supreme court pensions

Colorado Supreme Court Won’t Hear Lawsuit Seeking Release of Pension Data

Colorado Treasurer Walker Stapleton has for years pushed the state toward initiatives designed to improve the health of its pension system, and open pension data was a big part of Stapleton’s plans.

Back in 2011, Stapleton filed a lawsuit seeking the release of retirement benefit data for Colorado’s highest-earning pensioners. But the state’s pension fund, the Public Employees Retirement Association (PERA), said the information was confidential and refused to release it.

Since then, two lower courts have sided with the pension system on the issue. Stapleton appealed the rulings all the way to the state Supreme Court—but the Court announced today that they wouldn’t be hearing his case. From the Associated Press:

The Colorado Supreme Court has decided not to hear a lawsuit from state Treasurer Walker Stapleton seeking information about employee benefits in the state’s pension system.

Stapleton, a Republican, has sought non-identifying information about the top 20 percent of the pension’s beneficiaries and their annual retirement benefit. He says the information would help him to assess the health of the state pension’s program and how to keep it solvent.

Neither Stapleton nor the Court have released statements addressing the turn of events.

Last year, Stapleton convinced the Board of the PERA to lower its assumed rate of return from 8 percent to 7.5 percent. The Denver Post:

Colorado’s Public Employees’ Retirement Association voted 8-7 to lower its expected rate of return on investments to 7.5 percent, down from 8 percent.

State Treasurer Walker Stapleton has urged the board for three years to lower its rate of return, warning of an eventual collapse and bailout of the pension system for 300,000 teachers and state workers.

[The] vote means the pension fund’s unfunded liability will increase by about $6 billion to $29 billion, Stapleton estimated.

“In the short term, that’s not a good thing,” Stapleton said. “But it makes it all the more imperative that we find a way come together … and commit ourselves to fixing this problem sooner rather than later.”

The vote was a shift in philosophy from three years ago, when the board voted 10-5 to keep its rate of return at 8 percent.

The rate is used to predict investment growth over the next 30 years. Numerous economists have suggested a realistic expectation is 6.5 percent to 7.5 percent for state funds nationwide.

PERA’s average actual rate of return over the last decade has been over 8 percent. But over a different ten-year period—2001 through 2011—it returned only 3 percent annually on average.

Photo: “Denver capitol” by Hustvedt – Own work. Licensed under Creative Commons Attribution-Share Alike 3.0 via Wikimedia Commons

Court: Washington Acted Within Law When It Repealed Pension Benefits

The Washington Supreme Court unanimously sided with the state on not one, but two pension-related decisions over this past weekend.

The court affirmed the legality of two actions by Washington in recent years: in 2007, the state repealed a “gain-sharing” policy that had given retirees a bonus when pension fund investments exceeded return expectations. Then, in 2011, Washington eliminated automatic COLAs for certain classes of retirees.

Gain-sharing and automatic COLAs were originally implemented in the mid-1990s. But when the lawmakers repealed the policies in recent years, public employee unions were quick to sue the state for breaches of contract.

Lower courts had previously sided with unions on these issues, but the case was appealed all the way to the state Supreme Court.

The high court found that, in both cases, the state acted legally when they repealed the policies. The actions weren’t a breach of contract, the court said, because the legislature had reserved the right to reverse those policies at any time.

But public employees claim they were duped—they say the state put workers in pension plans that provided less benefits, but came with promises of “gain-sharing” and automatic cost-of-living adjustments. From the Seattle Times:

Public-sector unions and others who sought to maintain the benefits concede they are pricey. But, they argued, the state had dangled the promise of the pension enhancements in the late ’90s when officials persuaded tens of thousands of workers to give up their defined-benefit retirement plans for cheaper plans.

The cheaper plans reduced the defined benefits by half while adding a mix of defined contributions and gain-sharing, which occurred when investment returns exceeded 10 percent for four straight years.

James Oswald, a Seattle lawyer who represented state ferry worker Cheryl Costello and others who sued over repeal of the gain-sharing benefit, said that when the state Department of Retirement Systems provided written material encouraging workers to give up their more expensive plans, it never informed them gain-sharing could be repealed. The workers could not have known unless they had parsed the fine print of the statute creating the benefit, he said.

“Tens of thousands of employees gave up their benefits based on representations about what they’d receive,” Oswald said. “They were never told that these benefits could be repealed, and that’s very troubling to me. That’s the kind of bait-and-switch the court would never permit a private employer to do.”

A bit of background of the “gain-sharing” policy, from the Bonney Lake Courier Herald:

The Legislature enacted gain-sharing in 1998. Gain-sharing gave certain public employee retirees (members of Plans 1 and 3) a share of extraordinary investment gains whenever the pension trust funds had average investment gains of more than 10 percent over the prior four years.

When enacting gain-sharing, the Legislature made clear that it “reserves the right to amend or repeal this chapter in the future and no member or beneficiary has a contractual right to receive” this pension provision not granted prior to the time of the repeal.” (Former RCW 41.31.030 and former RCW 41.31A.020)

The Legislature repealed gain-sharing in 2007, after paying gain-sharing benefits already earned.

When the legislature enacted automatic COLAs for retirees, they gave themselves an identical way out—writing that they “reserve the right to amend or repeal this chapter in the future and no member or beneficiary has a contractual right to receive” this pension provision not granted prior to the time of the repeal.”

Photo: “Washington Wikiproject” by Chetblong. Licensed under Creative Commons Attribution-Share Alike 3.0 via Wikimedia Commons

Illinois Supreme Court Ruling Casts Bad Omen on State’s Pension Reform

While the rest of the country celebrated Fourth of July weekend, members of the Illinois pension sphere got to watch some fireworks of their own. A key Illinois Supreme Court case was decided over the weekend, and the decision does not bode well for the state’s landmark pension reform. (The full court opinion can be read at the bottom of this page.)

According to the 6-1 decision, the pension protection clause — which says that retirement benefits are a contractual agreement that “cannot be diminished or impaired” — applies to other retirement benefits, not just pensions. That overrode the state’s argument that its emergency powers, in dealing with its budget crisis, justified an increase in what retirees must pay for their health benefits.

The court rejected the state’s argument that health care benefits are not covered by the pension protection clause, finding that there is nothing in the state constitution to support that. The only question now is whether the reduction in the state’s health care subsidies constituted an impairment or diminishment of those benefits.

Although the ruling doesn’t directly apply to pensions, the writing seems to be on the wall.

“If the justices can read the pension clause of the constitution to protect health benefits, they certainly would use it to protect pension benefits,” former state Budget Director Steve Schnorf said.

“This bodes very, very ill” for the pension cuts the Legislature approved for state workers, and for a similar set of trims Mayor Rahm Emanuel wants for his workforce, he added.

Time after time, without finally resolving the issue, the court seemed to go out of its way to knock down any changes not agreed to by workers unions, and perhaps by each individual worker.

For instance, one argument defenders of the new pension law have offered is that unfunded pension liability now is so large — $100 billion in the state funds, and at least $32 billion in the city funds, for instance — that government has a right to order changes, using its so-called police powers, to set spending priorities. But, said the court, “In light of the constitutional debates, we have concluded that the (pension) provision was aimed at protecting the right to receive the promised retirement benefits, not the adequacy of the funding to pay for them.”

In other words, pony up.

And as far as Cost-of-Living Adjustments:

Another argument offered by reform proponents is that annual cost of living adjustments in pensions are not protected by the state constitution in the same way that a person’s original pension is. In other words, a worker who initially got, say, a $3,000-a-month pension is entitled to get it and no more in the future, regardless of inflation. COLAs are far and away the biggest element in the retirement-funding crisis.
But, ruled the court, “Under settled Illinois law, where there is any question as to legislative intent and the clarity of the language of a pension statute, it must be liberally construed in favor of the rights of the pensioner. ”
So, the current 3 percent guaranteed annual COLA would appear to be here to stay.
Ironically, such an interpretation would apply both to the pension reform bill pushed by Gov. Pat Quinn that’s working its way up to the Supreme Court and to an alternative plan offered by his opponent Bruce Rauner. The GOP gubernatorial candidate proposes moving workers to a defined-contribution system that caps state funding.

Many believe lawmakers should now be scrambling to come up with a Plan B to reform pensions in a way allowed by the courts:

State and local lawmakers had better get working on a Plan B. Illinois needs alternatives to the state pension-reform law passed in December and to the Chicago pension-reform law passed in May. The options are limited — it may come down to a constitutional amendment — but the state’s best minds better get cracking.
It isn’t an exaggeration, even in the slightest, to say Illinois’ future depends on it.

There is now but one key question: Does a viable pension reform alternative exist? A bill pushed by Senate President John Cullerton, considered an alternative by many, is now almost certainly off the table. That bill gave workers a choice between full pension benefits or subsidized health care — choose pension benefits and health care would be cut. Given Thursday’s ruling, that now seems highly dubious.
One possibility would be to amend the constitution to modify the pension protection clause — not eliminating it but weakening it some. However, this is a lengthy process and may still not protect the state legally if it reduces benefits already promised.

Read the court’s entire opinion here:

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Photo by Mr.TinDC via Flickr CC