Soon we'll have an answer to the leagality of cutting COLAs in Minnesota.....AND.........other states ARE WATCHING!

From John Curry, September 14, 2010
http://online.wsj.com/article/SB10001424052748704190704575489872547566554.html?mod=googlenews_wsj

wsj.com, September 14, 2010

Wall Street Journal Case to Test Cuts in State Pension Benefits

By AMY MERRICK
A Minnesota court on Wednesday will consider whether the state can curtail pension benefits for current retirees from state jobs, in a case that could affect struggling public pension funds nationwide.

States have responded to budget shortfalls by raising the retirement age and cutting pension benefits for new hires. Minnesota last year replaced its previous pension formula, which increased retiree benefits annually based on investment gains and inflation, with a flat 2.5% increase. This May, the state lowered that increase for some retirees and eliminated it for others, until the pension plans are 90% funded, a level that could take decades to reach.

A group of Minnesota retirees already receiving benefits under older pension formulas sued the state in May, seeking class-action status.

State courts generally have ruled that states can't reduce benefits for workers who already have retired. While a ruling allowing Minnesota's new pension formula to stand wouldn't establish a single legal precedent across the country, it could encourage other states, hit by deep budget deficits and a wave of baby-boomer retirements, to try to reduce benefits for current employees and retirees.

Cases similar to Minnesota's are pending in South Dakota and Colorado, and other states are watching the Minnesota case closely as they ponder solutions to their own pension dilemmas.

Stephen Pincus, a lawyer for retirees in the Minnesota, Colorado and South Dakota cases, said courts have ruled that benefits for current retirees can be reduced only when the employer funding the pension plans is on the brink of insolvency.

"Certainly ... [Minnesota] is not on the edge of bankruptcy," he said. "There is just not any political will to go back to citizens and say, 'We made these promises, and now we have to fulfill our obligations in total to the retirees.' "

Minnesota says retirees have no legal right to expect a specific formula of benefits. "A retiree's future benefits and rights are subject to reasonable legislative actions that are intended to preserve the fiscal integrity and stability of Minnesota's public employee pension plans," the state said in a court filing.

The shortfalls in state pension funds have been accumulating for decades, and states have skipped pension payments even in good economic times. During the market turmoil of 2008, pension funds suffered huge investment losses and have yet to fully recover.

A February report from the Pew Center on the States estimated a trillion-dollar gap between the pension, health-care and other retirement benefits promised to public employees and the money set aside to pay for them. The nonprofit research group ranked Minnesota among 15 states that needed to shore up their pension systems but were not yet "serious concerns."

Now, amid economic distress and in an election year, the cost of providing benefits to retired teachers, judges, police officers and other state workers has become a potent political issue.

In California, Republican Gov. Arnold Schwarzenegger has said he won't sign a budget until the legislature revokes an increase in its pension formula enacted 11 years ago and raises employee contributions to the pension system. New Jersey Gov. Chris Christie, also a Republican, on Tuesday called for raising the state retirement age and requiring workers to contribute more to their pensions. Illinois Gov. Pat Quinn, a Democrat, signed a law in April raising the retirement age for most newly hired public employees to 67—with Missouri's, the highest in the U.S.—and reducing benefits for future workers.

On Wednesday, a state court judge in St. Paul will consider Minnesota's motion for summary judgment against the retirees. Minnesota noted in its court filing that it had not reduced retirees' monthly base pay or tried to take back cost-of-living increases paid in previous years.

Richard Maus, a 71-year-old retired teacher living in Northfield, said suing the state was simply a business decision to enforce his contract.

"If a credit-card company or mortgage company had a contract with me, and I announced that I don't have as much money as I thought I would, they would be very willing to go to court to follow up," he said. Mr. Maus said he receives an annual pension of about $30,000.

The retirees said in a court filing that a person receiving an annual pension of $29,076—the average benefit in 2008 for retirees with 30 or more years of service in one of the major pension funds—would lose more than $28,000 over the next 10 years if the new law stands.

The directors of the state's three large retirement funds declined to comment on the lawsuit or didn't respond to requests for comment.

Jennifer Munt, a spokeswoman for the Minnesota council of the American Federation of State, County and Municipal Employees, said the public-employee union "reluctantly" supported the pension changes "because it protected our defined-benefit pensions by taking responsible actions to stabilize the pension funds." The union believes the retirees' lawsuit is "without merit," she said.

Write to Amy Merrick at amy.merrick@wsj.com