Exactly, Al. Your comments here are right on the money, if you’ll pardon the expression. This to me is the most damaging way that PERA betrayed the retirees with its breach of contract. Those of us who spent hundreds of thousands of dollars (yes, that’s not a typo) purchasing previous years of service are, as the law now stands, facing a drastically reduced income from what we thought we purchased — in my case, nearly $600,000 over a thirty-year period, using PERA’s own calculations.

Colorado PERA has filed a countersuit seeking a preliminary injunction against the City of Colorado Springs’ proposal to lease Memorial Hospital and repudiate their contractual PERA pension obligations.

From a recent Colorado PERA new release:

“On Friday, August 31, the Colorado Public Employees’ Retirement Association (PERA) filed a lawsuit against the parties to the Memorial lease transaction in order to have the court take control of the funds from the transaction. This lawsuit is in response to the suit filed by the City of Colorado Springs on August 15 which asserts that nothing is owed to PERA for the retirement benefits already earned by Memorial employees, despite the payment by University of Colorado Hospital (UCH) to the city of $185 million earmarked for the PERA liability.”

(My comment: PERA has a point here . . . why did Colorado Springs set aside $185 in the lease agreement if they really believe they owe PERA nothing? This does not demonstrate a high level of confidence in their case. In my opinion, they really have no case. I believe the Colorado Springs attempt to escape their PERA debt outside of bankruptcy is a colossal waste of time and tax dollars. It feels good to support PERA here. I wish the PERA Board had never decided to attempt to breach retiree contracts, and I could have been a staunch PERA supporter for the last three years. I’m happy to see that the PERA Board of Trustees voted to meet their fiduciary obligations in this situation. Given their support for SB 10-001, I had limited confidence that the board would determine that it was their fiduciary duty to make the Local Government Division trust funds whole in this situation.

How will Colorado PERA’s actuary calculate the unfunded liability? Actuaries, when you begin this calculation remember that Colorado PERA has provided the following written statement during testimony to the Joint Budget Committee of the Colorado General Assembly:

“The General Assembly cannot decrease the COLA (absent actuarial necessity) because it is part of the contractual obligations that accrue under a pension plan protected under the Colorado Constitution Article II, Section 11 and the United States Constitution Article 1, Section 10 for vested contractual rights.”

Link:

http://www.kentlambert.com/Files/PERA_JBC_Hearing_Responses-12-16-2009_Final.pdf

Disclaimer: By pointing out the hypocrisy of Colorado PERA in this blog post I don’t mean to imply that PERA’s in-house and external attorneys did not do an admirable job in preparing their brief in this Memorial Lease case. Also, I mean no personal offense to the attorneys forced to defend an untenable PERA Board decision in backing SB 10-001.)

“PERA is asking the court to determine that in order for Memorial to terminate its affiliation with PERA, the parties must comply with the law, which includes paying for the retirement benefits already earned by Memorial employees.”

“In particular, the law calls for reserves to be created for the payment of benefits earned as of the disaffiliation date by the employees of the disaffiliating employer. The law requires that the reserve be sufficient to ensure that there is no adverse impact on the remaining employers in the division.”

“PERA believes this is unfair because these benefits have already been earned as a result of work performed for the disaffiliating employer.”

Here’s a link to the full Colorado PERA news release:

http://www.copera.org/pera/about/latestnews.htm#MResponse

Here’s a link to article about the countersuit in the Colorado Springs Independent:

http://www.csindy.com/IndyBlog/archives/2012/09/04/pera-sues-the-city-over-memorial&cb=969d75f5e9991d1b7232ca0d76a827a8&sort=desc#readerComments

Here’s a link to a PDF of the 39-page countersuit filed in the Adams County District Court:

http://posting.csindy.com/images/blogimages/2012/09/04/1346796746-2012-08-31_plaintiff_public_employees____retirement_association_of_colorado___s_preliminary_injunction_motion.pdf

(My comment: It looks like many of the same attorneys hired for the Justus V. State case have been retained for this Colorado Springs legal battle.)

From the lawsuit:

“In 1988, the Colorado legislature provided a limited, proscribed method for Local Government employers to terminate affiliation with PERA that ensures the protection of employees and the
financial health of the trust fund . . .”

(My comment: I think PERA’s attorneys meant to say “prescribed method” here, rather than “proscribed method.” Reader take note that payment of the total, fully-vested, contracted PERA retiree benefit by means of a COLA escalator is also a “prescribed method” set forth in Colorado PERA statutes. The choice of the Colorado General Assembly to enact laws requiring the payment of the defined PERA benefit by means of a “COLA method” does not allow PERA or PERA-affiliated employers to escape their contractual obligations. The General Assembly could just as well have written statutes requiring that the total, defined PERA benefit be paid in larger monthly installments, rather than by means of a “COLA method.”)

From page 13 of the brief:

“In no state may an employer unilaterally leave a public pension plan without following a proscribed statutory procedure.”

(My comment: Is this a repeat of the earlier solecism? To “proscribe” is to “forbid.” Am I missing something? Did they let the paralegals draft this? Did the attorneys fail to give it a close read? Just teasing paralegals.)

“ . . . a goal which is eviscerated if employers are allowed to unilaterally leave without paying their share of the actuarial liability.”

(My comment: Only Colorado PERA is allowed to eviscerate pension actuarial liability. Stay off of their turf!)

“ . . . those requirements include: (1) a vote of Memorial’s employees with 65% choosing to leave PERA; (2) payment for an actuarial study to determine Memorial’s unfunded liability for its current and future retirees; (3) payment of Memorial’s unfunded liability—last calculated at approximately $220 million; and (4) approval by the PERA Board.”

(My comment: I believe that this “unfunded liability” will be recalculated when PERA’s legal contrivance is eventually overturned in court in the case Justus v. State, and that this event will increase the Colorado Springs PERA debt by an additional (approximate) 25%. That will make some Colorado Springs heads explode!)

“Congress, through ERISA, likewise prohibits a private employer from withdrawing from multi-employer pension plans without paying its unfunded liability.”

“For multiemployer plans, ERISA ‘assigns a withdrawing employer immediate liability for a fixed and certain debt owed to the plan, which is known as withdrawal liability.’”

(My comment: When I read these sentences from the Memorial Lease lawsuit brief I observe an impressive level of hypocrisy on the part of Colorado PERA. Why? Under ERISA, the taking of vested retiree COLA benefits is “proscribed.” ERISA includes an “anti-cutback” rule preventing the retroactive taking of a contracted COLA benefit. To ignore the ERISA “anti-cutback” rule in the case Justus v. State, and then rely on ERISA provisions in this Memorial Lease case is the height of hypocrisy. PERA attorneys, you have to agree with me here.)

“The General Assembly set up a specific, detailed statutory provision for withdrawal . . .”

(My comment: I wonder, does this detailed statutory provision employ the word “SHALL”? I seem to recall Colorado PERA recently arguing that the word “SHALL” is not quite as absolute as is commonly understood. The PERA COLA provisions were “specific and detailed” prior to the enactment of SB 10-001.)

PERA’s legal brief includes the following argument: “The fact that no such provision exists in either Chapter 9-15 or Chapter 3-12 leads directly to the conclusion that the Legislature did not
intend to permit withdrawal.”

(My comment: Similarly, the fact that no provision exists in Colorado law allowing the General Assembly to retroactively take contracted COLA benefits from retirees with fully-vested pension contracts [there was no reservation of this right] leads directly to the conclusion that the Legislature did not intend to permit such takings of fully-vested pension benefits.”)

Back to the PERA brief:

“The bill’s Senate sponsor, when she presented the bill to the Senate Finance Committee . . .”

(My comment: In 1988, Senator Bill Schroeder was prime sponsor of the legislation Colorado PERA refers to here. He will not be pleased to know that PERA questions his gender. PERA the sponsor wasn’t Pat.)

“Defendants Have Repeatedly Acknowledged Their Responsibility for the PERA Liability.”

(My comment: Likewise Colorado PERA, you have acknowledged the contractual nature of the PERA retiree COLA benefit. You have done so in testimony before the Colorado General Assembly, and you have done so by including the fixed “automatic” 3.5% PERA retiree COLA benefit in the actuarial assumptions of your CAFRs for many years.)

“The City and Memorial’s current claim that the withdrawal statute does not apply to the contemplated transaction is contrary to their repeated statements over the past two years acknowledging that Memorial’s PERA liability must be paid as a condition of the transaction.”

(My comment: Now PERA, to be fair, the initial decision in the case Justus v. State is also contrary to your organization’s assertions two years ago that the retiree COLA benefit is a PERA contractual obligation, and yet, your organization persists with the lawsuit in Justus v. State. Double standard anyone? Making claims contrary to earlier statements is not acceptable for the City of Colorado Springs? But, this is acceptable behavior for Colorado PERA?)

“ . . . city officials, including the City Attorney, stated that $185 million of the $259 million that Memorial and the City would receive as upfront proceeds from UCH will be placed in a segregated account to address the PERA liability.”

(My comment: PERA, now is it really fair that you hold the Colorado Springs City Attorney to his word? After all, your own PERA General Counsel has been quoted in the newspaper as follows:

Denver Post Article, November 30, 2008:

Greg Smith, Colorado PERA General Counsel: “The attorney general’s opinion seems clear that fully vested employees — those retired or with enough years of service to retire — cannot see any benefits reduced, including cost-of-living adjustments.” (Link:

http://www.denverpost.com/news/ci_11105271#ixzz0eEZGoxly)

“PERA is statutorily directed to act in the best interests of its members and must enforce the statutory provisions as written.”

(My comment: Those statutes, prior to the unconstitutional SB 10-001, stated that PERA “SHALL” pay the retiree COLA benefit.)

“She urged the city council members to talk to Memorial employees because they were going to suffer a significant financial loss and had been ignored.”

(My comment: PERA, where was your concern for PERA retirees with fully-vested pension contracts in 2010? These retirees suffered “significant financial loss” as a result of your unconstitutional scheme to take up to one-quarter of their contracted PERA benefits.)

“For example, Memorial employees are being forced to decide now whether to purchase service credit in order to become eligible to retire prior to the stated October 1, 2012 closing date.”

(My comment: Many PERA members purchased service credit under the assumption that the PERA COLA benefit was a “contractual obligation” of PERA. PERA, these are the words your organization used to describe the PERA COLA benefit in testimony before the Colorado General Assembly. These PERA members kept their end of the bargain, they sent in checks to cover their obligations. After receiving the checks, the PERA Board of Directors voted to attempt to diminish the value of the service credit purchases that were made. Where was Colorado PERA’s concern regarding service credit purchases of PERA members in 2010?)

“ . . . a full retirement but that benefit will be 50% of a final salary that will have been earned 20 years earlier and thus diminished by inflation.”

(My comment: Colorado PERA, where were your concerns regarding the impact of inflation on PERA retirees when the PERA Board voted to attempt an unconstitutional reduction of PERA retiree’s contracted “inflation protection” in 2009?)

“This is the reason why the Colorado General Assembly mandated that affected employees be protected from their employers’ financial motivations that could be at odds with their retirement benefits and rights.”

(My comment: “Protected from their employers’ financial motivations?” When one recognizes that SB 10-001, and its COLA-theft provisions, was intended primarily for the financial benefit of PERA-affiliated employers, and that this fact was acknowledged by the bill’s sponsor, one sees that this statement achieves a new pinnacle of hypocrisy.)

“The City’s desire to leave PERA is not being caused by an outside force over which the City and UCH do not have control, but rather by the City’s desire to realize the largest, shortterm
profit without concern for the long term impact of this action on Memorial, its employees or other PERA employers or members.”

(My comment: PERA, can you blame the City of Colorado Springs for attempting to reduce a tax burden through breach of contract? This public policy objective was endorsed by the Colorado General Assembly, with the enactment of PERA-supported SB 10-001!)

“PERA is a body corporate and instrumentality of the state under C.R.S § 24-51-201. PERA thus is also considered an arm of the state.”

(My comment: I agree that PERA is an arm of the state, and I am glad to have this fact acknowledged by Colorado PERA. Recall that state governments cannot declare bankruptcy under federal law . . . as long as Gingrich doesn’t have his way.

PERA, I fully expect that your organization will receive the desired preliminary injunction.)

On September 3, 2012, the periodical Pensions and Investments published an article that includes a survey of public pension lawsuits currently working their way through state courts. I appreciated the article in spite of the fact that it is written with a bias in favor of the breach of public pension contracts. The article highlights interviews with apologists for legislative attempts to take vested pension benefits (Munnel, Monahan).

Link:

http://www.pionline.com/article/20120903/PRINTSUB/309039973/public-pension-plans-brace-for-legal-challenges-to-cuts

In the article, an AFSCME official let’s us know that his organization will go to battle over any proposed changes to vested benefits of current public sector workers. Will AFSCME fight to protect the fully-vested pension benefits of retired AFSCME members across the country? Or, will AFSCME simply allow their retired “brothers and sisters” to twist in the wind, as they did during Colorado’s pension reform debate.

“Steve Kreisberg, director of collective bargaining at the American Federation of State, County and Municipal Employees, Washington. While he doesn’t expect widespread cuts to current workers’ benefits, “we’re preparing for it. Any change is a deal we will fight.”

The P&I article mentions the brewing pension battle in Ohio:

“Five bills — one for each of Ohio’s five public pension funds — await legislative action scheduled for Sept. 12. They would raise employee contributions or reduce pension formulas for all public defined benefit plan participants, including those in the $75 billion Ohio Public Employees’ Retirement System and the $63.8 billion Ohio State Teachers’ Retirement System, both in Columbus.”

While the Colorado Education Association supported SB 10-001 (and its “COLA-theft” provision) before the Colorado General Assembly, the CEA’s counterpart in New Jersey (the New Jersey Education Association) is fighting the New Jersey Legislature’s theft of fully-vested, accrued, earned, and contracted COLA benefits from their retired union “brothers and sisters”:

“In New Jersey, where the Division of Investment, Trenton, oversees $67.2 billion in pension assets, legislators dared to touch what Gov. Chris Christie called ‘the third rail of politics’ by passing a package of pension reforms in 2011 that included higher contributions from current workers and the elimination of cost-of-living adjustments. Within two months, public employee groups led by the New Jersey Education Association sued to have the changes considered contractual violations. Dismissed by a district court, the lawsuit is now before the state’s superior court.”

Rhode Island’s State Treasurer Raimondo is confident that the pension COLA-theft measure she championed will withstand court muster. (During the Rhode Island pension reform debate Raimondo was informed on innumerable occasions that her bill was unconstitutional):

“In Rhode Island, pension plan changes passed by the General Assembly in 2011 to raise the funding level of the $7.2 billion Employees’ Retirement System of Rhode Island, Providence, swiftly drew four lawsuits. The suits challenge, among other things, a mandatory defined contribution plan, a higher retirement age and the correlation of COLAs to investment returns. As the legal challenges work their way up to Rhode Island’s highest court, Treasurer Gina Raimondo is confident that the state’s actions, which ‘represent the culmination of 11 months of thoughtful, fact-based analysis and input,’ will hold up in court, she said in a statement after the suits were filed.”

During Raimondo’s 11 “thoughtful months” she received continuous “fact-based input” regarding the unconstitutional nature of her pension COLA-theft proposal. I personally attempted to educate the Treasurer by bringing the following Rhode Island court decision to her attention:

“The case law does not preclude but rather supports this Court’s holding that Plaintiffs, as ten-year veterans of the State, possess a contractual relationship with the State pertaining to retirement allowances and COLA benefits which are not subject to collective bargaining.”

Yet, like many Colorado state legislators Raimondo ignored clear case law in her state and pushed through (by issuing threats to the legislative members no less) a bill that is prima facie unconstitutional. Many have argued that her efforts were motivated by a desire for higher office. She may very well be Governor before her pension reform measure is struck down.

In the P&I article Professor Amy Monahan notes that state legislatures should ensure that their pension reforms are the “least drastic” alternative available:

“The first issue that courts will have to address, said the University of Minnesota’s Ms. Monahan, ‘is what’s the least drastic way to achieve fiscal balance? What do you have to do first?’”

(My comment: We have identified more than a dozen “less drastic” alternatives to the Colorado General Assembly’s breach of fully-vested retiree pension contracts. These alternatives were ignored by the Colorado General Assembly.)

“’To have the strongest case possible, a jurisdiction will need to show that they engaged in a good-faith effort to look at everything — including tax increases and service cuts — and that they tried to negotiate,’ said Josh McGee, vice president for public accountability initiatives at the Laura and John Arnold Foundation, Houston. Mr. McGee consulted with state officials on pension reform efforts in Rhode Island and Illinois.”

(My comment: The Colorado General Assembly did not entertain for a moment the option of finding new revenues to meet its contractual pension obligations. In fact, one year after the enactment of SB 10-001 the Colorado General Assembly granted $100 million in purely discretionary property tax relief. The priorities of the Colorado General Assembly are readily apparent . . . breach contracts to which the state is a party in order to reduce tax collections in the state. These are our leaders. We actually live in a country capable of this.)

Actuary John Bury addresses California and New Jersey pension reform in his September 2, 2012 blog post. Bury is an opponent of the theft of contracted, fully-vested public pension COLA benefits. Here’s a link to his latest post (a video) and a few comments:

http://burypensions.wordpress.com/2012/09/02/california-v-nj-brown-v-christie/#comment-4421

Bury notes that the primary difference between California’s pension reform and New Jersey’s reforms lies in the COLA-theft provisions of the New Jersey legislation. Bury also expresses a controversial opinion.

“The only difference was that New Jersey took away cost-of-living-adjustments on all benefits (until such time as it gets overturned in a court not influenced by the state).”

As expected, the voters of Colorado Springs have endorsed the efforts of the City of Colorado Springs to push its Memorial Hospital PERA pension debt onto other Colorado municipalities. If Colorado Springs welches on its Memorial Hospital PERA debts, these debts will be paid by other members of the Colorado PERA Local Government Division, (including, ironically, the City of Colorado Springs and Colorado Springs Utilities.) However, I am confident that the taxpayers of Pueblo and Boulder would happily step up to cover the Colorado Springs Memorial Hospital pension debt.

The final vote on the Colorado Springs Memorial Hospital Lease proposal was 83 percent in favor, 17 percent against. (If the Colorado Springs City Council decides to ask the local voters to endorse an effort to lower tax collections through abandonment of all City of Colorado Springs debt, including its bonded debt, I have no doubt that such a measure would also be handily approved by Colorado Springs voters.)

On August 30, the Colorado Springs Business Journal published an article about the recent Colorado Springs election, and PERA’s looming legal battle.

Here’s a link to the full article:

http://csbj.com/2012/08/30/memorial-lease-battle-ends-legal-fight-looms/

And, a few excerpts from the article with my reactions:

“Organizers are celebrating the overwhelming voter support to lease Memorial Health System to the University of Colorado Health, ending years of uncertainty and debate. But there is a raincloud looming over the party — an upcoming legal battle with the Public Employees’ Retirement Association.”

The CSBJ article includes a few comments from the Colorado Springs City Attorney:

“We’ve paid every penny that they’ve asked us to pay, over the years,” said City Attorney Chris Melcher. “We consider that these employees don’t work for the city any longer, so we won’t owe them any money. Memorial as an enterprise still exists, we’re leasing the assets, but it doesn’t have any employees.”

(My comment: The City Attorney is arguing that since the employees no longer work for the City of Colorado Springs, the City no longer owes them any money? It seems that the City Attorney does not understand the nature of contractual pension obligations. Pension obligations to vested employees do not evaporate into the ether when an employee’s position is terminated. Contractual PERA pension obligations to vested employees persist for the lifespan of the vested employee. Memorial Hospital has not eliminated its pension obligations through bankruptcy.)

“For instance, Melcher said, PERA isn’t responsible for benefits to laid off or fired employees.”

(My comment: In my opinion, this statement is patently and demonstrably false. If “laid off or fired employees” are vested employees, PERA and PERA–affiliated employers are contractually obligated to make future pension benefit payments to these former employees when the employees meet age and “years of service” requirements to qualify for a PERA benefit.

When the City of Colorado Springs transfers funds to Colorado PERA to meet its PERA obligations in accordance with Colorado law, this payment is not exclusively for purposes of covering current pension payments paid to PERA retirees. Part of these Colorado Springs PERA employer contributions cover future pension obligations that arise when vested PERA employees reach retirement eligibility. This includes contractual pension obligations to employees who are “laid off or fired.”

It’s clear to me that the Colorado Springs City Attorney’s arguments rest on a legal contrivance that rivals the audacity of Colorado PERA’s own “COLAs have changed, therefore they’re not contractual” contrivance. As we have seen, the PERA “base benefit” itself has also “changed” many times over the last 40 years, and yet the Denver District Court has found that this PERA “base benefit” is unquestionably a contractual PERA obligation.

For 50 years the Colorado General Assembly has not acted to correct Colorado court findings that PERA pension obligations . . . PERA base benefit and COLA obligations . . . are indeed contractual obligations. Why has the General Assembly not acted to correct the Colorado courts over these many decades? The General Assembly did not act because it has historically agreed with these Colorado court findings.

Does the Colorado Springs City Attorney intend to open a path by which all Colorado PERA-affiliated employers may “lease” their governmental programs to private or nonprofit entities in order to escape their contractual pension obligations to vested employees of those programs? Which Colorado public employers would take advantage of such an opportunity to force other local governments in the state to assume their debts and lower the local tax burden?)

“Under the terms of the lease, the city will receive annual payments, plus $185 million up front for the city to resolve issues with the Public Employees’ Retirement Association.”

(My comment: Colorado Springs would like to pocket this $185 million. I expect that the Colorado Springs contractual obligation to Colorado PERA will grow significantly when PERA’s own legal contrivance is struck down in the courts.

It will be quite entertaining to watch the gymnastics of jurisprudence employed by PERA’s own attorneys in this Colorado Springs court battle. I assume that PERA’s attorneys will attempt to defend the contractual nature of PERA pension obligations without citing any of the preeminent cases in Colorado’s public pension case law . . . the cases that PERA ignored in its briefs filed in the case Justus v. State.

A closing thought . . . if we could somehow harness the mental energy that certain Colorado attorneys put into schemes to welch on the public debt . . . the U.S. energy crisis would be solved.)

Pension reform is on its way to the Governor of California for his signature:

“‘With strong bipartisan support, the state Legislature today passed the biggest rollback of public pensions in California history,’ (Governor) Brown said in a statement. ‘This sweeping pension reform package will save tens of billions of taxpayer dollars and make the system more sustainable for the long term.’”

“The legislation caps benefits for new public employees who make more than $110,100 — 20 percent for those who don’t get Social Security. It also eliminates pension ‘spiking’ and raises the retirement age for new employees. That and other fixes are estimated to save between $52 billion and $72 billion over 30 years, according to CalPERS, one of the state’s two largest pension funds.”

“That’s not how Democrats saw it. Under the reform, a future public employee working for 30 years and retiring at 55 would get 48 percent less than a current employee, said Sen. Joe Simitian, D-Palo Alto.”

“The bill does affect local governments that have CalPERS plans, but not cities such as San Jose, which has its own plan and passed its own reforms (My comment: an unconstitutional taking of contracted COLA benefits), now being challenged by unions in court.”

(My comment: Recall that in 1989, the Colorado Supreme Court found in the case: Colorado Springs Firefighters v. Colorado Springs, that “ENTITLEMENT TO ANNUAL PENSION PAYMENT INCREASES,” “RIPEN(S) INTO VESTED PENSION RIGHTS” when public pension retirement eligibility conditions are met. Do we require a clearer statement from the Colorado Supreme Court on the contractual nature of the PERA COLA benefit? Even the defendant Colorado PERA has testified to the Colorado General Assembly that the PERA COLA benefit is a contractual obligation of PERA-affiliated employers. How is it that this Colorado Supreme Court finding went unrecognized in the initial Denver District Court decision in Justus v. State?)

Full article:

http://www.mercurynews.com/breaking-news/ci_21443937/california-legislature-poised-pension-reform-vote

Colorado public sector unions remain unique in the nation in their
support for the breach of the pension contracts of their retired “brothers and sisters.” This support may very well represent the greatest act of treachery in the history of unions in the United States. I cannot find another instance that is comparable. California public sector unions are livid over even the prospective pension reforms that have been proposed in the state . . . and which must receive legislative action by this Friday.

In our pension case law, Colorado courts have adopted the “California Rule.” Colorado pension case law follows the historical precepts of California public pension case law. Yet, California legislators, unlike many Colorado legislators, recognize the sanctity of fully-vested public pension contracts. What do they know that Colorado legislators do not know?

California pension expert Chris Burdick, a Marin County attorney, states:

“Public employees’ benefits are vested, immutable and unchangeable, unless the California Supreme Court is prepared to change 100 years of absolutely unchanging, straight-line case law, the Legislature really had no choice.”

http://www.mercurynews.com/california-budget/ci_21430442/california?source=rss

“The reforms include a cap on annual pension payments for new employees at $110,100 for most workers and $132,120 for employees not covered by Social Security, such as teachers and some public safety workers. They also require new employees to contribute at least half of their pension costs.”

“Reflecting longer life spans, the reform plan also raises minimum retirement ages for new employees. A civil service worker will now have to work until age 67, rather than 55, to receive full benefits. For public safety workers, that goes from age 50 to 57, and the maximum benefit formula is reduced.”

“The plan also ends some of the most egregious abuses of the pension system, including a practice known as ‘spiking’ in which employees are given big raises during their last year of employment as a way to inflate their pensions.”

http://www.kwqc.com/story/19398486/brown-gets-partial-win-in-calif-pension-reforms

The previous post in this blog provided excerpts from a paper addressing the contractual nature of public pension obligations by Douglas Greenfield . . . an attorney with a Washington D.C. law firm.

Douglas Greenfield participated in a panel discussion on August 8, 2012 hosted by the National Conference of State Legislatures. The panel discussion was titled: “How Much Can States Change Existing Retirement Policy?”

A video of the NCSL panel discussion is available here:

http://www.ncsl.org/issues-research/labor/how-much-can-states-change-existing-retirement.aspx

This post provides some of the comments made by Douglas Greenfield during the NCSL panel discussion.

During the panel discussion, Douglas Greenfield noted that for private sector pensions regulated under the federal law, ERISA, pension COLAs are protected.

(My comment: I ask why public sector pension COLAs should receive less protection by the courts than private sector pension COLAs receive. The theft of private sector pension COLAs is never contemplated.)

Mr. Greenfield states that “the theory behind that is that a pension that has a COLA is the equivalent of a fixed pension . . . that you could just have a higher fixed pension and no COLA . . . and is just a method by which you are providing the benefit.”

(My comment: The fact that the Colorado General Assembly has opted in Colorado law to provide the fixed, defined, contracted PERA benefit to PERA retirees by means of an annual fixed COLA escalator, in lieu of, for example, a lump sum, or a larger monthly pension benefit, in no way negates the contractual obligation of Colorado PERA and the Colorado General Assembly to pay its complete obligation to the PERA retiree.

You can see that the argument that a method of delivery of a fixed, total public pension obligation negates the contractual nature of that obligation is nonsensical. This argument is a contrivance borne of wishful thinking on the part of certain pension administrators, public sector union lobbyists, and enough naïve state legislators to force an unconstitutional bill through the legislative process.)

At 43 minutes into the video of the NCSL panel discussion Mr. Greenfield notes that “The legislatures that have lived with these precedents (relating to pensions as contractual obligations) had something they could do about it.” “They always could say with respect to new hires that we don’t want to have a contract anymore. We can make this clear . . . we can say to them we’re going to reserve our rights. New hires, here’s your new pension promise. We’re telling you right up front on day one that we can change this, that we’re preserving the right to change this, or modify it as we see fit, so this is all contingent, you can’t rely on this.”

“That has not been the reaction of the legislatures throughout the years, and this has been going on for fifty years.”

“The reaction has been that the state courts have said ‘this is a contract,’ we’re going to honor it.”

(My comment: The Colorado courts have an established public pension case law. This case law affirms the contractual nature of public pension benefits. As noted earlier in this blog, Colorado pension case law includes a finding that pension COLA benefits are a contractual obligation of public pension plan sponsors in Colorado. This body of Colorado public pension case decisions was ignored in the initial lower court ruling in the pension case, Justus v. State.)

“The basis upon which these precedents have been formed is largely deciding what the expectations of the parties were.”

“I would argue that there’s plenty of grounds for a government to say that we want to in fact have a stable, consistent, clear understanding that this is a long-term commitment . . . that this isn’t going to be changed.”

“I think that you could find that intent within the precedents that exist.”

“ . . . in order to create a pension system, a long-term obligation of a government, you need to have certainty. You need to lock-in, and have everyone with a common understanding.”

“When you look at the contract analysis that is done by states (courts), that’s what they do. They look at the least drastic change.”

(My comment: In this blog, I estimate that more than a dozen “less drastic” alternatives to the taking of fully-vested, contracted, accrued and earned, PERA retiree COLA benefits have been identified.)

COURT: PUBLIC SECTOR WORKERS ARE NOT “SOPHISTICATED POLITICIANS” WHO EXPECT THEIR GOVERNMENT TO LIE TO THEM.

On August 8, 2012 the National Conference of State Legislatures hosted a panel discussion relating to the contractual nature of public pension obligations. The panel included Professor Amy Monahan of the University of Minnesota School of Law . . . an advocate of allowing governmental entities to change the rate at which public employees accrue pension benefits. The panel discussion was titled: “How Much Can States Change Existing Retirement Policy?”

The panel also included Douglas Greenfield, an attorney with a Washington D.C. law firm who refutes Monahan’s legal analysis.

As part of his presentation, Douglas Greenfield presented a paper outlining his arguments and analysis . . . “In Defense of State Judicial Decisions Protecting Public Employees’Pensions.”

A PDF of Douglas Greenfield’s paper is available here:

http://www.ncsl.org/documents/fiscal/DGreenfield_Presentation.pdf

A video of the NCSL panel discussion, “How Much Can States Change Existing Retirement Policy?” is available here:

http://www.ncsl.org/issues-research/labor/how-much-can-states-change-existing-retirement.aspx

In his paper, Douglas Greenfield makes a number of observations relating to contractual public pension obligations. A few interesting excerpts are provided below:

Express legislative intent to create a contractual pension obligation is unnecessary:

“There is no reason, and Professor Monahan offers none, why state courts may find state legislation has created enforceable contract rights only by identifying an express ‘legislative intent’ in the statutory language, particularly when these courts are considering the nature of their states’ employment contracts with public employees. As explained below, the state courts’ long-standing precedents protecting public employees’ pension contract rights against unilateral reductions are valid exercises of state judicial authority. Where recognized as contractual, public employees’ pension rights are protected generally under state constitutions (in a number of states) and under federal constitutional law, specifically the Contract Clause, against unilateral reduction or elimination by state government.”

Even where a legislature has enacted an ambiguous statute, an implied-in-fact contract exists:

“Even if a court were to re-examine the public pension programs within its jurisdiction and to conclude that the legislature that first created those laws did not ‘clearly and unmistakably’ manifest its express intent to enter into a binding contract for itself and future legislatures – a result that even Professor Monahan would not favor on policy grounds – the court would nonetheless have more than adequate basis on which to decide that those pension laws created enforceable contract rights, based on surrounding circumstances as well as the court’s inherent power to find the existence of an ‘implied-in-fact’ contract.”

Governments attempting to rid themselves of their own contractual pension obligations (e.g. Colorado PERA employers) will receive greater court scrutiny:

“Under this test, once a contract is found is exist, the balancing factors are interrelated; the more substantial and severe the impairment, the greater the government’s burden to justify the impairment. Also, government actions taken to relieve the government of its own contractual obligations are viewed more stringently than governmental actions that affect only private contracts.”

“Thus, the balancing test is applied with more bite when government seeks to alter a contract to which the government itself is a party, as courts reason that self-interest is more likely to be the motivation than public policy when the government is acting to eliminate or reduce its own financial obligations, rather than those of third parties.”

A real or conveniently perceived “fiscal crisis” provides no justification for breach of pension contracts:

“Courts applying this type of balancing analysis to amendments that alter public employees’ existing contractually protected pension benefits have almost unanimously treated these efforts as imposing ‘substantial” impairments’, and courts also have typically found governments’ justifications based on even real fiscal crises or emergencies insufficient. Most states therefore cannot readily reduce their existing pension obligations to their employees in an effort to solve a fiscal crisis, and until recently few even tried.”

Governments have created long-standing expectations on the part of their public employees and retirees . . . these employees and retirees have acted based on those expectations in the employment exchange transaction:

“In point of fact, the state courts typically have determined whether enforceable contract rights have been created with respect to state pension statutes or codes by evaluating the surrounding circumstances, including the express legislative language, the reasonable expectations of the parties, and the actions both have taken in performance of the contract, as well as the express statutory language.”

In his paper, Douglas Greenfield cites the case Booth v. Sims, a case in which courts rejected legislative attempts to reduce state troopers’ pensions:

“Unfortunately, the state troopers, secretaries, school service personnel, teachers, highway workers, maintenance employees, assistant prosecuting attorneys and other ordinary state and local workers are not sophisticated politicians who expect their government to lie to them. When, therefore, today’s legislature and today’s governor make those workers promises, those workers believe the promises and organize their lives in the expectation that their government and their employer will treat them honorably.”

The commitment to use a COLA benefit as a means of paying a portion of the fixed (defined) pension debt is an essential element of the economic arrangement between the parties:

“Commitments as to retirement age, accrual rates, cost of living adjustments, employee and employer contribution requirements, and vesting periods are all essential elements of the economic arrangement between the parties and also may be essential to the success of the pension program.”

If courts have historically mistaken legislative intent, legislatures would have corrected these courts over the last fifty years:

“If the courts had initially mistaken the legislative intent underlying these pension programs, and governments had not intended that they create binding contractual rights, governmental entities surely would instead have taken concrete steps, all these many decades, to correct the courts’ errors and to establish that they intended to have the freedom to revise such arrangements at will, as well as to ensure that newly hired employees understood the precariousness of the current pension arrangements.”

“The wide-spread, long-standing acceptance by both legislative and executive branches of state government of their courts’ determinations regarding the contractual intent underlying the state pension programs provides equally strong support for the correctness of these state courts’ recognition of the contractual nature of the pension programs.”

“There is no sound public policy reason to conclude that these promises – based on the reasonable expectations of the contracting parties – should not be fully protected by the laws prohibiting or limiting the impairment of contracts.”

The periodical Pensions and Investments is reporting that:

“The Treasury Department on Thursday issued pension funding rates that will allow sponsors of corporate defined benefit plans to reduce their pension contributions by as much as 20%.”

“The new rates were dictated by provisions in the highway reauthorization bill signed on July 6 by President Barack Obama that removes the requirement to use two-year average of corporate bond rates for calculating liabilities and annual pension funding obligations.”

“The new Treasury segment rates of 6.15%, 7.61% and 8.35% mean that an average effective rate of 5.3% will now average 7.37%, depending on which of three time periods, or segments, a plan sponsor uses.”

This new private sector return assumption is in the same neighborhood with return assumptions of public sector pension plans across the country. The new return assumptions were enacted in the recently adopted federal highway bill.

Let’s remember all this when we begin to hear the drumbeat: “the private sector is more fiscally responsible,” “public pension plan return assumptions are unrealistic,” etc. In reality, public pension plan return assumptions are in line with historical average returns.

Paying attention public pension detractors? (Doesn’t fit well with the preferred narrative does it?)

Article:

http://www.pionline.com/article/20120817/DAILYREG/120819905/treasury-sets-rates-for-corporate-pension-stabilization