2 thoughts on “Chief Justice (retired) New Hampshire Supreme Court: States Must Honor Public Pension Contracts.”

1. Hey Algernon, the following court summary really hits the nail squarely on the head:

   Colorado Court of Appeal's Decision in Justus v. State (October 11, 2012): “We consider McPhail and Bills dispositive (indisputably bringing to a conclusion a legal controversy) of whether plaintiffs here have a contractual right to a particular COLA.”

   To see it any other way is disingenuous to say the least.  I have recently read about how jury nullification has been tolerated to a certain extent under English common law since the 12th century, especially to counter despotic power and dysfuntional, outdated laws.  However for our courts to nullify or cast aside constitutionally protected contract law in an arbitrary fashion to erase public debt on the backs of a particular disfavored group (pensioners) is despicable and bad precedent.    

    

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   1. Colorado Court of Appeals 2012 Decision in Justus v. State . . . Synopsis:

      In 2012, the Colorado Court of Appeals wrote in their Decision in the case, Justus v. State: “the party claiming the contractual right must show that there is a clear indication that the legislature intended to bind itself contractually.”  The Court of Appeals cited this “higher burden” on plaintiffs, “meaning that a subsequent legislature is not free to significantly impair that obligation . . .”  The Decision states that “a contractual relationship exists if a statute gives a party a vested contract right.”

      In spite of the “high burden” cited by the Court of Appeals, the Court found that the pension COLA provisions in the PERA statutes create an enforceable contractual right, and accordingly future sessions of the Colorado General Assembly are bound by the pension contracts to which the State of Colorado is a party.

      (Of course, as we have seen in U.S. Trust, the United States Supreme Court has determined that state attempts to escape their own financial obligations shall receive heightened scrutiny and very little deference: "Any financial obligation could be regarded in theory as a relinquishment of the State's spending power, since money spent to repay debts is not available for other purposes.  Similarly, the taxing power may have to be exercised if debts are to be repaid.  Notwithstanding these effects, the Court has regularly held that the States are bound by their debt contracts."  Further, I note that it is the "cardinal principle" of the Colorado Supreme Court that any ambiguities in public pension statutes must be construed in favor of the rights of the pension member.)

      In 2012, the Colorado Court of Appeals also restored the plaintiff’s Takings Clause claim in the case, Justus v. State, and cited the case Lynch: “contract rights can constitute property interests protected by the Takings Clause.”

      The Colorado Court of Appeals noted that it considers the various terms by which post-retirement benefit increases have been historically described in PERA statutes (e.g. “increase in public employee’s benefits,” and “redetermination of benefits”) to in fact represent “COLAs.”  The Court of Appeals adds, later in its Decision: “We perceive no meaningful distinction between the escalation provision at issue in McPhail and Bills and a COLA provision: both increase plan members’ pension benefits after they have retired, pursuant to a specified formula.”

      COLA Benefits are Indeed “Pension.”

      The Colorado Court of Appeals cited (and reproduced a finding from) the case Hayden v. Hayden: “COLA increases are as much a part of the pension as the amounts initially established by the pension system on retirement,” i.e. the “base benefit.”  (August 8, 2012, Douglas Greenfield: “The theory behind that is that a pension that has a COLA is the equivalent of a fixed pension . . . that you could just have a higher fixed pension and no COLA . . . and is just a method by which you are providing the benefit.”  Greenfield participated in a panel discussion hosted by the National Conference of State Legislatures. The panel discussion was titled: “How Much Can States Change Existing Retirement Policy?”
      http://www.ncsl.org/issues-research/labor/how-much-can-states-change-existing-retirement.aspx)

      Colorado PERA Pension COLA Benefits are “Automatic” COLA benefits, as Opposed to “Ad hoc” COLA Benefits.

      In 1987, the Colorado General Assembly enacted a statute providing that PERA pension COLA increases are awarded by the General Assembly on an “ad hoc” basis.  In 1993, the General Assembly repealed this language in the Colorado PERA statutes, replacing the ad hoc COLA with an “automatic” PERA COLA benefit.  (Only a dozen or so states in the country retain public pension COLA benefits that are awarded on an “ad hoc” basis.)

      The adoption of an “automatic” PERA pension COLA benefit by the Colorado General Assembly is recognized in the Decision of the Colorado Court of Appeals.  The 1987 statutory provision (that was removed from Colorado law), stated that COLA benefit increases “shall be made only upon approval by the General Assembly.”  On page 28 of the Decision, the Court of Appeals notes that the repeal of the “ad hoc” language in the PERA statutes evinces the General Assembly’s intent to commit to providing the pension COLA benefits called for in PERA statutes.

      Colorado PERA COLA benefits are contractual and “automatic.”  Colorado PERA COLA benefits are benefits that have been earned by PERA retirees, in an identical fashion to the PERA “base benefit,” and they are to be paid by the pension plan Colorado PERA without the need for “approval” by any governmental entity.  The Colorado Court of Appeals defines the term “automatic” in its Decision as “not subject to the General Assembly’s approval each year.”

      Colorado Court of Appeals – The PERA COLA Formula Has Never Been Tied to the Funding Level of PERA.

      On page 29 of its Decision, the Colorado Court of Appeals observes that the Colorado PERA pension COLA benefit has never been tied to the level of PERA funding, i.e., the “actuarial” status of the plan.  (I recall that in the case Kettering, the Colorado Supreme Court held that public pension benefits are in NO MANNER CONTINGENT on public pension plan funding.  Greg Smith's public statement that the Colorado Legislature "has never reserved the right" to change Colorado PERA benefits retroactively comes to mind.)  The Court of Appeals also notes in its recent Decision that it is “bound by the decisions of the Colorado Supreme Court.”

      Court of Appeals Sees Through Colorado PERA’s “Unchangeable COLA” Deception.

      The Colorado Court of Appeals notes in its Decision that “plaintiffs contend that they have a reasonable expectation of an IRREDUCIBLE (not, as defendants assert, an UNCHANGEABLE) COLA benefit.  Colorado Court of Appeals: “Therefore, we direct the district court to consider whether there has been a substantial impairment with that in mind.”

      (Instead of acknowledging up front that the plaintiffs in the case Justus v. State were contesting the provisions of SB10-001 that REDUCED the PERA retiree COLA benefit, the defendants in the case [PERA and the State of Colorado] employed a “red herring,” claiming that the plaintiffs were arguing that the COLA benefit could not be legally “adjusted,” that it was UNCHANGEABLE.  Colorado PERA’s deception worked on the lower court, the District Court, but the Colorado Court of Appeals, in their Decision saw through this red herring.)

      The Colorado Court of Appeals also found that the defendants (Colorado PERA and the State of Colorado) erred in their reliance on recent court decisions relating to COLA benefits in Minnesota and South Dakota.  The Court of Appeals determined that these two cases have no relevance to the case Justus v. State (the cases are “distinguishable,” the court found that COLAs in these states are ad hoc.)

      The Colorado Court of Appeals Dispenses with the “Limited”/”Fully” Vested Pension Benefit Distinction, Raising Questions.

      The Colorado Supreme Court should sort out this situation.  In its Decision, the Colorado Court of Appeals addresses the individual contractual pension COLA rights of the various plaintiffs in the case Justus v. State.  The Court of Appeals rejected the notion that a pension plan member can have a contractual right to AN INCREASE in a COLA rate that went into effect AFTER the plan member became eligible to retire or retired, deeming such increases a “gratuity.”  (Colorado has an "anti-gratuity clause" in its Constitution.)

      The Colorado Court of Appeals Decision found no distinction between what we have referred to as (“limited” or “partially”) vested pension rights, and (“fully-vested”) pension rights.  From the Decision: “Thus, the distinction the court in Bills drew between vested and ‘limited’ vested rights is no longer viable.  Of course, PERA members do not have any “vested” pension rights prior reaching five years of service credit at which point they become eligible to receive a future PERA retirement benefit.  Further, the Court of Appeals noted that Colorado appellate decisions addressing the question of whether statutory language creates an enforceable contractual right regard the holdings of McPhail and Bills as authoritative “even with respect to the ‘limited vested’ rights of those who are ineligible to retire before an adverse change in a pension benefit.”

      This Court of Appeals determination seems to indicate that if COLA rights are violated for current retirees by SB 10-001, they are also violated for active PERA members.  If SB10-001’s COLA provisions are unconstitutional for current PERA retirees, are they unconstitutional for active PERA members?  This begs the question, if Colorado courts eventually strike down SB10-001’s COLA provisions . . . will the provisions of the bill be struck outright from Colorado law for all PERA members?  This outcome would send the Colorado General Assembly back to the point at which it should have started in 2008 . . . with an exploration of legal, prospective pension reforms.

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