SD retirees sue to keep COLA!
From John Curry, June 22, 2010
Former Rapid City judge, three others sue state over retirement benefits law
Andrea J. Cook, Journal staff | Posted: Tuesday, June 15, 2010 2:40 pm
Two retired judges and two retired university professors are suing the State of South Dakota to protect the annual cost of living increase included in their South Dakota Retirement System pensions.
Former judges Merton Tice, Jr., and Marshall Young are joined in the class action lawsuit by retired South Dakota School of Mines & Technology professors Boots Newstrom and Dean Bryson. All are Rapid City residents.
Attorneys for the retirees estimate that they could represent approximately 20,000 public employees or their survivors who first received benefits on or after July 1, 1982, and who retire before June 30, 2010. The suit was filed in Hughes County.
The retirees claim that individuals drawing benefits from the system will lose between $40,264.62 and 477,414.68 in pension benefits over the next 20 years because of a change in state law enacted by the 2010 Legislature.
Under the law, scheduled to take effect on July 1, pension recipients are not going to get the 3.1 percent cost of living increase they have received every year since 1993.
At the request of the retirement systems’ board of trustees, the state legislature passed Senate Bill 20 tying the cost of living increase to the consumer price index and the system’s assets, according to Wade Hubbard, the retirement system’s general counsel.
For the coming fiscal year, benefits will go up by only 2.1 percent. The following year, the annual cost of living raise will fluctuate between 2.1 percent and 3.1 percent, depending upon the financial health of the retirement system and the consumer price index.
The annual combination of members’ contributions and investment revenue must equal 100 percent of the benefits paid out before the cost of living increase returns to 3.1 percent, something the plaintiffs claim is unlikely.
“They have all lived up to their end of the bargain, they've put in their time and their contributions and the state is obligated to provide the benefits at the levels that were promised when they retired,” said Stephen Pincus, a Pittsburgh-based lawyer helping to represent the retirees. “We contend that this is a breach of the contract the retirees had with the state.”
Attorney General Marty Jackley said his office received the lawsuit late Monday. He was reviewing it and planned to have a response within 30 days.
Jackley said his job is to defend the actions of the Legislature when it passed the measure during the last session, and not to get involved with the policy.
“My job as attorney general is to defend Senate Bill 20 in the confines of the law,” he said.
Faced with substantial revenue losses after two years of a faltering economy, the trustees had to make adjustments, Hubbard said. The retirement systems’ funding level had dropped to 80 percent, which is the bottom of what is considered financially sound, he said.
“It's not so much the status of the strength or weakness of the system, we have a good retirement system, one of the best in the country,” said Rapid City lawyer Verne Goodsell, who is assisting in the lawsuit for the plaintiffs. “It’s a unilateral reneging on that promise, that’s the core of this lawsuit.”
In South Dakota, the system's assets have grown by about 20 percent in the 11 months since the state fiscal year began July 1, state investment officer Matt Clark told a legislative committee in Pierre last week. The Retirement System's assets were $6.6 billion as of May 31, up roughly $1 billion from last July.
“This year, so far it looks like we’re having among our best years ever in adding value,” Clark told the Executive Board, which handles administrative issues for the Legislature.
The Retirement System peaked at about $8 billion in assets in 2007, but fell to $7.3 billion in June 2008. In the midst of the recession, it then lost 20.4 percent of value to end last June with assets of $5.6 billion.
“Without a doubt, South Dakota ranked among the best in terms of its pension funding,” said Pincus, citing a Pew Center study. “The state has an interest in making sure its pension funds are solvent and healthy -- and they have the ability to achieve that goal. But taking away benefits to those who are already retired, who did everything they were supposed to and lived up to their end of the deal, it is unconstitutional.”
From 1988 to 1993, South Dakota’s annual improvement rate was set at 3 percent, Pincus said. Starting in 1993, the annual rate went to 3.1 percent.
“State law says that you have to correct if the system’s funding gets too low,” Hubbard said. “The board looked at all the options and found that SB 20 was the fairest to all the members and was the least severe to all members.”
The actions implemented by SB 20 will save the retirement system an estimated $368 million over the next 30 years, Hubbard said. The system’s actuaries say the system needs between $400 million and $500 million to be financially sound. The system pays out approximately $330 million in benefits every year, he said.
“The fund is starting to recover with the economy,” Hubbard said. But, the fund cannot continue to pay out more than it has, he said.
Investment returns are projected to be up 20 percent for the current fiscal year, Hubbard said.
“We have a history of retirees telling us if the system is in trouble they want us to do anything necessary to save it,” Hubbard said.
The legislature did not take all of retirees’ benefits, only 1 percent, he said.
“And, they’re likely, in the future to go up,” Hubbard said.
The plaintiffs have asked for a permanent injunction to prevent the implementation of SB 20. They argue that the state has violated state and federal law by breaching their contracts with the state by changing their benefits.
Contact Andrea Cook at 394-8423 or andrea.cook@rapidcityjournal.com.
Sioux Falls Argus Leader contributed to this report
posted by Kathie Bracy at 3:24 PM
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