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Rhode Island Lawyers to Suss Out How Court Should Handle Pension Lawsuit

At the end of this week, the lawyers representing Rhode Island and its retirees will meet with a Superior Court judge to discuss a major point of contention in the pension lawsuit brought against the state: how many trials should be held?

Lawyers for retirees argue that the lawsuit should be separated into multiple trials.

But the state, citing cost, is arguing for one trial.

State Lawyers File Arguments in Illinois Pension Lawsuit

Illinois Attorney General Lisa Madigan filed the state’s argument in favor of the sweeping pension law on Monday. Illinois is arguing that pension protections are not absolute, and the law doesn’t violate the state’s constitution.

From the Chicago Tribune:

Lawyers for the state argued that the government’s so-called emergency police powers — the ability to take action to ensure the functions of government — trump the protections of the pension clause.

State lawyers said the ability to fund necessary government services, as well as to continue paying out pensions, has been severely hampered by paying an increasing amount of the state’s checking account to fund the pension systems.

“According to the circuit court’s holding, for example, faced with an epidemic requiring the state to purchase and distribute vaccines or other costly medication, the state could not even temporarily reduce pension benefits to cover those costs,” lawyers for the state argued.

“Nor, in a period of prolonged deflation … could the state reduce pension benefits even if the corresponding rise in benefits caused by 3 percent annually compounded COLAs caused every dollar of state revenue to be spent on pension benefits,” the state filing said.

Meanwhile, business leaders and legal experts who support Illinois’ pension reform law also filed briefs with the Supreme Court Monday arguing in favor of the constitutionality of the law.

Nine briefs were filed in total in support of the state, including one from the city of Chicago.

Cincinnati Strikes Pension Deal; City to Pay More, Retiree Benefits Reduced

After nearly a year of negotiations, Cincinnati and its public workers have reached an agreement that aims to increase the sustainability of the city’s pension system.

The city will contribute significantly more money to the pension system. In exchange, retirees will not see a cost-of-living adjustment for the next three years and will see smaller COLAs in the years after.

The terms of the agreement, from the Cincinnati Enquirer:

Under the agreement, the city will:

* Contribute $38 million to the pension system next year. The city will do that over the next seven years by borrowing against future revenue.

* Contribute $200 million in 2016 from the financially stable retiree heath care trust fund to the pension system.

* Make a larger contribution to the pension starting in July 2016 – 16.25 percent of the annual operating budget compared to 14 percent – and continuing for 30 years.

Employees will:

* Take a three-year cost of living adjustment holiday.

* After that, the cost of living adjustment for both current retirees and active employees will go to 3 percent simple interest. Most current retirees receive an increase that is “compounded,” meaning the previous year’s increase is included in the following year’s calculation. Current employees already have a 3 percent simple COLA in place when they retire. The total cost of the cut was unclear Tuesday night, but can be projected. It is a significant amount.

More background and reaction from the city and unions, from the Cincinnati Enquirer:

Nobody walked away happy – not city officials, not current workers and not retirees – but everyone agreed it was a fair compromise.

The agreement ensures pension benefits will be sustained for current and future retirees and shores up the city’s financial position for years to come.

“I want to thank all of the parties for coming to the table and hammering out a compromise,” Cranley said. “It’s been a rough road and no party got everything they wanted. This settlement requires some sacrifice on all sides, but it will help strengthen the city’s financial health and ensures the pension system will still be there for everyone in it.”

The deal averts cuts to basic services for all Cincinnati residents.

Cranley, flanked by city union leaders and other top city officials, announced the agreement on the steps of the University Club at 10:45 p.m. Tuesday. All parties had been inside, negotiating since 1 p.m.

“We’re elated,” said Pete McClendon, the former president of AFSCME who is now the president of the Cincinnati AFL-CIO (of which AFSCME is a part). “The agreement stabilizes benefits … in a way that is fiscally responsible. We look forward to a workforce that can retire with dignity.”

The city’s unfunded pension liabilities hover near $862 million.

Jacksonville Will Vote On Pension Reform Measure This Week

After months of debate, the Jacksonville City Council could approve this week a measure to reduce the city’s pension debt.

Observers say the measure, which would increase city pension contributions, change retiree COLAS and give the Council the right to change benefits, has the votes needed to pass through the Council.

From the Florida Times-Union:

The full council will meet Tuesday and could take a vote on the legislation.

Thirteen council members — more than a necessary majority for passage — voted last week in favor of the bill during two committee meetings after making several changes they said make the agreement a financially better deal for taxpayers.

After years of failed attempts to reform the police and fire pension and reduce the city’s $1.65 billion debt obligation to it, council members appear close to passing a bill that Brown’s administration says will save the city $1.2 billion over a 30-year period.

“I suspect there will be limited discussion on it, and I suspect the vote will be significantly in favor, maybe even an unanimous vote,” said Councilman John Crescimbeni.

If the Council passes the bill, it will still need to be approved by the Police and Fire Pension Fund Board. There’s no guarantee they will accept the deal. From the Florida Times-Union:

The pension fund board is composed of five members. The police and firefighters union each appoint one member, the City Council appoints two members and the fifth member is chosen by the four other members.

Whether the board members pass the bill remains a major question, because it includes some significant differences from Brown’s original legislation that they supported.

Council amendments include changes to guaranteed annual cost-of-living adjustments that current police and firefighters will receive to their pensions and interest rates earned in their Deferred Retirement Option Program accounts. The council would also retain the power to impose pension benefit changes in three years if future collective bargaining talks reach an impasse.

When Brown negotiated his deal with the pension fund earlier this year, pension board members nixed the concepts now included in the council’s changes.

Officials from the mayor office told the council last month that any changes made to the deal could effectively kill it.

The reform measure would increase city contributions to the pension system by $40 million per year for the next 10 years. It would also change the way COLAs are calculated and would give the Council the right to change worker benefits for the next three years.

Photo by pshab via Flickr CC License

New Jersey Lawmaker Proposes Tweak in Pension Funding Formula To Reduce Burden

New Jersey Senator Stephen Sweeney (D) has proposed a plan to tweak the state’s pension funding formula, which would lower the state’s annual contributions to the pension system.

More details from NJ Spotlight:

Senate President Stephen Sweeney (D-Gloucester) wants to overhaul the state’s pension funding formula to make annual state pension contributions lower and more “manageable” over the next decade while preserving benefits for retirees.

“Governor (Chris) Christie says the state can’t afford to get to 100 percent funding of the public employee pension system, and he used that argument to justify cutting pension contributions by $2.4 billion and to call for public employees to pay more,” Sweeney said in an interview with NJ Spotlight. “But he’s using the 100 percent funding target to inflate the size of the problem and make it look worse than it is for his own political purposes.”

“In the private sector, 85 percent funding is considered the ‘gold standard’ under ERISA,” Sweeney said, referring to the 1974 federal Employee Retirement Income Security Act that sets the guidelines for private pension systems. “That’s manageable. We can get to 85 percent funding, and at that level, we can restore the COLAs (cost-of-living adjustments) for retirees too.”

Sweeney’s plan to change the pension funding formula would save billions of dollars in pension payments in state budgets over the next decade, while still cutting the state’s unfunded pension liability for teachers and state government workers and retirees sufficiently to guarantee the solvency of the pension system. That unfunded liability is now expected to top $60 billion by FY18, up from $54 billion before Christie’s pension cuts.

But John Bury, an actuary that blogs at Bury Pensions, says the plan achieves savings through “manipulating numbers” and doesn’t address any of the real issues facing the state’s pension system. From Bury Pensions:

Most private sector funds (excluding multiemployer plans which are a mess but including ‘one-participant’ DB plans which are thriving) ARE funded at 100 percent and, if not, have to be funded at 100% within seven years under PPA funding rules and the actuarial assumptions that define 100% are legislated (though MAP-21 and HAFTA have watered those down). Apply those private sector PPA factors to public plans and New Jersey’s 54% funded ratio drops to 30%.

A pension system with 30 percent of the funding it needs to cover all accrued pension obligations is clearly regarded as dead to anyone in the business of understanding, and not manipulating, numbers.

Detroit Bankruptcy Judge Asks: Why Should City’s Pensioners Should Get Better Treatment Than Its Creditors?

Closing arguments are underway in Detroit’s bankruptcy trial. But even if the trial is almost over, the drama isn’t.

Judge Steven Rhodes wondered aloud on Monday whether the city’s pensioners were getting more favorable treatment than its creditors – pension benefits were cut as part of the bankruptcy deal, but those benefits could be restored in the future.

From the Detroit Free Press:

Judge Steven Rhodes today pressured Detroit’s bankruptcy attorneys to justify better treatment for pensioners than financial creditors, making for an unexpectedly dramatic exchange during closing arguments of the city’s historic bankruptcy trial.

In a discussion of the complicated math underpinning the city’s financial projections, Rhodes noted that pensioners could eventually get all their pension cuts restored if the city’s pension investments perform well over the next several years.

“Tell me why that isn’t a 100% recovery,” Rhodes told Detroit bankruptcy lawyer Bruce Bennett.

“The math gets a little tricky here,” Bennett responded.

The exchange underscores the importance of the unfair discrimination issue in Detroit’s bankruptcy. Although all major creditors have struck settlements, bond insurers Syncora and Financial Guaranty Insurance Co. (FGIC) argued earlier in the case that pensioners were getting extraordinarily favorable treatment.

[…]

Bennett said the largely amicable [pension] plan is “very remarkable” after a tumultuous negotiation period with retirees, insurers, bondholders and unions.

“We had litigation with everybody about something,” Bennett said.

He said the plan of adjustment is feasible and concluded that raising taxes to pay off debts was not workable, in part because the city has reached its legally allowable property tax rate.

“It’s frankly easy to decide taxes should not be increased. The harder question is, should taxes be reduced?” Bennett said.

Core to the city’s bankruptcy restructuring plan is the grand bargain, which Bennett defended. The plan aims to shield the city-owned Detroit Institute of Arts from having to sell masterworks while also providing the equivalent of $816 million to reduce pension cuts to city workers and retirees.

As part of Detroit’s bankruptcy, civilian pensioners accepted 4.5 percent cuts to monthly benefits and the elimination of COLAs.

Police and Fire retirees saw their COLAs reduced from 2.25 percent to 1 percent.

Court: Colorado Pension System Can Cut COLAs

The Colorado Supreme Court ruled Monday that Colorado’s largest pension fund could legally scale back cost-of-living adjustments.

In 2010, the Colorado Public Employee’s Retirement Association (CPERA) cut annual COLA increases from 3.5 percent to 2 percent. Retirees took the cuts to court, alleging breach of contract. But the ruling today sided with the pension system, and so the COLA cuts will remain.

From the Denver Post:

The Colorado Supreme Court on Monday ruled that the Colorado Public Employee’s Retirement Association can adjust the cost-of-living increases that current retirees under the state’s largest pension plan receive.

“We hold that the PERA legislation providing for cost of living adjustments does not establish any contract between PERA and its members entitling them to the perpetual receipt of the specific COLA formula in place on the date each became eligible for retirement or on the date each actually retires,” the Colorado Supreme Court stated in its ruling.

Cost-of-living formulas were first implemented in 1969 and have been adjusted several times over the years, with a 3.5 percent fixed rate set back in 2000 after stock markets had several years of big gains.

Concerns that the pension plan was severely underfunded triggered 2010 legislation that capped annual cost-of-living increases at 2 percent unless the pension’s investment suffered a loss the prior year.

In that case, the increase adjust at the actual inflation rate, up to 2 percent.

Retirees sued, arguing that PERA had a contractual obligation to provide the increases in place at the time they retired for the remainder of their lives.

A district court judged ruled against the retirees in Justus v. State, but the Colorado Court of Appeals overturned that decision.

Colorado Attorney General John Suthers, who office argued the case for the state, said he was pleased with the decision.

“The law in question was an important part of ensuring that PERA remains there for state retirees long into the future. As we argued to the Court, upholding the law helps protect both current and future retirees, and the state’s taxpayers,” he said in a statement.

PERA manages over $40 billion in assets and has over 400,000 members.

Photo by TaxRebate.org.uk

Montreal Unions Will Fight “Unjust” Pension Reform Bill

A union coalition representing 65,000 workers has announced workers may strike for 24 hours in protest of the proposed pension reforms contained in Bill 3. Additionally, the union spokesman said a legal challenge could be in the works.

Bill 3 would increase pension contributions and eliminate COLAs for many workers.

Colorado Treasurer Candidates Differ On Pension Reform

Reforming Colorado’s largest pension plan, the Public Employees Retirement Association (PERA), is one of the looming issues in the state’s upcoming Treasurer election. And the candidates have very different takes on the situation.

Betsy Markey (D) is a former congresswoman who says she’ll fight for financial transparency but isn’t making pensions a central issue of her campaign. From the Durango Herald:

Markey is not overly concerned [about PERA], pointing out that legislative steps have been taken to put PERA on a sustainable path. She said the PERA board voted to lower the anticipated rate of return from 8 to 7.5 percent.

“When you’re looking into the future, the PERA board itself expects to close that unfunded liability gap within the next 30 years,” Markey said. “And they don’t expect that there will be a time in the next 30 years where they will ever not be able to fully meet their obligations to retirees.”

Incumbent Walker Stapleton (R), meanwhile, has made pension reform one of the central issues of his campaign and tenure as Treasurer. Still, he admits the state’s unfunded pension liabilities grew under his watch.

Walker responded to Markey’s position on pensions:

Stapleton said Markey’s position suggests an “alarming lack of knowledge for public-finance issues.

“PERA’s liability has only grown since I’ve been in office.” Stapleton said.

He added: “She said that PERA was fine, and I’m obsessed with it. … But she would also lower the rate of return for PERA? You can’t be for lowering the rate of return and not for additional work to be done.”

[…]

Stapleton has found himself at odds with the state employees’ union and those who manage retirement benefits.

He filed a lawsuit seeking to open the books of the Public Employees’ Retirement Association fund, and he has repeatedly fought to lower the projected rate of return on investments. He has also advocated for lowering cost-of-living raises and increasing the retirement age.

As of 2012, Colorado’s PERA was 63 percent funded and was shouldering $23 billion of unfunded liabilities.

Judge: Unions Must Use Different Argument If They Want To Overturn Baltimore Reforms

After several years and numerous legal battles, a federal judge today affirmed that a series of pension reforms enacted by Baltimore in 2010 were constitutional.

But the judge, Barbara Milano Keenan of 4th U.S. Circuit Court of Appeals, left the door open for unions to again challenge the reforms. This time, unions will have to bring a different legal argument to the table.

Quick context: In 2010, Baltimore overhauled its police and fire pension systems and implemented reforms—higher employee contributions, higher retirement ages and lower COLAs—which were projected to save the city $64 million annually. Details from the Baltimore Sun:

Under the mayor’s plan, firefighters and police have been required to increase contributions to the pension fund — now 10 percent of their salaries. Many officers were told that they would no longer be able to retire after 20 years, but would have to stay on the force for 25 years to receive their pensions. Retired workers also lost what was called the “variable benefit,” an annual increase tied to the stock market. Instead, the youngest retirees receive no annual increase through the variable benefit, and older retirees receive a 1 percent or 2 percent annual increase.

The bolded section is key. The first legal challenge against the reforms centered around the decrease in COLAs. Unions argued that the change was illegal because Maryland, like many states, treats pension benefits as contracts that cannot be impaired.

Most states sidestep the contract issue by applying reforms to new hires only. But Baltimore had decreased COLAs for retirees as well.

So, in 2012, a District Court ruled the change illegal, saying “elimination of the variable benefit constituted a substantial impairment of certain members’ contract rights, and that the impairment was not reasonable and necessary to serve an important public purpose.”

The ruling today overturned the District Court’s decision and re-instated the COLA decreases. The logic behind the ruling, from Reuters:

The appeals court said the reform was a “mere breach of contract, not rising to the level of a constitutional impairment or obligation.”

It also dismissed the notion that allowing the reform to go through would give a city “unfettered discretion to breach its contracts with public employees,” because of protections in Maryland law.

“This contention lacks merit because, under Maryland law, the city is only permitted to make reasonable modifications to its pension plans,” wrote Keenan. “Any reduction in benefits ‘must be balanced by other benefits or justified by countervailing equities for the public’s welfare.’”

But the judge said unions could change their argument, and they might have another shot at overturning the legality of the reforms in court.

Judge Keenan said that unions should argue the city took “private property for public use, without just compensation.”

And unions do plan to keep fighting.

“We have to get with our attorneys and decide which way to go, whether it’s federal or state,” said Rick Hoffman, president of the firefighters union. “I personally think this ruling strengthens our stance.”

Photo: “Ext-Night” by Basilica1 Licensed under Public domain via Wikimedia Commons