Lawsuit filed on 3.5% cuts in SB1

Denver, CO-February 26, 2010

The law firms of Stember Feinstein Doyle & Payne, LLC and Richard Rosenblatt and Associates, LLC filed a class action lawsuit today on behalf of Colorado Public Employees’ Retirement Association (PERA) retirees challenging the newly-passed amendments to PERA which reduce the annual increase to the retirees’ pension benefits.The suit charges that the new law, which was signed by the governor this past Tuesday, is unconstitutional because it impairs the retirees’ contractual rights to receive pension benefits at the levels promised them when they became eligible to retire or when they actually retired.

“Both the United States and Colorado Constitutions bar reductions in pension benefits once the right to those pension vests. And that is exactly what the legislature did here,” said Stephen M. Pincus, one of the attorneys for the retirees.

For the full press release, click here.

For a copy of the complaint, click here.

18 Responses to Lawsuit filed on 3.5% cuts in SB1

  1. Paul says:

    “Both the United States and Colorado Constitutions bar reductions in pension benefits once the right to those pension vests.

    “The Colorado Supreme Court has repeatedly held that once a public employee is eligible for retirement, his pension benefits may not be diminished,” This includes not just his base benefit but also any guaranteed, annual increase.”

    Attorney General Ken Salazar acknowledged that “[w]hen a PERA member retires from active service and begins receiving a pension, the member’s pension becomes a vested contractual obligation of the pension program that is not subject to unilateral change of any type by the General Assembly. “

    This lawsuit is about the state complying with its own Constitution,”

    I Don’t see any leg for Colorodo to stand on in this case at all,nada,nothing….They will lose this case..

    • DFD says:

      Attorney General Salazar’s opinion clearly states “Once a PERA member fulfills all the statutory requirements for a pension benefit, retires and begins receiving a pension, the member’s fully vested pension right cannot be reduced by the General Assembly.”

      That being said, there is little doubt that the PERA pension is protected as a contract. The issue at hand is the annual increase. (Note: PERA seems intent on renaming the annual increase as a “Cost of Living” despite the fact that the legislature specifically repealed any designation of the benefit as a Cost of Living. The term Cost of Living is a hot button issue that creates public outrage in these troubled economic times. It has been speculated that the legislature, in its wisdom, did not want a reference to Cost of Living in the statute fearing that anticipated inflation might obligate the State to meeting a greater obligation than the legislated 3.5% annual benefit increase.)

      The issue we face today is does the legislated annual increase have Constitutional protection? Attorney General Salazar noted some question on this issue in his opinion.

      “Although statutes are not presumed to create private contractual rights, they may constitute a contract, protected by the Contract Clause of the constitution, if the statutory language and the surrounding circumstances manifest a legislative intent to create an enforceable contractual right. Kilbourn v. Fire and Police Pension Association, 971 P.2d 284, 287. The courts consider whether the existence of a contractual right is supported by the reasonable expectations of the affected person, or if the lack of a contractual right surprises persons who have long relied on a contrary state of the law. Id at 287.”

      All citizens, including those unrelated to the PERA issue, should be vitally concerned when a government turns its back on established contracts and obligations. If Colorado successfully ends the annual benefit increase you will see other states likewise eliminating their obligations. The other danger is that if the State is willing to abandon its obligation to this class of citizens why should they be circumspect in other debts or contracts?

  2. DFD says:

    When is the PERA response/answer due in this case. Any updates on progress or court events being scheduled?

  3. Rather than be laid off last April when my job at the Colorado Springs Police Department was eliminated, I had to retire, as that was a better option than unemployment. I did not have a full 20 years in and had planned to work a few more years. I collect SS due to my husband’s death, and that is offset by my reduced PERA pension. I am in a “catch-22” for sure and the COLA would have been nice. Since Ken Salazar, when he was our AG, said no one could touch these PERA pensions and it was a contract not to be broken by legislators or governors, this needs to be overturned.

  4. DFD says:

    One issue that has not been addressed. Per PERA our cost of living year (March to March) was subject to adjustment on a pro-rata basis. Thus if you retired in July of any given year your the adjustment was based upon months as an annuitant and you would receive 8/12s of the yearly adjustment. As the new statutory banishment of the COLA was not signed until the last week in February why an I not entitled to at least an 11/12s adjustment using the same pro-rata formula employed by PERA?

    • John says:

      After trashing most of the part of the Constitution related to contracts, ex post facto laws were a small obstacle.

      I’m torn between thinking this was an exercise in pure hubris by some profoundly arrogant and cynical people, or an act intended to trigger a lawsuit that will provide political cover for the pain that must follow a court ruling against the bill. That also is a cynical act, but more characteristic of what I saw day-to-day in the capitol. Sadly, the mechanics of the methods used don’t convince me what was done was in any way an honest attempt to solve the problem.

  5. JTW says:

    When retiring as a Captain from the State Patrol, I calculated all of the benefits into my decision to retire. I am happy with my PERA pension and I feel very lucky to have it, many did not plan as well as I did, but I feel like I earned my retirement. I knew my health care costs would increase each year until they have all the $ they want, but I was amazed when my COLA was lost. My health care monthly premium increased $75 in January, not to mention a myriad of other increased living expenses. No COLA to offset my new and additional costs causes me to worry about my future that I thought was set in concrete.

    I say, GO GET ‘EM!!

  6. David Hawkes says:

    Thank you to the law firms handling this mess. I am a recent retiree and I calculated the amount of lost income due to the newly passed changes in pera. It is staggering to believe that I would lose over $8,000 by the end of 2011. At the very least it was a blatant lie by the PERA board about sharing the load, when the retiree’s would take the brunt of the financial hardship with no possibility of recovery. I also believe the constitional approach is the best way to proceed, but don’t forget breech of contract.

  7. Cathy Schelin says:

    While I think the constitutional argument is the best argument, I haven’t seen anyone mention the fact that some of us bought extra years based on the representation that the COLA would be part of the bargain. Isn’t the action by the legislature a breach of contract? In fact, some of us purchased extra years based on the fact the the cost to purchase extra years in the future was going to increase. Over the last several years there has been more than one opportunity to purchase extra years before an impending price increase. It appears we got “rolled” by the legislature.

  8. Les Brokaw says:

    I am at a loss as to how the legislature and the PERA Board felt they could legally modify defined benefits which are secured by clear contractual agreement. Although I don’t understand the “how” I feel I do understand the “why”, it was the simplest fix for a pension fund that is in trouble. A more difficult move, but one that I feel is appropriate would be to increase employers contributions significantly, these costs could the be passed on through taxes to the general public, the same public that has benefited from the efforts of State employees. There is no simple fix. My choice of retirement option, that of my wife, and all subsequent financial decisions since retirement were influenced by the existence of a “guaranteed” COLA.

  9. SLK says:

    A lot of people have cited the fact that Social Security recipients have lost their cost-of-living adjustment, also, and that we need to share the burden. Let’s not forget that the last COLA received by Social Security recipients was 5.8%. I did an average of the Social Security COLA for the past 10 years and it was 2.78%. I got this information from the Social Security website. Why did PERA agree to a cap of 2%? I think everyone is correct when they say it has more to do with politics than sound economic policy and principles. Don’t be too quick to blame Democrats. Columnist, Mike Rosen, has been begging for these changes for years! He is far from a Democrat and certainly not a voice in support of public retirement funds.

    • Barry Thorpe says:

      And please don’t forget : it NEVER was a COLA……it was an annual increase, even at 3.5% a rather paltry one, since any of us could have been investing over these 30 years in any number of portfolios that would return better than 3.5%. It was OUR money they mismanaged, and we weren’t even given an option in contributing ! I understand the website needed a catchy name like “saveperacola” but it isn’t a COLA and comparisons to SS colas are inappropriate. Take a look at your retirement paperwork that guarantees, (that’s right, guarantees) a 3.5% annual increase. NEVER was it hinted or suggested that it was to be a “COLA”, or in any way indexed by something as nebulous as a CPI !!!
      PERA also needs to be called to task for claiming they “subsidize” our health insurance with 230.00 or so dollars per month…….They do not subsidize any insurance, they get a discount for volume, I have asked to receive my $230.00/month directly so I could shop for better insurance. Not surprisingly they won’t do that. Why? because they don’t pay any subsidy for you !.

  10. Charlie says:

    The individual retired membership was outgunned from day one because of the masterful coalition building of various institutional organizations and the unanimity of the PERA board and the Senate Democrats. It’s certainly a David and Goliath analogy vis-a-vis individuals versus organized lawyer-lobbyists.
    The retired members were overpowered by the coalition of lawyer-lobbyists; we certainly were not outsmarted.

  11. Gary Donovan says:

    I agree that it is unfortunate that it has come to this. During all the years I worked for the state the PERA retirement was always included in the total compensation package. Not once did they say that that retirement was subject to politics. The legislature and PERA could have done better if they had at least asked the Supreme Court for an opinion on what parts of the PERA agreement were subject to change. Now it is all unsettled until the case is heard and decided. If it is decided in the States favor then there will be a large group of people that feel betrayed, and if it is decided that the retirees favor, PERA will still be in trouble since they say without the COLA changes the plan won’t work. They could have at least asked before making these changes.

  12. Jann Todd says:

    I do not want to lose my COLA. Why did PERA spend a bunch of money on lobbyists? Wouldn’t that money have been better spent on our raises? This is a Democrate state and that is why the governor signed the bill. There must be a bunch of democrat fat cats on the PERA board. They want to take our money and make us socialist just like Obama wants to do. PERA needs to fulfill their contracts to us. Now they are going to spend a bunch of money on lawyers trying to take away our COLA. They seem to have money for everything except us.

  13. SLK says:

    It is only fair. As a teacher, I did not get the perks and bonuses along the way that workers with comparable credentials in the private sector received. We all know that teachers in Colorado are underpaid; Colorado is not known for financing its educational institutions at a respectable rate compared to states with similar demographics. I depend on my pension and was led to believe that the 25 years of involuntary contributions that I made to PERA would ensure my future even though I had been underpaid for years in the public school system of Colorado. It is unfortunate that a class action lawsuit has become necessary to give PERA retirees what was promised but since our contract has been broken by the State of Colorado and PERA what other choice is there??

    • Barry Thorpe says:

      Well said ! I hope others will join me in sending a bill to PERA each and every month this continues. I send them a bill and refer to delinquency in previous months. This is largely symbolic, but highlights the fact that they were provided services, contracted to pay for those services, and have breached that contract. This also paves the way for a possible individual law suit as the unpaid bills accumulate. I would go so far as to explore placing Liens on the property of the organization and /or the leaders responsible for non-payment.
      There are other options as well, including current retirees reducing payment of state income tax, in correlation to the amount owed. It can easily be demonstrated that money owed to me has been used by PERA to cover its costs, therefore this amounts to a donation from me to PERA (albeit involuntary). This donation can be reported on the income tax as a “contribution”……let the State then prove that this action is any more illegal than the contract breach they’ve committed. If 100,000 of us participated in this civil disobedience it would bring appropriate attention to the issue, and we would help current teachers develop a quality pension plan worth working for.
      I want no more or less than I am legally owed…..REINSTATE the 3.5% or REFUND every penny I donated with 30 years interest, plus a matching amount as penalty for mismanagement, fraud, and breach of contract.

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