Does cutting a COLA violate the takings and contract clauses of the U.S. Constitution?

From John Curry, December 10, 2010

In the September ruling, Hyatt decided the lawsuit could proceed on many of the claims made by the plaintiffs, including whether SB 1 violated the contract clause of the Colorado Constitution, whether the law violated the plaintiffs’ due process rights, and whether SB 1 violated the takings and contract clauses of the U.S. Constitution. At that time, all the parties agreed to dismiss parts of other claims that sought monetary damages from individual defendants. Hyatt has delayed ruling on the plaintiffs’ request for class action status until after discovery is completed.

Pincus told The Statesman that unless the judge decides to delay ruling on the motion for summary judgment, the case “can be decided right now as there are no facts in dispute.”

http://coloradostatesman.com/content/992347-springs-legislator-wants-more-changes-pension-plan

Springs legislator wants more changes for pension plan

12/10/2010
By Marianne Goodland
THE COLORADO STATESMAN

Dissatisfaction with the fixes for PERA and its structure is prompting Republicans at the state capitol to come up with more changes for the state pension plan for 2011.

Sen.-elect Kent Lambert, R-Colorado Springs, told The Colorado Statesman local governments are struggling to pay for the increased contributions required under SB 10- 001, and he intends to run legislation next year to address it.

Under SB 1, PERA employers have a statutory contribution, an amortized equalization disbursement (AED) contribution and a supplemental AED that technically comes out of the pockets of state employees, in the form of pay increases they no longer get. State PERA employers contribute 11.35 percent of total payroll, the school division contributes 13.85 percent, state trooper employers put in 14.05 percent, judicial employers contribute 14.86 percent and local governments kick in 13.7 percent.

It’s the latter contribution that is causing headaches for at least one local government. Colorado Springs Mayor Lionel Rivera told The Statesman that the City of Colorado Springs, the city-owned Memorial Hospital and the city’s utilities are responsible for 50 percent of the assets of PERA’s local govern-ment division, with about 8,000 employees. Rivera, who has been on the Colorado Springs City Council since 1997, said that during that time he has watched as the employer contribution grew from 10 percent to 13.7 percent.

Rivera said he would like employees to increase their contribution from the current level of 8 percent to 10.85 percent, and at the same time allow local governments to reduce their contribution to the same 10.85 percent. (For 2010-11, state and judicial employee contributions are 10.5 percent, to cover a portion of the state’s contribution as a budget-balancing measure.) The savings to Colorado Springs, Rivera said, would be about $1.8 million annual for the city, $3.5 million for the utilities and $5 million for the hospital.

While Rivera said his intention was that this be an option just for local governments, Lambert said this week he intends to ask that all PERA employers and divisions be given that 50/50 contribution option.

Lambert said the likely House sponsor on this bill would be Rep. Jim Kerr, R-Littleton, who has his own ideas on changes he’d like to see for PERA. Kerr told The Statesman his first bill of the 2011 session would try to change the composition of the PERA board of trustees.

The bill would be identical to one Kerr carried in the 2010 session, HB 10-1153, which sought to add more gubernatorial appointees who are not PERA recipients to the board, and decrease in equal numbers trustees who are elected by PERA members.

Kerr’s bill died in the House State, Veterans and Military Affairs Committee last February. It’s likely to get a very different reception the next time around — Kerr will be the committee’s chair in 2011. But Kerr said he doesn’t expect the ultimate results to be much different than they were in the 2010 session, because of Democratic control of the Senate.

PERA director being wooed by state of Texas

And in other PERA news: Meredith Williams, PERA’s executive director since 2000, has been named a finalist for a similar position with the Teacher Retirement System of Texas.

Williams is one of five finalists for the position. A decision on the next executive director for that system is not expected until next year, as the current executive director doesn’t plan to step down until July. Williams also is in the midst of contract negotiations regarding compensation; his current contract expires at the end of this year, but the PERA board of trustees decided last month to extend it to 2012 and possibly another year beyond that.

Williams is just the fifth person to lead PERA since its founding in 1931. Prior to coming to Colorado, Williams was the head of the Kansas public pension system.

In a Nov. 24 e-mail to PERA employees, Williams indicated he did not seek out the job opening. In September, Williams said, he was approached by a search firm that was developing a list of candidates for the Texas job. Williams was notified a month later that he had been named one of five finalists. However, Colorado PERA, its members and the board remain his “sole focus,” he wrote, and he looks forward to “memorializing our continuing relationship.”

The announcement comes at a time when PERA is close to setting a record for the number of employees retiring in a calendar year. Recent figures show the number of state and public employees initiating retirement proceedings may at least match the record, and with two months to go in 2010 may even surpass it.

The high water mark for retirements was set in 2004, with 5,171 PERA members choosing to retire. Through Oct. 31 of this year, 4,924 members have or are retiring this year.

PERA spokesperson Katie Kaufmanis told The Statesman that November and December tend to be slow months for retirements; most people elect to retire at the end of the fiscal year, or the end of the school year in June, she said.

Kaufmanis said PERA has no way to track why people are retiring in greater numbers, but for state employees, it may be due in part to three years without a raise and a change in the PERA cost of living adjustment beginning in 2011.

Currently, those who retire by Dec. 31, 2010 will be able to get the cost of living adjustment in July 2011. Those who retire Jan. 1 through June 30, 2011 will have to wait until July 2012 for that COLA adjustment, Kaufmanis explained. The change in COLA is a result of SB 10-001, which passed the General Assembly in March and is now the subject of a lawsuit from PERA retirees.

Kaufmanis said several other states are seeing lawsuits on similar issues, with plaintiffs represented by the same law firm, and that PERA’s general counsel, Greg Smith, expects one or more of the cases to go all the way to the U.S. Supreme Court.

It’s not clear which one will get there first, but the most likely candidates are lawsuits moving through the courts in Colorado and Minnesota.

The Minnesota case is Swanson et al., v Minnesota. That state has three public pension plans: one for local government employees, another for state employees and a third for public school teachers. The state employee plan has had a post-retirement adjustment since 1992 that takes into account inflation and investment returns. In 2009, the Minnesota legislature eliminated that formula and replaced it with a “guaranteed 2.5 percent increase.” According to the lawsuit, the inflation rate between 1992 and 2009 was on average 2.83 percent.

That guarantee lasted barely a year; on May 15 of this year, Gov. Tim Pawlenty signed into law a new pension reform plan, reducing the inflation adjustment to between 1 percent and 2 percent, depending on which plan the retiree is in, until the plans reach 90 percent of full funding. The plaintiffs filed the lawsuit two days later.

A hearing on the case was held Sept. 15 and at that time, the plaintiffs asked for more time for discovery. Attorney Stephen Pincus of Stember, Feinstein, Doyle, Payne & Cordes said cross-motions for summary judgment will be filed in January, and oral arguments are scheduled for March.

Pincus also is representing the Colorado plaintiffs in Justus et al. v State of Colorado and PERA. In September Denver District Court Judge Robert Hyatt ruled on some of the claims from the plaintiffs, and last week, the plaintiffs filed a motion for partial summary judgment related to claims that SB 1 violates the contract clause of the Colorado Constitution.

In the September ruling, Hyatt decided the lawsuit could proceed on many of the claims made by the plaintiffs, including whether SB 1 violated the contract clause of the Colorado Constitution, whether the law violated the plaintiffs’ due process rights, and whether SB 1 violated the takings and contract clauses of the U.S. Constitu- tion. At that time, all the parties agreed to dismiss parts of other claims that sought monetary damages from individual defendants. Hyatt has delayed ruling on the plaintiffs’ request for class action status until after discovery is completed.

Pincus told The Statesman that unless the judge decides to delay ruling on the motion for summary judgment, the case “can be decided right now as there are no facts in dispute.”

The most recent addition to the group of lawsuits dealing with cost of living adjustments for public pensions is Tice, et al., v South Dakota and was filed on June 15. That lawsuit also seeks class action status.

In South Dakota, prior to 2010, the annual cost of living increase for retirees in the state’s public pension plan was 3.1 percent. It was reduced through legislation to between 2.1 percent and 2.8 percent, and under the bill, signed by Gov. Mike Rounds in March, the COLA could go back to 3.1 percent only when the plan is fully funded.