April 27, 2013 04:31 PM UTC

2013 Moritz College of Law Public Pension Roundtable: Taking Accrued Retiree Benefits has Greatest Legal Risk.

• 2 Comments
• by: PolDancer

PROFESSOR AMY MONAHAN: THE U.S. SUPREME COURT TELLS US THAT PUBLIC PENSION PLAN REFORMS MUST BE THE "LEAST DRASTIC" ALTERNATIVE TO MEET CONSTITUTIONAL MUSTER.

TAKING PUBLIC PENSION RETIREE BENEFITS CARRIES THE GREATEST LEGAL RISK OF ALL PUBLIC PENSION REFORMS.

MOST PUBLIC PENSION ADMINISTRATORS THINK OF PUBLIC PENSION COLAS AS AN ACCRUED PUBLIC PENSION BENEFIT.

On February 22, 2013, the Ohio State University Moritz College of Law hosted a "Roundtable on Public Pension Reform."

The first panel of the Roundtable was entitled: "Recent Pension Reform Efforts."  Panelists were; Professor Amy Monahan of the University of Minnesota School of Law, Karen Carraher of the Ohio Public Employees Retirement System (OPERS), and Luke Martel of the National Conference on State Legislatures.

http://moritzlaw.osu.edu/programs/capital-markets/roundtable-on-public-pension-reform-video-archive/

(My comment: For Professor Monahan's paper, "Public Pension Reform: The Legal Framework," visit the link below.  In her paper, Monahan concludes:

“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.”

Link to Monahan law article:

http://www.law.umn.edu/facultyprofiles/monahana.html)

Video of the Moritz College of Law Roundtable is available on the Moritz Law website in two parts.  (Note that Professor Monahan's presentation consumes the last five minutes of Part 1, and concludes in Part 2.)

Below, I provide quotations from the panel presentation of interest to Colorado PERA retirees:

Karen Carraher, OPERS (19 minutes into Part 1): "The minute any individual in our system retires, we actually transfer dollars equal to their lifetime payoff at that point into a fund.  So, they are 100 percent funded, every person who has retired.  Who we're working on funding are the folks who are still working."

(Note that combined employee and employer pension contributions in the OPERS pension system currently total 24 percent of salary.)

Professor Amy Monahan:

"I'm not aware of any case, where a court has said that once a participant has retired, and completed all of the necessary ingredients to receive a pension that that pension is not contractual."

"Even in some liberal states, once you've retired, you have a vested, contractual right to the benefit."

Amy Monahan on the relative legal risk of legislative enactment of various reforms to public pension systems:

"I think it's fair to generalize that there is a sort of risk hierarchy here."

"So, I'm going to start with the most risky and go down to the least."

Pension Changes Impacting:

Public Pension Retiree Accrued Benefits

" . . . benefits being paid to retirees are the riskiest thing to touch." "The idea is that they have completed their side of the bargain, and so any changes to those individuals usually get the highest level of scrutiny."

Active Pension Member Accrued Benefits

"Next, is touching accrued benefits for people who haven't retired.  So, they're still working, but you're reducing what they've already earned to date.  That's also pretty risky.  Basically, the analogy here is to salary.  You can't retroactively reduce someone's salary.  The court's going to easily imply a contract here, for the same reasons reducing accrued benefits are risky."

Future Benefit Accruals

"Future benefit accruals in most states, should be less risky."

(My comment: Note that the Colorado General Assembly adopted prospective changes to future benefit accruals of certain Colorado county government pension systems in 2012 [SB12-149]. The Colorado Legislature adopted these prospective pension reforms, honoring the accrued pension benefits of thousands of Colorado county government retirees two years after having retroactively seized accrued contracted public pension benefits of Colorado PERA retirees.  In 2010, most members of the Colorado Legislature were unaware of Monahan's "hierarchy of legal risk" of various public pension reform options.  This lack of knowledge is attributable to the fact that, in 2009 and 2010, the Colorado Legislature permitted self-interested outside parties to develop public pension policy for the State of Colorado [through lobbyists].)

New Hires

"New hires are easy."

Professor Monahan on public pension COLAs:

"I think that most people in the pension world, when they think of COLAs, think of it as part of the participant's accrued benefit."

("Automatic" public pension COLAs, like the Colorado PERA COLA are fixed, contracted pension benefits.  "Ad hoc" public pension COLAs can be adjusted by the pension plan sponsor as needed.)

Professor Monahan on the "Reasonable and Necessary" standard to break public pension contracts:

"That sounds like an easy test."  "It's not."  "The U.S. Supreme Court tells us that it has to be the least drastic way of achieving the policy goal."

(My comment: In February 2011, Colorado PERA's General Counsel wrote in the periodical "Government Finance Review," that, in order for a PERA pension reform to be found "reasonable," changes to the Colorado PERA pension must be "the minimum changes necessary."  [The next year, June 26, 2012, Colorado PERA’s independent actuary, Cavanaugh MacDonald Consulting, LLC, wrote in the 2011 Colorado PERA CAFR: that the 100 percent funding threshold put into Colorado law by SB10-001 is much stronger than is necessary [i.e., not the minimum change necessary] to meet public pension regulatory (GASB) standards.  Alteration of the statutory Colorado PERA pension contract in 2010 [SB10-001] through incorporation of this 100 percent PERA pension funding threshold placed unnecessary financial pressure on the PERA pension's trust funds, helping to create the Legislature's desired rationale for breaking pension contracts, and does not represent the "least drastic" reform option available to the Colorado General Assembly.

http://www.leg.state.co.us/OSA/coauditor1.nsf/All/641A0AB5B97D073C87257A3A0072FEA3/$FILE/2067-12%20CAFR_6-26-12.pdf.)

Professor Amy Monahan:

"Colorado is a closely watched case that's been going on for awhile now.  Colorado reduced COLAs.  Most recent ruling there is the Appellate Court which just ruled that there is a contractual right to COLAs."

Colorado PERA active and retired members.  It is clear that the Colorado General Assembly willfully  ignored on-point Colorado public pension contract case law when adopting SB10-001 in 2010.  Support public pension contractual rights and the rule of law in Colorado.

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