Appellants’ Reply Brief Filed

On June 15 Attorneys for the Plaintiffs in Gary R. Justus et al v. State of Colorado et al filed the final Reply Brief with the Colorado Court of Appeals. It will be considered by a three judge panel. This may take most of the summer, we anticipate. The brief very directly raises and addresses the essential question of ‘how can a government fairly impair a contract to which it is a party?’

“The fact that the contractual obligations of the government, rather than a private party, are at issue is significant. The Supreme Court has noted that under the federal Contracts Clause “impairments of a state’s own would face more stringent examination … than would laws regulating contractual relationships between private parties,” citing Allied Structural Steel Co.v. Spannaus, 438 U.S. 234, 244 n.15, 98 S.Ct. 2716, 57 L.Ed.2d 727(1978). (Page 11 of brief)

This is interesting reading and should serve to reinforce the validity of our case in anyone’s mind. View it here:  2012-06-15 Appellants’ Reply Brief

Your donations are needed and welcomed to continue the legal work in this case, either in the District Court or the Colorado Supreme Court. Have you done your part? Click on www.SavePERACOLA.com/Support to contribute.

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49 Responses to Appellants’ Reply Brief Filed

  1. Al Moncrief says:

    COLORADO PERA: WHAT GIVES COLORADO SPRINGS? . . . ONLY WE ARE ALLOWED TO REPUDIATE PENSION DEBT!

    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.)

    • Tim Hansford says:

      “(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?)”

      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.

  2. Al Moncrief says:

    ARTICLE SURVEYS STATE PUBLIC PENSION LITIGATION. AFSCME OFFICIAL: WE WILL “FIGHT” FOR PENSION RIGHTS (WELL, COLORADO IS AN EXCEPTION.)

    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.)

  3. Al Moncrief says:

    BURYPENSIONS BLOG – NEW JERSEY’S COLA-THEFT BILL WILL BE OVERTURNED WHEN THE CASE REACHES A COURT THAT IS NOT INFLUENCED BY THE DEFENDANTS.

    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).”

  4. Al Moncrief says:

    COLORADO PERA, CHAMPION OF THE LEGAL CONTRIVANCE PREPARES TO CONTEST A LEGAL CONTRIVANCE OF ONE OF ITS OWN PERA-AFFILIATED EMPLOYERS.

    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.)

  5. Al Moncrief says:

    CALIFORNIA LEGISLATURE ADOPTS PENSION REFORM MEASURE – PROVIDES AN EXAMPLE OF PENSION REFORM THAT IS “LESS DRASTIC” THAN THE COLORADO GENERAL ASSEMBLY’S BREACH OF FULLY-VESTED RETIREE PENSION CONTRACTS.

    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

  6. Al Moncrief says:

    PROSPECTIVE, LEGAL PENSION REFORM PROPOSED IN CALIFORNIA: WHY ARE CA PUBLIC SECTOR UNIONS NOT ADVOCATING BREACH OF PENSION CONTRACTS LIKE THEIR
    COUNTERPARTS IN COLORADO?

    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

  7. Al Moncrief says:

    A PENSION COLA IS SIMPLY A METHOD BY WHICH A FIXED, DEFINED, TOTAL PENSION BENEFIT IS DELIVERED. PUBLIC PENSIONS THAT USE THIS METHOD DO NOT ESCAPE THEIR CONTRACTUAL OBLIGATIONS.

    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.)

  8. Al Moncrief says:

    THE PUBLIC PENSION COLA COMMITMENT IS AN ESSENTIAL ELEMENT OF THE ECONOMIC ARRANGEMENT BETWEEN THE PARTIES. PUBLIC EMPLOYEES, AT A MINIMUM, HAVE “IMPLIED-IN-FACT” PENSION CONTRACTS. IF COURTS HAVE MISTAKEN LEGISLATIVE INTENT, LEGISLATURES WOULD HAVE CORRECTED THESE MISTAKES OVER THE LAST FIFTY YEARS.

    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.”

  9. Al Moncrief says:

    US TREASURY APPROVES 7.4% RETURN ASSUMPTION FOR PRIVATE SECTOR DEFINED BENEFIT PENSION PLANS.

    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

  10. Al Moncrief says:

    COLORADO SPRINGS ASKS COURT TO PUSH ITS PERA DEBT ONTO OTHER COLORADO MUNICIPALITIES – MATTER COULD DELAY MEMORIAL HOSPITAL’S EXIT FROM PERA.

    According to the Colorado Springs Independent:

    “The city has filed a lawsuit in El Paso County District Court seeking a declaratory judgment that the city owes nothing to remove Memorial Health System employees from the Public Employees Retirement Association.”

    “PERA counters with a threat to sue the city, and to prohibit the city from leasing Memorial to University of Colorado Health, regardless of the outcome of a special election now underway for voters to approve of that lease.”

    Read the complete article at the Colorado Springs Independent here:

    http://www.csindy.com/IndyBlog/archives/2012/08/22/lawsuit-over-pera-could-delay-memorial-lease-deal&cb=736ce66dc3c037930ad0c17b8e65ca72&sort=desc#readerComments

    According to the Colorado Springs Independent, the City filed a court action on August 15, 2012 seeking a ruling on whether the City must pay its share of PERA unfunded liabilities to PERA. The payment would cover liabilities for current Memorial employees who are vested in PERA.

    My guess is that reaching an ultimate decision in this case will take some time. The economic factors that make this lease proposal feasible will not remain static for the duration of the litigation.

    In this new lawsuit, how will Colorado PERA go about calculating the unfunded future COLA benefit liabilities for vested Memorial employees? PERA has told us recently that they have no obligation to pay a COLA benefit, although they also told us a couple of years ago that: “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.”

    This is quite fickle if you ask me. A reality of law practice in the United States is that where a pile of money is at stake, legal ethics and morality are nowhere to be found.

    My guess is that a court ruling in Justus v. State that PERA must meet its “contractual obligations” (PERA’s words) for accrued COLA benefits would increase the price of the Memorial PERA-termination by about 25%. So, if Colorado Springs wants to welch on its PERA obligations, it should complete this welching before Colorado PERA’s own welching attempt is struck down in the courts.

    Under the proposed lease UCH would cover $185 million of the PERA obligations . . . which could be up to $61 million higher.
    If Colorado Springs were permitted by a court to skip out on its unfunded PERA pension obligations, what would prevent other PERA-affiliated public employers from seeking to abandon their own PERA obligations? Such a court ruling would constitute a finding that no Colorado PERA-affiliated employers have a contractual obligation to meet their PERA unfunded liabilities. In essence this would be a ruling that PERA contractual pension obligations do not exist, of course, contravening Colorado case law. (Note that Colorado PERA has not recently paid heed to Colorado pension case law. What pension cases would PERA cite in their defense of Colorado pension contractual obligations in this Colorado Springs case? Perhaps, a few of those Colorado pension cases that they have recently ignored in Justus v. State?)

    The Independent article quotes an e-mail from a PERA official: “PERA believes that a judicial resolution of this issue will be necessary. PERA anticipates that we will be filing a counterclaim in this matter because the full amount is due and payable. Previous estimates of the cost of these earned and promised retirements are in the range of what we expect the liabilities to be.”

    Is it not poetic justice that an organization is attempting to abandon its contractual pension obligations to Colorado PERA, itself an organization that has gone to great lengths to abandon its own contractual pension obligations?

  11. Al Moncrief says:

    LOS ANGELES CITY COUNCIL PROPOSES PROSPECTIVE PENSION REFORMS, CREATION OF NEW PENSION BENEFIT TIER FOR NEW HIRES. PUBLIC SECTOR UNION RESPONSE: “LET’S GET IT ON!” . . . “WAR” THREATENED.

    It just boggles the mind that public sector unions in one US state will declare “war” over proposed, prospective pension reforms, while public sector unions in another US state (Colorado) will collude with local pension administrators and state legislators in an attempted, audacious theft of contracted, accrued, fully-vested, earned public pension benefits.

    How can such disparity exist among public sector unions in the United States? Apparently, public sector unions in the United States are independent entities . . . sharing no common ethos.

    Contrast the eagerness of California public sector unions to defend the contractual rights of their members (and even advocate of behalf of future hires) with the complicity of Colorado public sector unions in the effort to breach pension contracts of retired public sector workers. Contrast the assertive moral position of this California public sector union with the cold, calculated, treachery of Colorado public sector unions.

    Article:

    “On Tuesday, faced with the latest deficit forecasts, the City Council moved toward putting two tax increases on the March ballot and raising the retirement age for new employees, among other changes to the pension formula.”

    “City Administrative Officer Miguel Santana said council members directed him to explore the feasibility of additional pension changes similar to those being sought by Mayor Antonio Villaraigosa. Those include raising the retirement age for newly hired civilian employees to 67 (workers currently retire at 60 — or at 55 if they have worked for the city for at least 30 years) and capping pensions for new civilian employees at 75% of their salary. The plan would save $3 billion over 30 years, Santana said.”

    “Union leaders say their members agreed to raise retirement contributions, among other concessions, and will not give more.”

    “‘We don’t deal with threats,’ said James Johnson of Service Employees International Union Local 721. ‘You got resources, brother, we got resources too. If you want a war we did not start, let’s get it on.’”

    Full article in the LA Times:

    http://www.latimes.com/news/local/la-me-0822-city-tax-hikes-20120822,0,7359532.story

    “The City Council took some initial steps toward new pension reforms Tuesday, looking at having new workers stay on the job longer and contribute more to the system.”

    “Proposals to increase the retirement age and require higher payments by workers into the retirement and health care systems have come from Mayor Antonio Villaraigosa.”

    “Santana would not discuss specifics, but the main issues have been circulating for months – beginning with voter approval of changes to the police and fire pension systems that included many of the same issues on retirement age and contributions.”

    “Villaraigosa has stepped up his pressure on the City Council in recent months, citing the financial problems in cities like San Bernardino and votes in San Jose and San Diego to reduce pension benefits.”

    (My comment: Note that the San Jose pension measure included a retroactive taking of accrued, contracted retiree COLA benefits. This provision will not withstand court muster.)

    “We have worked collaboratively with our labor partners to increase employees’ contributions towards pensions and health care costs. Now we must take the next step on this path to long-term fiscal stability and approve this new pension tier for future employees before we raise taxes.”

    “Union leaders, however, have said they plan to resist any changes with the warning ‘it could be war’ between the workers and the City Council.”

    “‘We don’t want a war,’ Wesson said. ‘And I would hope, at the end of the day, both sides can attain what we want.’”

    Full article in Los Angeles Daily News:

    http://www.dailynews.com/news/ci_21367329/city-moves-toward-two-tier-pension-reform

  12. Al Moncrief says:

    PENNSYLVANIA LEGISLATURE PROPOSES LEGAL, PROSPECTIVE PENSION REFORM – IN SPITE OF HISTORICAL STATE UNDERFUNDING OF ITS PENSION (LIKE COLORADO) NO PROPOSAL IS MADE FOR THEFT OF CONTRACTED RETIREE PENSION BENEFITS.

    “In meetings this week in
    Harrisburg, lawmakers talked about ways to mitigate the damage. They settled on giving new state employees a far less lucrative deal than lawmakers gave themselves and current state and school employees. Beginning in 2015, new workers would have a 401(k) plan with state contributions capped at 4 percent. And they plan to stretch out the required payments as much as possible to mitigate the size of the annual increases in taxpayer payments – which still will be billions per year for decades.”

    “Lawmakers claim it would be illegal to roll back benefit levels to what they were in 2001, because the courts have ruled that the pension plans are contracts with beneficiaries that must be honored.

    True enough.”

    Article in the Times-Tribune:

    http://thetimes-tribune.com/opinion/lawmakers-still-won-t-fix-pensions-1.1360270

    “Existing plans guarantee specific dollar-value benefits for employees when they retire. This provides security for the retiree, but can become onerous during economic downturns when the employer — in this case the taxpayer — must contribute more money to shore up the guaranteed benefits.”

    “The problem is compounded if — as happened in Pennsylvania — the employer fails to make required contributions during the good years when the market outperforms expectations.”

    Article at pennlive.com:

    http://www.pennlive.com/midstate/index.ssf/2012/08/pa_house_of_representatives_co.html

    In lieu of theft of contracted retiree pension benefits, a proposal to direct casino revenues to meet the state’s pension debt has been proposed:

    “The Pittsburgh Post-Gazette highlights a plan that would impose a $2 per person entry fee to all state casinos, which would send the bulk of the raised funds to cover the state pension system.”

    http://news.yahoo.com/pennsylvania-puts-pension-reform-spotlight-153600447.html

  13. Al Moncrief says:

    ILLINOIS ADJOURNS LEGISLATIVE SESSION WITHOUT CONTEMPLATING THEFT OF CONTRACTED CURRENT RETIREE PENSION BENEFITS.

    “After a summer of stalemate, the Democratic governor ordered legislators back to the Capitol for a special session in the hope they could strike an agreement on how to overhaul the state’s five retirement systems. But Quinn’s push went nowhere — even a watered-down measure that would have made changes only to lawmakers’ pensions had so little support that it wasn’t called for a vote.”

    “On Friday, Quinn sought to get any win he could, floating a proposal that would have scaled back cost-of-living increases for current lawmakers while eliminating retirement plans altogether for incoming legislators. The measure passed a House committee, but it failed to get enough support during a test vote by the full chamber.”

    Article in the Chicago Tribune:

    http://www.chicagotribune.com/news/local/ct-met-illinois-pension-0818-20120818,0,6881216.story

    “Democratic Governor Pat Quinn had called lawmakers to the special one-day session to reform the most underfunded state pension system in the nation with $83 billion in liabilities.”

    “The state Senate adjourned on Friday without even voting on any pension measure.”

    “The House of Representatives briefly debated a proposed law backed by powerful Speaker Michael Madigan to curb the pensions of state lawmakers, which account for less than 1 percent of the unfunded state liability. It would have saved only a paltry $111 million by 2045, according to state budget estimates.”

    “While the House narrowly approved an amendment eliminating pensions for new legislators and requiring current legislators to choose between lower cost-of-living increases and state subsidized healthcare in retirement, Madigan did not call for a final vote on the bill and adjourned the session.”

    (My comment: Note that such a Hobson’s choice has already been declared unconstitutional in Illinois courts; “An Illinois Appellate Court has explained that “the [government] cannot whipsaw citizens into ‘voluntarily’ choosing one of two means by which they will be divested of an existing property interest.” Apparently, many Illinois legislators are unaware of this precedent, or, like many Colorado legislators have donned the blinders.)

    Article in Reuters:

    http://in.reuters.com/article/2012/08/18/illinois-pensions-idINL2E8JH6T820120818

  14. Al Moncrief says:

    MICHIGAN LEGISLATURE OPTS AGAINST THEFT OF CONTRACTED PUBLIC PENSION BENEFITS; HIKES PENSION CONTRIBUTIONS, AND RETIREE HEALTH INSURANCE PREMIUMS.

    Unlike the Colorado General Assembly, the Michigan Legislature has decided against an attempt to breach their public sector retiree pension contracts. There was no call from the Michigan Education Association to breach the pension contracts of their retired union “brothers and sisters.” Thus, Colorado remains unique in the nation in harboring public sector unions that have supported the unconstitutional taking of contracted, accrued, fully-vested public pension benefits from elderly pensioners.

    I’ve often wondered how Colorado’s public sector union officials justify this betrayal of trust of their retired union members before their counterparts in other states. For a century, union members fought (and died) to bring morality to the working lives of Americans. They fought to create and defend contracts ensuring moral treatment of American workers. In 2010, Colorado’s public sector union officials sold this legacy and its moral underpinnings on the cheap. In 2010, Colorado’s public sector union officials stooped low to place Colorado’s unions on the identical moral plane occupied by their historical foes . . . demonstrating that they will deny the sanctity of contracts at their convenience . . . for a buck. These union officials may be properly credited for the establishment of a new legacy for Colorado’s public sector unions.

    The Michigan Legislature’s enactment:

    “There’s little good news in the Senate and House finally voting out SB 1040. On a 21-6 Senate vote and a 57-48 House vote, they increased current employee contributions to their pensions, increased retirees’ share of their health insurance, and ended retiree health insurance for new hires.”

    “Under SB 1040, new hires will not be moved to a defined contribution retirement benefit. They will stay in the current hybrid system which combines a defined benefit and defined contribution mix. New to the bill, is the call for a study of the financial impact moving new hires to the defined contribution would cause. The study will be done by Nov. 15.”

    Article from the Michigan Education Association:

    http://www.mea.org/sb-1040-finally-passes-house-senate-employees-retirees-stuck-cost

    “The legislation now heads to Gov. Rick Snyder for his signature after the House concurred in a bill that narrowly passed in the Senate Wednesday morning. The measure was pushed through by Republicans in both chambers with Democrats voting in opposition.”

    Article from detroitnews.com:

    http://www.detroitnews.com/article/20120815/SCHOOLS/208150435/1361/Senate-passes-school-employee-pension-reform-bill

  15. Al Moncrief says:

    New Pension Lawsuit: Louisiana Retirees File Suit Challenging Prospective State Cash Balance Plan.

    The Louisiana State Employees’ Retirement System is reporting that a lawsuit has been filed challenging the Legislature’s enactment of a cash balance plan.

    Article:

    http://www.lasersonline.org/site.php?pageID=20&newsID=136

    “Attorneys representing the Retired State Employees Association (RSEA) filed a lawsuit Thursday, August 16 in the 19th Judicial District Court in Baton Rouge challenging the constitutionality of House Bill 61, which became Act 483 of the 2012 Louisiana Legislative Session. The act, known as the Cash Balance Plan, affects future non-hazardous duty state employees of LASERS, post-secondary education members of the Teachers’ Retirement System, and is optional for certain Louisiana School Employees’ Retirement System members. The plan would not take effect for these new hires until July 1, 2013.”

    “RSEA and their attorneys, Robert “Bob” Tarcza of New Orleans and Robert “Bob” Klausner of Plantation, Florida, reached the conclusion that Act 483 required a two-thirds vote for passage, rather than a simple majority. The Louisiana Constitution, Article X – Section 29(F), mandates a two-thirds vote when an actuarial cost is associated with enactment of benefit provisions for members of a public retirement system. The Legislative Actuary had determined that the Cash Balance Plan would have an actuarial cost. The bill passed in the Louisiana House of Representatives by a simple majority, but lacked the required 70 votes of the elected members.”

    “The lawsuit is entitled The Retired State Employees Association, Frank L. Jobert, Jr., et al vs. State of Louisiana, Honorable Governor Bobby Jindal and Honorable John Neely Kennedy, State Treasurer.”

    Articles:

    http://www.cbsnews.com/8301-505245_162-57495371/lawsuit-filed-against-new-state-retirement-plan/

    http://theadvocate.com/news/3650985-123/retirees-sue-state-call-pension

    “‘If legislators think they can pass laws in violation of the constitution or state statutes, we don’t know where that line will be drawn,’ RSEA Executive Director Frank Jobert Jr. said Thursday.”

    “The new retirement plan is for state employees hired on or after July 31, 2013.”

    “RSEA President Benny Harris said the association’s board of directors ‘could not let the defined benefit retirement plan … fall by the wayside on their watch by virtue of a defective piece of legislation, without a proper legal challenge in the courts.’”

  16. Al Moncrief says:

    WILL COLORADO SPRINGS STIFF COLORADO PERA FOR $61 MILLION AND FORCE THOSE COSTS ONTO OTHER COLORADO MUNICIPALTIES? MORE LITIGATION COMING FOR COLORADO PERA.

    Here are a few excerpts from a Gazette Telegraph article regarding the upcoming (August 28) Colorado Springs election on the question of the proposed Colorado Springs Memorial Hospital lease:

    “This week, registered voters in Colorado Springs should get a ballot asking a simple question: ‘Shall the City of Colorado Springs be authorized to lease the Memorial Health System to the University of Colorado Health system?’”

    “Q: What is that $185 million for pensions about?
    A: Two years ago, the state’s Public Employees Retirement Association told Memorial that it would owe $246 million for future retiree liabilities if it were to leave the system. Later estimates pegged that number significantly lower, but PERA still says whoever owns Memorial will have to pay up to exit the system. City Attorney Chris Melcher maintains that since Memorial has always paid its dues to PERA in full, the city’s actual liability should be zero — no different, he argues, than Memorial would pay if a single employee left the system. It may take litigation to resolve the dispute, but if the city can bring the final bill in for less than $185 million, it will keep the difference.”

    (My comment: The ability to read should be a minimum qualification for a city attorney’s position.)

    “Q: What happens to Memorial employees’ pension plans?
    A: UC Health would switch employees to a new defined benefit pension plan it’s setting up. Memorial employees will have the same retirement plan as employees at other UC Health hospitals. UC Health has outlined what the retirement plan will look like, but hasn’t provided final details to employees.”

    “Those plans ran aground in January 2011, though, when PERA told Memorial it would cost $246 million to leave the pension system. Dr. Larry McEvoy, then Memorial’s CEO, said such a huge bill would cripple an independent Memorial before it even got started. Memorial’s leaders tried to negotiate with PERA through the summer of 2011, but made no headway.”

    Link to the full Gazette Telegraph article:

    http://www.gazette.com/articles/registered-142694-deal-simple.html

    (My comment: Memorial Health System is a local government affiliate member of Colorado PERA. I think this measure will be supported by Colorado Springs voters and the City will fight out the level of PERA obligations in court. Colorado Springs will attempt to force all other members of the Local Government Division to eat this $61 million debt [probably higher right now.] How will the PERA Board of Trustees handle this matter? It appears to be their fiduciary duty to ensure that the PERA trust funds are made whole; however, we have seen that the PERA trustees have a peculiar understanding of their fiduciary duty. If Colorado Springs is successful in dumping its PERA obligations, perhaps other municipalities would like to dump their PERA obligations. It amazes me the extent to which Coloradan elected officials will go to avoid public sector debts, first Colorado PERA, and now the City of Colorado Springs. This will be very interesting litigation to follow. It bears on the nature of vested PERA member benefits.)

    Here is current Colorado law addressing termination of PERA affiliation:

    “Any political subdivision within the state of Colorado or any public agency created by such a political subdivision that is an employer affiliated with the association pursuant to the provisions of section 24-51-309 and that is assigned to the local government division may make application to the board to terminate the affiliation of the employer with the association. The application shall be made by submitting to the board an ordinance or resolution that has been adopted by the governing body of the employer and that has been approved by at least sixty-five percent of the employees of the employer who are members. Such employee members of the employer shall be notified in writing of the provisions of section 24-51-321 prior to a vote on an ordinance or resolution to terminate the affiliation of the employer with the association.

    All applications for termination of affiliation shall comply with the requirements set forth in this section, and, except as otherwise provided in this part 3, all applications meeting such requirements shall be approved by the board. Applications which do not meet the requirements of this section shall not be approved by the board. Upon approval of such application, the effective date of termination of affiliation shall not occur earlier than sixty days or later than ninety days after the date upon which such application is submitted to the board.”

    (My comment: Has Memorial Hospital submitted the resolution required in Colorado law? Were Memorial employee members notified of the proposed termination of affiliation? Did 65% of Memorial employees approve the plan? Has the Colorado Springs City Attorney even read this statute or the germane case law? What is the opinion of the Colorado Municipal League on this matter?)

    Here are some statements from the group opposing the Memorial lease:

    “If the lease is allowed, more than five thousand employees will cease to be eligible to contribute to Public Employees’ Retirement Association of Colorado (PERA), the public pension fund for most state and school employees in Colorado. This may be devastating to PERA’s future funding of all retirees in our community.”

    “Employee Health Care and Retirement benefits change on October 1, 2012.

    Employees as of October 1st (or when MHS is formally taken over) will no longer be employees of Memorial and therefore will no longer be entitled to contribute to their PERA accounts or carry the same health care benefits. While there does not appear to be many concrete answers on this issue it could mean:

    – Employees vested in PERA may not transfer that status over to the new retirement plan.”

    Here is the website for the group opposing the Memorial Hospital lease:

    http://ourcityourcare.com/

    Here’s a link to the group supporting the Memorial Hospital lease plan:

    http://greatcitygreatcare.com/

    Here’s a Gazette Telegraph editorial in favor of the proposal:

    http://www.gazette.com/opinion/memorial-142699-health-ballots.html

    Here is a link to the Colorado PERA local government PERA affiliation guide:

    http://www.copera.org/pdf/5/5-22.pdf

    Visit saveperacola.com or Friend Save Pera Cola on Facebook to learn more about the Colorado General Assembly’s attempt to breach pension contracts.

  17. Al Moncrief says:

    MUNICIPALITIES DECLARE BANKRUPTCY . . . BUT RETIREE PENSION BENEFITS UNSCATHED.

    A few cities in California have declared bankruptcy recently, but unfortunately (for those who advocate breach of pension contracts) public sector retiree pension benefits have not been touched. (San Jose is trying to breach pension contracts without bankruptcy.)

    (Remember that states cannot declare bankruptcy under federal law.)

    Excerpts from a SacBee article addressing Stockton California’s bankruptcy filing:

    “Responding to Assured’s claim, CalPERS said pension obligations take precedence over lenders under California law.”

    “’The obligations owed to the public workers of the city have priority over those of general unsecured creditors, including bondholders,’ said CalPERS general counsel Peter Mixon in an email to reporters.”

    “Translation: Bondholders are getting hammered by Stockton but CalPERS is getting kid-glove treatment.”

    “CalPERS, though, said Assured has itself to blame. ‘Unlike insurance companies, policemen, firefighters and other public employees are not in a position to evaluate credit risk of their employers,’ he said. ‘Assured Guaranty is in the business of evaluating these risks.’”

    “City Manager Bob Deis told the Stockton Record that Assured was guilty of ‘bad faith and whining.’”

    “When Vallejo (California) went bankrupt in 2008, the city toyed with the idea of scaling back its pension obligations. Officials backed down after CalPERS ‘threatened a costly and debilitating court battle,’ according to an account in the New York Times.”

    “CalPERS spokesman Brad Pacheco said there were no such threats. But he said, ‘I think it would be fair to say that CalPERS outlined its views on vested rights of pensions.’”

    (My comment: Isn’t it strange that pension administrators in some states aggressively defend pension contractual rights, while pension administrators and trustees at Colorado PERA go to great lengths to trash the fully-vested public pension contracts of their retirees? How this is not a breach of their fiduciary obligations I cannot explain.)

    Full article in the SacBee:

    http://www.sacbee.com/2012/08/03/4688241/bond-insurer-blasts-stockton-for.html

    From an article relating to the Stockton declaration in Reuters:

    “The obligations owed to the public workers of the city have priority over those of general unsecured creditors including bondholders. Unlike insurance companies, policemen, firefighters, and other public employees are not in a position to evaluate credit risk of their employers. Assured Guaranty is in the business of evaluating these risks,” Mixon said in an emailed statement. The fund had an average annual return of 9 percent over the past 30 years, he said.

    Full article in Reuters:

    http://www.reuters.com/article/2012/08/02/us-usa-bankruptcy-stockton-idUSBRE87100420120802

  18. Al Moncrief says:

    PUBLIC SECTOR RETIREES WIN A PORTLAND PENSION COLA LAWSUIT.

    Although this case differs from the Justus v. State lawsuit in many respects it is quite interesting.

    Essentially, a public pension fund in Portland mistakenly overpaid retirees and then attempted to recoup the overpayment by taking COLA benefits.

    Retirees filed a class action lawsuit challenging the taking and won.

    The judge in the case ruled that the taking of the COLA benefits violated Oregon wage laws.

    Did the Colorado General Assembly’s taking of fully-vested, contracted retiree COLA benefits in 2010 violate Colorado wage laws?

    Why did the City of Portland’s attorneys not simply claim that the pension COLA benefit was not an accrued, contracted pension benefit as Colorado PERA now claims? (Although, for some reason 18 months ago Colorado PERA wrote that the PERA COLA benefit IS a contractual obligation of Colorado PERA and PERA-affiliated employers.)

    Link:

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

    Under the initial Denver District Court Decision is it now legal for public employers in Colorado to decide that they would rather not pay employees wages that have been earned? Colorado public employers may simply claim that they never promised fixed “compensation” in the exchange transaction? Colorado public employers are free to retroactively adopt their own definition of “compensation” as something that is optional on the part of the employer. This situation would be consistent with the initial District Court Decision. Does this convenient ability of Colorado public employers to “define away” their compensation debts not violate federal law?

    Here are some excerpts from the article:

    “A Multnomah County judge has ruled that Portland’s public safety disability fund can’t recoup the nearly $3 million that the fund mistakenly overpaid in pension benefits to retirees by withholding cost-of-living increases.”

    “Multnomah County Circuit Judge Henry C. Breithaupt, a former tax lawyer, has found that such a withholding violates Oregon wage laws. His decision stems from a class action suit brought by five police and fire beneficiaries.”

    “If the status were lost, benefits now taxable only when received would instead become taxable when the member becomes vested.”

    “Henry Kaplan, who represented three Portland police retirees and two Portland firefighter retirees who brought the lawsuit, argued that the fund’s withholding of cost-of-living adjustments violated Oregon wage law by withholding wages owed and due to the retirees.”

    “‘An employer can’t just take money, without giving them an opportunity to raise defenses,’ Kaplan said. ‘If you want to take money from employees, you’re going to have file a claim or get the employee to give their permission.’”

    “Kaplan said the real issue is ‘how far should an employer be able to reach back to take away benefits employees have counted on for their retirement.’”

    Full article at Oregon Live:

    http://www.oregonlive.com/portland/index.ssf/2012/07/judge_says_portland_police_fir.html

  19. Al Moncrief says:

    NEW SEC REPORT – 80 PERCENT FUNDED LEVELS ARE SOUND FOR PUBLIC SECTOR PENSIONS.

    Yesterday, the U.S. Securities and Exchange Commission released a report addressing the issuance of municipal securities in the United States, “Report on the Municipal Securities Market.” The report addresses, in part, the disclosure of public sector pension obligations during the issuance of these municipal securities.

    Page 87 of the report includes the following statement: “According to the GAO, many experts consider 80% or better funding levels to be sound for government pensions because states and localities can use tax revenues to make up a shortfall if necessary.”

    (GAO, “State and Local Government Pension Plans: Current Structure and Funded Status,” GAO-08-983T at 2 (Jul. 2008), available at http://www.gao.gov/new.items/​d08983t.pdf.)

    Link to the SEC report:

    http://sec.gov/news/studies/​2012/munireport073112.pdf

    This new SEC report once again raises the question . . . why did the Colorado General Assembly feel obligated to attempt a breach of retiree pension contracts until the Colorado PERA trust funds reach an actuarial funded ratio of 100 percent? This 100 percent threshold was included in the title of the COLA-theft bill.

    Why make this the goal of the SB 10-001 COLA-theft bill when the use of an 80 percent funded ratio threshold was obviously available as a “less drastic” and reasonable COLA-theft goal?

    For the sponsors of SB 10-001, a modicum of COLA theft simply would not do . . . their goal from the outset was to maximize the amount of the theft of retiree contracted COLA benefits. Their goal was to shift as much of the burden of the Legislature’s historical underfunding of PERA as possible onto the backs of a small segment of Colorado taxpayers . . . PERA retirees who naively trusted their Colorado government employers for 30 years.

    Here’s a Reuters article on the release of the report:

    http://www.reuters.com/​article/2012/07/31/​us-usa-muni-sec-idUSBRE86U1IS20​120731

  20. Al Moncrief says:

    GOOD SHORT ARTICLE ON PENSION FUNDING – “Defined Benefit Criticisms are Based on a Misinterpretation of Funding.”

    A few excerpts:

    “When people talk about a pension plan being underfunded, they mean that there’s a shortfall in the plan’s a
    ssets. There’s not enough money in that plan to pay every single member their full pension entitlement that day.”

    “Traditional pension plans operate over a very long time horizon. A member may contribute for 30 years, and then draw a pension for 30 more. Only if the plan was to cease operations completely would everyone’s benefit need to be paid out on a single day – a relatively uncommon scenario.”

    “Critics of defined benefit plans like to point to shortfalls as a sign that the plan is not sustainable. But the economy moves in cycles. At the end of the 1990s, a booming economy had most defined benefit pension plans in surplus. Where were these critics then?”

    “There’s no question that with traditional defined benefit pension plans, funding is an important concern that needs to be addressed – and is, over time. However, this same question of funding needs to be addressed in all retirement savings vehicles. Because with more and more individuals not being covered by traditional pension plans, greater transparency and knowledge are required to ensure that people will have enough to retire on when they need it.”

    Full Article:

    http://pensiondialog.wordpress.com/2012/07/23/defined-benefit-criticisms-are-based-on-a-misinterpretation-of-funding/#comment-831

  21. Al Moncrief says:

    SAN JOSE’S PENSION COLA-THEFT MEASURE LEADING TO “MASS EXODUS” OF SAN JOSE POLICE OFFICERS.

    Who can blame them? When you work for an employer who casually breaches its pension contracts, who will lie to achieve its goals (and even put those lies in writing), who has historically ignored its pension obligations, who will use manufactured statistics to justify its breach of contracts . . . why would you want to work for that employer? Answer: You would not.

    “The Bay area’s largest city is seeing a record number of resignations and retirements from the police force.”

    “But officers told KTVU that once the recent pension reform known as Measure B passed in June, it started the exodus from the Department. The pension reform plan is scheduled to go into effect next year, but it is being challenged in court.”

    “This is the first time in the San Jose Police Department history that we have resignations outpacing retirements,” said Sergeant Jason Dwyer. “That’s very concerning to us”.

    “But the police officers’ association believes many more resignations could come by the end of the year.”

    “The City Attorney is expecting a ruling on whether the lawsuits on Measure B will be heard in state or federal court in the next 60 days.”

    “A decision isn’t expected until at least next spring.”

    Article:

    http://www.ktvu.com/news/news/crime-law/sj-police-shortage/nP69K/

  22. Al Moncrief says:

    COLORADO PERA SHOULD VOLUNTEER FOR AN IRS COMPLIANCE CHECK. SHOULD COLORADO NON-PROFIT CHARTER SCHOOLS BE IN PERA?

    Below are some excerpts from an article regarding IRS compliance reviews of public pension participation of California charter schools:

    “The IRS is taking a new look at whether public pension systems qualify for tax deferrals, raising questions about nonprofit charter schools in CalSTRS and county systems using ‘excess’ earnings to fund retiree health care.”

    (My comment: Colorado law currently requires charter schools to join PERA.)

    “Taxes on employer-employee contributions to pension systems and their investment earnings can be avoided until retirees are paid. But if the rules are not followed, the IRS can change the tax status and impose fines and penalties.”

    “If the IRS determines charter school employees are ineligible, CalSTRS requested guidance on whether current members should continue unchanged, continue but accrue no new benefits, or be denied pensions and repaid for contributions.”

    “CalSTRS mentioned the legal problem of impairing the ‘contractual relationship’ with members. Because CalSTRS members are not in Social Security, denying pensions for prior years may mean workers were not in any retirement system, a federal violation.”

    “Last April, CalSTRS said in a letter to the IRS that a proposed new rule, aimed at excluding non-government employees from public pensions, could make more than 10,000 charter school employees now in CalSTRS ineligible for the retirement system.”

    Article:

    http://calpensions.com/2012/07/30/are-public-pensions-following-irs-tax-delay-rules/

    “In Colorado, SB12-067 requires that only nonprofits can charter. This could either be a founding board that has incorporated in order to start a new charter school or a charter management organization (CMO). CMOs are generally defined as nonprofit, differentiating themselves from for-profit, education management organizations or EMOs.”

    Article:

    http://blog.charterschoolsolutions.org/2012/04/charter-school-management-organizations.html

    From an article regarding the New Jersey pension systems’ self-initiated compliance reviews:

    “After the review, which could take years, the IRS might sign off on the pensions or suggest changes that if ignored could result in the agency stripping the plans of their tax exempt status.”

    “Seeking IRS approval of how retirement plans are administered has been common practice for nonprofit groups and private businesses for decades. But financially stretched state and local governments, which have had to juggle their funds in recent years to meet their budget demands, have been reluctant to follow suit. Why look for trouble from the IRS, they figured.”

    “In New Jersey’s case, the agency will examine how the state’s seven pension plans for public employees are being overseen, including how benefits are accrued and who is eligible for them.”

    “Marcia Wagner, a managing director of the Wagner Law Group in Boston, which specializes in employee benefits, said an increasing number of states and local governments are seeking such letters since the IRS has made it easier to submit to a review.”

    (My comment: What are the opinions of the IRS regarding the taking of accrued, contracted pension COLA benefits from public employees [precluded from Social Security participation] by the plan sponsor and Legislature in Colorado? What are the opinions of the IRS regarding diminution of the value of service credit purchases via the 2010 taking of accrued, contracted COLA benefits from vested plan members after those plan members have met their obligations in the service credit purchase transaction? The taking of accrued, contracted pension benefits by the Colorado General Assembly in 2010 reduced federal income tax receipts from certain Colorado residents.)

    Will Colorado PERA continue its tradition of secrecy or open its books to the IRS?

    Here’s an article addressing the New Jersey pension review:
    http://www.nj.com/news/index.ssf/2011/03/nj_waiting_for_irs_approval_of.html

    Colorado PERA can request an IRS compliance review at this link:
    http://www.irs.gov/retirement/article/0,,id=231696,00.html

  23. Al Moncrief says:

    NEW JERSEY SUPREME COURT RULING: JUDGES DON’T HAVE TO PAY MORE FOR THEIR PENSIONS.

    “A divided state Supreme Court today (July 24) said judges and justices don’t have to chip in more for their pension and health benefits like other state workers because New Jersey’s constitution prevents them from having their pay cut.”

    “The state’s bar association, however, called it a win for judicial independence, saying judges ‘will remain free from political retaliation when judges make an unpopular but just decision.’”

    “The court said making judges contribute more for their benefits constitutes a pay cut, and that the state constitution forbids the other branches from reducing judges’ salaries to make sure they are not punished for making unpopular decisions.”

    (My comment: Again, pension benefits have been found to be deferred compensation. Since the NJ Supreme Court has ruled that pension benefits are deferred compensation, it will be interesting to see how they ultimately address the NJ Legislature’s taking of contracted retiree pension COLA benefits . . . also deferred compensation. Having ruled that it is unconstitutional for the NJ Legislature to take deferred compensation from judges, can the NJ Supreme Court rule that it is constitutional for the NJ Legislature to retroactively seize deferred compensation from public sector retirees?)

    Article:

    http://www.nj.com/news/index.ssf/2012/07/judges_dont_have_to_pay_extra.html

    NJ legislators vow to seek a constitutional amendment:

    “Incensed over a Supreme Court ruling today declaring increased pension and health benefits contributions for certain judges unconstitutional, lawmakers said they’ll seek to change the state Constitution to force the hikes.”

    “They are seeking a measure that would give them the authority to amend judicial salaries for taking contributions from justices’ and certain judges’ salaries for employee benefits. The Constitution, written in 1947, prohibits the salaries of Superior Court judges and Supreme Court justices from being ‘diminished’ while they are on the bench.”

    (My comment: Someone should let these NJ legislators know that even newly enacted provisions of a NJ constitutional amendment could not be applied retroactively. For that matter, someone should let Colorado legislators know that retroactive legislation is unconstitutional.)

    Article:

    http://www.nj.com/news/index.ssf/2012/07/legislators_vow_to_challenge_s.html

  24. Al Moncrief says:

    WALL STREET JOURNAL: NMI PENSION FUND THAT FAILED TO MEET ITS PENSION OBLIGATIONS, NOW DOESN’T WANT TO PAY ITS LAWYERS.

    Recall that a month or so back we looked at the efforts of a US commonwealth’s retirement fund, the Northern Mariana Islands Retirement Fund, to seek bankruptcy protection.

    A federal judge ruled against the commonwealth. The blog Pension Dialog reported that “According to a federal judge, the answer is no.”

    Here are the blog posts:

    http://pensiondialog.wordpress.com/2012/04/24/can-a-pension-plan-go-bankrupt/

    http://pensiondialog.wordpress.com/2012/06/01/can-a-pension-plan-file-for-bankruptcy-part-2/

    (Pension Dialog is a collaborative effort of NASRA and the National Council of Teacher Retirement. Our own former-PERA Executive Director Meredith Williams is now the Executive Director of the National Council on Teacher Retirement.)

    Meredith article:

    http://www.reuters.com/article/2012/04/05/idUS221652+05-Apr-2012+BW20120405

    Here are some excerpts on this bankruptcy question from Pension Dialog:

    “On June 1, Judge Robert Faris of the U.S. District Court ruled that the fund is a ‘governmental unit’ and, therefore, not eligible for relief under Chapter 11 of the Bankruptcy Code. The hearing became a formality as the judge released his initial opinion a couple of days prior.”

    “So has the CNMI pension fund bankruptcy set a precedent as the media headlines in April declared? Again, the answer is no. It’s an unquestionably difficult situation given the Commonwealth’s economy and the government having failed to make its payments to the retirement benefit plan for far too long. But it does not set a trend of bankruptcy filings.”

    (Question: What is the total of the annual required contributions that have been ignored by the Colorado General Assembly in the last decade? $3.7 billion or thereabouts?)

    The NMI Commonwealth failed to make its annual required pension contributions for many years. Now, the Wall Street Journal is reporting that the Commonwealth’s pension fund has such a lack of respect for contractual obligations that it is seeking to avoid paying the lawyers it hired to bring the case.

    Unmatched in its capacity for contorted reasoning, the pension fund now argues that since they only believed that they had a 15 percent chance of success in their bankruptcy attempt, they are only obligated to pay 15 percent of their legal bills.

    “Administrators who run the state pension fund for public workers of the Northern Mariana Islands—a fund that made a 44-day attempt at Chapter 11 bankruptcy protection to avoid running out of money in 2014—ran up a $750,937.82 legal bill before a bankruptcy judge could rule that the government-esque entity didn’t qualify for protection under the U.S. Bankruptcy Code.”

    “Specifically, the government’s attorneys want an 85% discount from Brown Rudnick, a figure it arrived at based on the 15% chance that the fund would actually be eligible for protection.”

    “Government officials said that the Brown Rudnick attorneys shouldn’t have run up the clock on legal work when they knew the case had such a high risk of getting dismissed.”

    “The fund’s financial hardship traces in part to the $325 million that the government failed to pay into the fund.”

    http://blogs.wsj.com/bankruptcy/2012/07/18/islands-hit-with-bill-for-failed-pension-fund-bankruptcy/

    Entering into a contractual relationship with entities that do not respect contracts is obvioulsy fraught with peril.

    (A final question: Why do we, in Colorado, put so much effort in trying to escape our debts . . . in attempts to “define away” our debts? We are a relatively wealthy state, our per capita income ranks #13 of the 50 states. Why don’t we simply pay our debts?)

  25. Al Moncrief says:

    WISCONSIN GOV. SCOTT WALKER: IMPACTING CURRENT RETIREE PUBLIC PENSION BENEFITS IS ILLEGAL.

    “Wisconsin Gov. Scott Walker said Monday that he would be willing to consider changes in the state’s $77 billion pension system, with a report expected to be released this week on how the system could be improved.”

    “’What I’ve said is I’m not proposing any changes at this time,’ he told reporters after a speech at the Commercial Club of Chicago. ‘That doesn’t mean I won’t be open to them.’”

    “Walker said he did not know what the report on Wisconsin’s pension system, due to him and the Legislature, might say, and would not speculate. One thing he did stress was that he would not attempt to touch the pensions of current retirees, which he noted would be illegal.”

    Article in the Beloit Daily News:

    http://www.beloitdailynews.com/news/walker-open-to-pension-reform/article_e53d0492-bfad-11e1-9faf-0019bb2963f4.html

  26. Al Moncrief says:

    GAME OVER: EVEN THE DEFENDANT COLORADO PERA DISAGREES WITH THE DENVER DISTRICT COURT DECISION IN JUSTUS v. STATE. (Part 1 of 2.)

    In December of 2009, Colorado PERA officials responded to questions relating to contractual public pension rights in Colorado that were posed by the Joint Budget Committee (JBC) of the Colorado General Assembly.

    PERA’s responses to the JBC were provided in writing (see link below) and verbally (voice recorded at the General Assembly.)

    “PUBLIC EMPLOYEES RETIREMENT ASSOCIATION (PERA)
    FY 2010-11 JOINT BUDGET COMMITTEE HEARING AGENDA
    December 17, 2009
    3:30 pm – 5:00 pm”

    Here’s a link to the written PERA responses:

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

    This JBC document (from which I have taken excerpts) provides official responses from Colorado PERA to the Joint Budget Committee regarding many questions that are central to the case Justus v. State.

    In December of 2009, the Colorado PERA officials who provided these responses to the JBC had no idea that (18 months later) a lower Colorado court would initially uphold the provisions of SB 10-001 taking the contracted retiree COLA benefits . . . let alone the manner in which such a taking would be defended in the lower court’s Decision.

    I believe that the Colorado PERA officials providing responses to the JBC assumed that if the COLA taking were to be eventually upheld in a Colorado court such a ruling would be based on the concept of “actuarial necessity” in conformance with the legal opinion that the Colorado PERA Board of Trustees had obtained to address these questions.

    I believe that these Colorado PERA officials were surprised that the Denver District Court Decision argued that the PERA retiree COLA benefit was not a contractual obligation of Colorado PERA and PERA-affiliated employers, and that an “unchangeable” PERA retiree COLA benefit could not be considered a “reasonable expectation” of PERA retirees.

    I believe that these PERA officials were surprised since the line of argument in the Denver District Court Decision conflicted with a long-standing (and correct) assumption on the part of the Colorado PERA Board of Trustees, and PERA attorneys, that PERA retiree COLA benefits were “automatic” COLA benefits protected under the Colorado and U.S. constitutional contract clauses.

    I believe that the reasoning in the Denver District Court Decision is in conflict with the reasoning of the “legal opinion” that was sought by the Colorado PERA Board of Trustees . . . notably, the very legal opinion on which the attempted taking of the contracted PERA retiree COLA benefit was based in the Colorado PERA campaign.

    I am surprised (and apologetic) that I haven’t discovered this JBC document earlier. (I’m not sure the document is still available on the website of the General Assembly’s JBC.) I believe that this document has tremendous consequence in the case Justus v. State.

    I have excerpted the most significant JBC questions . . . and PERA’s responses to the JBC questions from the document and present these excerpts with comments below:

    “3. Please describe the difference between partially vested and fully vested.

    PERA Response:

    Partially vested is the term used in Colorado case law and the Attorney General Formal Opinion #04-4 to describe a PERA participant who is not eligible to retire. Fully vested is used to describe a PERA participant who is currently receiving a benefit or is eligible to draw a benefit.”

    (My comment: Here Colorado PERA officials rely on the Colorado AG Opinion #04-4 in establishing fully-vested PERA public pension rights. It is rather disingenuous for the Defendant PERA to cite and rely upon the Attorney General’s Opinion in their responses to the Joint Budget Committee in 2009, and then 15 months later write on page 16 of the PERA May 6, 2011 “Reply Brief” that “Plaintiffs’ continued heavy reliance on a 2004 Attorney General opinion that expresses general views regarding pension benefit rights does nothing to bolster Plaintiffs’ attempt to create a retirement benefit that has never existed—a COLA frozen at retirement.”)

    “9. How does this decision get made for the COLA? Did PERA request the change to the PERA COLA in the late 90s? Did they oppose it?

    PERA Response:

    Cost of Living Adjustments for beneficiaries of the PERA Trust Fund are governed by statute. House Bill 2000–1458 changed the COLA from an indexed COLA based upon the lower of the national Consumer Price Index–W or 3.5 percent to fixed 3.5 percent. PERA did not initiate this change, but ultimately the change was incorporated as a part of a more comprehensive bill which had significant additional modifications to the PERA benefit structure and the bill was supported by the PERA Board.

    (My comment: As we will see shortly, Colorado PERA officials believe that PERA COLA benefits are “governed by statute” and that these Colorado statutes set forth a “contracted,” “automatic” PERA COLA benefit.)

    “10. Why can the State increase the COLA, but not decrease it?
    a. When was the last time the state increased the COLA, and why was it increased at
    that time?

    PERA Response:

    “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. The General Assembly can raise the COLA because it would be
    considered a benefit enhancement, which is not subject to restrictions.”

    (My comments: According to Colorado PERA’s attorneys, the Colorado General Assembly cannot enact legislation decreasing the PERA COLA because the PERA COLA is a “accrued” public pension benefit, and such legislation would breach the pension contracts of PERA retirees who possess “fully-vested” public pension rights, that is, short of “actuarial necessity.”

    The “legal opinion” that Colorado PERA obtained, upon which it based its efforts to take the contracted COLA benefit, is directly contravened by the Colorado Supreme Court’s Decision in McPhail:

    “In McPhail, supra, we stated that ‘ . . . changes may be made in the pension system looking to strengthening or bettering it . . .’ as long as the vested rights of pensioners are not abridged or weakened.” Here the Colorado Supreme Court makes it clear that the vested rights of current PERA retirees may not be abridged in order to “strengthen or better” the pension system.

    I find it rather disingenuous that Colorado PERA writes on page 23 of its May 6, 2011 “Reply Brief” that:

    “There is nothing in the text of the PERA or DPS COLA provisions stating, or implying, that the COLA formula may not be amended for those already retired and must, instead, remain frozen for the lifetime of a retiree, plus that of his or her spouse” . . . and “Plaintiffs seek to create a contract right that has never existed—an unchangeable COLA for life triggered (inconsistently) by either the date of their retirement or ‘full vesting.’”

    PERA has testified, and provided a written document, to the Colorado General Assembly’s Joint Budget Committee stating that “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,” and yet Colorado PERA is still able to write 15 months later: “Plaintiffs seek to create a contract right that has never existed.” That is simply unbelievable.

    The Denver District Court Decision includes the following statements:

    From Decision, page 4 – “ . . . the latest COLA changes do not impair the parties’ reasonable expectations.”

    From Decision, page 8 – “Plaintiffs could not have had a reasonable expectation that the COLA formula that happened to be in place at the date of their retirement would be unchangeable for the rest of their lives.”

    The Denver District Court Decision argues that PERA retirees cannot have a “reasonable expectation” that their contracted, fully-vested, accrued, “automatic” PERA COLA pension benefit will be “unchangeable” for the rest of their lives.

    And yet, this expectation is the identical expectation that is held by Colorado PERA’s attorneys. PERA’s attorneys write: “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.”

    If Colorado PERA’s attorneys have an expectation that the contracted 3.5 percent PERA COLA cannot be taken short of “actuarial necessity,” then why should PERA retirees with fully-vested pension rights not also have this expectation?)

  27. Al Moncrief says:

    GAME OVER: EVEN THE DEFENDANT COLORADO PERA DISAGREES WITH THE DENVER DISTRICT COURT DECISION IN JUSTUS v. STATE. (Part 2 of 2.)

    “12. Will the cost of living adjustment (COLA) change based on inflation or will it be based on the actuarial soundness of the fund?

    PERA Response:

    Currently, there are three COLA structures in place for the three tiers of members and beneficiaries. For members and beneficiaries hired prior to July 1, 2005 the COLA is statutorily set at 3.5 percent compounded annually. For members and beneficiaries hired between July 1, 2005, and December 31, 2006, the COLA is statutorily set at the lower of CPI-W or 3.0 percent compounded annually. For members or beneficiaries hired on or after January 1, 2007, the COLA is the lower of the following three calculations:
    – 3.0 percent compounded annually;
    -national CPI-W; or
    -the amount of funds necessary to actuarially exhaust 10 percent of the assets from the Annual Increase Reserve funds of a division.”

    “14. Does PERA have a legal opinion as to whether their proposal meets the requirements as stated in the 2004 Attorney General’s opinion (page 3)?

    PERA Response:

    PERA has a legal opinion that indicates their proposal is constitutional and thus consistent with our understanding of the 2004 Attorney General’s Formal Opinion.”

    (My comment: This PERA “legal opinion” is contravened by long-established Colorado public pension case law.)

    “18. Are there legal issues with changing any portions of the retirement plan for any employees?

    PERA Response:

    “Yes, there are significant legal issues in reducing benefits for current members and retirees of the plan. The Board’s recommendation addresses the legal context surrounding changes to benefits and contributions for current and retired members. In the Boards’ view, the actuarial projections under the current set of actuarial assumptions put the fund at significant risk of running out funds within the actuarial projection period of 30 years. Therefore, a state of actuarial necessity exists that allows the General Assembly to modify benefits to return the plan to actuarial soundness.”

    (My comment: PERA argues that the PERA retiree COLA benefit cannot legally be diminished for PERA retirees with fully-vested public pension rights, short of “actuarial necessity,” and that such an “actuarial necessity” exists. And yet, Colorado PERA officials have communicated in the past that even a public pension actuarial funded ratio below 60% is not a “crisis,” a funding level well below the PERA actuarial funded ratio at the time of the taking of the contracted COLA benefit:

    Colorado PERA Update – (Spring 2006 – page 4): “See that PERA’s (actuarial) funded status was lower (61.5 percent) 30 years ago than what it is now. You may recall that there was no perceived “crisis” in PERA’s funded status in 1975.”

    Colorado PERA News Archive for 2004 (9-16-2004): “PERA’S funded level was below 60 percent in 1970, and there was not a perceived crisis in PERA’s financial health.”

    Over the past months, I have reported the following statistics relating to the historical Colorado PERA actuarial funded ratio to place it in perspective:

    • (54.5% to 105.2%) – 40-year range of the Colorado PERA actuarial funding ratio (AFR), (source, Colorado PERA.)
    • 78% – average PERA AFR over the 40-year period.
    • 68.9% – PERA AFR at time of the taking of the contracted 3.5 % COLA benefit.
    • 9.1% – difference between the PERA AFR at time of COLA taking and the 40-year average PERA AFR.
    • 11.1% – difference between PERA AFR at the time of the COLA taking and an 80% AFR level considered “well-funded” by Fitch Ratings.
    • 72% – average AFR at the end of 2009 for 57 state retirement systems reporting to Wilshire Associates.
    • 3.1% – difference between the Colorado PERA AFR and Wilshire Associates average AFR for 57 state retirement systems at time of PERA COLA taking.
    • (For the entire decade of the 1970s the PERA AFR was lower than it was at the time of the taking of the contracted COLA, yet there was no campaign to breach retiree pension contracts.)

    By Colorado PERA’s logic, one-half of the public pensions in the United States should currently be engaged in efforts to breach their public pension contractual obligations.

    As we have seen recently, Fitch Ratings considers a 70 percent actuarial funded ratio “adequate” for public DB pension plans, and an 80 percent actuarial funded ratio to be “well-funded” for public DB plan. And yet, Colorado PERA seeks to breach public pension contracts until the PERA Trust Funds reach an actuarial funded ratio on 100%.

    It must also be remembered that a mere 15 years ago, the Colorado “actuarial projection period” was set in Colorado law at 60 years . . . twice its current duration.

    Remember the comments of Senator Penry, one of the prime sponsors of SB 10-001. From “Penry Republican Legislative Preview”:

    “Senator Josh Penry, in a videotaped discussion with Representative Mike May, (videocenter.denverpost.com) said ‘we can’t, can’t miss this window.’ “You cannot change course and this year, when PERA’s investment numbers come out, their investment returns . . . numbers are going to be significant, like double, 15-16% investment return. So that could change the specter of actuarial necessity. We gotta’ do it this year or else these other structural changes won’t be possible.”) Here’s a link:

    http://www.leg.state.co.us/Clics/clics2010a/commsumm.nsf/b4a3962433b52fa787256e5f00670a71/84960fa73d53e222872576c600712e80/$FILE/10HseFin0210AttachG.pdf

    Senator Penry told us that under PERA’s new investment return numbers “actuarial necessity” could disappear. What instructions were given to Colorado PERA’s actuaries relating to SB 10-001 analyses?

    Further, we know that many “less drastic” alternatives to the breach of fully-vested public pension contracts were available to the Colorado General Assembly.

    The option of reducing the rate of accrual of the pension benefits of active PERA members who have “partially-vested” pension rights is clearly a “less drastic” means of achieving the stated goals of the sponsors of SB 10-001.

    Expediting the increase of Colorado PERA employer contributions to PERA is an option. These PERA employer contribution rates should be raised to a level commensurate with public employer pension contribution rates in other states:

    • 2.16 – percent of Colorado state and local government spending dedicated to public pension support in 2008 (Census Bureau/NASRA).
    • 2.89 – average percent of state and local government spending dedicated to public pension support among the states in 2008.
    • 5.55 – highest percent of state and local government spending dedicated to public pension support among the states in 2008 (Nevada).
    • #32 – Colorado 2008 rank among the states in taxpayer support for public pensions.

    Such a pension reform is another example of a “less drastic” alternative to the breach of fully-vested PERA pension retiree contracts.

    The issuance of state pension certificates of participation to meet unfunded pension liabilities is a “less drastic” option. Rather than taking advantage of historically low interest rates to issue such PCOPs the Colorado General Assembly has focused its efforts on the breach of its public pension contractual obligations.

    Recall that we read recently in a Congressional Research Service paper addressing public pension contractual obligations:

    “. . . a State is not completely free to consider impairing the obligations of its own contracts on a par with other policy alternatives. Similarly, a State is not free to impose a drastic impairment when an evident and more moderate course would serve its purposes equally well.”

    “As the Supreme Court has explained with respect to the impairment of public contracts, reasonableness must be considered “in light of the surrounding circumstances.” Necessity depends upon two considerations: first, whether the impairment was essential or whether a less ‘drastic modification’ was available, and also whether a state could have adopted an alternative means to bring about the desired end without impairing contract obligations.”

    Link:

    http://www.nasra.org/resources/CRS%20state%20and%20local%20legal%20framework%201104.pdf

    Nearly every state legislature in the country that is addressing public pension reform has found ‘less drastic’ means of reducing unfunded pension liabilities than attempting to take fully-vested public pension benefits. Public pensions in many of these states have actuarial funded ratios at or below that of Colorado PERA at the time of the SB 10-001 pension contract breach. If ‘less drastic’ means are available to all of these legislatures, surely ‘less drastic’ means are available to the Colorado General Assembly.

  28. Al Moncrief says:

    FITCH RATINGS PUBLIC PENSION STUDIES: A 70 PERCENT PUBLIC PENSION ACTUARIAL FUNDED RATIO IS “ADEQUATE,” AN 80 PERCENT PUBLIC PENSION ACTUARIAL FUNDED RATIO IS “WELL-FUNDED.”

    The “actuarial funded ratio” (or “actuarial funding ratio”) of a public pension plan is a means of assessing its financial soundness. The actuarial funded ratio compares the current assets of a pension plan to its future liabilities. (As we have observed, Colorado PERA has recently tried to confuse public pension “actuarial funded ratios,” with public pension “market-based” funded ratios in an effort to artificially bolster PERA’s arguments for the taking of contracted PERA retiree COLA benefits.)

    On March 28, 2012 Fitch Ratings (one of the three large rating agencies in the United States) released a study that compares state debt and pension liabilities with state personal income. (To view the full report as a PDF visit Fitch’s website, fitchratings.com, and create a free account.)

    This 2012 Fitch Ratings report includes the following statement:

    “Fitch generally considers pensions with funded ratios 80% and above to be well-funded.”

    Today, I read another Fitch Ratings paper that specifically addresses the evaluation of public defined benefit pension obligations. In this 2011 Fitch Ratings report, Fitch notes that a 70% actuarial funded ratio for public defined benefit pensions is considered an “adequate” actuarial funded ratio.

    Here’s a link to the report:

    http://www.ncpers.org/Files/2011_enhancing_the_analysis_of_state_local_government_pension_obligations.pdf

    Here are a few excerpts from the report:

    “This report details Fitch Ratings’ approach to evaluating a state or local government’s defined benefit pension obligations.”

    “Fitch generally considers a funded ratio of 70% or above to be adequate and less than 60% to be weak, while noting that the funded ratio is one of many factors considered in Fitch’s analysis of pension obligations.”

    “The systems that pose the greatest risks are those with significant unfunded liabilities for which the government’s annual payments have been significantly less than an actuarially determined ARC over multiple years.”

    (My comment: This Fitch Ratings statement perfectly expresses the failure of the Colorado General Assembly to meet its annual required contributions over several decades.)

    “New Jersey’s large unfunded pension liabilities, which Fitch has highlighted as an area of concern, are a useful example of the dangers of failing to make adequate pension contributions.”

    The thresholds that Fitch Ratings uses in the assessment of the actuarial funding levels of public pension plans make obvious sense. If I live in a house that is worth $100,000, I don’t consider myself to be “in crisis” if I have already paid off $70,0000 or $80,000 of that debt, particularly if I have 30 years left to pay off the remaining balance. Similarly, Colorado PERA is not in a crisis if 70% or 80% of its pension liabilities are covered, especially since the employer members of PERA are the state, and local governments, entities that cannot “go out of business.” Colorado PERA’s pension obligations are not due today. They are due over the next thirty years. Colorado PERA officials have confirmed that they also hold this belief many times in their public statements.
    Colorado PERA officials have communicated in the past that even a public pension actuarial funded ratio below 60% is not a “crisis”:

    Colorado PERA Update – (Spring 2006 – page 4): “See that PERA’s (actuarial) funded status was lower (61.5 percent) 30 years ago than what it is now. You may recall that there was no perceived “crisis” in PERA’s funded status in 1975.”

    Colorado PERA News Archive for 2004 (9-16-2004): “PERA’S funded level was below 60 percent in 1970, and there was not a perceived crisis in PERA’s financial health.”

    Recall the title of the Colorado General Assembly’s “COLA-theft” bill, SB 10-001: “Concerning modifications to PERA necessary to reach a 100% funded ratio in 30 years.”

    In setting the title for SB 10-001 the proponents of the bill declared their intention to take contracted PERA COLA benefits from retirees until the PERA pension reaches an actuarial funded ratio of 100%.

    They made this their goal in SB 10-001 in spite of the fact that Fitch Ratings considers a 70 percent actuarial funded ratio “adequate” for public DB pension plans, and an 80 percent actuarial funded ratio to be “well-funded” for public DB plans.

    The intention of the proponents of SB 10-001 is to take fully-vested PERA retiree COLA benefits until the PERA pension is 30 percent beyond an “adequate” funded ratio. The intention of the proponents of SB 10-001 is to take fully-vested PERA retiree COLA benefits until the PERA pension is 20 percent beyond “well-funded.”

    Over the past months, I have reported the following statistics to place the current Colorado PERA actuarial funded ratio in an historical perspective:

    • (54.5% to 105.2%) – 40-year range of the Colorado PERA actuarial funding ratio (AFR), (source, Colorado PERA.)
    • 78% – average PERA AFR over the 40-year period.
    • 68.9% – PERA AFR at time of the taking of the contracted 3.5 % COLA benefit.
    • 9.1% – difference between the PERA AFR at time of COLA taking and the 40-year average PERA AFR.
    • 11.1% – difference between PERA AFR at the time of the COLA taking and an 80% AFR level considered “well-funded” by Fitch Ratings.
    • 72% – average AFR at the end of 2009 for 57 state retirement systems reporting to Wilshire Associates.
    • 3.1% – difference between the Colorado PERA AFR and Wilshire Associates average AFR for 57 state retirement systems at time of PERA COLA taking.

    I know that there are many who want to see public pension plan sponsors in the United States breach their public pension contracts. Such persons are disappointed that Fitch Ratings has forthrightly stated its perceptions of the adequacy of public pension funding levels. They are disappointed that a major U.S. rating agency is providing information that places public pension actuarial funded ratios in perspective . . . information that dispels the desired “crisis” atmosphere that such persons actively promote. Nevertheless, the Fitch Ratings public pension funding level standards are in writing, and are readily available to the public.

    In their advocacy of SB 10-001, the proponents of the bill acted either in ignorance of the adequacy of public pension plan funding levels, or they acted to intentionally deceive. There is no other possibility.

    Participants in the SB 10-001 debate who knew the truth (actuaries, trustees, pension administrators, legislators, union lobbyists, and PERA lobbyists) . . . all held their tongues. They held their tongues in order to achieve their common goal of placing the burden of decades of PERA pension mismanagement and underfunding squarely on the backs of the only group that possesses “fully-vested” benefits in the Colorado PERA pension . . . Colorado PERA retirees.

  29. Al Moncrief says:

    COLORADO SUPREME COURT: ANY AMBIGUITIES IN PUBLIC PENSION STATUTES ARE CONSTRUED FAVORABLY TOWARD THE PENSION MEMBER, ENDSLEY v. PERA, 1974.

    As we have seen, the initial Denver District Court Decision in the case Justus v. State ignored reams of established Colorado public pension case law. Below, I provide further examples of “on-point,” long-standing Colorado Supreme Court public pension case law that was ignored in the initial Denver District Court Decision.

    In 1975, the Colorado Supreme Court rendered a Decision in the case Taylor v. PERA. Here are some excerpts from that case:

    “Retirement benefits payable to a state employee are a vested right of which he cannot be deprived.”

    “Fact that petitioner had certain pension rights at time of her retirement as a state employee did not operate to preclude postretirement pension changes which increased rather than decreased benefits received there under.”

    (Here the Colorado Supreme Court determined that postretirement pension changes that “improve” the pension benefit, such as improvements that have been made to the PERA COLA pension benefit over time, are legally permissible.)

    “’A retrospective act’ is one ‘which takes away or impairs vested rights acquired under existing laws . . .’”

    “There is no question that the retirement benefits payable to petitioner are a ‘vested right of which she cannot be deprived.’” (McPhail, Bills.)

    “In McPhail, supra, we stated that ‘ . . . changes may be made in the pension system looking to strengthening or bettering it . . .’ as long as the vested rights of pensioners are not abridged or weakened.”

    (Here the Colorado Supreme Court makes it clear that the vested rights of current PERA retirees may not be abridged in order to “strengthen or better” the pension system.)

    Toward the end of the Decision in Taylor v. PERA the Colorado Supreme Court makes a determination that is of consequence in the Colorado public pension case Justus v. State:

    “As was noted in Endsley v. Public Employees Retirement Association . . . (1974) ambiguities appearing in statutes regulating pension and retirement funds are construed favorably toward the employee.”

    Ten years later, this Colorado Supreme Court determination was cited by then-Colorado Attorney General Duane Woodard in an Opinion of the Attorney General:

    “No. 84-14 AG Alpha No. PA PE AGANF – August 14, 1984
    In resolving this question, I am guided by the cardinal principle that ambiguities in statutes regulating pension and retirement funds are to be construed in favor of the employee. Taylor v. Public Employees Retirement Association, 189 Colo. 486, 542 P.2d 383 (1975).

    The Colorado Attorney General has stated that it is a CARDINAL PRINCIPLE that any ambiguities in statutes regulating pension and retirement funds ARE TO BE CONSTRUED IN FAVOR OF THE EMPLOYEE.”

    Here is a link to the 1984 Colorado Attorney General Opinion:

    http://www.coloradoattorneygeneral.gov/ag_opinions/1984/no_84_14_ag_alpha_no_pa_pe_aganf_august_14_1984

  30. Al Moncrief says:

    THE COLORADO LEGISLATURE HAS GIVEN AWAY $540 MILLION TO MEET PENSION OBLIGATIONS THAT ARE NOT ITS OWN . . . THOSE OF COLORADO LOCAL GOVERNMENTS. IT HAS MADE THESE DISCRETIONARY GRANTS WHILE IGNORING ITS OWN CONTRACTUAL PERA OBLIGATIONS.

    That fact that the Colorado General Assembly is attempting to breach its public pension contracts in SB 10-001, while it has historically made $540 million in discretionary grants to fund public pension obligations that are not its own (those of Colorado local governments) is enough to turn the stomach.

    As we have seen, the Colorado General Assembly has a long tradition of ignoring its PERA annual required contributions . . . a tradition of neglecting its contractual PERA pension obligations over many decades.

    But, the level of absurdity, irresponsibility, and the purely arbitrary nature of a state government attempting to breach its own public pension contracts while paying out state resources to meet public pension obligations that are not its own . . . this pattern of policy-making by the Colorado General Assembly simply boggles the mind.

    The discretionary nature of these state grants to fund Colorado local government pension obligations is stated clearly in the “Legislative Declaration” preceding (Section 31-31-101, C.R.S. ) set forth in Colorado law:

    Here is the “Legislative Declaration”:

    31-31-101. Legislative declaration.
    “The general assembly further declares that state moneys provided to municipalities, fire protection districts, and county improvement districts do not constitute a continuing obligation of the state to participate in the ongoing normal costs of pension plan benefits, except for state funding of death and disability benefits as specified in this article, but are provided in recognition that the local governments are currently burdened with financial obligations relating to pensions in excess of their present financial capacities. It is the intent of the general assembly in providing state moneys to assist the local governments that state participation decrease annually, terminating at the earliest possible date.”

    This “Legislative Declaration” states that the Colorado General Assembly has provided these state resources “in recognition that local governments are currently burdened with financial obligations relating to pensions . . .”. Accordingly, the policy preference of the Colorado General Assembly is that discretionary grants of state resources should be made to Colorado local governments when they are “burdened by financial pension obligations,” but, when the State of Colorado is also “burdened by financial pension obligations” the State of Colorado will breach its public pension contracts. The State of Colorado will use a contrivance in an attempt to deny the contractual nature of the retiree PERA pension COLA benefit.

    Many aspects of the General Assembly’s attempt in SB 10-001 to take contracted PERA COLA benefits shock the conscience, but the heights of hypocrisy that are achieved when a state government attempts to deny its own public pension obligations while paying out state resources to meet public pension obligations that are not its own . . . this level of hypocrisy has rarely been achieved in the annals of public administration.

    For your information, I am providing a link to a memorandum prepared by the Colorado Municipal League that discusses these historical, discretionary state grants to meet Colorado local government pension obligations:

    http://www.cml.org/uploadedFiles/CML_Site_Map/_Global/pdf_files/pension_memo.pdf

    For a recent accounting of the Colorado General Assembly’s historical discretionary grants to meet local government public pension obligations see pages 6 and 28 of the 2012-2013 Colorado Department of Treasury Budget Briefing document at this link:

    http://www.state.co.us/gov_dir/leg_dir/jbc/2011-12/trebrf.pdf

    Here is an excerpt:

    “State Contributions for Local Fire and Police Pension Plans

    Section 31-30.5-307 C.R.S., requires the State to pay part of the unfunded liability of retirement plans that cover police and firefighters who were hired before 1978 (‘old hire’ pension plans). The Department annually transfers the required amount from the General Fund to the Fire and Police Pension Association (FPPA), which administers these plans. Since 1980, the State has contributed almost $540 million to the FPPA to eliminate the unfunded liability of the ‘old-hire’ pension plans.”

    From page 29 of the JBC document:

    “To put this figure in perspective, the total state General Fund operating budget in the FY 1978-79 Long Bill was just over $1.0 billion. Thus the $500 million shortfall in local plans represented nearly half of the annual state General Fund budget. If the magnitude of this shortfall were adjusted for inflation, it would exceed $1.8 billion.”

    From page 30 of the JBC document:

    “In addition, Section 31-30-1112 and 1134, C.R.S., require the State to help pay for volunteer firefighter pensions and an accidental death and disability plan covering volunteer firefighters statewide.”

    (The Colorado General Assembly makes discretionary payments from state resources to meet pension obligations for “volunteer” firefighters while attempting to breach its own public pension contracts.)

    From page 31:

    “During the ensuing years, the State’s contribution to the old hire plans equaled about 41 percent of the total combined contributions of the state, local governments and employees.”

    (The Colorado General Assembly has made discretionary grants to fund more than 40 percent of the total contributions made to these local government pension plans . . . and yet the Colorado General Assembly claims it has been “burdened” by the contractual necessity to provide for PERA-employer pension contributions at approximately one-half this level of commitment.)

    In the coming years, judges may legitimately ask “Why should the state of Colorado be permitted to breach its contractual PERA pension obligations when, for many years, it has opted to fund public pension obligations that are not its own?”

    How can the Colorado Attorney General argue with a straight face that it is “actuarially necessary” for Colorado to breach its public pension contracts, when the Colorado General Assembly has not only made recent grants of $100 million in discretionary property tax relief, and historically ignored its PERA annual required contributions, but has also voluntarily committed $540 million in state resources to pay public pension obligations for other governmental entities?

  31. Al Moncrief says:

    1984 COLORADO ATTORNEY GENERAL OPINION: PUBLIC PENSION PLAN PAYMENTS ARE DEFERRED COMPENSATION UNDER MCPHAIL.

    I came across an interesting 1984 Opinion of a former Colorado Attorney General (Duane Woodard) that bears on the contractual rights of public pension plan members.

    Here is an excerpt:

    “Traditional pension plans, in which both the employee and employer make contributions to a pension payable in the future have been held to be deferred compensation for services rendered. Police Pension and Relief Board of Denver v. McPhail, 139 Colo. 330, 338 P.2d 694 (1959). Because they are deferred compensation for services, some courts have held that pensions are merely a form of salary.”

    In his Opinion, the former Colorado Attorney General makes no distinction between “automatic” public pension COLA payments and public pension “base benefit” payments. He simply cites McPhail as a case in which Colorado courts determined that public pension plan payments are “deferred compensation.” He states that public pensions ARE deferred compensation for services.

    If public pension plan “automatic” COLA payments are not deferred compensation under McPhail, then why did the former Colorado Attorney General fail to point out such a critical distinction in his 1984 Opinion?

    Here’s a link to Attorney General Woodard’s Opinion (No. 84-12 AG Alpha No. HE AG AGAND – July 26, 1984):

    http://www.coloradoattorneygeneral.gov/ag_opinions/1984/no_84_12_ag_alpha_no_he_ag_agand_july_26_1984

  32. Al Moncrief says:

    NBC EXPOSES PENSION COLA-THEFT SCANDAL: FAKE NUMBERS WERE USED TO SELL SAN JOSE COLA MEASURE.

    (This NBC investigation of the pension COLA-theft measure in San Jose, CA, highlights the need for public pension retirees in the United States to conduct independent actuarial analyses of pension reform proposals. Otherwise, retirees will certainly be cheated. Without independent actuarial analyses, there is nothing to stop public pension administrators, and elected officials from promoting their own personal policy agendas at the expense of public pension retirees.)

    Recall, that last month I brought to your attention a pension COLA-theft measure that was adopted by voters in San Jose, CA, (the tenth largest city in the country) . . . and the immediate lawsuits that were filed challenging this taking of fully-vested public pension benefits.

    “San Jose police officers and firefighters Wednesday made good on promises to legally challenge San Jose’s voter-approved pension reform with a pair of lawsuits filed in Santa Clara County Superior Court.”

    “Measure B is unlawful and unconstitutional,” said Christopher Platten, an attorney for the firefighters. “Measure B impairs promises made to current and retired San Jose employees for decades.”

    http://www.mercurynews.com/elections/ci_20794968/san-jose-employee-unions-file-lawsuit-challenging-pension

    Well, there have been some sickening new developments in the San Jose case. An investigation by NBC has exposed the use of manufactured statistics in support if the San Jose pension measure.

    “The NBC Bay Area Investigative Unit obtained internal emails, memos and documents which reveal city leaders have not been straightforward when it comes to projected retirement pension costs for San Jose.”

    San Jose Mayor Chuck Reed said “In his February state of the city address . . . that reforms are needed to ‘avert fiscal disaster.’”

    “The mayor took steps to declare a fiscal emergency, which meant pension reform could then head to the ballot.”

    In regard to statistics used to promote pension reform in San Jose, City of San Jose Retirement Services Director, Russell Crosby told NBC Bay Area “It was a rough estimate.” “Boy, was I wrong,” Crosby says. “That was a number off the top of my head,” Crosby told us.

    “But Mayor Chuck Reed tells us, ‘I don’t recall anyone ever saying not to use that number.’”

    “We asked him, ‘Nobody ever told you not to use $650 million as a projection?’”

    “’I don’t know. I don’t remember anyone saying, don’t ever use that,’ Mayor Reed replied.”

    “We asked if Crosby was lying. He said, ‘I don’t know. I didn’t have the conversation with him.’”

    “Around the same time, Crosby asked Cheiron, the external actuary hired by the City of San Jose Retirement Board to come up with a new projection.”

    “Internal emails show Cheiron was instructed to follow certain rules, including using out-dated numbers . . .”

    (This quotation calls to mind comments from one of the prime sponsors of Colorado’s COLA-theft bill, SB 10-001. From “Penry Republican Legislative Preview”:

    “Senator Josh Penry, in a videotaped discussion with Representative Mike May, (videocenter.denverpost.com) said ‘we can’t, can’t miss this window.’ “You cannot change course and this year, when PERA’s investment numbers come out, their investment returns . . . numbers are going to be significant, like double, 15-16% investment return. So that could change the specter of actuarial necessity. We gotta’ do it this year or else these other structural changes won’t be possible.”)

    Senator Penry told us that under PERA’s new investment return numbers “actuarial necessity” could disappear. What instructions were given to Colorado PERA’s actuaries relating to SB 10-001 analyses?

    A union official in San Jose reacts to the NBC investigation:

    “I think the number was used to convince the citizens of San Jose that we need to do a very extreme reform on pensions,” Dawkins-Thames continues, “I really believe that this calls for an investigation so that the facts can come out.”

    “On Thursday, 5 local unions filed an ethics complaint against the mayor following our report.”

    http://www.nbcbayarea.com/news/local/Guessing-Pensions-138981764.html

    Here is an incredible video report of the investigation’s findings:

    http://www.nbcbayarea.com/video/#!/news/local/Guessing-Pensions/138995874

  33. Al Moncrief says:

    COLORADO PERA SEEKS BLOGGER (NOT KIDDING) . . . TO LAUNCH A PERA BLOG NO LESS.

    Strange that our PERA trust fund dollars will be used for “blogging,” anyway, I wanted to pass this along . . . you know, help Colorado PERA to achieve its communication goals. How many bloggers does the State of Colorado employ? Will this be the first? I see this PERA employment expansion as clear evidence that no “actuarial emergency” exists relating to PERA’s funding . . . apparently, Colorado PERA has sufficient funds to pay for “blogging.”

    Here is a link to the job posting:

    http://andrewhudsonsjobslist.com/index.cfm?PID=805&ID=8487,29018,0#j6

    “Colorado PERA is actively seeking a highly organized, highly motivated writer to work with the day-to-day execution of social media and blogging efforts. This will include social media monitoring, such as: tracking our social communities, initiating and maintaining online conversations, and monitoring issue escalation (putting out any fires with diplomatic flair). This will also include writing for a newly launched blog, so experience writing for the web is a must.”

    “This position requires a highly motivated and intelligent individual who can identify social media best practices, monitor and analyze how brand is perceived and strategize ways to improve perception and stay in touch with community conversations to recognize key online influencers as they pertain to the financial industry and constantly growing realm of financial advice blogs. The ideal candidate will have strong creative writing skills, and must be able to assess community insights to plan, build, and improve social media efforts. Strong knowledge of the financial industry is a plus.”

  34. Al Moncrief says:

    ATTENTION: THIS POST REPLACES THE PREVIOUS VERSION OF THIS ARTICLE (IT HAD A FEW TYPOS IN IT!) Good luck, Al (the nationwide, independent pension rights blogger.)

    DENVER DISTRICT COURT: THE PERA COLA HAS “CHANGED,” IT IS NOT CONTRACTUAL. THE PERA “BASE BENEFIT” HAS “CHANGED,” IT IS CONTRACTUAL.

    In the initial Denver District Court Decision in the case Justus v. State, the Denver District Court concludes that the PERA COLA pension benefit has “changed” over time, and therefore the PERA COLA benefit is not constitutionally protected. In addition, the Denver District Court found that Colorado PERA retirees can have no “reasonable expectation” that the PERA COLA will not be reduced in the future. By some unidentified means, the Denver District Court also concludes that the PERA “pension itself” is UNARGUABLY a contractual obligation of Colorado PERA.

    The Denver District Court Decision’s author reaches these conclusions in spite of the fact that both the PERA pension “base benefit” and the PERA COLA benefit are set forth in Colorado statutes with identical legal status and force of law, and together constitute “the PERA pension itself.”

    The Decision’s author reaches these conclusions in spite of the fact that the PERA “base benefit” has also “changed” over the decades (even for current retirees at the time of the changes.)

    The Decision’s author reaches these conclusions in spite of the fact that the “changes” made to the PERA retiree COLA over time “improved” the PERA COLA benefit for PERA retirees.

    The Decision’s author reaches these conclusions in spite of the fact that such a holding contradicts long-established Colorado public pension case law. How is it possible that the Denver District Court rendered a Decision in Justus v. State without making any mention at all of the 1989 Colorado Supreme Court’s determination in Colorado Springs Firefighters v. Colorado Springs? In this case, the Colorado Supreme Court found that “ENTITLEMENT TO ANNUAL PENSION PAYMENT INCREASES,” “RIPEN(S) INTO VESTED PENSION RIGHTS” when public pension retirement eligibility conditions are met. This Colorado case law exists . . . it will not simply evaporate.

    The Decision’s author reaches these conclusions in spite of the fact that under the Colorado Constitution the PERA COLA benefit is, necessarily, earned, deferred compensation. If the PERA COLA benefit were a “gratuity” (that is, if it had the discretionary nature of a “gift”) it would be unconstitutional under Article 5, Section 34 of the Colorado Constitution. This section of the Colorado Constitution prohibits the Colorado General Assembly from using public funds “for benevolent purposes to any person.” Throughout the history of Colorado PERA, if any pension benefit (“base pension benefit” or “pension COLA benefit”) has been paid to a PERA retiree as a “discretionary,” “benevolent” grant to that PERA retiree . . . then, that payment has been unconstitutional under Article 5, Section 34.

    The obligation of Colorado PERA and PERA-affiliated employers to pay the PERA pension COLA benefit arises under an employment exchange transaction. The PERA COLA benefit is an accrued public pension benefit. The Colorado PERA statutes set forth conditions for future payment of the COLA benefit that are identical to the conditions set forth for future payment of the PERA “base benefit.” Colorado PERA retirees have complied with these conditions . . . demonstrating their compliance through performance. Therefore “all of the elements which are necessary to the formation and existence of an implied-in-fact contract,” at a minimum, are present. The presence of “legislative intent” is not a necessary condition for the protection of “fully-vested” public pension rights under this contract. The obligation to pay the COLA benefit is a legal responsibility of PERA-affiliated employers that these employers have no discretion to avoid.

    Some Colorado PERA members altered the course of their lives under this contract . . . they left their careers and became PERA retirees. Colorado PERA retirees have “performed” under the pension contract.

    Further, Colorado PERA is a party to a contract with PERA members who have purchased “service credit” in the pension. Colorado PERA officials, in the past, encouraged PERA members to purchase “service credit” while a 3.5 percent “guaranteed,” “automatic” PERA COLA benefit was in place in law. Some Colorado PERA members sent checks to PERA for tens of thousands of dollars as a result of this offer. When PERA members sent checks to Colorado PERA to purchase service credit in the pension (under the existing statutory 3.5 percent PERA COLA provision) the performance of these PERA members based on PERA’s offer of pension benefits in exchange for valuable consideration created a public pension “contract” to which Colorado PERA, PERA-affiliated employers, and PERA members purchasing service credit are parties.

    The author of the Denver District Court Decision writes: “Plaintiffs’ takings and due process claims likewise are premised on the existence of a constitutional right to an unchangeable COLA formula . . .”. This statement is both simplistic and false. Plaintiffs claims in Justus v. State are not “premised on the existence of a constitutional right to an unchangeable COLA formula.” Plaintiffs claims are premised on the existence of a PERA retiree’s constitutional right to avoid a diminution of their contracted, fully-vested COLA benefit, that is, to avoid a taking of their contracted PERA COLA benefit. Changes to the PERA COLA benefit that do not impair the pension rights of PERA retirees, that do not diminish the contracted PERA COLA, are legally permissible.

    The Decision’s author writes: “It is impossible to establish a contractual right to a particular COLA for life without change where Plaintiffs could have no reasonable expectation to a COLA for life given that the General Assembly (as well as DPSRS) has changed the COLA formula for those retired numerous times over the past 40 years . . .”. Well, by the Denver District Court’s logic, it is impossible for the Court to establish an “unarguable” contractual right to “the PERA pension itself” for life without change since the General Assembly has “changed” the PERA “base benefit” formula (the bulk of “the PERA pension itself”) for PERA retirees numerous times throughout Colorado PERA’s history.

    The author of the Denver District Court Decision writes that the court’s determination “deals only with the COLA and not with base retirement benefits.” But, the finding of the Denver District Court, that “the PERA pension itself” is “UNARGUABLY” a contractual obligation of Colorado PERA is not possible without an examination of the contractual obligation of Colorado PERA to pay the PERA “base benefit.”

    It is not logically possible for the author of the Denver District Court Decision to assert that the Decision does not “deal” with PERA “base benefits” while also maintaining in the Decision that the “PERA pension” is UNARGUABLY a contractual obligation. A finding that the “PERA pension itself” is UNARGUABLY a contractual obligation IS, manifestly, “dealing” with the “base benefit.”

    The author of the initial Denver District Court Decision writes that: “This Court finds, based upon statutory provisions of the last 40 years . . . that the General Assembly’s most recent change to the retiree COLA does not alter the fundamental mechanism for payment of pension benefits for PERA retirees. That has always been and remains to this day, a base benefit set at retirement.” Where is this section of Colorado law providing that “the fundamental mechanism for payment of pension benefits for PERA retirees” has always been “a base benefit set at retirement”? Where is this section of Colorado law providing that the contracted PERA COLA benefit is not part of the “the fundamental mechanism for payment of pension benefits for PERA retirees”? I do not see it.

    What the author of the initial Denver District Court Decision is unable to explain is how one can have a reasonable expectation to an unchangeable PERA “base benefit” when the formula for that PERA “base benefit” has changed repeatedly for retirees over PERA’s history.

    Below, I will demonstrate the “fluid” nature of the PERA “base benefit.” According to the Denver District Court, the “fluidity” of the PERA COLA benefit denies it the nature of a contracted PERA benefit. How is it possible then, by the court’s reasoning, that the “fluidity” of the PERA “base benefit” does not also deny the PERA “base benefit” the nature of a contracted PERA benefit? It is a logical impossibility.

    A simple way to begin a demonstration of the “fluidity” of the PERA “base benefit” is through reproduction of a helpful chart published in the May 1997, Colorado PERA “Legislative Update, Special Edition for PERA Members and Benefit Recipients.” Here is the helpful Colorado PERA chart:

    History of Improvements to Retirement Benefit Formula (as a percent of HAS)

    Date Years 1 to 20 Years over 20
    1931-1967 2.5% per year No credit
    1967 2.5% per year 1% per year, max. 70%
    1987 2.5% per year 1.25% per year, max. 75%
    1992 2.5% per year 1.5% per year, max. 80%
    1995 2.5% per year 1.5% per year, max. 100%
    1997 2.5% per year 2.5% per year, max. 100%

    When I look at this Colorado PERA chart, I am satisfied that the Colorado PERA “base benefit” has “changed” throughout Colorado PERA’s history. This Colorado PERA chart informs us that (as with the PERA COLA benefit) changes made over time to the PERA “base benefit” have been “improvements” to the pension “base benefit.”

    I realize that many of you may not be as easily persuaded as I am. So, I have taken the trouble to identify legislation that has been enacted by the Colorado General Assembly in the last 40 years that has altered the PERA “base benefit.” By my reckoning, there are approximately twenty bills that have altered the PERA “base benefit” over this time period.

    (In truth, it was not much trouble for me to identify these bills. They are delineated in the excellent Colorado PERA publication “History of Colorado PERA Legislation,” which was available on Colorado PERA’s website, as we know, until recently. Kudos to Colorado PERA employee Karl Pauslon for keeping this document updated in recent years, and many thanks also to retired Colorado PERA employee Rob Gray for his work on the “History of Colorado PERA Legislation” publication over many years. It is a valuable resource.)

    Legislation Enacted by the Colorado General Assembly that has altered the Colorado PERA “Base Benefit.”

    2006
    SB 06-235
    • For new members hired effective 1/1/07:
    • Unreduced retirement changed to the Rule of 85 (age plus service totals 85) and at least age 55, instead of the Rule of 80 if at least age 55.

    (This change to the PERA “base benefit” was made on a prospective basis.)

    2004
    SB 04-132
    • New members hired effective 7/1/05, eligible for early retirement (not unreduced retirement) at age 50 with 30 years of service.

    (As an alternative to full service retirement, PERA members may qualify to retire early and receive a reduced retirement benefit under a separate formula.)

    2000
    HB 00-1458
    • Allowed unreduced retirement under the Rule of 80 (age plus service totals 80) and at least age 55, effective 6/1/00.
    • Allowed state classified employees hired before 7/1/88 with over 360 hours of sick leave to convert 15% of their excess leave hours to salary for PERA contributions and benefit purposes. Other PERA employers were allowed the same conversion approach for employees with over 45 days of excess sick leave. Sick leave conversion provision ended on 7/1/05.

    (From the 2000 Digest of Bills: “Allows PERA members who retire on and after June 1, 2000, to receive service retirement benefits, without the reduction currently required by statute, if their years of age plus years of service credit total 80 years or more and they are at least 55 years of age and have at least 5 years of service credit.)

    1998
    HB 98-1191
    • Allowed unreduced retirement at age 50 with 30 years of service.
    • Decreased early retirement benefit reduction from 4% to 3% per year for members retiring with 20-29 years of service between age 55 and age 59.

    (From the May 8, 1998 PERA “Legislative Update”:

    “During the last week of the legislative session, Senator Jeff Wells sought an amendment to the bill that was adopted by the Senate and the House. The amendment provides for unreduced retirement for members who have 30 years of service and are at least 50 years old. Consequently, this changes the percentage of HAS for most members who have between 25 and 30 years of service and are under age 55. The amendment also provides for a reduction of the formula for early retirement for those persons between age 55 and 60 who have from 20 through 29 years of service credit, lowering the reduction factor from 4 percent to 3 percent per year.”

    “The [PERA] Board supported the 30 years service at age 50 provision in the amendment during the Senate’s discussions. Proponents of the amendment anticipate that the change will allow state, school, and municipal employers to save money by generating additional retirements and replacing the retiring employees with new employees hired at lower salaries.”)

    1997
    HB 97-1082
    • Increased retirement formula from 1.5% to 2.5% per year of HAS on 20-40 years service, with 100% HAS maximum benefit. Benefits were recalculated for current benefit recipients on a prospective basis.
    • One year HAS adopted for Judicial Division’s future retiring judges.

    (This “change” to the PERA “base benefit” applied to current PERA retirees. From the May 1997 “PERA Legislative Update, Special Edition for PERA Members and Benefit Recipients”:

    “Recalculates current benefits being paid to those persons whose benefits are based on more than 20 years. This change affects more than 22,000 current benefit recipients, and the new benefit amounts will be reflected in the benefit paid on July 31. PERA will recalculate these retiree’s original benefits using the new formula, then apply to the new benefit the annual and cost-of-living increases since the retiree retired.)

    1995
    SB 95-33
    • HAS was changed from a calendar year basis, to the three highest 12 consecutive month periods.
    • Eliminated 80% HAS maximum benefit with 40 years of service credit.
    • Changed method of crediting service credit so that one month of service was credited if PERA-includable salary equaled 80 times the federal hourly minimum wage.

    (This “change” to the PERA “base benefit” also impacted current PERA retirees. From the 1995 Digest of Bills: “Changes the definition of “highest average salary” for purposes of public employees’ retirement association benefits from 1/12th of the average of the highest annual salaries associated with calendar year periods totaling 3 years of service credit to 1/12th of the average of the highest salaries associated with 3 periods of 12 consecutive months of service credit.

    Replaces the maximum option 1 benefit of 80% of the member’s highest average salary with the maximum permitted under federal income tax law. Provides for a July 1, 1995, recalculation of the base benefit for certain benefit recipients. Requires, on and after July 1, 1995, the inclusion of service credit in excess of 40 years in the computation of the option 1 base benefit. Requires the association to provide benefits based on that recalculation effective from July 1, 1995, forward.)

    1993
    HB 93-1324
    • Early retirement allowed at age 50 with 25 years of service.
    • Indexed benefits from employment termination until benefit begins, for vested inactive members with 25 or more years of service credit.

    (From the 1993 Digest of Bills: “Effective July 1, 1993, adds members who retire at the age of 50 with at least 25 years of service credit to those eligible for reduced service retirement benefits, provides the method for calculating those benefits . . .” “Effective March 1, 1994, makes changes in calculating retirement benefits and survivor benefits.”)

    1992
    HB 92-1335
    • Increased retirement formula from 1.25% to 1.5% of HAS with 20 through 40 years of service with increase applied to current benefit recipients on a prospective basis.

    (This “change” to the PERA “base benefit” also impacted current PERA retirees. From the 1992 Colorado General Assembly Digest of Bills description of HB 92-1335:

    “Increases the benefit for service and reduced service retirement earned for each year of service over 20 years. Increases the maximum retirement benefit as a percentage of highest average salary. REQUIRES RECALCULATION OF BENEFITS PURSUANT TO THE AMENDED FORMULA FOR ALL CURRENT BENEFIT RECIPIENTS WHO HAVE MORE THAN 20 YEARS OF SERVICE.”)

    1989
    HB 89-1057
    • Allowed early retirement for state troopers at age 50, and increased retirement formula for state troopers with more than 20 years of service, from 1.25% to 1.5% of HAS per year.

    (From the 1989 Digest of Bills: “Provides for state troopers to receive service retirement benefits from the public employee’s retirement association at age 50 if they have earned at least 25 years of service credit. Modifies the benefit formula for state troopers from 1.25% to 1.5% of the trooper’s highest average salary per year for each year of service over 20 years.”)

    1988
    HB 88-1124
    • Changes in disability retirement, benefit options and survivor benefits were made to simplify these benefits and make them more equitable.

    1987
    SB 87-61
    • Modified Rule of 75 allowed unreduced retirement for members whose age and service totaled 75 or more, if member was at least age 55 and retired between 7/1/87 and 9/1/87.
    • Lowered early retirement reduction factor from 7% to 4% per year, on benefits of members who retired before reaching their first eligible date for an unreduced retirement benefit, effective 7/1/87.
    • Retirement formula was increased for 20 through 40 years of service from 1% to 1.25% of HAS for each year of service, effective 7/1/87.
    • Maximum retirement benefit was increased from 70% to 75% of HAS, effective 7/1/87.

    (From the 1987 Digest of Bills: “Allows a member of the public employee’s retirement association who retires between July 1, 1987, and August 31, 1987, inclusive, to receive full retirement benefits if the member’s age plus his years of service credit equal 75 and if the member is at least 55 years of age. Allows certain members of the association to exempt themselves from membership in order to retire during said period.”)

    1986
    SB 86-150
    • Allowed a surviving spouse of a deceased PERA member with less than 10 years of service who died in an accident, to elect PERA’s Option 3 continuing (100% joint life) benefit.

    1985
    HB 85-1110
    • Allowed surviving spouse of a member who died before 7/1/79 with 10 or more years of service, to elect PERA’s Option 3 continuing (100% joint life) benefit. Surviving spouses of members who died 7/1/79 or later, already had this benefit.

    1981
    SB 81-181
    • Changed definition of HAS effective 1/1/82, to the highest 3 years of salary, instead of the highest 5 consecutive years of salary. Member contribution rate was increased from 7.75% to 8.0% of salary.

    (From the 1981 Digest of Bills: “Redefines final average salary, for purposes of computing retirement benefits under PERA so that, effective January 1, 1982, final average salary will be based upon the highest 3 years of salary preceding retirement. For retirement prior to that date the average is based upon the highest 5 years. Limits to 15% the amount of annual salary increases which can be used in the computation.”)

    SB 81-174
    • Changed early retirement calculation to a reduction based on the date the member would qualify for unreduced retirement, instead of when the member would attain age 60 or age 65.

    1977
    SB 77-200
    • Decreased requirement for unreduced retirement benefits at age 55, from 35 to 30 years of service.

    1975
    HB 75-1364
    • Retirement formula began crediting 1% of HAS for 21 through 40 years of service worked before 7/1/69, in addition to prior formula’s 2.5% per year of HAS for the first 20 years of service. Maximum retirement benefit was still 70% of HAS.

    (This “change” to the PERA “base benefit” also impacted current PERA retirees. From the 1975 Colorado General Assembly Digest of Bills: “Increases retirement benefits for retired employees of the state, municipalities, cities and counties, school districts, county or district health departments, and housing authorities who retired before 1974. The increases vary for 74% for those retiring on or before December 31, 1951, to 4% for those retiring in 1973. Provides a special supplement to state employees for each year of service in excess of 20 years completed on or before July 1, 1969.”)

    1971
    SB 71-221
    • First allowed early retirement at age 55 with 20 years of service or at age 60 with 5 years of service.

    1969
    (SB 69-144, SB 69-311, HB 69-1230, and HB 69-1247)
    • Retirement formula began crediting 1% of Highest Average Salary (HAS) for 21 through 40 years of service worked since 7/1/69, in addition to prior formula’s 2.5% per year of HAS for the first 20 years of service. Maximum retirement benefit was 70% of HAS.
    • HAS was defined as the highest five consecutive years in last 10 years of service before retirement.
    • Additional 1% HAS now credited with 21-40 years service worked since 7/1/69 did not affect benefits of members already retired.

    HB 69-1230, and HB 69-1247:

    (These bills “changed” the PERA “base benefit,” impacting current PERA retirees. From the 1969 Colorado General Assembly Digest of Bills: “Increases all monthly benefits payable to state employees or survivors presently receiving benefits on the basis of the following schedule [or proportionately if the fund are insufficient] . . .

    Retirement on or before 12/31: per cent increase:
    1961 14
    1962 11.5
    1963 10
    1964 8.5
    1965 7.0
    1966 5.5
    1967 3.0
    1968 1.5”

    SB 69-144:

    (From the 1969 Digest of Bills: “Removes a provision reducing benefits for employees retiring before age 60. Authorizes an increased benefit of 1% per year of service over 20 years rendered after July 1, 1969, up to a maximum total benefit of 70% of the highest average monthly salary . . .”).

    SB 69-311:

    (From the 1969 Digest of Bills: “The act removes a limitation on benefits for school district and municipal employees retiring before age 60, and authorizes an increased benefit of 1% per year for each year of service over 20 years rendered after July 1, 1969, up to a maximum of 70% [total monthly benefit] of the highest monthly salary computed in the usual manner.”)

    http://www.state.co.us/gov_dir/leg_dir/olls/digest_of_bills.htm

  35. Al Moncrief says:

    NATIONALLY-RENOWNED PUBLIC PENSION LAW AUTHORITY: ACCRUED PUBLIC PENSION BENEFITS SHOULD BE PROTECTED AGAINST IMPAIRMENT, BUT NOT FUTURE PUBLIC PENSION BENEFIT ACCRUALS. Part 1 of 2.

    Recently, we looked at a new article addressing public pension contractual obligations that was published in the Iowa Law Review, as well as comments in the article that specifically relate to the Colorado public pension lawsuit, Justus v. State.

    The title of the Iowa Law Review article is: “Statutes as Contracts? The ‘California Rule’ and Its Impact on Public Pension Reform.”

    The article is available here:

    http://www.uiowa.edu/~ilr/issues/ILR_97-4_Monahan.pdf

    The author of the article is nationally renowned public pension law expert Associate Professor of Law, Amy Monahan. Ms. Monahan is Associate Professor and Vance K. Opperman Research Fellow at the University of Minnesota Law School.

    http://www.law.umn.edu/facultyprofiles/monahana.html

    Associate Professor Monahan describes the “California Rule” as follows, “courts have held that the statutes establishing state retirement systems created contracts between the state and employees that prohibit the state from making any detrimental changes to the benefits provided to current employees within such systems, even on a prospective basis.”

    In her paper Associate Professor Monahan notes that the Colorado Supreme Court (and 12 other states) have endorsed the “California Rule” as controlling in the establishment of contractual rights to public pension benefits.

    Monahan writes:

    “ . . . twelve states have cited with approval the full California Rule as announced in Allen. Among these are Alaska, Colorado, Idaho, Kansas, Massachusetts, Nebraska, Nevada, Oklahoma, Oregon, Pennsylvania, Vermont, and Washington.”

    Since Colorado courts have adopted the “California Rule,” Monahan’s article is particularly relevant to the discussion of Colorado contractual public pension rights.

    Monahan argues that the California Rule goes too far, and that states should have the right to make prospective changes to public pension plans, for example, changes to rates of accrual of pension benefits for current employees on a prospective basis.

    Monahan writes:

    “ . . . it is important to note that there is authority for the position that under a contract clause analysis, prospective changes should not be considered significant contractual impairments.”

    “But the more common approach appears to be that prospective changes to contracts, although properly considered impairments, should not be considered substantial and are therefore constitutional.”

    “ . . . pension benefits that have already been earned through services rendered to the state should be protected against impairment, but that it is hard to find legal justification for protecting the rate of future benefit accruals.”

    “What if, ten years into X’s tenure with the state, the state announces that effective immediately, pension benefits will only accrue at the rate of 1% of salary per year? I have argued that such prospective changes should be permitted absent an explicit agreement protecting against such changes.”

    Below, I will highlight and comment on excerpted portions of interest in the Monahan article that bear on the contractual nature of public pension rights generally. However, first, I want to draw attention to two sections of the Colorado Constitution that are germane to claims made under Justus v. State.

    Colorado Constitution: public pension obligations are earned compensation, rather than “gifts.”

    In her paper, Monahan writes in regard to public pensions:

    “ . . . the court noted that if it were a gift, it would violate California’s constitution, which prohibits the state from providing gifts to individuals.”

    The Colorado Constitution also includes such a provision. Note that Article 5, Section 34 of the Colorado Constitution prohibits the Colorado General Assembly from making appropriations “for benevolent purposes to any person.” The Colorado Constitution expressly prohibits the appropriation of state resources as “gifts” to individuals.

    If the General Assembly’s historical appropriations to meet Colorado PERA obligations were for purposes other than to meet the state’s contractual PERA “base benefit” and contractual PERA retiree COLA pension obligations . . . these appropriations would be unconstitutional.

    Since the General Assembly’s appropriations to meet PERA contractual base benefit and COLA pension obligations are not “gifts” under the Colorado Constitution, these appropriations must necessarily be made to meet contractual obligations for “deferred pension compensation,” that is, “earned,” and “accrued,” PERA pension base benefit and retiree COLA contractual obligations.

    Colorado Constitution: public pension obligations are “debts” of state and local governments.

    Also relevant to discussion of the contractual nature of public pension rights in Colorado is the fact that Colorado’s constitutional “TABOR” provision (and thus Colorado’s Constitution) clearly recognizes Colorado public pension plan obligations as legitimate “debts” of Colorado state and local governments.

    Note this portion of the Colorado constitutional TABOR amendment:

    “(4) Required elections. Starting November 4, 1992, districts must have voter approval in advance for:

    (b) Except for refinancing district bonded debt at a lower interest rate OR ADDING NEW EMPLOYEES TO EXISTING DISTRICT PENSION PLANS, creation of any multiple-fiscal year direct or indirect district debt or other financial obligation whatsoever without adequate present cash reserves pledged irrevocably and held for payments in all future fiscal years.”

    Under TABOR, the expansion of state and local government “debt” through the expansion of public pension plans does not require voter approval.

    The Monahan law review article excerpts:

    Monahan on stare decisis:

    “The bad news for California is that the California Rule as announced in Allen has been law for over fifty years.” “As a result, stare decisis creates an uphill battle for anyone seeking to challenge the rule.”

    (My comment: Much established Colorado public pension case law exists . . . this case law was ignored in the lower court decision in Justus v. State.)

    Monahan on the contractual nature of public pension obligations derived by “performance,” or through an “implied-in-fact” contract:

    Monahan writes that accrued pension benefits are protected by an “implied-in-fact” contract . . . the establishment of “legislative intent” is unnecessary for the protection of accrued benefits:

    “And it is perhaps helpful to remember that courts do not need legislative intent to create a contract to protect benefits that have already been earned. There is good authority for the position that such accrued benefits are protected by an implied-in-fact contract, not a legislatively created contract.”

    “Even in the absence of a legislative contract, long-standing precedent protects earned pension benefits under the theory that earned compensation is protected by an implied contract, but there is no such basis for protecting future accruals absent an explicit agreement.”

    “However, even where the statute does not use explicit contractual language, ‘it is established that a legislative enactment may contain provisions which, when accepted as the basis of action by individuals, become contracts between them and the State or its subdivisions.’ In other words, even in the absence of explicit language regarding contract formation, statutory language may create a contractual offer that is accepted by performance.”

    “The court found that the inference of a contract arose from the fact that . . . a teacher who had accepted employment with the knowledge of this funding obligation would gain nothing from it if the funding obligation were subject to legislative modification.”

    “Nevertheless, the California Supreme Court has cited with approval the U.S. Supreme Court holding that public employee compensation that has been earned through services rendered is entitled to contractual protection.”

    “It is clear that in California a public employee has a right to the salary she has earned, and protecting earned pension benefits is a logical extension of this general proposition.”

    “As a general matter, California courts have agreed that a ‘statute fixing government payments may amount to an offer which, when accepted by performance, culminates in a contract between the government and the offeree.’ In other words, if a law sets out conditions for state payment, and an individual complies with those conditions, ‘all the elements which are necessary to the formation and existence of an implied contract’ are present.”

    “The court went on to state that the . . . statute was ‘a straight-out promise to pay fixed and determinable sums of money.’”

    Monahan cites an 1877 US Supreme Court decision:

    “It has become the established law of this court that a legislative enactment, in the ordinary form of a statute, may contain provisions which, when accepted as the basis of action by individuals or corporations, become contracts between them and the State within the protection of the clause referred to of the Federal Constitution.”

  36. Al Moncrief says:

    NATIONALLY-RENOWNED PUBLIC PENSION LAW AUTHORITY: ACCRUED PUBLIC PENSION BENEFITS SHOULD BE PROTECTED AGAINST IMPAIRMENT, BUT NOT FUTURE PUBLIC PENSION BENEFIT ACCRUALS. Part 2 of 2.

    Monahan on public pension plan vesting:

    “In general, in order for a retirement plan to be a tax-qualified plan under § 401 of the Internal Revenue Code, it must comply with, among other things, minimum vesting requirements.”

    (My comment: What significance does Colorado PERA’s “vesting requirement” (which grants PERA status as a tax-qualified plan”) have if fully-vested PERA COLA benefits can be taken at will by the Colorado General Assembly?)

    Monahan on state legislative use of “police power” to benefit special interests, (in our case, PERA-affiliated employers):

    “In determining whether the action is aimed at an important public purpose, courts look to see whether there is a ‘significant and legitimate public purpose behind the regulation, such as the remedying of a broad and general social or economic problem.’ Doing this ensures that the state is actually acting under its police power and not ‘providing a benefit to special interests.’”

    “In addition, in determining whether the state was permissibly exercising its police powers in changing pension benefits, one California court found it relevant that the state’s own voluntary conduct had contributed to the need for the change.”

    (My comment: As we have documented, the Colorado General Assembly has neglected its obligations to the Colorado PERA pension for decades. Even at the recently-concluded legislative session the General Assembly opted to grant $100 million in discretionary property tax relief in lieu of using these state revenues to reduce PERA unfunded pension liabilities.)

    “It is clear that earned benefits are entitled to a very high standard of legal protection. Such benefits can be changed only under a legitimate exercise of a state’s police power—a difficult hurdle to clear. It is less clear, however, that future pension accruals should be entitled to the same level of protection.”

    Monahan on state legislatures attempting to impair their own contracts:

    “Where a state seeks to impair a contract to which it is a party, a reviewing court does not completely defer to the state legislature’s determination of what is reasonable or necessary in the circumstances.”

    Monahan on the availability of “less drastic” pension modifications:

    “The state’s action is considered to be necessary when (1) no other, less drastic modification could have been implemented, and (2) the state could not have achieved its goals without the modification.”

    Under the California Rule (adopted by the Colorado Supreme Court), Monahan notes that:

    “if a state needs to reduce its compensation expenditures (for example, to fund existing pension obligations), its available options are limited to reducing current salaries, scaling back or eliminating fringe benefits such as health insurance, or reducing the number of individuals it employs.”

    (My comment: Note that a retroactive taking of earned, accrued, contracted, fully-vested retiree COLA benefits is not listed among these “legal” pension reform options.)

    Monahan on public pension benefits as “deferred compensation,” . . . their protection as such is “noncontroversial”:

    “Pension benefits are, at their core, a form of deferred compensation. They are given in return for an employee’s labor and they are structured in the form of pension benefits, rather than current cash wages . . .”

    “At the most basic level, an employer offers these benefits in order to compete for and retain valued employees, in return for the employees’ labor. These benefits are part of the overall compensation package, but are structured differently than current cash compensation in order to provide desired benefits to both employer and employee.”

    “Because pension benefits are a form of compensation, it is logical to extend the U.S. Supreme Court holding that compensation earned by public employees is entitled to implied contractual protection to provide that earned pension benefits are similarly protected. Protecting earned compensation, regardless of whether it is currently paid or deferred until a later date, is noncontroversial and does not depend on contractual statutory language.”

    “Stating that pension benefits are part of the promised compensation for services is consistent with the theory that pensions are merely deferred compensation, and thus are entitled to the same protection as promised salary.”

    “The idea is that just as an employee is entitled to receive the salary she was promised in return for performing work, the court’s language in O’Dea can be read to simply suggest that, like salary, pension benefits earned through service must be paid.”

    “As the Illinois Supreme Court explained, pensions ‘are in the nature of compensation for services previously rendered for which full and adequate compensation was not received at the time of the rendition of the services.’ It is, in effect, pay withheld to induce long-continued and faithful service.”

    “ . . . the court in its own words described pension benefits as a form of deferred compensation and stated that ‘the employing governmental body may not deny or impair the contingent liability any more than it can refuse to make the salary payments which are immediately due.’”

    “One might argue that backloading benefits creates a promissory estoppel claim—that the state induced public employees to accept a job with the state for lower levels of cash compensation in return for a valuable pension accrual in the latter years of employment and that the employee acted in reliance on this promise by accepting state employment in lieu of other opportunities.”

    Monahan on “comparable new advantages”:

    In regard to the provision of “comparable new advantages,” Monahan cites one court case where it was determined that “the advantages have to be available to the same group on whom the disadvantages are placed.”

    (My comment: Colorado PERA retirees, who have fully-vested rights to their contracted retiree COLA benefit were offered no “new advantage” at all by SB 10-001, let alone a “comparable new advantage.”)

    Monahan on “reasonable” public pension changes, “retroactive” changes fail this test:

    “In holding changes to be reasonable, courts have often blessed relatively minor changes, none of which were retroactive in their effect on a participant’s benefit.”

    “Although courts have not decided many cases under the Kern standard, the cases that do exist demonstrate a willingness to allow prospective changes while prohibiting retroactive changes that significantly decrease the benefit to participants.”

    Monahan on the initial Colorado court decision in Justus v. State:

    “Very recently, a lower court in Colorado appeared to break from the California line of cases, which were previously endorsed by the Colorado Supreme Court. In the Colorado case, the district court was considering whether the state was permitted, as part of a broad pension reform effort, to reduce the cost-of-living adjustments (“COLAs”) previously granted to retirees. The plaintiffs included individuals who had retired under Colorado’s public employee retirement system at a time when there was a guaranteed 3.5% COLA in place. This COLA had been in place since 2001. Under the California Rule, it is clear that COLA reductions could not be made once a participant entered the system.”

    (My comment: Here Monahan notes that the Denver District Court departed from established Colorado Supreme Court case law in its initial decision in Justus v. State. Not surprisingly [recognizing that Associate Professor Monahan must follow public pension cases nationwide] she is unaware that the PERA COLA benefit has been an “automatic” pension COLA benefit since 1993.)

    “In further support of its conclusion, the court highlighted the fact that COLAs had previously been changed (though not to a retiree’s detriment), and therefore those in the system could have no reasonable expectation of an unchanged COLA.”

    (My comment: Note that Monahan points out that prior “changes” made to the PERA COLA did not harm PERA retirees . . . therefore those retirees could not be expected to contest such “improvements” to their contracted “automatic” PERA COLA benefit. Since the PERA “base benefit” and its components have also “changed” over the decades of PERA’s existence, by the logic of the initial Denver District Court Decision PERA members can have “no reasonable expectation” that the PERA “base benefit” is a contractual obligation of PERA and PERA-affiliated employers.)

    “The court’s ruling is surprising both because the court broke from the previously endorsed California Rule, under which it is clear that detrimental changes to the benefits of current employees are only permissible where they are offset with comparable new advantages, and because the change at issue is one that could be characterized as a retroactive change to benefits, which is the type of change that invites the most scrutiny under a contract clause analysis.”

    (My opinion: Here Monahan states her “surprise” that the Denver District Court would render a decision that entirely disregards on-point, established Colorado case law . . . a decision that represents an extreme departure from public pension case law in Colorado. Further, Monahan notes that the COLA taking was a “retroactive” diminution of fully-vested PERA retiree COLA benefits, and that such a taking “invites the most scrutiny under contract clause analysis.”)

    Monahan concludes:

    “This Article has argued that pension benefits that have already been earned through services rendered to the state should be protected against impairment, but that it is hard to find legal justification for protecting the rate of future benefit accruals.”

    http://www.law.umn.edu/facultyprofiles/monahana.html

  37. Al Moncrief says:

    FATAL FALLACIES IN THE INITIAL JUSTUS V. STATE DENVER DISTRICT COURT DECISION.

    The initial Decision in the case Justus v. State includes the following sentence:

    “While Plaintiffs UNARGUABLY have a contractual right to their PERA pension itself, they do not have a contractual right to the specific COLA formula in place at their respective retirement, for life without change.”

    Later, the author of the Denver District Court Decision writes:

    “The Court’s determination, which deals only with COLA and not with base retirement benefits . . .”

    Why was it necessary that this sentence limiting the scope of the Decision be included? I believe that the reason for the inclusion of the sentence is that its author was aware of a fatal flaw in the Decision’s reasoning.

    Recall that, in the initial Decision in the case Justus v. State, the Denver District Court concluded that the PERA COLA pension benefit is not constitutionally protected since the PERA COLA benefit has “changed” over time.

    If this logic of the Denver District Court Decision were to become enshrined in Colorado public pension case law, its line of argument would certainly be used in the future by Colorado legislatures to breach contractual rights to the PERA “base benefit” which has also “changed” over time.

    In the event that the Colorado General Assembly attempts a retroactive taking of PERA “base benefits,” as a test of the vested or contractual nature of the components of the PERA “base benefit,” the defendants in a challenge to such a taking (PERA and the State of Colorado) would be compelled to produce a distinction in the legal status of the PERA “base benefit” and the PERA COLA benefit. This legal distinction does not exist.

    The PERA “base benefit” components and the PERA COLA benefit are set forth in Colorado statutes with identical legal status and force of law.

    Armed with the precedent of the Denver District Court Decision in Justus v. State, it would be a natural step (given the Colorado General Assembly’s traditional neglect of its public pension obligations) for the General Assembly to seek further reductions of PERA-affiliated employer unfunded pension obligations through application of the logic of the Justus v. State Denver District Court Decision to the PERA “base benefit.”

    This would be a natural step for the Colorado General Assembly since the “test” of the contractual nature of a public pension benefit set forth in the initial Denver District Court Decision is whether a public pension benefit has “changed” over time, and it is clear that both the PERA COLA benefit and the PERA “base benefit” have “changed” over time.

    The fact is that the PERA “pension retirement benefit” is comprised of both the components of the PERA “base retirement benefit,” and the PERA “COLA benefit.” The PERA retiree COLA benefit is “pension.” The PERA “base benefit” components are “pension.” These aspects of the PERA retirement benefit enjoy identical status under Colorado law.

    How is the conclusion reached in the initial Denver District Court Decision that “plaintiffs unarguably have a contractual right to the PERA pension itself” without assessing the contractual rights of PERA members to the PERA “base benefit”?

    Was this determination pulled out of thin air? Or, was Colorado public pension case law relied upon in making this determination? If Colorado public pension case law was relied upon in making the determination why are these cases not cited?

    Was this determination relating to contractual public pension rights somehow deduced from a reading of the DeWitt case? The DeWitt case does not pertain to public pension contractual obligations.

    If the initial Denver District Court Decision leaves the contractual rights of PERA members to the PERA “base retirement benefit” undefined, then necessarily no determination can be made of a PERA member’s contractual rights to the “PERA pension itself.”

    The author of the Decision writes that: “the General Assembly’s most recent change to the retiree COLA does not alter the fundamental mechanism for payment of pension benefits for PERA retirees. That has always been and remains to this day, a base benefit set at retirement,” and that the “fundamental mechanism for the payment of pension benefits for PERA retirees” is “a base benefit set at retirement.”

    Well, we know that this “base benefit” has “changed” over the 81 years of PERA’s existence.

    The Denver District Court Decision also fails to note that the Colorado General Assembly struck language from Colorado law in 1993 eliminating its discretion to retroactively diminish the contracted COLA benefit. How is it possible that such pertinent information to determining the contractual rights of PERA retirees to their COLA benefit is not addressed in the Denver District Court Decision?

    I contend that the most “fundamental mechanism” for the payment of pension benefits for PERA retirees are Colorado statutes which create clear expectations, and a statutory contract, for the payment of a PERA base benefit and “guaranteed,” “automatic” pension COLA benefits to PERA members who meet the conditions of PERA retirement eligibility.

    The Colorado Supreme Court has rendered decisions that specifically address questions raised in Justus v. State. How is it possible that the Denver District Court Decision could be drafted without mentioning this on-point case law? It’s as if the Denver District Court was unaware of the existence of germane public pension case law in Colorado.

    Here are excerpts from the Colorado Supreme Court’s decision in Colorado Springs Firefighters Association v. City of Colorado Springs, Colorado Supreme Court, 1989:

    “Rights which accrue under a pension plan are contractual obligations which are protected under article II, section 11, of the Colorado Constitution and article I, section 10, of the United States Constitution.”

    “The payment to which retirees are entitled is calculated based upon their length of employment and their salary level. ENTITLEMENT TO ANNUAL PENSION PAYMENT INCREASES IS ALSO STATUTORILY DETERMINED. These statutory provisions have established a defined benefit contributory pension system in which most public employees are required to participate . . . . . By making these contributions, employees obtain a limited vesting of pension rights, which RIPEN INTO VESTED PENSION RIGHTS upon attainment of the respective eligibility requirements.”

    How is it possible that the Denver District Court rendered a Decision in Justus v. State without making any mention of the Colorado Supreme Court’s determination that “ENTITLEMENT TO ANNUAL PENSION PAYMENT INCREASES,” “RIPEN INTO VESTED PENSION RIGHTS” when public pension retirement eligibility conditions are met?

    Further, in public defined benefit pension administration the nature of public pension COLAs (whether the COLAs are “automatic” or “ad hoc”) is considered a basic structural element of a public defined benefit pension plan. As we have seen, Ritter Administration officials were quite familiar with these descriptors of the Colorado PERA pension COLA benefit, demonstrating this familiarity in a letter to the public pension regulatory agency GASB.

    The nature of public pension COLAs, “automatic” or “ad hoc,” is reported in national surveys of the structure of US public pensions. Public pension actuaries identify “automatic” COLAs as assumptions in actuarial analyses of the adequacy of public pension plan funding. Public pensions in the United State, such as Colorado PERA, communicate the nature of their COLA benefits to plan members and to regulators. The question of whether or not plan sponsors should be required to include even long-standing “ad hoc” COLAs in their actuarial analyses is under consideration by GASB. The “automatic” nature of public pension COLAs in the United States is not hidden from public pension active members, public pension retirees, public pension actuaries, public pension administrators, public pension regulators, public pension trustees, or elected officials possessing public pension oversight authority.

    How is it possible that any Denver District Court Decision could address contractual rights to the Colorado PERA public pension COLA benefit without mentioning the nature (“automatic” or “ad hoc”) of the PERA COLA benefit that is under consideration?

    The PERA COLA has been identified by Colorado PERA officials and Colorado PERA’s actuaries as an “automatic” COLA benefit for decades. How is it possible for the Denver District Court to render a decision relating to contractual rights to the Colorado PERA COLA benefit without any mention of the “automatic” nature of the PERA COLA benefit at all?

    The components of the PERA “base benefit” and the PERA “COLA benefit” are part and parcel of the PERA “contracted retirement benefit.” By definition, the “base benefit” is fixed and determined at retirement. The PERA COLA benefit is, by design, paid out gradually over a PERA member’s remaining life. The fact that the public pension COLA benefits are paid out gradually over a retiree’s remaining lifetime in no way undermines their legal status.

    Many annuity benefits offered for sale in the private sector in the Unites States have attached, contracted COLA benefits. The fact that these contracted private sector annuity COLA benefits will be paid over many years of an annuitant’s remaining life does not negate their contractual status. These COLA benefits are part of the annuity contract.

    The PERA pension COLA benefit is necessarily paid out after a PERA member has retired, that is, after a PERA member’s pension rights have ripened into a full contractual obligation. To the extent that this necessity distinguishes the PERA COLA benefit . . . it distinguishes the PERA COLA benefit with enhanced constitutional protection under the Contract Clause.

    https://saveperacola.com/

    • deborahapy says:

      Exactly.

      If the government succeeds in taking our guaranteed annual benefit increase, Al Moncrief is absolutely correct in pointing out that our existing retirement benefit becomes at risk.

      We can say, “Oh, they’d never do that.” Which is exactly what we said about our 3.5% annual increase.

      I’m sending another check. Thank you all for your work at protecting what we have rightfully earned.

  38. Al Moncrief says:

    EVEN A CURSORY EXAMINATION OF PERA’S HISTORY OF BENEFIT CHANGES REVEALS THE LOGICAL INCONSISTENCY OF THE INITIAL DENVER DISTRICT COURT DECISION IN JUSTUS V. STATE.

    In the initial Decision in the case Justus v. State, the Denver District Court concludes that the PERA COLA pension benefit is not constitutionally protected. In the Decision, this conclusion is based on the fact that the PERA COLA benefit has “changed” over time.

    The Denver District Court concludes that PERA retirees can have no “reasonable expectation” that the PERA COLA will not be reduced in the future, and therefore the PERA COLA is not constitutionally protected.

    The Decision’s author reaches this conclusion in spite of the fact that both the PERA pension “base benefit” and the PERA COLA benefit are set forth in the Colorado statutes with identical status and force of law, and the fact that the “changes” made to the PERA COLA over time “improved” the COLA benefit.

    Now, I will provide just one example of the absurdity of this conclusion in the initial District Court Decision.

    Here it is. The PERA “base benefit” itself has also “changed” over time. Applying the logic that is employed in the initial Denver District Court Decision, both active and retired PERA members have NO contractual right to ANY PERA pension benefit since the “base benefit” and its components have “changed” over time. Active and retired PERA members have NO contractual pension rights in spite of their decades of regular pension contributions . . . contributions that are made as a condition of employment.

    The Denver District Court Decision presumes that “changes” over time in one component of PERA deferred retirement compensation establish that the component lacks the status of a contracted retirement benefit, while “changes” over time in another component of PERA deferred retirement compensation, (set forth with identical force of law, and also purportedly lacking “durational language”) do not establish that the component lacks the status of a contracted retirement benefit. This conclusion is arbitrary and lacks any rational basis.

    Here’s an example of legislation that historically altered the PERA “base benefit”:

    In 1997, the Colorado General Assembly enacted House Bill 97-1082. This bill is described in Colorado PERA’s publication “History of PERA Legislation” as follows:

    “HB 97-1082 – Increased retirement formula from 1.5% to 2.5% per year of HAS on 20-40 years service, with 100% HAS maximum benefit. Benefits were recalculated for current benefit recipients on a prospective basis.”

    This bill, HB 97-1082, “changed” (improved) the PERA “base benefit.”

    The enactment of this legislation was covered in a May 7, 1997 Pueblo Chieftain article “Romer OKs PERA Raise,” available at the following link:

    http://www.chieftain.com/import/romer-oks-pera-raise/article_b5e4635f-31ad-5363-b970-6cd1936abc43.html

    Here are a few excerpts from the 1997 Pueblo Chieftain article:
    “Romer OKs PERA raise”

    “Gov. Roy Romer on Tuesday signed legislation raising Colorado Public Employees’ Retirement Association pensions for school and government employees with more than 20 years of service.”

    “Under HB1082 by the legislative majority leaders, Rep. Norma Anderson and Sen. Jeff Wells, every year of service will mean 2.5 percent of payroll on retirement.”

    “The old law was 2.5 percent for the first 20 years, then only 1.5 percent thereafter. Unchanged is the calculation of the pension on the average of the top three years of salary.”

    You can see that if the Denver District Court (or any court) applied the logic employed in the initial Decision in Justus v. State to the PERA pension “base benefit,” that court would necessarily conclude that the PERA “base benefit” is NOT a contractual obligation of PERA or PERA-affiliated employers. It has “changed.”

    By the logic of the initial Denver District Court Decision active and retired PERA members have NO contractual right to ANY PERA retirement benefit since components of this benefit have “changed” over time, and we know that such a conclusion contradicts long-established Colorado public pension case law, and public pension case law in every state in the nation.

    By the logic of the initial Denver District Court Decision if a component of the PERA pension has “changed” over time, that component of the PERA pension does not constitute a contractual obligation of PERA or PERA-affiliated employers. Accordingly, any components of PERA service retirement eligibility or retirement benefit calculation that have “changed” since the inception of Colorado PERA are not constitutionally protected. These components include changes to the calculation of the “Highest Average Salary” in determination of the PERA “base benefit,” service retirement eligibility factors such as “age,” “years of service to the employer,” “PERA includable salary,” rules relating to the conversion and inclusion of accumulated “sick leave” as PERA “salary,” and the PERA “benefit accrual rate.”

    If the initial Decision in Justus v. State were allowed to remain the controlling case law in Colorado, active and retired PERA members will have made mandatory contributions to PERA in exchange for whatever retirement benefits the Colorado General Assembly opts to grant after they retire, that is, Colorado public pension case law will have regressed to the archaic state of public pensions as “mere gratuities.” The proponents and sponsors of SB 10-001 will have set back the legal status of public pension contractual obligations by 100 years.

    If this outcome is allowed to stand, the Colorado General Assembly will be free to take resources from the PERA Trust Funds at its pleasure, and adjust components of the base benefit or COLA benefit to reduce employer unfunded pension obligations at will. The Colorado General Assembly will be empowered to force active and retired PERA members to relinquish their proprietary interests in the PERA Trust Funds in order to subsidize Colorado state and local governments.

    If the initial Decision in Justus v. State were to remain the controlling public pension case law in Colorado, the concept of “vesting” of pension benefits in Colorado would be rendered meaningless. It is obvious that the initial Decision in Justus v. State lacks a rational basis, and therefore cannot persist as controlling in Colorado public pension case law.

    • deborahapy says:

      Exactly.

      If the government succeeds in taking our guaranteed annual benefit increase, Al Moncrief is absolutely correct in pointing out that our existing retirement benefit becomes at risk.

      We can say, “Oh, they’d never do that.” Which is exactly what we said about our 3.5% annual increase.

      I’m sending another check. Thank you all for your work at protecting what we have rightfully earned.

  39. Al Moncrief says:

    NATIONAL PUBLIC PENSION LAW AUTHORITY: COLORADO’S DISTRICT COURT IGNORED ESTABLISHED COLORADO CASE LAW IN JUSTUS V. STATE DECISION.

    A new article addressing public pension contractual obligations has just been published in the Iowa Law Review.

    The article is available here:

    http://www.uiowa.edu/~ilr/issues/ILR_97-4_Monahan.pdf

    The article is 55 pages, and admittedly, I have not yet read it in its entirety; however, I didn’t want to delay in bringing those portions of the law review that bear on the case Justus v. State to your attention.

    The title of the Iowa Law Review article is: “Statutes as Contracts? The ‘California Rule’ and Its Impact on Public Pension Reform.”

    The author of the article is nationally renowned public pension law expert Associate Professor of Law, Amy Monahan. Ms. Monahan is Associate Professor and Vance K. Opperman Research Fellow at the University of Minnesota Law School.

    http://www.law.umn.edu/facultyprofiles/monahana.html

    In her paper Associate Professor Monahan notes that the Colorado Supreme Court (and 12 other states) have adopted the “California Rule” as controlling in the establishment of contractual rights to public pension benefits.

    She describes the “California Rule” as follows, “courts have held that the statutes establishing state retirement systems created contracts between the state and employees that prohibit the state from making any detrimental changes to the benefits provided to current employees within such systems, even on a prospective basis.”

    Monahan argues that the California Rule goes too far and that states should have the right to make prospective changes to public pension plans, for example, changes to rates of accrual of pension benefits for current employees on a prospective basis. As we know, in SB 10-001 the Colorado General Assembly attempts a “clawback” of pension benefits (contracted retiree COLA benefits) that have already been earned. In the bill, the Colorado General Assembly attempts a retroactive taking of fully-vested, accrued, earned, contracted pension COLA benefits, and it does so prior to giving any consideration at all to the option of reducing the rate of accrual of pension benefits, on a prospective basis, for PERA pension members who possess “partially-vested” pension rights. This option of reducing the rate of accrual of pension benefits of active PERA members who have “partially-vested” pension rights is clearly a “less drastic” means of achieving the stated goals of the sponsors of SB 10-001.

    The taking of fully-vested PERA COLA benefits by the Colorado General Assembly is an outrageous, amoral, and unconstitutional attempt to take money from the pockets of elderly Colorado PERA retirees. These PERA retirees have met their obligations under the statutory PERA pension contract by making decades of uninterrupted PERA pension contributions. The Colorado General Assembly’s attempt to retroactively confiscate these contracted PERA pension benefits (and thereby force a single group of Colorado citizens, PERA retirees, to effectively subsidize Colorado state and local government in the coming decades) truly shocks the conscience.

    Associate Professor Monahan writes:

    “In many states, however, courts have held that the statutes establishing state retirement systems created contracts between the state and employees that prohibit the state from making any detrimental changes to the benefits provided to current employees within such systems, even on a prospective basis. This article examines the development of such a rule in the California courts, a rule that has been widely influential in this area of law, as evidenced by the fact that courts in twelve other states have followed the California Supreme Court’s holdings. This article demonstrates that by holding that benefits not yet earned are contractually protected, without explaining the basis for finding that such a contract exists, California courts have improperly infringed on legislative power and have fashioned a rule that is inconsistent with both contract and economic theory.”

    Addressing Colorado specifically, Monahan writes:

    “Very recently, a lower court in Colorado appeared to break from the California line of cases, which were previously endorsed by the Colorado Supreme Court.”

    (My comment: Here Monahan notes that the Denver District Court departed from established Colorado Supreme Court case law in its initial decision in Justus v. State.)

    Monahan continues:

    “In the Colorado case, the district court was considering whether the state was permitted, as part of a broad pension reform effort, to reduce the cost-of-living adjustments (“COLAs”) previously granted to retirees. The plaintiffs included individuals who had retired under Colorado’s public employee retirement system at a time when there was a guaranteed 3.5% COLA in place. This COLA had been in place since 2001. Under the California Rule, it is clear that COLA reductions could not be made once a participant entered the system. However, the Colorado District Court held that the statute granting COLAs contained no clear and unambiguous evidence that retirees were entitled to an unchanged COLA for the duration of their benefits. In further support of its conclusion, the court highlighted the fact that COLAs had previously been changed (though not to a retiree’s detriment), and therefore those in the system could have no reasonable expectation of an unchanged COLA.”

    (My comment: Note that Monahan points out that prior “changes” made to the PERA COLA did not harm PERA retirees . . . therefore those retirees could not be expected to contest such “improvements” to their contracted “automatic” PERA COLA benefit.)

    Monahan expresses her surprise at the Denver District Court ruling:

    “The court’s ruling is surprising both because the court broke from the previously endorsed California Rule, under which it is clear that detrimental changes to the benefits of current employees are only permissible where they are offset with comparable new advantages, and because the change at issue is one that could be characterized as a retroactive change to benefits, which is the type of change that invites the most scrutiny under a contract clause analysis.”

    (My opinion: Here Monahan states her “surprise” that the Denver District Court would render a decision that entirely disregards on-point, established Colorado case law . . . a decision that represents an extreme departure from public pension case law in Colorado. Further, Monahan notes that the COLA taking was a “retroactive” diminution of fully-vested PERA retiree COLA benefits, and that such a taking “invites the most scrutiny under contract clause analysis.”)

    Monahan elaborates:

    “For example, a participant who worked for the state from 2001 (when the 3.5% COLA was enacted) until 2010 (when the COLA was reduced) would have worked for nine years in exchange for the promise of a benefit that increased by 3.5% each year during retirement. If that COLA benefit is part of what an employee earns through services rendered, the change at issue in Colorado would properly be considered retroactive. The district court in Colorado at the very least implicitly disagreed with this characterization.”

    (My comment: Not surprisingly [recognizing that Associate Professor Monahan must follow public pension cases nationwide] she is unaware that the PERA COLA benefit has been an “automatic” pension COLA benefit since 1993.)

  40. David McBride says:

    Somewhere in all of this an important distinction has been lost: When the Colorado legislature fixed the ‘automatic’ annual benefit increase at 3.5%, it was no longer a ‘COLA’ which is connected to the cost of living and the rate of inflation. To reduce the 3.5% annual adjustment after the fact is clearly a breach of contract as the lawsuit argues, yet it bothers me that the lawsuit’s nomenclature is suggestive of some variable COLA associated with annual changes in the cost of living/rate of inflation, when, in fact, the law was passed and the increase was set (at 3.5%) specifically to disconnect it from annual variations in the cost of living. That fact alone should have made it inviolate and untouchable once a person became vested when the legislated automatic annual increase was on the books.

    • saveperacola says:

      While SPC has attempted to use the correct term (annual benefit increases) in the briefs, COLA often has a broader meaning that refers in general to inflationary increases in benefits or salary. Even the PERA law defines our benefits as including such increases in 24-51-101. Definitions. As used in this article, unless the context otherwise requires and except as otherwise defined in part 17 of this article:
      (6.5) “Base benefit” means the initial benefit …and cost of living increases.

      • David McBride says:

        The Annual Benefit Increase of 3.5% was legislated to be a ‘fixed’ increase, somewhat like a guaranteed (fixed) interest rate on a CD. COLA’s on the other hand are not ‘fixed’ and are adjusted periodically with the Consumer Price Index, a measure of inflation. The distinction is important and ignoring it inadvertently serves PERA’s flimsy argument that previous adjustments to COLA’s have been made. Retirees who became vested expected to receive the ‘fixed’ 3.5% Annual Benefit Increase as a provision of a legally binding retirement contract. Unlike a COLA, the Annual Benefit Increase of 3.5% is not pinned to the variable Consumer Price Index in any way as it was specifically constructed to disconnect from such annual calculations. The 3.5% Annual Benefit Increase of 3.5% is clearly outlined in the PERA documents many of us were given when nearing retirement. When PERA and the Colorado legislature rescinded on it unilaterally, it was a breach of contract.

  41. Gary Strobridge says:

    God : You are great !!!! Thank You …….

  42. Al Moncrief says:

    COLORADO PERA’S RECOGNITION OF THE PERA RETIREE COLA BENEFIT AS AN “AUTOMATIC” COLA BENEFIT.

    Colorado PERA’s ultimate legal strategy in its attempt to take contracted PERA retiree COLA benefits was unknown three years ago. The legal strategy may have been based in part on the legal opinion that was ordered by the Colorado PERA Board of Trustees prior to the attempted COLA benefit taking. This legal opinion is not available to the public. However, when I read PERA’s legal briefs submitted in Justus v. State it seems clear to me that not much thought was given to the legal defense of the COLA taking prior to the enactment of SB 10-001. Their strategy seems to rest on denial of much that is obvious . . . denial of the “automatic” nature of the PERA COLA benefit, and denial of on-point Colorado Supreme Court case law.

    At some point in recent years the decision was made that part of PERA’s legal strategy would be to attempt to deny the “automatic” nature of the PERA retiree COLA benefit itself. In hindsight, so much evidence of the “automatic” nature of the PERA COLA benefit exists that this decision now looks foolish. Prior to 2009, PERA officials had correctly assumed that fully-vested PERA retiree benefits, including contracted “automatic” COLA benefits were inviolate.

    When it became clear that PERA would attempt to deny the “automatic” nature of the PERA COLA as part of its legal defense strategy, PERA began placing “disclaimers” on documents published on its website that identified the PERA COLA as “automatic.” PERA officials stopped referring to the PERA retiree COLA benefit as “automatic.”

    As we know, Colorado PERA “automatic” pension COLA benefits have the identical constitutional protection that is afforded all other fully-vested PERA pension benefits, including all components of the PERA base retirement benefit. (“Ad hoc” pension COLAs may legally be diminished by public pension plan sponsors.)

    How did Judge Hyatt reach the conclusion in the initial District Court decision in this case that the base pension benefit is constitutionally protected, while the COLA pension benefit is not constitutionally protected when both the base benefit and the COLA benefit are set forth in Colorado statutes with identical status and force of law?

    In December 2009, PERA’s Executive Director Meredith Williams was unaware of PERA’s ultimate legal defense strategy in the case when he wrote the following:

    “. . . the 2 percent cap is the only COLA that the PERA trust funds can afford. (Most other pension plans, public and private, do not have automatic COLAs and remember that Social Security is not a retirement plan.”

    From Ask Meredith 12/16/09:

    http://www.copera.org/pera/about/ask.htm

    In 2009, there was no reason for Meredith to deny the “automatic” character of the COLA or have guarded speech when discussing the COLA benefit. PERA has since added a “disclaimer” to this publication. The PERA website is now peppered with disclaimers.

    Another PERA publication refers to the “automatic” nature of the PERA retiree COLA benefit:

    “PERA Benefits at a Glance,” 2004:

    “Receive an annual automatic increase of 3.5 percent in your monthly retirement benefit to help keep up with the cost of living.”

    Yet another PERA publication refers to the “automatic” nature of the PERA retiree COLA benefit:

    PERA Legislative Update, February 2006:

    http://www.copera.org/pdf/Legislation/2006/LegUp2-06.pdf

    “Employees hired before January 1, 2007 remain in PERA Pioneer (and will receive) automatic increase of 3.5% per year after retirement.”

    “PERA members hired January 1, 2007 or later, called PERA Centennial, no guaranteed annual increase after retirement.”

    Further evidence of the absurdity of Colorado PERA’s denial of the “automatic” nature of the PERA COLA exists. PERA has historically communicated the “automatic” nature of the COLA benefit to the “fiscal note” staff of the Colorado General Assembly. These communications should be on file at the offices of these legislative staffers.

    Colorado PERA tells us in a 2004 document:

    “Whenever legislation is contemplated regarding PERA benefits or contribution rates, PERA asks the actuary for an estimate of the long-term impact. The results are communicated to Legislative Council for preparation of fiscal notes on such legislation.”

    From this document:

    http://www.copera.org/pdf/Legislation/2004/LegUp2-04.pdf

    With such information from Colorado PERA, the Legislative “fiscal note” staff wrote the fiscal note for House Bill 00-1458 (the bill that improved the COLA benefit to a fixed 3.5 percent.) The fiscal note for this bill, HB 00-1458, includes the term “automatic” in the following description of the retiree COLA:

    “Established 3.5% compounded annual automatic COLA effective March 2001.”

    As we know, Colorado PERA contracts with outside, independent actuaries for supplemental actuarial reviews every five years. In 2001, Buck Consultants provided such an actuarial report to the Legislative Audit Committee of the Colorado General Assembly.

    This Buck Consultants report clearly identifies the Colorado PERA 3.5 percent COLA as “automatic,” refers to “guaranteed benefits at retirement,” and the “fixed” COLA, that is “compounded annually for each year of retirement.”

    The Buck Consultants report identifies the 3.5% PERA COLA as “automatic,” contrasting the PERA COLA with an “ad hoc” COLA “as approved by Legislature.”

    Specifically, the report makes reference to:

    “PERA’s automatic 3.5% per year COLA feature”;

    “the guaranteed lifetime income provided by PERA”;

    “COLA – Automatic 3.5%” as opposed to an “ad hoc” COLA;

    “PERA guaranteed benefits at retirement”;

    “Colorado PERA vesting requirement – five years.”

    Further, the Buck Consultants report notes that:

    “Effective March of 2001, the cost of living adjustment was set at an annual fixed rate of 3.5%”;

    “PERA provides inflation protection to retirees with a 3.5% annual COLA,” and

    “Post-Retirement Benefit Increases: Each year on March 1, benefits which have been paid for at least three months are increased. The increase is 3.5% compounded annually for each year of retirement.”

    If Colorado PERA officials did not agree with the Buck Consultants characterization of the PERA retiree COLA as an “automatic” COLA, then why did these Colorado PERA officials not state their objections to this characterization when the Buck Consultants report was presented to the Legislative Audit Committee in 2001?

    Over the years, Colorado PERA has published, and periodically updated a memorandum with a title along the lines of “History of Colorado PERA Legislation.”

    The 2009 version of this memorandum is stored on the website of the Colorado General Assembly at this link:

    http://www.colorado.gov/cs/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1251603807998&ssbinary=true

    Right clicking on this PDF, and then clicking on “Document Properties” reveals that the memorandum was prepared by Mr. Karl Paulson of Colorado PERA on 11/30-2009.

    When it became apparent that part of PERA’s legal strategy would be to deny the “automatic” nature of the retiree COLA benefit, PERA suppressed this “History of Colorado PERA Legislation” memorandum which identifies the PERA COLA as an “automatic” COLA benefit. However, they were unable to remove the copy stored on the website of the Colorado General Assembly. PERA replaced the memorandum with a “scrubbed” version of the memo on their website, striking all reference to the “automatic” COLA, as well as pre-1993 references to the “ad hoc” PERA COLA, (which the COLA was at the time.) The “scrubbed” memo is available here:

    http://www.copera.org/pera/active/benefithistory.htm

    The “History of Colorado PERA Legislation” memorandum from 2009 (that is, the “non-scrubbed” version of the memo) describes the COLAs in HB 00-1458 as follows:

    “HB 00-1458

    Established 3.5% compounded annual automatic COLA effective March 2001.” “Prior to this date, the annual COLA equaled the lower of the actual inflation rate or annual 3.5% cumulative increases since retirement.” (The PERA COLA was improved from “automatic” lesser of 3.5 percent or inflation, to a flat “automatic” 3.5 percent in HB 00-1458.)

    As we observed yesterday, even as late as the Fall of 2010, (prior to the Denver District Court decision) PERA was still referring to the contracted retiree COLA as an “automatic” COLA benefit. In the slides prepared for this Fall 2010 Shareholder Meeting presentation, the COLA benefit is referred to as “automatic”:

    http://www.copera.org/pdf/Shareholder/ShareholderPresentation10.pdf

    The slides include the following sentence: “Plaintiffs claim Contract Clause protects automatic 3.5 percent increase.”

    Why would PERA’s staff choose to describe the COLA in these slides as “automatic” if it were not commonly understood by the PERA staff that the COLA benefit was indeed an “automatic” COLA benefit? Employees of public defined benefit plans know the difference between “automatic” pension COLAs and “ad hoc” pension COLAs. These are basic structural elements of defined benefit plans.

    Additional PERA documents describing the PERA retiree COLA as “automatic” are available on PERA’s website at the following links:

    http://www.copera.org/pdf/Newsletters/MemberReport/MR1-06.pdf

    http://www.copera.org/pdf/5/5-114.pdf

    http://www.copera.org/pdf/Legislation/2006/legislation2006.pdf

    http://www.copera.org/pdf/Legislation/2006/LegUp2-06.pdf

    http://www.copera.org/pdf/Legislation/2006/LegUp3-06.pdf

    It would have been forthright for Colorado PERA to be upfront about the COLA benefit, admitted to its “automatic” nature, and taken the position that, nevertheless, they would continue in their attempt to take contracted COLA benefits.

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