A little more in-depth coverage of the Minnesota COLA trial...

From John Curry, September 17, 2010

http://watchdog.org/6571/minnesota-judge-oks-discovery-in-pension-suit/ - Watchdog News - http://watchdog.org -

Minnesota judge Ok’s discovery in pension suit

Watchdog.org, September 15, 2010

By Jonathan Miltimore — Plaintiffs want state documents and employee depositions on decision to limit cost of living increases for retirees.

A Minnesota court deferred judgment Wednesday on a lawsuit challenging legislation limiting benefit increases for retirees currently drawing checks.

Stephen Pincus, an attorney representing retirees in Minnesota, Colorado and South Dakota, said plaintiffs need internal state documents and state employee depositions to determine if officials had explored all policy options available to shore up pensions, such as increasing contributions or reducing benefits of future hires.

“From our point of view there is no reason to rush to have this case decided,” Pincus said. “We had no idea the state wanted to have the entire case decided up front.”

While many states — including sixteen this year alone — have overhauled pensions in the wake of the stock market crash, only Minnesota, Colorado and South Dakota passed legislation that trimmed the cost of living adjustments (COLA) for current recipients.

The Minnesota case, first on the docket and involving an estimated $1 billion in future allocations, has been cited as a possible bellwether for cash-strapped states struggling to find immediate means to shore up pension systems that were in trouble even before investment values plunged.

Wednesday morning’s hearing, which lasted nearly three hours, ended with Ramsey County judge Greg E. Johnson granting the plaintiffs’ request for additional time for discovery.

The state had objected to the request, arguing Minnesota case law made it clear the state had the right to modify benefits because no contract existed between employees and the state.

“There is no contract here, express or implied,” Assistant Attorney General Rita Coyle DeMueles said. “Any delay creates a cloud of (public) uncertainty.”

But Johnson, noting the likelihood of appeal and the scope of the case, denied the request and granted the plaintiffs an additional 90 days.

“If I grant summary judgment it’s going to appeal, and you’ll have that cloud of uncertainty anyway,” Johnson said. “Part of my job as judge is to make sure the record is complete.”

In 2009, the legislature lowered its 2.5 percent COLA to a rate ranging from 1 to 2 percent for the majority of the 65,000 retirees and suspended increases for retirees in the Teachers Retirement Association.

In addition to the benefit cuts, the state has phased in [1] a series of contribution increases, but despite the law changes the funding level of state systems remains about 70 percent based on state assumptions of high future investment returns.

These figures, which assume average rates of return of about 8 percent — a number many economists believe is unrealistic [2] — do not include other post employment benefits such as health care, which are almost entirely unfunded.

Though the judge did not rule Wednesday, the hearing did provide a glimpse of the arguments the case will likely hinge on, as attorneys sparred over jurisdiction and case law.

The strategies of the opposing councils were easy to identify, with state arguments relying heavily on state legal precedent and plaintiffs invoking federal precedent in states with more expansive histories of worker rights.

Pincus cited case law from several states in which courts determined worker benefits could not be “drastically impaired” unless the state was under severe financial stress. He charged the state with backing down on promises to workers.

“The state itself took on this obligation,” he said. “Did they even think about other (available policy) options.”

DeMueles said the cases cited by Pincus have no bearing on this case and the legislature has clearly defined authority to adjust benefits to accommodate retirees, current employees and taxpayers.

“Minnesota’s laws on the interest and rights (of workers) are distinctively different from those in other states,” she said. “All the cases mentioned involved states employing collective bargaining contracts.”

DeMueles also said Minnesota statute makes no distinction between the fiduciary obligations to current employees and retirees.

More than a dozen people attended the hearing, including Richard Maus, a retired teacher who lives in Northfield.

Maus said he enjoyed watching the hearing, but was surprised to hear the state’s council say he didn’t have a contract defining his retirement benefits.

“I saw a lot of contracts in my 30 years teaching,” he said.

Jonathan Miltimore is a national reporter for The Franklin Center for Government and Public Integrity ^[3]. jonathan.miltimore@franklincenterhq.org ^[4]