Pension plans of businesses and most tax-exempt organizations are subject to federal rules which permit them to discontinue accruals of benefits at any time, so long as previously accrued benefits are preserved. (Internal Revenue Code section 411.) By contrast, pension plans of governmental employers are typically subject to protections under court decisions based on federal or state constitutions provisions forbidding the “impairment of contracts,” which may require the preservation of not only past but future benefit accruals. The leading cases in this area come from California, although courts in other states have often looked to them in interpreting similar constitutional provisions in other states. See, e.g., Betts v. Board of Administration, 21 Cal.3d 859, 864 (1978).
Starting in 2011, California courts have begun applying similar reasoning to the provision of retiree health benefits, as well as pension benefits. In Retired Employees v. Co. of Orange, 52 Cal. 4th 1171, 266 P.3d 287, 134 Cal. Rptr. 3d 779 (2011), the California Supreme Court held that
under California law, a vested right to health benefits for retired county employees can be implied under certain circumstances from a county ordinance or resolution. Whether those circumstances exist in this case is beyond the scope of the question posed to us by the Ninth Circuit.
A recent case from the Los Angeles Superior Court, Los Angeles City Attorneys Association v. City of Los Angeles has provided additional guidance on this issue, although it seems to raise as many questions as it answers.