
 
 
 
 
 
 
 
KRUGER, J. 
I Concur: 
LIU, J. 
 
 
See last page for addresses and telephone numbers for counsel who argued in Supreme Court. 
 
Name of Opinion Cal Fire Local 2881 v. California Public Employees’ Retirement System 
__________________________________________________________________________________ 
 
Unpublished Opinion 
Original Appeal 
Original Proceeding 
Review Granted XXX 7 Cal.App.5th 115 
Rehearing Granted 
 
__________________________________________________________________________________ 
 
Opinion No. S239958 
Date Filed: March 4, 2019 
__________________________________________________________________________________ 
 
Court: Superior 
County: Alameda 
Judge: Evelio M. Grillo 
 
__________________________________________________________________________________ 
 
Counsel: 
 
Carroll, Burdick & McDonough, Messing Adam & Jasmine, Gary M. Messing, Gregg McLean Adam, 
Jason H. Jasmine and Yonatan L. Moskowitz for Plaintifffs and Appellants. 
 
Olson, Hagel & Fishburn, Christopher W. Waddell, Lance H. Olson, Deborah B. Caplan and Richard C. 
Miadich for Californians for Retirement Security as Amicus Curiae on behalf of Plaintifffs and Appellants. 
 
Silver, Hadden, Silver and Levine, Stephen H. Silver and Jacob A. Kalinski for Ventura County 
Professional Fire Fighters Association as Amicus Curiae on behalf of Plaintifffs and Appellants. 
 
Mastagni Holstedt, David E. Mastagni, Isaac S. Sevens, Jeffrey R.A. Edwards and Erich A. Knorr for Lake 
County Correctional Officers’ Association, Mendocino County Deputy Sheriffs’ Association, Merced City 
Firefighters, International Association of Firefighters, Local 1479, AFL-CIO, Napa City Firefighters 
Association, International Association of Fire Fighters, Local 3124, AFL-CIO, Palo Alto Firefighters, 
International Association of Fire Fighters, Local 1319, AFL-CIO, Sacramento Area Firefighters, 
International Association of Firefighters, Local 522, AFL-CIO, Santa Clara County Correctional Officers 
Association, Deputy Sheriffs’ Association of Alameda County, El Dorado County Deputy Sheriff’s 
Association, Ontario Police Officers’ Association, Sacramento Police Officers Association and Sacramento 
County Deputy Sheriff’s Association as Amici Curiae on behalf of Plaintifffs and Appellants. 
 
Leonard Carder, Peter W. Saltzman, Kate Hallward and Arthur Liou for Amalgamated Transit Union Local 
1225, Amalgamated Transit Union Local 1555, International Brotherhood of Electrical Workers Local 
1245, International Federation of Professional and Technical Engineers Local 21, Marin Association of 
Public Employees, Operating Engineers Local Union No. 3 and Physicians’ and Dentists’ Organization of 
Contra Costa as Amici Curiae on behalf of Plaintifffs and Appellants. 
 
 
 
 
 
 
Page 2 – S239958 – counsel continued 
 
Counsel: 
 
Rains Lucia Stern St. Phalle & Silver, Stephen H. Silver and Timothy K. Talbot for Los Angeles Police 
Protective League, Ventura County Deputy Sheriffs’ Association, California Association of Highway 
Patrol, Garden Grove Police Association, California Statewide Law Enforcement Association, Orange 
County Employees’ Association, Los Angeles County Professional Peace Officers’ Association, 
Association for Los Angeles Deputy Sheriffs, Deputy Sheriffs’ Association of Santa Clara, Fresno Deputy 
Sheriffs’ Association, Coalition of Santa Monica City Employees and Antioch Police Officers’ Association 
as Amici Curiae on behalf of Plaintifffs and Appellants. 
 
Reich, Adell & Cvitan, Marianne Reinhold, Laurence S. Zakson and Aaron G. Lawrence for Orange 
County Attorneys Association and Orange County Mangers Association as Amici Curiae on behalf of 
Plaintifffs and Appellants. 
 
Rothner, Segall & Greenstone and Glenn Rothner for American Federation of State, County and Municipal 
Employees, American Federation of Teachers, National Education Association, Service Employees 
International Union, California Faculty Association, California Federation of Teachers and California 
Teachers Association as Amici Curiae on behalf of Plaintifffs and Appellants. 
 
Matthew G. Jacobs, Wesley E. Kennedy and Preet Kaur for Defendant and Respondent. 
 
Brian J. Bartow and Scott S. Brooks for California State Teachers’ Retirement System as Amicus Curiae on 
behalf of Defendant and Respondent. 
 
Jonathan M. Coupal; Benbrook Law Group, Bradley A. Benbrook and Stephen M. Duvernay for Howard 
Jarvis Taxpayers Association and Ventura County Taxpayers Association as Amici Curiae on behalf of 
Defendant and Respondent. 
 
Kamala D. Harris and Xavier Becerra, Attorneys General, Douglas J. Woods and Thomas S. Patterson, 
Assistant Attorneys General, Tamar Pachter and Nelson Ryan Richards, Deputy Attorneys General; Peter 
A. Krause and Rei R. Onishi for Intervener and Respondent. 
 
Atkinson, Andelson, Loya Ruud & Romo, Anthony P. De Marco and Joshua E. Morrison for Association 
of California School Adminstrators as Amicus Curiae on behalf of Intervener and Respondent. 
 
Jones Day, Beth Heifetz, G. Ryan Snyder and Karen P. Hewitt for California Business Roundtable as 
Amicus Curiae on behalf of Intervener and Respondent. 
 
Renne Sloan Holtzman Sakai, Jonathan Holtzman and Linda M. Ross for League of California Cities as 
Amicus Curiae on behalf of Intervener and Respondent. 
 
Bruce D. Goldstein, County Counsel (Sonoma), Debbie F. Latham, Chief Deputy County Counsel; and 
Dennis Bunting, County Counsel (Solano) for County of Sonoma and County of Solano as Amici Curiae on 
behalf of Intervener and Respondent. 
 
Lounsbery Ferguson Altona & Peak, Kenneth H. Lounsbery, James P. Lough and Alena Shamos for City of 
Pacific Grove as Amicus Curiae on behalf of Intervener and Respondent. 
 
 
 
 
 
 
 
 
Page 3 – S239958 – counsel continued 
 
Counsel: 
 
Gibson, Dunn & Crutcher, Daniel M. Kolkey, Perlette Michèle Jura, Theodore M. Kider and Samuel D. 
Eisenberg for Pacific Research Institute as Amicus Curiae on behalf of Intervener and Respondent. 
 
Greines, Martin, Stein & Richland and Timothy T. Coates for Los Angeles County Employees Retirement 
Association as Amicus Curiae. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Counsel who argued in Supreme Court (not intended for publication with opinion): 
 
Greg McLean Adam 
Messing Adam & Jasmine 
235 Montgomery Street, Suite 828 
San Francisco, CA  94104 
(415) 266-1800 
 
Rei R. Onishi 
Deputy Legal Affairs Secretary 
Office of Governor Edmund G. Brown, Jr. 
State Capitol, Suite 1173 
Sacramento, CA  95814 
(916) 445-0873