Statutes as Contracts? The 'California Rule' and its Impact on Public Pension Reform

56 Pages Posted: 27 Sep 2011 Last revised: 15 Sep 2012

See all articles by Amy Monahan

Amy Monahan

University of Minnesota Law School

Date Written: September 26, 2011


State and local retirement plans are underfunded by trillions of dollars, at a time when many states are facing decreased revenues and increased social needs. The result is that many states are currently giving active consideration to how best to address the problem of state and local pension plan underfunding given a state’s limited resources. In many states, however, courts have held that the statutes creating state retirement systems create contracts between the state and employee that prohibit the state from making any detrimental changes to the benefits provided to current employees within such systems, even on a prospective basis. This article examines the development of such a rule in California, a state that has been widely influential in this area of law, evidenced by the fact that courts in twelve other states have simply adopted the holdings of the California Supreme Court as their own. This Article illustrates that in holding that benefits not yet earned are contractually protected, California courts have improperly infringed on legislative power and have fashioned a rule inconsistent with both contract and economic theory.

Keywords: pension reform, public employee pensions, contracts clause

JEL Classification: E62, H72, J33, J45, K12

Suggested Citation

Monahan, Amy, Statutes as Contracts? The 'California Rule' and its Impact on Public Pension Reform (September 26, 2011). Iowa Law Review, Vol. 97, 2012, Minnesota Legal Studies Research Paper No. 11-40, Available at SSRN: or

Amy Monahan (Contact Author)

University of Minnesota Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States

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