LEGAL SCHOLARS DECRY THE BREACH OF FULLY-VESTED PUBLIC PENSION CONTRACTS . . . CONSERVATIVE SCHOLAR SASHA VOLOKH ADDS HIS VOICE TO SCHOLARS DEFENDING ACCRUED PUBLIC PENSION BENEFITS. (Does Colorado State Treasurer Walker Stapleton disagree with the conservative legal scholar Volokh?)
In 2009 (when the scheme to pay off Colorado state and local government debts by forcibly taking money from older Coloradans was hatched) there seems to have been an assumption on the part of the Colorado PERA Board of Trustees that PERA pensioners were (1) too weak politically to defend their contracts at the Legislature, (2) too unorganized to defend their rights in court, and (3) too unsophisticated to even research and comprehend the on-point Colorado court precedent supporting their PERA contractual pension rights.
Well, in 2009, the Colorado PERA Board was wrong. Colorado public sector union officials complicit in the taking were wrong. And, those who conveniently reversed their long-standing recognition of contractual rights to the PERA COLA benefit, i.e., Colorado PERA Executive Director Meredith Williams and then General Counsel Greg Smith, were wrong.
The weak, unorganized, unsophisticated Colorado PERA retirees challenged the breach of their contracts in 2010. The case, Justus v. State, has arrived at the Colorado Supreme Court.
In recent years, Colorado PERA retirees involved in the public pension case, Justus v. State, have followed the work of Professor Amy Monahan of the University of Minnesota School of Law. Professor Monahan is the preeminent legal scholar in the United States on public pension contractual rights. "Amy Monahan is a professor and the Solly Robbins Distinguished Research Fellow at the University of Minnesota Law School."
Professor Monahan argues that previously accrued public pension benefits should be protected, but suggests that public pension plan sponsors should have the flexibility to alter the rate of FUTURE accrual of pension benefits:
March 17, 2010
Professor Amy Monahan in "Public Pension Plan Reform, the Legal Framework": "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.”
Professor Monahan addresses the Colorado PERA retiree lawsuit, Justus v. State in her paper, "Understanding the Legal Limits on Public Pension Reform":
"In Colorado, retirees challenged actions by the state legislature that reduced the COLA retirees were eligible to receive. The plaintiffs included individuals who had retired under Colorado’s public employee retirement system at a time when there was a guaranteed 3.5 percent COLA in place."
Professor Monahan notes that the Denver District Court's initial decision in the case, Justus v. State, was surprising in light of Colorado public pension case precedent:
"The (Denver District) court’s ruling is surprising both because the court appeared to break from earlier Colorado decisions that found pension benefits to be contractually protected prior to retirement and because the change 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."
Professor Monahan on the public pension legal doctrine, the "California Rule" (embraced by Colorado courts):
“The (Denver District) 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.”
Iowa Law Review article):
Recently, conservative legal scholar Alexander Volokh, added his voice to those questioning the "California Rule," but Volokh (like Professor Monahan) defends contractual rights to previously accrued public pension benefits.
Link to the Volokh paper:
Volokh's recent paper was published serially in the Washington Post:
"Courts in California, and in other states following California’s example, follow a particularly strict rule: they hold not only that public employees are entitled to the pension they’ve accrued by their work so far, but also that they’re entitled to keep earning a pension (as long they continue in their job) according to rules that are at least as generous. Thus, in states where the California rule applies (my comment, including Colorado,) one can’t constitutionally increase employee contribution rates or reduce (my comment "automatic" as opposed to "ad hoc") cost-of-living allowances."
Volokh in the Washington Post:
"I argue that protecting pensions accrued based on past work is reasonable; protecting the current rules into the future is far less so."
"California case law holds that 'a public employee’s pension constitutes an element of compensation and that the right to pension benefits vests upon the acceptance of employment even though the right to immediate payment of a full pension may not mature until certain conditions are satisfied.'”
"But with defined-benefit pensions, which are more common in the public sector, the financial risk is borne by the pension provider."
(My comment: Colorado PERA officials seem to have conveniently forgotten this fact. They are attempting to unconstitutionally shift market risk to pensioners.)
" . . . governments, free from the ERISA regulations that govern private employers, find it easier to promise generous pensions and then underfund them, leaving future generations to pick up the bill. Underfunded public employee pensions are thus a form of deficit spending."
(My comment: In 2010, uninformed members of the Colorado Legislature were not aware of the fact that Colorado PERA-affiliated governments had not paid the full PERA pension ARC [annual required contribution as calculated by PERA's actuaries] for a decade. Given that the plan to take PERA pensioner assets was developed outside of the open legislative process, most members of the Legislature could not be expected to comprehend that the failure to pay the ARC constitutes deficit spending in our state.)
" . . . borrowing money from future taxpayers by underfunding current pensions is less transparent than traditional borrowing."
VOLOKH: WE CAN SAFELY CONCLUDE THAT A CONTRACT EXISTS AND PROTECTS ACCRUED PENSION BENEFITS.
"We can safely conclude that a contract not only exists but also covers at least the services performed so far. The government owes the employee for whatever work has been completed. Overdue salaries are owed, as is accrued vacation time . . . and the pension one has accrued so far. This much should clearly be within the bounds of federal deference."
Link to the Volokh paper:
Excerpts from the Volokh paper:
"Courts in California, and in other states following California’s example, follow a particularly strict rule: they hold not only that public employees are entitled to the pension they’ve accrued by their work so far, but also that they’re entitled to keep earning a pension (as long they continue in their job) according to rules that are at least as generous."
". . . in 1977, in U.S. Trust Co. v. New York v. New Jersey, the Supreme Court reaffirmed that some limits remain on state abrogation of contracts, and that in fact the limits are stricter when
the state seeks to abrogate its own (public) contracts since then its own 'self-interest is at stake.'”
"Ultimately it’s a question of federal law; otherwise, states—whether their legislatures or their courts—could define contract rights out of existence, making the Contract Clause 'a dead letter.'”
Volokh on the public pension case, United Firefighters of Los Angeles . . .
"In the court’s view, the (my comment, in United Firefighters, prospective only) COLA cap had no relation to the goals of a pension system (it reduced retirees’ economic security rather than enhancing it); any unsustainability in the pension system came from the government’s history of underfunding rather than from the recent history of high inflation rates; and the city’s desire to 'enhance [its] ability to predict and plan for long-range . . . budgeting and financing' could also be fulfilled by, for instance, levying 'a separate ad valorem property tax specifically to meet the pension system funding requirements.' Thus, the city couldn’t show that its modifications were reasonable; nor could it show comparable new advantages, since the change to the pension system was merely disadvantageous on its face."
(My comment, if we allow a measure adopted by Colorado voters in 1992, TABOR, to justify the breach of contracts to which the State of Colorado is a party, we are granting Colorado voters the right to ignore both the Colorado and United States constitutions.)
"It makes good sense to defer to California’s doctrine that pension statutes form a contract—even without analyzing the language of the statute—because pensions are a form of deferred compensation."
"Thus, 'the circumstances' of the statutory enactment 'evince a legislative intent' to be bound."
Volohk argues that the "California Rule" is constitutional, but it is bad public policy. (He believes that states should be allowed to change the rate at which pension benefits will be earned in the future):
"If the legality of the California rule isn’t the problem, what remains is pure policy."
. . . “'deferred compensation in the form of pension rights has the status of a contractual obligation from the moment one accepts public employment.'"
Colorado PERA members and retirees, please take note that the Colorado PERA Board of Trustees, through their lobbyists, are asking much more from the Colorado Supreme Court than simply eliminating Colorado's historical embrace of the "California Rule."
Colorado PERA is asking that: (1) the California Rule be abandoned in Colorado public pension legal doctrine, (2) fully-vested contractual rights of current PERA retirees be discarded, and (3) certain specific accrued public pension benefits (COLAs) in our state be deemed gratuities, (of course, a finding that would itself conflict with the Colorado Constitution's prohibition against gratuities.)
In his paper, Volokh channels former Colorado Governor Bill Owens . . .
"The inability to adjust pensions for existing employees may also lead to a bias in favor of replacing existing employees with new ones or encouraging existing employees to leave . . ."
(My comment: Recall that this was Governor Bill Owens' plan 14 years ago when he initiated the PERA "service credit fire sale" to encourage the early retirement of older, "more expensive" PERA members and (as has been documented) shift labor costs from PERA-affiliated employers [Colorado state and local governments] to the Colorado PERA trust funds.)
"How much leeway to modify public pensions does a 'fiscal emergency' offer? Not much. As the Allen rule says, one can modify pension rights before retirement for the sake of flexibility in light of changed conditions, but the changes must be reasonable, which means both that they need to have a relation to pension theory and must compensate for disadvantages with comparable advantages. Clearly, merely reciting the need to shore up pensions is insufficient, and arguments in favor of COLA caps that 'the integrity of the pension system is strengthened when it can be determined with certainty what the obligations of the system are' are likewise insufficient."
To some conservatives (specifically, former United States Senator Hank Brown) the breach of Colorado state contracts is (in Hank Brown's words) "Colorado Courage." The legal analysis of the conservative Volokh truly sets former Colorado U.S. Senator Hank Brown's simple-minded arguments in bold relief.
"In United Firefighters, the Court of Appeal rejected the contention that the modifications were necessary to preserve the soundness of the system because it held that the fiscal crisis was caused by the government’s own conduct in inadequately funding the system: 'a public entity cannot justify the impairment of its contractual obligations on the basis of the existence of a fiscal crisis created by its own voluntary conduct.'"
"And even if the modifications are justified by sound pension theory, this doesn’t prevent the government from having to offer compensating advantages. So the ability to modify pensions seems to be of little help in resolving a fiscal crisis."
"Another possibility would be a state constitutional amendment abolishing the California rule and establishing that pension statutes only entitle the employee to that portion of the pension accrued so far."
Volokh on the Colorado Court of Appeal's 2012 support for contractual rights to accrued PERA COLA benefits, reversing the Denver District Court:
"The Colorado lower-court case, Justus v. State, No. 2010-CV-1589 (Colo. Dist. Ct. June 29, 2011), has now been reversed, 2012 WL 4829545 (Colo. App. Oct. 11, 2012), and cert. has been
granted by the Colorado Supreme Court, 2013 WL 4008216 (Colo. Aug. 5, 2013)."
Link to the Volokh article:
Alexander Volokh's paper was written for the Federalist Society. What is the Federalist Society?
"The Federalist Society for Law and Public Policy Studies, most frequently called simply the Federalist Society, is an organization of conservatives and libertarians seeking reform of the current American legal system."
"The Society asserts . . . that it is emphatically the province and duty of the judiciary to say what the law is, not what it should be."
"The Lawyers Division consists of over 30,000 legal professionals and others interested in current intellectual and practical developments in the law. It has active chapters in sixty cities, including Washington, D.C., New York, Boston, Chicago, Los Angeles, Milwaukee, San Francisco, Denver, Atlanta, Houston, Pittsburgh, Seattle, and Indianapolis."
The Federalist Society has a Denver Chapter. Our State Treasurer, Walker Stapleton, spoke to the Denver group of the Federalist Society in 2011:
Who is Alexander Volokh? "Alexander 'Sasha' Volokh is an Associate Professor at Emory Law School. An economist by training, he has written numerous articles on law and economics, privatization, antitrust, prisons, constitutional law, regulation, and legal history."
Colorado PERA retirees, continue to demonstrate strength, unity, and sophistication in defending your contractual rights!