5 thoughts on “Colorado Supreme Court Takes the Colorado PERA Retiree Pension COLA Lawsuit.”

1. Hey Algernon, great news indeed!

   One question … doesn't PERA see the DeWitt case as their proverbial ace card? I assume it will be argued vigorously by both sides.    

    

    

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   1. Hey hawkeye, I don't think that Dewitt is a "get out of your contractual obligations free card."

      From what I have read about Dewitt, it appears, rightly, to be a substantial barrier to parties, like the State of Colorado, and Colorado PERA, that seek to casually discard their contractual obligations.

      The Dewitt standard was discussed at length during legislative debate of SB12-149 (the 2012 bill enacted by the Colorado General Assembly placing PROSPECTIVE pension reform options into statute for Colorado county pension systems.)

      The attorneys for the county pension systems apparently decided to employ the Dewitt standard, not to justify RETROACTIVE alteration of public pension contracts (as is being attempted by the State of Colorado and Colorado PERA) but to justify PROSPECTIVE changes to public pension contracts, that is, alteration of the rate of accrual of pension benefits, going forward.  During this legislative hearing the attorneys for the county government pension systems note many times that they have no intent to try and claw back previously accrued pension benefits (the goal of SB10-001.)

      The county government pension system attorneys were concerned that their PROSPECTIVE pension reform proposal would not be constitutionally permissible under Bills/McPhail, therefore they rely on the Dewitt standard.

      Listening to the debate on SB12-149 (on the Legislature's website), I get the impression from the county government pension system attorneys that efforts to break fully-vested public pension contracts are a waste of time, therefore they did not bother going in that direction.

      Attorney Cindy Birley:

      “The case law says that if you take an action . . . that impairs a contract pursuant to that change in law that will be sustained and upheld under the Dewitt case, if it was a reasonable and foreseeable change.”

      “We’re asking for a change in the law that we can point to if we are sued to say it’s a reasonable and foreseeable change that we would have modified the plan to . . . reduce a benefit formula, for example, on a prospective basis.”

      Attorney Vicki Johnson:

      The DeWitt case says that . . . “if a Legislature passes a law that impairs a contract right, the law will be upheld if it is reasonable and appropriately serves a significant and legitimate public purpose when considered against the severity of the contractual (impairment).”

      (My comment: Reasonable?  In 1977, the U.S. Supreme Court [in U.S. Trust Co, 431 U.S.] clarified that state attempts to impair their own contracts, ESPECIALLY FINANCIAL OBLIGATIONS, were subject to greater scrutiny and very little deference because the STATE'S SELF-INTEREST IS AT STAKE. As the court bluntly stated:

      “A governmental entity can always find a use for extra money, especially when taxes do not have to be raised.  If a state could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contract Clause would provide no protection at all . . . Thus, a state cannot refuse to meet its legitimate financial obligations simply because it would prefer to spend the money to promote the public good rather than the private welfare of its creditors.")

      Senator Johnston:

      “But, PERA is going to have win an actuarial necessity case at 64 percent . . .”.

      (My comment: Colorado PERA’s “actuarial funded ratio” at the time of the PERA contract breach in perspective:

      – (54.5% to 105.2%) – 40-year range of the Colorado PERA actuarial funding ratio (AFR), (source, Colorado PERA.)

      – 78% – average PERA AFR over the 40-year period.

      – 68.9% – PERA AFR at time of the taking of the contracted 3.5 % COLA benefit.

      – 9.1% – difference between the PERA AFR at time of COLA taking and the 40-year average PERA AFR.

      – 11.1% – difference between PERA AFR at the time of the COLA taking and an 80% AFR level considered “well-funded” by Fitch Ratings.

      – 72% – average AFR at the end of 2009 for 57 state retirement systems reporting to Wilshire Associates.

      – 3.1% – difference between the Colorado PERA AFR and Wilshire Associates average AFR for 57 state retirement systems at time of PERA COLA taking.)

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2. "In 2010, the Colorado General Assembly abdicated its policy-making authority relating to the Colorado PERA pension system to 27 statehouse lobbyists who represented self-interested parties.  These lobbyists successfully persuaded a majority of Colorado legislators to attempt to shift the accumulated pension debts of the State of Colorado and many Colorado local governments onto the backs of elderly Colorado PERA retirees, whose PERA pension contracts are fully-vested."

   The Colorado General Assembly isn't abdicating its policy-making authority when it votes for a law simply because lots of lobbyists persuaded a majority of legislators to vote in favor of a proposal the lobbyists made to them.  This is the way the process is supposed to work.  People, personally, or indirectly through lobbyists come to legislators with ideas and if they can persuade enough legislators (and the Governor) to do something, then it becomes law.  Persuading legislators to do stuff is what lobbyists do, and this particular effort was, if anything, more respectable than most, because it involved a coalition trying to increase the amount of money in the budget for everything else, rather than for the benefit of one or another particular special interest.

   None of that means that the law is or is not a constitutional breach of the contracts clause of the U.S. Constitution and comparable state constitutional provision.  But, attacking lobbyists for trying to persuade legislators to do something by building a broad political coalition that didn't directly benefit the special interests they represent is unfair and unreasonable.  The question is not whether democracy failed.  It didn't.  The question is whether democracy was too successful, leading to a tyranny of the majority of non-PERA beneficiaries over the minority of PERA beneficiaries, which is exactly the sort of thing that state and federal constitutions exist to prevent democratically elected representatives from doing since it is so politically logical to do so.  This is a plausible possibility.

   On the merits, the question is pretty simple and the second and third issues presented accurate pose the question.  Basically, "was the COLA part of the contract PERA had with state employees or not?"  The answer is not, in my opinion an obvious one and calls for a highly fact specific resolution and I don't have the facts myself.  Nobody would claim that PERA had to keep paying obligations in U.S. dollars if the U.S. converted to the Euro.  If the COLA was based on the CPI and the Department of Commerce stopped generating CPI figures, it would similarly seem clear that PERA could find a reasonable substitute.  But, where the PERA Board and legislature's discretion to deal with stuff that comes up and has to be dealt with somehow ends and a promised provision of the deal with PERA begins is harder to say and quite technical.  This isn't a case where two people sat down and signed a contract once and that was the end of it.  

   The fact that the issues involved in defined benefit pension plans are often technical is one of the several reasons that private employers have almost entirely abandoned them except as an asset protection/tax dodge in tiny businesses and in cases where they are already in place and union insistance keeps them in place (until bankruptcy wipes them away).  According to a news report based on a PBGC report:

   "As of Jan. 23, [2013] the number of pension plans covered by the Pension Benefit Guaranty Corp.'s single-employer insurance program fell to an all-time low of 22,697.  That's a drop of nearly 3,000 plans from Sept. 30, 2011, which was the end of the PBGC's 2011 fiscal year.

   While the decline in the number of employer-sponsored defined benefit pension plans was especially sharp over that nearly 16-month period, employment-based plans have been withering away for decades.

   Except for a slight uptick from 2006 to 2007, the number of private-sector defined benefit plans has declined every year since 1995.

   At 22,697, the number of single-employer plans is about 50% of what it was as recently as 1997, when the PBGC insured just under 44,000 plans, and is about 20% compared to 1985 when the PBGC insured just over 112,000 single-employer plans.

   While there are exceptions to the requirement that private defined benefit pension plans be PBGC insured, the exceptions aren't meaningfully distorting the statistics.  It covers about 33 million employees and retireees, of whom about 887,000 current retirees and about 600,000 current employees in 4,500 failed pension plans receive benefits from its insurance coverage.  This sounds like a lot of people, but 33 million is a small share of the 100 million plus current employees and many tens of millions of retirees out there – the fact that the average covered plan has about 1500 covered employees and retirees also illustrates how exclusively a Big Business benefit this has become in the private sector. At least one in three people who have defined benefit pensions at all are in the public sector, maybe a bit more (although as Detroit's bankruptcy illustrates even government defined benefit pensions aren't entirely risk free).

   I'd also note that it appears that there were two recusals.  Justice Eid also recused herself, presumably based on her work on PERA issues while at the Solicitor-General's office or because she may be part of the affected class with a person self-interest in the outcome of the case.  Thus, one of the more conservative justices and one of the more liberal justices have both recused, leaving the remaining five justices (still a quorum) to resolve the issue.  The recusal of these two justices speaks well to the lack of corruption in Colorado's courts relative to the U.S. Supreme Court in which seemingly blantant grounds for recusal are ignored.

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   1. Hello ohwilleke:

      Here are my responses to your comments:

      Your comment:

      "The Colorado General Assembly isn't abdicating its policy-making authority when it votes for a law simply because lots of lobbyists persuaded a majority of legislators to vote in favor of a proposal the lobbyists made to them."

      (My response: I believe that the Colorado Legislature did indeed abdicate its authority to make policy regarding public pensions when it outsourced the entire process for development of pension reform proposals in 2009 to the PERA Board.  Most state legislatures that have adopted significant pension reform in recent years have conducted open hearings during which all pension reform options are debated, including PROSPECTIVE pension reform options.  As PERA officials have noted many times, it is the responsibility of the Legislature to create public pension policy.

      During Colorado PERA's 2009 Denver "Listening Tour" meeting, PERA officials were asked why the list of reform options that was distributed (almost) entirely excluded options that would require those who actually owe the pension debt, Colorado PERA-affiliated employers to meet their contractual obligations.  [Watch the You-tube video of the Listening Tour.]

      I also believe that the decision to attempt a taking of PERA COLA benefits from retirees was preconceived.  Note that in early 2009, the PERA Board was already shopping for a legal opinion that would provide a legal rationale to take PERA COLA benefits.

      Further, I believe that the PERA Board essentially "asked itself" to make PERA pension reform recommendations to the Legislature by having its lobbyists insert this request language into a bill at the conclusion of the 2009 legislative session.  This would make a preconceived outcome appear to be the product of extensive deliberation.)

      Your comment:

      "this particular effort was, if anything, more respectable than most, because it involved a coalition trying to increase the amount of money in the budget for everything else, rather than for the benefit of one or another particular special interest."

      (My response: There is nothing "respectable" about attempting to escape one's contractual obligations.  There is nothing respectable about attempting to use the force of government to take money from a small group of people to meet the obligations of all Colorado taxpayers.  There is nothing respectable about attempting to escape public sector contractual obligations in order to pay for discretionary public sector expenditures for "everything else."  Paying for "everything else" is the obligation of all Colorado taxpayers.  Note that the Colorado Legislature has, at the most recent session, completed paying off $700 million in local government legacy pension debt that IS NOT the contractual obligation of the State of Colorado.  It has paid off these local government debts while ignoring its own contractual PERA obligations.

      Also note that a successful breach of contracts on the part of Colorado public sector unions minimizes future pension contributions from active, dues-paying union members.  PERA retirees no longer contribute to union coffers, follow the money.  Honorable?  How often do we see unions attempting to break the contracts of their retired "brothers and sisters" in the history of the U.S. labor movement?)

      Your comment:

      "But, attacking lobbyists for trying to persuade legislators to do something by building a broad political coalition that didn't directly benefit the special interests they represent is unfair and unreasonable."

      (My response: By pointing out that 27 lobbyists were successful in enacting SB10-001 I am not attacking lobbyists.  If you read through my prior posts you will find that I acknowledge that lobbyists are hired by boards of directors to do a job.

      If anything, the lobbyists involved did their jobs quite effectively.  Persuading an elected official to vote for a bill that (they have been repeatedly informed) violates the Colorado Constitution is no simple task.  Particularly, when one recognizes that these legislators have taken an oath to uphold the Colorado Constitution.  I condemn the board of directors for agreeing to the attempt to break Colorado PERA pension contracts.  "Broad political coalitions" often trample on the rights of minorities and justify an immoral act with claims that the majority will benefit.)

      Your comment:

      "The question is not whether democracy failed.  It didn't.  The question is whether democracy was too successful, leading to a tyranny of the majority of non-PERA beneficiaries over the minority of PERA beneficiaries, which is exactly the sort of thing that state and federal constitutions exist to prevent democratically elected representatives from doing since it is so politically logical to do so.  This is a plausible possibility."

      (My response: Be open to the possibility that SB10-001 was developed through a flawed process.  Public policy should be developed in open legislative hearings, not in Colorado PERA Board Executive Session.

      Colorado legislators who have very little knowledge of public pension legal doctrine are easily manipulated by lobbyists representing boards of directors that seek to escape their accumulated PERA pension debts.  Why did Leadership not appoint an interim study committee to examine public pension contractual rights in 2009?  To explore the legal, prospective pension reform options that are being adopted across the United States?)

       

      Your comment:

      "Basically, 'was the COLA part of the contract PERA had with state employees or not?'

      (My response: Colorado PERA officials have testified before the Joint Budget Committee that the PERA COLA is a contractual obligation of Colorado PERA-affiliated employers.

      December 16, 2009

      Colorado PERA officials in written testimony to the Joint Budget Committee: “The General Assembly cannot decrease the COLA (absent actuarial necessity) because it is part of the contractual obligations that accrue under a pension plan protected under the Colorado Constitution Article II, Section 11 and the United States Constitution Article 1, Section 10 for vested contractual rights.”

      http://www.kentlambert.com/Files/PERA_JBC_Hearing_Responses-12-16-2009_Final.pdf

      The defendant testifies that the PERA COLA is their contractual obligation, and then argues in court that it is not their contractual obligation, does this not strike you as odd?  For every day that a PERA member works she is entitled to know her compensation for that day, salary and deferred PERA pension compensation.)

      Your comment:

      "although as Detroit's bankruptcy illustrates even government defined benefit pensions aren't entirely risk free."

      (My response: in Detroit, Orr is trying to take contracted public pension benefits in bankruptcy.  In Colorado, the Colorado Legislature is trying to take public pension benefits outside of bankruptcy.  A world of difference.  Municipalities are free to attempt to escape public pension obligations in bankruptcy.  This is not always successful, Vallejo bankruptcy, retiree pension benefits unscathed.)

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3. Colorado Supreme Court Judge Bender is retiring in January 2014.  And, Judges Marquez and Eid have reclused themselves from the SB10-001 suit.  I see a quorum issue ahead for SB10-001, especially if the governor, or other political interests, wants to delay the appointment of Bender's replacement.

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