Court: Washington Acted Within Law When It Repealed Pension Benefits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The court affirmed the legality of two actions by Washington in recent years: in 2007, the state repealed a “gain-sharing” policy that had given retirees a bonus when pension fund investments exceeded return expectations.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 But when the lawmakers repealed the policies in recent years, public employee unions were quick to sue the state for breaches of contract.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The high court found that, in both cases, the state acted legally when they repealed the policies.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material encouraging workers to give up their more expensive plans, it never informed them gain-sharing could be repealed.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 “They were never told that these benefits could be repealed, and that’s very troubling to me.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