Marin Ass'n of Public Employees v. Marin County Employees' Retirement Ass'n (2 Cal. App. 5th 674, 2016)

Opinion

RICHMAN,

practice known as “pension spiking,” by which public employees use various stratagems and ploys to inflate their income and retirement benefits, has long drawn public ire and legislative chagrin. Effective January 1, 2013, the Legislature amended Government Code section 31461, a provision of the County Employees Retirement Law of 1937, with the aim of curtailing pension spiking by excluding specified items from the calculation of retirement income. A number of individuals currently employed by various governmental entities in the County of Marin, together with a number of organizations representing current county employees, brought suit to halt implementation of the revised formula. The trial court concluded application of the new formula to current employees did not amount to an unconstitutional impairment of the employees’ contracts, and sustained the pension authority’s general demurrer without leave to amend.

After an extensive independent review, we reach the same conclusion and affirm, holding that the Legislature did not act impermissibly by amending section 31461 to exclude specified items and categories of compensation from the calculation of pensions for current employees. As will be shown, while a public employee does have a “vested right” to a pension, that right is only to a “reasonable” pension—not an immutable entitlement to the most optimal formula of calculating the pension. And the Legislature may, prior to the employee’s retirement, alter the formula, thereby reducing the anticipated pension. So long as the Legislature’s modifications do not deprive the employee of a “reasonable” pension, there is no constitutional violation. Here, the Legislature did not forbid the employer from providing the specified items to an employee as compensation, only the purely prospective inclusion of those items in the computation of the employee’s pension. Neither the statutory change, nor the implementation of that change by the county pension agency, amounts to an impairment of the employee’s receipt of a “reasonable” pension upon retirement.

BACKGROUND

The Statutory Framework and the Emergence of the Unfunded Pension Liability Crisis

The County Employees Retirement Law of 1937 (CERL; see Stats. 1937, ch. 677, p. 1898), as codified in 1947 (§ 31450 et seq.) allows, but does not require, a county to establish and operate a retirement plan for its employees. Twenty of the state’s 58 counties have elected to do so. Each county plan is administered by a retirement board, which, as we previously characterized it, is “required to determine whether items of remuneration paid to employees qualify as ‘compensation’ under section 31460 and ‘compensation earnable’ pursuant to section 31461, and therefore must be included as part of a retiring employee’s ‘final compensation’ (§ 31462 or § 31462.1) for purposes of calculating the amount of a pension.” (In re Retirement Cases (2003) 110 Cal.App.4th 426 [433, 1 Cal.Rptr.3d 790].)

In the aftermath of the severe economic downturn of 2008 and 2009, public attention across the nation began to focus on the alarming state of unfunded public pension liabilities. (E.g., Cong. Budget Off., U.S. Cong., The Underfunding of State and Local Pension Plans (May 2011) p. 1 [estimating unfunded liabilities as of 2009 at “between $2 trillion and $3 trillion”]; State Budget Crisis Task Force, Rep. of the State Budget Crisis Task Force, Full Rep. (2012) p. 2 [“Pension funds for state and local government workers are underfunded by approximately a trillion dollars according to their actuaries and by as much as $3 trillion or more if more conservative investment assumptions are used”]; Novy-Marx & Rauh, Public Pension Promises: How Big Are They and What Are They Worth? (2011) 66 J. Fin. 1206, 1211 [estimating “state employee pension liabilities as of June 2009” at between $3.2 trillion to $4.43 trillion].) One legal commentator characterized unfunded pension obligations as the ‘“ticking fiscal time bomb for state and local governments.” (Beermann, The Public Pension Crisis (2013) 70 Wash. & Lee L.Rev. 3, 13; cf. Rauh, The Pension Bomb, Milken Inst. Rev. (2011) 28 [‘“Many pension systems are rapidly approaching a day of reckoning.”].)

As so often occurs, California was in first place: ‘“The state with the biggest absolute level of underfunding is California, with underfunding of approximately $475 billion.” (Novy-Marx & Rauh, The Liabilities and Risks of State-Sponsored Pension Plans (2009) 23 J. Econ. Persp. 191, 197-199.) In 2010, the Stanford Institute for Economic Policy Research, studying only the Public Employees’ Retirement System, the State Teachers’ Retirement System, and the University of California Retirement System, estimated ‘“the current shortfall at more than half a trillion dollars.” (Bornstein et al., Going for Broke: Reforming California’s Public Employee Pension Systems, Stanford Institute for Economic Policy Research Policy Brief (April 2010) p. 2; see also Nation, The Funding Status of Independen t Public Employee Pension Systems in California, Stanford Institute for Economic Policy Research Policy Brief (Nov. 2010) pp. 1, 13 [examining 24 systems operating under CERL which “account for approximately 91 percent of the total assets and liabilities for independent systems” and estimating their “aggregate unfunded liability ... at nearly $200 billion in June 2008”].) “The magnitude of the problem in California ... is staggering” and “is without peer.” (Hylton, Combating Moral Hazard: The Case for Rationalizing Public Employee Benefits (2012) 45 Ind. L.Rev. 413, 444.)

In 2011, the Little Hoover Commission advised the Governor and the Legislature: “California’s pension plans are dangerously underfunded, the result of overly generous benefit promises, wishful thinking and an unwillingness to plan prudently. Unless aggressive reforms are implemented now, the problem will get far worse, forcing counties and cities to severely reduce services and layoff employees to meet pension obligations.” (Little Hoover Com., Public Pensions for Retirement Security (Feb. 2011) [cover letter of Chairman Daniel Hancock].) The commission urged a number of “structural changes that realign pension costs and expectations of employees, employers and taxpayers.” {Ibid.) The situation was described as “dire,” “unmanageable,” a “crisis” that “will take a generation to untangle,” and “a harsh reality” that could no longer be ignored: “The money coming in is nowhere near enough to keep up with the money that will need to go out.” (Id., at pp. v. 38, 12, 21, 25.)

“The state must exercise its authority—and establish the legal authority—to reset overly generous and unsustainable pension formulas for both current and future workers.” (Little Hoover Com., Public Pensions for Retirement Security, supra, at p. 53.) And because ‘“State and local governments have made a promise to workers they can no longer afford,” the commission recommended: “To provide immediate savings of the scope needed, state and local governments must have the flexibility to alter future, unac-crued retirement benefits for current workers.” (Id., at p. 42, italics added.)

One feature of the system that drew the commission’s critical attention was “pension spiking,” which the commission defined as follows: “The practice of increasing [an employee’s] retirement allowance by increasing final compensation or including various non-salary items (such as unused vacation pay) in the final compensation figure used in the [employee’s] retirement benefit calculations, and which has not been considered in prefunding of the benefits.” (Little Hoover Com., Public Pensions for Retirement Security, supra, at p. 73.) The commission found the practice had become “widespread throughout local government,” and had generated “public outrage [that] . . . cannot continue to be ignored.” (Little Hoover Com., Public Pensions for Retirement Security, supra, at pp. 36, vi.) “The spiking games must end. Pensions must be based only on actual base salary ... not padded with other pay for clothing, equipment or vehicle use, or enhanced by adding service credit for unused sick time vacation time or other leave time.” (Little Hoover Com., Public Pensions for Retirement Security, supra, at p. 46.)

The Pension Reform Act

The Legislature heard, and agreed. The following year, it passed Assembly Bill No. 340 (2011-2012 Reg. Sess.) (Assembly Bill 340), enacting the California Public Employees’ Pension Reform Act of 2013 (Pension Reform Act), which made fundamental alterations in the manner in which public pensions are calculated. (§ 7522 et seq.; Stats. 2012, ch. 296.) Concurrent with that effort, the Legislature enacted Assembly Bill No. 197 (2011-2012 Reg. Sess.) (Assembly Bill 197), with the declared purpose to “exclude from the definition of compensation earnable any compensation determined by the [county retirement] board to have been paid to enhance a member’s retirement benefit.” (Legis. Counsel’s Dig., Assem. Bill No. 197 (2011-2012 Reg. Sess.); Stats. 2012, ch. 297.) To this end, both Assembly Bill 340 and Assembly Bill 197 amended section 31461 by adding subdivision (b):

“(b) ‘Compensation earnable’ does not include, in any case, the following:

“(1) Any compensation determined by the board to have been paid to enhance a member’s retirement benefit under that system. That compensation may include:

“(A) Compensation that had previously been provided in kind to the member by the employer or paid directly by the employer to a third party other than the retirement system for the benefit of the member, and which was converted to and received by the member in the form of a cash payment in the final average salary period.

“(B) Any one-time or ad hoc payment made to a member, but not to all similarly situated members in the member’s grade or class.

“(C) Any payment that is made solely due to the termination of the member’s employment, but is received by the member while employed, except those payments that do not exceed what is earned and payable in each 12-month period during the final average salary period regardless of when reported or paid.

“(2) Payments for unused vacation, annual leave, personal leave, sick leave, or compensatory time off, however denominated, whether paid in a lump sum or otherwise, in an amount that exceeds that which may be earned and payable in each 12-month period during the final average salary period, regardless of when reported or paid.

“(3) Payments for additional services rendered outside of normal working hours, whether paid in a lump sum or otherwise.

“(4) Payments made at the termination of employment, except those payments that do not exceed what is earned and payable in each 12-month period during the final average salary period, regardless of when reported or paid.”

There is no dispute that the purpose of this change was to curtail pension spiking.

Marin County, which was already wrestling with its own pension difficulties, was one of the first to act to implement the Pension Reform Act. On December 18, 2012, the board of directors of the Marin County Employees’ Retirement Association and its directors (collectively MCERA) adopted a “Policy Regarding Compensation Earnable and Pensionable Compensation Determinations” implementing Assembly Bill 197 with “the new rules set forth herein regarding the definition of Compensation Earnable,” that would comply with the “new . . . section 31461.” Commencing on January 1, 2013, specified items would be excluded from the new definition.

The Lawsuit

Reaction to the change in policy was almost immediate. On January 18, 2013, less than three weeks after the Pension Reform Act took effect, five recognized employee organizations and four individuals (collectively plaintiffs) commenced this action against MCERA. Plaintiffs alleged that on December 18, 2012: ‘“[T]he MCERA BOARD voted to implement AB 197 effective January 1, 2013 and announced a new policy for the calculation of retirement benefits. Under the policy, MCERA would begin excluding standby pay, administrative response pay, callback pay, cash payments for waiving health insurance, and other pay items from the calculation of members’ final compensation for all compensation earned after January 1.”

Plaintiffs further alleged:

“Since at least 1997, ... if not before then, MCERA, the County, and other MCERA-participating employers agreed to include certain elements of compensation, in addition to base pay, as compensation earnable for purposes of calculating retirees’ final compensation, and thus, pension benefits. . . .

“Among other elements of compensation that have long been included in pension calculations are standby pay, administrative response pay, call-back pay, and cash payments made to employees who waive health insurance coverage. More recently, the County negotiated changes to its Internal Revenue Code Section 125 cafeteria plan[] . . . resulting in payments in cash in lieu of fringe benefits, which the County and MCERA agreed would be treated as compensation earnable (so-called ‘hold harmless’ payments). . . .

“Over the years, MCERA and employers who participate in MCERA, such as the County, have repeatedly communicated and committed to MCERA members that these and other elements of compensation would be included in the calculation of members’ final compensation and encouraged MCERA members to plan their retirement based on the idea that these pay items would be included in the determination of their pension benefits. MCERA and participating employers made these representations and commitments to members in MOUs, plan documents, newsletters, bulletins, handbooks, handouts, official policy statements, and other publications and correspondence with MCERA members. . . .

“Because MCERA has included these various pay items in the calculation of retirement benefits, the cost of these benefits has been actuarially factored into contribution rates and has been paid for by both member and employer contributions. Additionally, the value and associated costs of these benefits have also been a factor in determining the wage and benefit packages offered to MCERA members through collective bargaining . . . and in some instances has led to employees accepting lower wages or other benefits.”

Plaintiffs also complained about the generalized way in which MCERA had changed its policy: “In addition to impairing MCERA members’ vested rights,” MCERA “also decided to exclude certain pay items from compensation earnable without making a determination that such compensation has been paid to enhance MCERA members’ retirement benefits, as required by AB 197. To the extent any determination has been made that these pay items have been paid to enhance retirement benefits, such determinations are incorrect and constitute an abuse of discretion.”

Plaintiffs further alleged that they “relied on MCERA and participating employers’ commitment to include these pay items in the calculation of final compensation, and they agreed to accept employment and remain employees of their respective employers based on the promised pension benefit”; and that “[t]he elimination of these various pay items from the calculation of MCERA members’ final compensation will result in a reduction in members’ pension benefits below what they had previously been promised,” and ‘“the value of the benefits ... are a form of deferred compensation for work already performed,” and ‘“protected by Article I, section 9 of the California Constitution and Article I, section 10, clause 1 of the United States Constitution.” And plaintiffs concluded: ‘“By excluding items from the final compensation calculation that MCERA had previously committed to provide, AB 197 unconstitutionally impairs MCERA members’ vested rights.”

Plaintiffs prayed for declaratory and injunctive relief that Assembly Bill 197 and MCERA’s ‘“actions are unconstitutional impairments of vested rights and therefore unenforceable.” Plaintiffs also prayed for issuance of a writ of mandate ‘“to compel [MCERA] to continue to calculate the pensions of its members in a manner consistent with its policies in effect before December 18, 2012 and in a manner consistent with binding promises made to MCERA members.”

The State of California was granted leave to intervene, as expressly directed by the Governor, in order that it could defend the constitutionality of Assembly Bill 197. Shortly thereafter, MCERA interposed a general demurrer on the sole ground that, because ‘“AB 197 . . . [is] constitutional,” and MCERA was ‘“required by law to implement . . . AB 197,” plaintiffs had failed to state a cause of action. Plaintiffs filed opposition vigorously disputing both of these points.

In June 2013, after hearing extensive argument, the trial court sustained MCERA’s demurrer without leave to amend and entered judgment against plaintiffs.

DISCUSSION

The crux of this appeal is whether MCERA may eliminate benefits previously treated as compensation earnable from the calculation of the pension formula for what plaintiffs term “legacy members”—employees who were hired prior to January 1, 2013—because Assembly Bill 197 modified that formula. In legal terms, did the narrowing achieved by Assembly Bill 197 impair plaintiffs’ vested pension rights? Because there is no genuine factual dispute presented (see fn. 12, ante), the issue is purely one of law for our independent review. (Teachers’ Retirement Bd. v. Genest (2007) 154 Cal.App.4th 1012, 1028 [65 Cal.Rptr.3d 326], and decisions cited.)

However, before we consider the constitutional issue, we are obligated to ascertain if the appeal may be decided on some other, nonconstitutional ground. (E.g., Palermo v. Stockton Theatres, Inc. (1948) 32 Cal.2d 53, 66 [195 P.2d 1]; Teachers’ Retirement Bd. v. Genest, supra, 154 Cal.App.4th 1012, 1043.) Plaintiffs advance two such claims.

The Order Sustaining MCERA’s Demurrer Is Not Procedurally Defective

Plaintiffs first attack the trial court’s order as procedurally defective because it “does not provide a justification for sustaining the demurrer.” If the attack were to succeed, the judgment can be reversed on a nonconstitutional basis. But the attack will not succeed.

In its entirety, the trial court’s order read: “Respondents’ Demurrer to the Verified Writ Petition is sustained without leave to amend. The court finds the Respondents’ actions implementing Govt. Code § 31461, as amended effective January 1, 2013, are proper and that the Public Employees’ Pension Reform Act of 2013 is constitutional. The Respondent Board of Retirement has the exclusive authority and responsibility to determine its members ‘compensation earnable,’ which is used to calculate members’ retirement allowance, pursuant to Govt. Code § 31461. (See Howard Jarvis Taxpayers’ Ass’n. v. Bd. of Supervisors of Los Angeles County (1996) 41 Cal.App.4th 1363, 1373 [49 Cal.Rptr.2d 157], and In re Retirement Cases[, supra,] 110 Cal.App.4th 426, 453.) A statute, once duly enacted, is presumed to be constitutional. [¶] SO ORDERED.”

This order was filed on June 19, 2013, and mailed to the parties the following day. On June 24, MCERA mailed plaintiffs notice of entry. The ensuing judgment, which quoted almost all of the order, was entered on June 26, the same day plaintiffs unsuccessfully moved for reconsideration of the order, following which they were rebuffed in their request for extraordinary relief from this court. (Marin Assn. of Public Employees v. Superior Court (Feb. 25, 2014, A139621) [nonpub. opn].) At no time during these proceedings did plaintiffs advise the trial court, or attack the order, on the ground now advanced. By reason of this inaction, the claim was forfeited. (E.g., Code Civ. Proc., § 472d, quoted at fn. 13, post: E. L. White, Inc. v. City of Huntington Beach (1978) 21 Cal.3d 497, 504, fn. 2 [146 Cal.Rptr. 614, 579 P.2d 505]; Lambert v. Carneghi (2008) 158 Cal.App.4th 1120, 1128, fn. 4 [70 Cal.Rptr.3d 626].)

Even if the claim had been preserved for review, it would not require reversal. California has a statute governing this precise subject, one not cited in plaintiffs’ briefs. Concerning that statute, this court long ago recognized that it “has been interpreted to require the affirmance of trial court rulings on demurrers if any of the grounds raised by defendant require the sustaining of the demurrer, whether or not the court specifies all the grounds.” (Banerian v. O’Malley (1974) 42 Cal.App.3d 604, 610 [116 Cal.Rptr. 919].) That is why the ruling is examined de novo on the sole legal question of whether the complaint states a claim for relief upon any theory. (E.g., Code Civ. Proc., § 589; McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415 [106 Cal.Rptr.2d 271, 21 P.3d 1189]; cf. Wells v. Marina City Properties, Inc. (1981) 29 Cal.3d 781, 787 [176 Cal.Rptr. 104, 632 P.2d 217] [“ ‘a demurrer of course calls for the determination of an issue of law only.’ ”].)

So it is incorrect to treat the ruling on a demurrer as akin to a statement of decision, which is only required, upon request, “upon the trial of a question of fact.” (Code Civ. Proc., § 632.) But this is clearly what plaintiffs believe is missing from the trial court’s order. Instead of “rationaliz[ations],” “general proposition^],” and “platitude[s],” plaintiffs appear to think the trial court should have provided a point-by-point analysis of each of the legal issues raised by the petition. That belief is patently unreasonable and far exceeds the statutory requirement. (See Mautner v. Peralta (1989) 215 Cal.App.3d 796, 801-802 [263 Cal.Rptr. 535] [“Code of Civil Procedure section 472d does not mandate a detailed statement explaining the court’s reasons for sustaining the demurrer”]; Berkeley Police Assn. v. City of Berkeley (1977) 76 Cal.App.3d 931, 943 [143 Cal.Rptr. 255] [trial court is not required to set ‘“forth a memorandum of decision stating in detail its reasons for sustaining the demurrer”].) The decisive issue, as even MCERA and the state concede, is whether MCERA’s implementation of Assembly Bill 197 constitutes an unconstitutional impairment of plaintiffs’ contracts of employment and concomitant pension benefits. MCERA’s general demurrer required the trial court to decide that issue as a matter of law with a yes or a no answer, which would resolve the sole ground for MCERA’s demurrer: did plaintiffs fail to state a cause of action? The trial court made that decision, with its reasons given. Plaintiffs may not like the brevity of those reasons, but Code of Civil Procedure section 472d requires no more for our de novo review. (E. L. White, Inc. v. City of Huntington Beach, supra, 21 Cal.3d 497, 504, fn. 2; Berkeley Police Assn. v. City of Berkeley, supra, at p. 943.)

The Maimer in Which MCERA Implemented Assembly Bill 197 Was Not Improper

The second nonconstitutional ground for reversal advanced by plaintiffs is that MCERA ‘“did not follow the correct procedural requirements” of Assembly Bill 197 ‘“for excluding payments made to ‘enhance a member’s retirement benefit.’ ” Again, plaintiffs are not correct.

The Pension Reform Act added section 31542, the pertinent provisions of which provide:

‘“(a) The board shall establish a procedure for assessing and determining whether an element of compensation was paid to enhance a member’s retirement benefit. If the board determines that compensation was paid to enhance a member’s benefit, the member or the employer may present evidence that the compensation was not paid for that purpose. Upon receipt of sufficient evidence to the contrary, a board may reverse its determination that compensation was paid to enhance a member’s retirement benefits.

‘“(b) Upon a final determination by the board that compensation was paid to enhance a member’s retirement benefit, the board shall provide notice of that determination to the member and employer. The member or employer may obtain judicial review of the board’s action by filing a petition for writ of mandate within 30 days of the mailing of that notice.”

Plaintiffs correctly recognize that these provisions are intended to govern individualized determinations. As plaintiffs describe it: ‘“[T]he focus is on whether compensation was made to enhance a particular member’s retirement—hence the instruction that the procedure determine whether ‘a member’s retirement benefit’ has been enhanced. [¶] . . . [I]f the board makes such a determination, the member or the member’s employer must be given an opportunity to present evidence to the contrary. This presumes, of course, that the employee and employer must be given some kind of notice of the determination, since otherwise the right to present contrary evidence would be meaningless. The retirement board then has an opportunity to reverse its decision, if the employee or employer presents ‘sufficient evidence to the contrary.’ [¶] Finally, if the retirement board persists in holding that the compensation was paid to enhance the member’s retirement benefit, either the individual member or the member’s employer may thereafter seek review of the board’s decision by filing a petition for writ of mandate. Again, this is an individualized right and requires an analysis specific to the particular member.” But here, plaintiffs conclude, ‘“Marin CERA did not make a determination that payments for in-kind benefits converted to cash were made in order to enhance any particular member’s retirement benefit.” This analysis of section 31542 is perfectly reasonable, but plaintiffs misapprehend its application here, particularly as the situation is defined by the allegations of plaintiffs’ petition.

Section 31542 is clearly intended to serve as the mechanism for calculating the pension of an employee about to retire. There is nothing to indicate the statute was intended to govern the situation here—a shift in policy by the retirement board in compliance with a new command from the Legislature, clearly intended to be applied in the future to plaintiffs’ so-called “legacy” employees when they put in for retirement. Indeed, if plaintiffs’ construction were correct, section 31542 would initiate the calculation process for every employee affected by the change, without regard to whether actual retirement is imminent for him or her. This would entail a massive expenditure of administrative resources devoted to an individualized inquiry that would be pointless for all employees not on the cusp of retirement. We have repeatedly emphasized that statutory language is to be construed to avoid such absurd or outlandish consequences. (See Pacific Gas & Electric Co. v. Public Utilities Com. (2015) 237 Cal.App.4th 812, 857 [188 Cal.Rptr.3d 374], and decisions cited.) We conclude that MCERA has not, in plaintiffs’ words, “failed to follow the required procedure for excluding payments” from the determination of each employee’s “compensation earnable.”

The Amendment to Section 31461 Is Not an Unconstitutional Impairment of Plaintiffs’ Vested Pension Rights

Plaintiffs’ essential position is clearly set out in their opening brief: “[PJublic employees earn a vested right to their pension benefits immediately upon acceptance of employment and . . . such benefits cannot be reduced without a comparable advantage being provided.” ‘“A corollary of this approach is that public employees are also entitled to any increase in benefits conferred during their employment, beyond the pension benefit in place when they began. . . . [S]ince they are performing work under the improved pension system, the terms of that system become an integral part of their compensation, and they immediately become vested in the improved benefit.” ‘“Because A.B. 197 has resulted only in the exclusion of payments from pension benefits, with no new benefit to offset the decreased pensions, this infringes employees’ vested rights.”

Plaintiffs candidly admit, “[i]n practice, this means that for existing employees, any changes must generally be neutral with regard to the overall benefit provided and cannot represent a net decrease in the pension benefit.” Less ambiguously, they assert “neither Marin CERA nor the Legislature can now curtail those benefits.” Plaintiffs insist that if their position is not vindicated on this appeal, California will have returned to “the view that public employee pensions are mere ‘gratuities’ to be granted or taken away at the whim of the employer.”

A brief review of principles governing public employee pensions will show that much of plaintiffs’ reasoning is not controversial, but their ultimate conclusion cannot be sustained.

Some General Law of Pensions

States are prohibited by the United States Constitution from passing a law “impairing the obligation of contracts.” (U.S. Const., art. I, § 10.) Article I, section 9 of the California Constitution states a parallel proscription: “A . . . law impairing the obligation of contracts may not be passed.”

‘“[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 which has been earned.’ ” (Miller v. State of California (1977) 18 Cal.3d 808, 815 [135 Cal.Rptr. 386, 557 P.2d 970] (Miller).) “Earned” in this context obviously means in exchange for services already performed. (See White v. Davis (2003) 30 Cal.4th 528, 566 [133 Cal.Rptr.2d 648, 68 P.3d 74].) Ordinarily, “[p]romised compensation is one such protected right.” (Olson v. Cory (1980) 27 Cal.3d 532, 538 [178 Cal.Rptr. 568, 636 R3d 532].)

In accordance with this view, a pension is treated as a form of deferred salary that the employee earns prior to it being paid following retirement. In Miller s classic formulation: “ ‘It is true that an employee does not earn the right to a full pension until he has completed the prescribed period of service, but he has actually earned some pension rights as soon as he has performed substantial services for his employer.[] [Citations.] He 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.’ [Citation.]

“Although vested prior to the time when the obligation to pay matures, pension rights are not immutable. For example, the government entity providing the pension may make reasonable modifications and changes in the pension system. This flexibility is necessary ’to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system and carry out its beneficent policy.’” (Miller, supra, 18 Cal.3d 808, 815-816, quoting Kern v. City of Long Beach, supra, 29 Cal.2d 848, 854-855.)

Miller continued in its restatement of pension principles: “In Wallace [v. City of Fresno (1954) 42 Cal.2d 180, 183 [265 P.2d 884]], referring to Kern, we again emphasized ‘that a public pension system is subject to the implied qualification that the governing body may make reasonable modifications and changes before the pension becomes payable and that until that time the employee does not have a right to any fixed or definite benefits but only to a substantial or reasonable pension.’ ” (Miller, supra, 18 Cal.3d 808, 816; see Betts v. Board of Administration, supra, 21 Cal.3d 859, 863 [‘“The employee does not obtain, prior to retirement, any absolute right to fixed or specific benefits, but only to a ‘substantial or reasonable pension.’ ”]; Packer v. Board of Retiremen t (1950) 35 Cal.2d 212, 218 [217 P.2d 660] [“any one or more of the various benefits offered . . . may be wholly eliminated prior to the time they become payable, provided ... the employee retains the right to a substantial pension”]; cf. Terry v. City of Berkeley (1953) 41 Cal.2d 698, 702 [263 P.2d 833] [citing Packer as “authority for the proposition that reasonable changes detrimental to [public employees] may be made” prior to retirement].)

What the Supreme Court stated in Kern deserves more than the excerpt quoted in Miller: “The rule permitting modification of pensions is a necessary one since pension systems must be kept flexible to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system and carry out its beneficent policy. . . . [¶] Thus it appears . . . that an employee may acquire a vested contractual right to a pension but that this right is not rigidly fixed by the specific terms of the legislation in effect during any particular period in which he serves. The statutory language is subject to the implied qualification that the governing body may make modifications and changes in the system. The employee does not have a right to any fixed or definite benefits, but only to a substantial or reasonable pension. There is no inconsistency therefore in holding that he has a vested right to a pension but that the amount, terms and conditions of the benefits may be altered.” (Kern v. City of Long Beach, supra, 29 Cal.2d 848, 854-855.)

Our Supreme Court has repeatedly stated that while pension rights may not be “destroyed,” they may be modified prior to the employee’s retirement. (E.g., International Assn. of Firefighters v. City of San Diego (1983) 34 Cal.3d 292, 300-301 [193 Cal.Rptr. 871, 667 P.2d 675]; Allen v. Board of Administration (1983) 34 Cal.3d 114, 120 [192 Cal.Rptr. 762, 665 P.2d 534]; Miller, supra, 18 Cal.3d 808, 815; Kern v. City of Long Beach, supra, 29 Cal.2d 848, 853-855.) The right to modify inheres in the inalienable rights of government.

There Is No Absolute Requirement That Elimination or Reduction of an Anticipated Retirement Benefit ‘Must’’ Be Counterbalanced by a “Comparable New Benefit’’

In one of the decisions cited in Miller, the Supreme Court stated: “To be sustained as reasonable, alterations of employees’ pension rights must bear some material relation to the theory of a pension system and its successful operation, and changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages.” (Allen v. City of Long Beach (1955) 45 Cal.2d 128, 131 [287 P.2d 765].) It is a onetime variation of this last sentence that is a foundation of plaintiffs’ appeal on the constitutional issue.

In 1983, our Supreme Court stated: “A constitutional bar against the destruction of such vested contractual pension rights, however, does not absolutely prohibit their modification. With respect to active employees, we have held that any modification of vested pension rights must be reasonable, must bear a material relation to the theory and successful operation of a pension system, and, when resulting in disadvantage to employees, must be accompanied by comparable new advantages. [Citations.]” (Allen v. Board of Administration, supra, 34 Cal.3d 114, 120, italics added.) The single word we have italicized, and the thought it seemingly expresses, permeates plaintiffs’ opening brief. However, we do not believe the word “must” was intended to be given the literal and inflexible meaning attributed to it by plaintiffs.

The Supreme Court in the 1983 Allen opinion cited three decisions as support for the quoted proposition. The two Supreme Court decisions cited employed the word “should.” (Allen v. City of Long Beach, supra, 45 Cal.2d 128, 131 [“To be sustained as reasonable, alterations of employees’ pension rights must bear some material relation to the theory of a pension system and its successful operation, and changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages”]; see Abbott v. City of Los Angeles, supra, 50 Cal.2d 438, 449 [quoting this sentence from Allen].) It is only a 1969 Court of Appeal decision, which cites the same two Supreme Court decisions, that uses “must.” (Lyon v. Flournoy (1969) 271 Cal.App.2d 774, 782 [76 Cal.Rptr. 869] (Flournoy) [“In brief, modifications affecting the earned pension rights of active employees must be reasonable, related to the theory of a sound pension system, and changes detrimental to the individual must be offset by comparable new advantages. (Abbott v. City of Los Angeles, supra, 50 Cal.2d at pp. 447, 449; Allen v. City of Long Beach, supra, 45 Cal.2d at pp. 131-133.)”].)

There is, of course, no bar to the Supreme Court adopting a Court of Appeal’s reasoning as its own. Yet there is legitimate reason to question whether that was what the Supreme Court intended in 1983. First, as just shown, only the least authoritative of the three sources cited actually supports the word “must,” while the two Supreme Court decisions employ “should.” Second, barely a month later, the Supreme Court—speaking though the same justice—filed another decision, which used the “should” formulation from the 1955 Allen decision as quoted in Abbott. Third, the 1983 Allen decision involved retirees (and Flournoy the widow of a retiree), who historically receive a heightened degree of judicial protection. (See fn. 19, ante.) Fourth, and most significantly, the “must” formulation has never been reiterated by the Supreme Court, which has instead uniformly employed the “should” language from the 1955 Allen decision. (Olson v. Cory, supra, 27 Cal.3d 532, 541 [“Although an employee does not obtain any ‘absolute right to fixed or specific benefits . . . there [are] strict limitation^] on the conditions which may modify the pension system in effect during employment.’ [Citation.] Such modifications must be reasonable and any ‘ “changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages” ’ ”]; Legislature v. Eu (1991) 54 Cal.3d 492, 529-530 [286 Cal.Rptr. 283, 816 P.2d 1309] [quoting Olson]; City of Huntington Beach v. Board of Administration (1992) 4 Cal.4th 462, 472 [14 Cal.Rptr.2d 514, 841 P.2d 1034] [“changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages”], citing Allen v. City of Long Beach, supra, 45 Cal.2d 128, 131.)

It thus appears unlikely that the Supreme Court’s use of “must” in the 1983 Allen decision was intended to herald a fundamental doctrinal shift. “Should,” not “must,” remains the court’s preferred expression. And “should” does not convey imperative obligation, no more compulsion than “ought.” (Lashley v. Koerber (1945) 26 Cal.2d 83, 90 [156 P.2d 441]; see People v. Webb (1986) 186 Cal.App.3d 401, 409, fn. 2 [230 Cal.Rptr. 755] [“the word ‘should’ is advisory only and not mandatory”].) In plain effect, “should” is “a recommendation, not ... a mandate.” (Cuevas v. Superior Court (1976) 58 Cal.App.3d 406, 409 [130 Cal.Rptr. 238].)

But the most persuasive evidence against the Supreme Court intending to impose a quid pro quo standard is circumstantial—the bottom line of who won. The issue in Allen was whether pension payments to retired legislators could be reduced pursuant to new statutory and constitutional language. The trial court had concluded that reduction would be contrary to the contract clauses of both state and federal Constitutions. (Allen v. Board of Administration, supra, 34 Cal.3d 114, 118-119.) The Supreme Court reversed, holding that the reduction was not constitutionally improper. There is nothing in the opinion linking the reduction to provision of some new compensating benefit. If the court intended “must” to have a literal meaning, the retirees would have won. They lost.

In light of the foregoing, we cannot conclude that Allen v. Board of Administration in 1983 was meant to introduce an inflexible hardening of the traditional formula for public employee pension modification. Consequently, we do not deem ourselves bound by expressions in Court of Appeal opinions—including our own in In re Retirement Cases, supra, 110 Cal.App.4th 426, 448—reiterating the Allen language.

In any event, we think there is a “new benefit” provided by the Pension Reform Act. That measure made no change to the definition of “compensation” in CERL, namely section 31460. The change in policy adopted by MCERA—which is not an employer of any individual plaintiff or of persons employed by other governmental entities—is not alleged to have changed in the way compensation is calculated by any of those entities. Thus, for all we know, employees who prior to MCERA changing its policy in December 2012 collected any of the items or payments at issue (see fn. 9, ante) continued to have those items or payments included in their monthly compensation. However, due to MCERA’s change in policy, each of those employees’ paychecks is no longer being reduced by deductions to cover those sums in funding the employee’s retirement. Put simply, the new benefit is an increase in the employee’s net monthly compensation. Put even more simply, it is more cash in hand every month.

Plaintiffs Do Not Establish That Their Vested Right to a Reasonable Pension Has Been Substantially Impaired

Plaintiffs’ initial premise, and the centerpiece of their oral argument, is that the moment each individual plaintiff commenced working for a public agency in Marin County, that person acceded to a “vested right” to a pension. To a large extent, that premise is correct. As already established by Miller, the “right” to a pension “vests” when the first portion of wages or salary already earned is deferred by being withheld for a future pension. (See fn. 17 and accompanying text, ante.) But to call a pension right “vested” is to state a truism. As one Court of Appeal sensibly noted, “ALL pension rights are vested” in the sense they cannot be destroyed. (Santin v. Cranston (1967) 250 Cal.App.2d 438, 443 [59 Cal.Rptr. 1].) Until retirement, an employee’s entitlement to a pension is subject to change short of actual destruction. That same Court of Appeal aptly—and accurately—characterized that entitlement as only “a limited vested right.” (Id. at p. 441.) Even plaintiffs concede there is no talismanic significance to “vested rights” that will prevent legislative modification between hiring and retirement. However, what plaintiffs fail to acknowledge is that in the very authority on which their position is based, our Supreme Court explained just how potent is this governmental power.

“Not every change in a retirement law constitutes an impairment of the obligations of contracts, however. [Citation.] Nor does every impairment run afoul of the contract clause. The United States Supreme Court has observed, ‘Although the Contract Clause appears literally to proscribe “any” impairment, . . . “the prohibition is not an absolute one and is not to be read with literal exactness like a mathematical formula.” [Citation.] Thus, a finding that there has been a technical impairment is merely a preliminary step in resolving the more difficult question whether that impairment is permitted under the Constitution.’ [Citation.] An attempt must be made ‘to reconcile the strictures of the Contract Clause with the “essential attributes of sovereign power,” . . .’ [Citation.] For example, ‘[m]inimal alteration of contractual obligations may end the inquiry at its first stage. Severe impairment, on the other hand, will push the inquiry to a careful examination of the nature and purpose of the state legislation.’ [Citations.]

“The high court also has expressed the relevant principles another way: ‘The constitutional prohibition against contract impairment does not exact a rigidly literal fulfillment; rather, it demands that contracts be enforced according to their “just and reasonable purport”; not only is the existing law read into contracts in order to fix their obligations, but the reservation of the essential attributes of continuing governmental power is also read into contracts as a postulate of the legal order. [Citations.] The contract clause and the principle of continuing governmental power are construed in harmony; although not permitting a construction which permits contract repudiation or destruction, the impairment provision does not prevent laws which restrict a party to the gains “reasonably to be expected from the contract.” [Citation.] Constitutional decisions “have never given a law which imposes unforeseen advantages or burdens on a contracting party constitutional immunity against change.” ’ ” (Allen v. Board of Administration, supra, 34 Cal.3d 114, 119-120, quoting United States Trust Co. v. New Jersey (1977) 431 U.S. 1 [52 L.Ed.2d 92, 97 S.Ct. 1505] and El Paso v. Simmons 1965) 379 U.S. 497 [13 L.Ed.2d 446, 85 S.Ct. 577].)

To return to Miller: “The scope of permissible modifications of vested pension rights was established in Allen v. City of Long Beach], supra,] 45 Cal.2d 128 . . . : ‘Such modifications must be reasonable, and it is for the courts to determine upon the facts of each case what constitutes a permissible change. To be sustained as reasonable, alterations of employees’ pension rights must bear some material relation to the theory of a pension system and its successful operation, and changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages.’ (Allen, supra, at p. 131.)” {Miller, supra, 18 Cal.3d 808, 816.)

Implicit in the formula, however expressed, is that alterations, changes, and modifications do not invariably work to the employee’s benefit. In large measure, the judicial history of examining pensions is largely given over to broken promises and changed circumstances. Nevertheless, the basic limits are established.

When the Supreme Court says that vested pension rights may not be “destroyed,” it means a pension system cannot be abolished on the eve of retirement (see Kern v. City of Long Beach, supra, 29 Cal.2d 848 [municipal pension plan repealed 32 days before employee completed 20-years’ service needed for retirement]); or not after substantial service has been provided (see Legislature v. Eu, supra, 54 Cal.3d 492 [initiative measure abolishing legislative pension system valid only as to persons subsequently elected]); or not by effectively abolishing a pension plan the legislative authority refuses to fund (see Bellus v. City of Eureka (1968) 69 Cal.2d 336, 352 [71 Cal.Rptr. 135, 444 P.2d 711]; Valdes v. Cory (1983) 139 Cal.App.3d 773, 787 [189 Cal.Rptr. 212]; Klench v. Board of Pension Fd. Commrs. (1926) 79 Cal.App. 171, 182 [249 P. 46]).

But there are acceptable changes aplenty that fall short of “destroying” an employee’s anticipated pension. “Reasonable” modifications can encompass reductions in promised benehts. (E.g., Miller, supra, 18 Cal.3d 808 [change of retirement age with reduction of maximum possible pension]; Claypool v. Wilson (1992) 4 Cal.App.4th 646 [6 Cal.Rptr.2d 77] [repeal of cost of living adjustments]; Brooks v. Pension Board (1938) 30 Cal.App.2d 118 [85 P.2d 956] [pension reduced prior to retirement from two-thirds to one-half of employee’s salary].) Or changes in the number of years service required. (Miller, supra, at p. 818 [“Upon being required by law to retire at age 67 rather than age 70, plaintiff suffered no impairment of vested pension rights since he had no constitutionally protected right to remain in employment until he had earned a larger pension at age 70”]; Amundsen v. Public Employees’ Retirement System (1973) 30 Cal.App.3d 856 [106 Cal.Rptr. 759] [change in minimum service requirement].) Or a reasonable increase in the employee’s contributions. (§ 31454; International Assn. of Firefighters v. City of San Diego, supra, 34 Cal.3d 292, 300-301; City of Downey v. Board of Administration (1975) 47 Cal.App.3d 621, 632 [121 Cal.Rptr. 295]; cf. Allen v. City of Long Beach, supra, 45 Cal.2d 128, 131 [invalidating “provision raising the rate of an employee’s contribution . . . from 2 per cent of his salary to 10 per cent”].)

Thus, short of actual abolition, a radical reduction of benehts, or a fiscally unjushhable increase in employee contributions, the guiding principle is still the one identified by Miller in 1977: “ ‘the governing body may make reasonable modifications and changes before the pension becomes payable and that until that time the employee does not have a right to any fixed or definite benehts but only to a substantial or reasonable pension.’ ” (Miller, supra, 18 Cal.3d 808, 816, italics added.) As made clear by the 1947 decision quoted in Miller: “an employee may acquire a vested contractual right to a pension but . . . this right is not rigidly fixed by the specihc terms of the legislation in effect during any particular period [the employee] serves,” and “the amount, terms and conditions of the benehts may be altered.” (Kern v. City of Long Beach, supra, 29 Cal.2d 848, 855.) Hence the reiterahon of reserved legislative power: “ ‘[A] public pension system is subject to the implied qualihcation that the governing body may make reasonable modifications and changes before the pension becomes payable and that until that time the employee does not have a right to any fixed or definite benehts but only to a substantial or reasonable pension.’ ” (Miller, supra, 18 Cal.3d 808, 816.)

The ordinary progression of analysis for an alleged contract clause violation goes as follows: Is there a valid contract to be impaired? If there is a valid contract, has it been impaired? Lastly, is the impairment substantial, meaning was a substantial right secured by the contract extinguished, made invalid, or significantly altered? (E.g., General Motors Corp. v. Romein (1992) 503 U.S. 181, 186 [117 L.Ed.2d 328, 112 S.Ct. 1105]; Home Bldg. & L. Assn. v. Blaisdell (1934) 290 U.S. 398, 430—431 [78 L.Ed. 413, 54 S.Ct. 231].) “Analysis of a contract clause claim requires inquiry into: ‘ “(1) the nature and extent of any contractual obligation . . . and (2) the scope of the Legislature’s power to modify any such obligation.” ’ [Citations.] The party asserting a contract clause claim has the burden of ‘mak[ing] out a clear case, free from all reasonable ambiguity,’ [that] a constitutional violation occurred. [Citation.]” (Deputy Sheriffs’ Assn. of San Diego County v. County of San Diego (2015) 233 Cal.App.4th 573, 578 [182 Cal.Rptr.3d 759].)

The contract clauses do not foreclose government action which reflects changing concepts of public policy, concomitantly granting government the power to make illegal that which was previously legal. That power has been exercised over a myriad of products and practices, and has not been stymied simply because a contract was in existence when the ban took effect. (E.g., Stone v. Mississippi (1879) 101 U.S. 814 [25 L.Ed. 1079] [prohibition of existing state lottery]; Beer Co. v. Massachusetts (1877) 97 U.S. 25 [24 L.Ed. 989] [state license to produce liquor invalidated by adoption of state prohibition law].) Such a contract might provide for a rate of interest which a statute later makes usurious and invalid, yet there is no contract clause violation. (Griffith v. Connecticut (1910) 218 U.S. 563, 571 [54 L.Ed. 1151, 31 S.Ct. 132].) Or it might be a contract for transporting freight on public highways at a cost below that fixed by a subsequently established utility commission which is statutorily authorized to fix minimum rates. Abrogation or modification of the contract presents no constitutional violation. (Stephenson v. Binford (1932) 287 U.S. 251, 276 [77 L.Ed. 288, 53 S.Ct. 181].) Enacting a new tax or increasing an existing one does not require exemption of existing contracts. (National Ice etc. Co. v. Pacific F. Exp. Co. (1938) 11 Cal.2d 283, 293-295 [79 P.2d 380]; Western Contracting Corp. v. State Bd. of Equalization (1974) 39 Cal.App.3d 341, 350-351 [114 Cal.Rptr. 227].)

Additional examples could be produced only at the risk of unduly prolonging this opinion. The following is a useful summary: “ ‘The contract clause does not protect expectations that are based upon contracts that are invalid, illegal, [or] unenforceable .... Nor does the contract clause protect expectations which are based upon legal theories other than contract, such as quasi-contract or estoppel.’” (Medina v. Board of Retirement (2003) 112 Cal.App.4th 864, 871 [5 Cal.Rptr.3d 634].)

It is without dispute that (1) up to January 1, 2013, there was a contract between MCERA and certain public employees concerning how those employees would be compensated, and (2) that after January 1, 2013, under compulsion of the Pension Reform Act, the agreement was unilaterally altered by MCERA to reduce the scope of compensation that had been accounted as ‘“compensation earnable.” The issue here is whether the amendment of section 31461—the only part of Assembly Bill 197 challenged by plaintiffs and addressed here—qualifies as an “unreasonable” change, a “substantial” impairment, and thus a violation of the state and federal Constitutions. There being no factual dispute, the issue is properly resolved as one of law. (See Teachers’ Retirement Bd. v. Genest, supra, 154 Cal.App.4th 1012, 1028, and decisions cited.) We conclude the dual answer is no: MCERA’s implementation of the amended version of section 31461 does not qualify as a substantial impairment of plaintiffs’ contracts of employment with its right to a “reasonable” and “substantial” pension. Thus there is no violation of the state and federal Constitutions.

Plaintiffs do not—indeed could not—dispute that the Legislature possesses broad power to regulate the conditions of employment and the terms of compensation of those employed in public service. It has already been established that plaintiffs cannot rely on the “must be accompanied by comparable new advantages” language in Allen v. Board of Administration, supra, 34 Cal.3d 114, 120, to frustrate the application to them of the Pension Reform Act’s redefinition of “compensation earnable.” It has also been shown that plaintiffs adopt an unrealistic notion of the immutability of employees’ “vested” rights. Plaintiffs obviously do not assert that the entirety of their contracts of employment have been extinguished. Although plaintiffs do not develop the point, they implicitly assert that their contracts of employment were substantially impaired by (1) the amendment of section 31461 by the Pension Reform Act, and (2) the December 18, 2012 policy change by MCERA. They challenge only one aspect of how they have been compensated, insisting they have a constitutionally protected right to continue using the old definition of “compensation earnable” when their pension benefits are calculated, and that right will be substantially impaired if the current version of section 31461 is enforced.

The dispositive issue is one of degree only. The extent of the new rule of section 31461 is quite modest, as is the scope of the parties’ disagreement. The parties accept that the catalyst for the Pension Reform Act was dire financial predictions necessitating urgent and fundamental changes to improve the solvency of various pension systems, including CERL. They do not dispute that the Legislature’s intent in amending section 31461 was to make it illegal after January 1, 2013, for the enumerated items and payments to figure in compensation earnable and the calculation of final compensation. And plaintiffs concede in their opening brief that MCERA’s change of policy is purely prospective: MCERA “is applying its policy only to compensation earned after January 1, 2013, meaning that if a member’s final compensation period includes pay periods before 2013, the excluded pay items would be included in pension calculations for those pay periods.” Moreover, all the parties agree the Pension Reform Act does not prohibit public employees from receiving “compensation” from items and payments enumerated in subdivision (b) of section 31461.

So, whatever moral opprobrium it attached to “pension spiking,” the Legislature’s “reform” was hardly one-sided. The amendment of section 31461 had no immediate adverse financial impact on employees (save those planning imminent retirement, a group from which plaintiffs exclude themselves) because the items and payments listed in subdivision (b) could still be pocketed as compensation. Those years where employees had received the now prohibited payments would not be erased but would still be included by MCERA in the employees’ compensation earnable and final compensation, the basic units of pension computation. In light of the unquestioned need for change, we conclude this one was reasonable.

The very careful examination we have given to the parties’ extensive briefing convinces us that plaintiffs are unable to overcome too many fundamental and established principles. Understandably, they focused on what they have lost. This has caused them to lose focus on the essential bilateral nature of the problem. Plaintiffs’ insistence on retaining their claimed “vested rights” measured by the former version of section 31461 and Ventura County (see fns. 14 & 22, ante) has hindered their appreciation of how that right is only to a “reasonable” pension, that the public employee “does not have a right to any fixed or definite benefits” that may be “fixed by the specific terms of the legislation during any particular period.” Plaintiffs’ unbending resistance to the new section 31461 betrays an inability to accept that “statutory language is subject to the implied qualification that the governing body may make modifications and changes in the system.” (Kern v. City of Long Beach, supra, 29 Cal.2d 848, 855.) The qualification “is a necessary one since pension systems must be kept flexible to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system.” (Id. at pp. 854-855; accord, International Assn. of Firefighters v. City of San Diego, supra, 34 Cal.3d 292, 300-301; Miller, supra, 18 Cal.3d 808, 816.)

Restricting their unyielding focus to only their “vested rights” has led plaintiffs to pay insufficient attention to the ever-present possibility of legislative involvement, one of the “essential attributes of sovereign power” that is always to be consulted. (Home Bldg. & L. Assn. v. Blaisdell, supra, 290 U.S. 398, 435; see Allen v. Board of Administration, supra, 34 Cal.3d 114, 119.) The Legislature’s involvement would obviously take statutory form, which is relevant because “ ‘[t]he terms and conditions of [public] employment are fixed by statute and not by contract. . . . The statutory provisions controlling the terms and conditions of [public] employment cannot be circumvented by purported contracts in conflict therewith.’ ” (Martin v. Henderson (1953) 40 Cal.2d 583, 590-591 [255 P.2d 416].) Thirteen years ago this court made the same point in connection with the enforced downward adjustment of anticipated pension benefits: “ ‘The contractual basis of a pension right is the exchange of an employee’s services for the pension right offered by . . . statute.’ ” (In re Retirement Cases, supra, 110 Cal.App.4th 426, 447, italics added.) We also left no doubt that private agreement could not substitute: “the determination of what items were to be included in ‘compensation earnable,’ ... is not subject to a contract right.” (Id. at p. 453.)

Plaintiffs make no real effort to demonstrate why the Pension Reform Act’s modification of the definition of compensation earnable does not “bear some material relation to the theory of a pension system and its successful operation” (Allen v. City of Long Beach, supra, 45 Cal.2d 128, 131), or is not a “reasonable modification” of the pensi