April 09, 2013 01:07 PM UTC

Law Professor: "Pension Promises Must Stand Immutable for Work Already Performed."

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• by: PolDancer

LEGISLATURES SHOULD "RECOGNIZE EXPLICITLY THE PAST AND FUTURE SERVICE DISTINCTION."

"FOR EVERY DAY ONE WORKS, ONE IS ENTITLED TO KNOW WHAT ONE IS EARNING THAT DAY, INCLUDING WHAT PENSION BENEFIT ONE IS EARNING."

A few days ago, a "guest column" addressing contractual public pension rights was published in the periodical, Oregon Live.  The author of the "guest column" is Professor Henry Drummonds of the Lewis and Clark Law School.  Professor Drummonds is a public pension legal scholar who agrees with Professor Amy Monahan (University of Minnesota School of Law) that public pensions should be reformed prospectively, in conformance with state and federal constitutions.  The law professors argue that the rate of future accrual of public pension benefits should be modified as a means of bolstering public pension funded ratios.

http://www.oregonlive.com/opinion/index.ssf/2013/04/the_tragedy_of_the_oregon_publ.html

Professor Monahan's legal arguments:

“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

This legal argument, for prospective reform of public pensions, was also made in testimony to the Colorado Legislature's Senate and House Finance committees regarding SB12-149.  (The Colorado General Assembly has adopted prospective pension reform for some Colorado public pension systems, those administered by certain county governments, while it has also enacted retroactive pension reforms that seize accrued pension benefits from Colorado PERA members.)

Here are a few quotations from attorneys representing the Adams County Retirement Plan (Vickie Johnson and Cindy Birley of Davis, Graham and Stubbs) in testimony on SB12-149 before legislative committees in 2012:

“As I said, in Subsection 3, we make clear in the proposed legislation that vested benefits already accrued, including the vested benefits of retirees, are not going to be touched.”

“So, if a board was going to go and make changes, it would be to future benefit accruals, not stuff that has already been earned.”

“For example, if you’re going to be paid a 2.5 percent multiplier, we could say ‘you’ve earned it to this day,’ and here’s your benefits to this day, we may reduce your benefit multiplier going forward.”

“For future service . . . we would like to be able to lower that benefit formula, multiplier . . .”.

“These are fully-vested rights once the person is eligible to retire.”

“You’ve got fully-vested rights for everything that you’ve accrued, but your future accruals could be at a lower formula rate.”

“So, let’s just say that you’ve worked for 25 years.  And, you’ve earned your benefits at this multiplier.  Those would not be taken away.  If you elect to stay on for five more years, then that accrual may be reduced.”

“Under the current law . . . once you start working as an employee for a governmental pension plan and you contribute to your pension benefits it’s understood that you have obtained a contract right.”

“And, as long as you continue to work it’s understood under the law that your benefits cannot be changed."

If legal, prospective pension reform is appropriate for an administrative division of Colorado state government (county government), why is legal, prospective pension reform not appropriate for the State of Colorado itself?  Language from SB12-149:

“(3) ANY MODIFICATION PURSUANT TO SUBSECTION (2) OF THIS SECTION SHALL NOT ADVERSELY AFFECT VESTED BENEFITS ALREADY ACCRUED BY MEMBERS OF SUCH DEFINED BENEFIT PLAN OR SYSTEM, INCLUDING, BUT NOT LIMITED TO, THE PENSION BENEFITS OF RETIRED MEMBERS OR MEMBERS ELIGIBLE TO RETIRE AS OF THE EFFECTIVE DATE OF THE MODIFICATION, UNLESS OTHERWISE PERMITTED UNDER OR REQUIRED BY COLORADO OR FEDERAL LAW.”

Here are a few excerpts from Professor Drummond's guest column at Oregon Live:

"As explained below, pension promises must stand immutable for work already performed, but changeable prospectively for future work."

"First, as one relevant point of comparison, private sector pensions operate with just such a rule under the federal Employee Retirement Income Security Act (ERISA). Under ERISA, employers cannot renege on promises made regarding work already done, but can change the promises of what is earned for future work."

"Second, looking at public employees, pension promises are a form of deferred compensation and one aspect of TOTAL compensation, which includes salaries, fringe benefits, vacation and holiday pay, etc. Every other aspect of this total compensation package — most dramatically, salaries — CAN be changed prospectively, for future work."

"Instead it is much more reasonable to construe pension promises — like every other term of total compensation — as immutable for service already performed, but subject to democratic processes for work to be performed in the future. This would not only protect needed public services and younger public employees, but would also rest upon the reasonable expectation of the affected public employees; for every day one works one is entitled to know what one is earning that day, including what pension benefit one is earning."

"The (Oregon Supreme) Court struck down the portion of the 2003 law (in Strunk) that again attempted to eliminate the 8 percent guaranteed return as to both past and future work, and another portion of the 2003 law that reduced cost-of-living adjustments for already retired public employees."

"In sum, a firm basis exists in the holdings of the Oregon Supreme Court for the past service/future service presumption presented in this essay."

"It is time for both the Legislature and the Oregon Supreme Court to recognize explicitly the past and future service distinction."

"Henry Drummonds is a professor at Lewis and Clark Law School."

"More recently, Professor Drummonds served as an advisor to the Oregon Attorney General, to Oregon Governor John Kitzhaber, and Oregon Governor Ted Kulongoski on labor relations, tenure law, and pension matters."

"Academic Credentials: B.A. 1969 University of Oregon, J.D. cum laude 1972 Harvard Law School, Editor, Harvard Law Review, Member, Phi Beta Kappa."

http://law.lclark.edu/faculty/henry_drummonds/

Recently, the Oregon Legislature requested an opinion (from their in-house legislative attorneys, the Oregon Legislative Counsel) on a proposal to take back accrued public pension COLA benefits.  Here is the February 4, 2013 response of Oregon’s legislative attorneys:

“Based on recent Oregon Supreme Court precedent, we conclude that an attempt to limit the COLA in this way would be found to be a violation of the contract rights of the members.”

“The Oregon Supreme Court has found several times that the 1953 law establishing PERS created a contract between public employers and public employees.”

“The court stated several times in Strunk that there is a contract right to the COLA. For example, the court found that:

‘We note that the status of the law is particularly clear with regard to retired members, and there can be little question that the COLA is a fully accrued benefit for a member who has retired.’”

Here is a link to the complete February 4, 2013 opinion of the Oregon Legislative Counsel:

http://media.oregonlive.com/politics_impact/other/LC%20Opinion.pdf

Colorado legislators were not aware of such prospective, legal public pension reform options (as the Monahan proposal) in 2009/2010 because they allowed self-interested outside groups to run the PERA pension reform show.  In any event, legislators did not want to know the truth.  Instead of appointing a commission (or an interim committee) to examine all legal, prospective public pension reform options, the Colorado General Assembly abdicated its pension policy-making authority to the 27-member SB10-001 lobbying troop (we have identified earlier).  The Colorado General Assembly did not conduct due diligence prior to breaking Colorado PERA contracts.

During the 2009 "Listening Tour," Colorado PERA distributed a list of its own predetermined pension reform options that was quite short on prospective solutions.  The preference from the outset was to break PERA contracts.  One person present at the Denver meeting of the "Listening Tour" pointed out that, of the many pension reform ideas on the list, only 2 or 3 impacted those who actually owe the debt, PERA-affiliated employers.

Also, in 2009, the General Assembly ignored an on-point Colorado Attorney General Opinion precluding their proposed PERA contract breach.  Further, the General Assembly ignored advice to send an interrogatory to the Colorado Supreme Court to clarify the constitutionality of the developing SB10-001 proposal.  They did not want to hear the truth.

Colorado PERA claims that the General Assembly requested that the PERA Board make recommendations regarding pension reform in 2009, while I suspect that PERA lobbyists actually put this request into Colorado statutes at the end of 2009 in an attempt to add legitimacy to a preordained outcome.  (Perhaps I am wrong, but this suspicion could be easily confirmed by deposing the SB10-001 bill drafter, or by examining "member files" at the Colorado State Archives for the 2009 bill, which would identify the person who requested that the "PERA Board pension reform recommendation" amendment be drafted.  I suspect that the amendment request came from a PERA lobbyist, or was made by a legislator on behalf of a PERA lobbyist.)

In legal briefs, Colorado PERA goes so far as to emphasize this “legislative mandate” from the Colorado General Assembly.  In a Response Brief submitted to the Denver District Court PERA attorneys write:

“By LEGISLATIVE MANDATE the PERA Board extensively studied the underfunding and consulted with its members . . . before proposing a solution to the General Assembly.”

Link:

http://www.ednewscolorado.org/wp-content/uploads/2010/05/PERASuitResponse5-10-10.pdf

I ask: Did Colorado PERA plant this request language into SB 09-282 at the end of the 2009 legislative session in order to lend a patina of legitimacy to what was in fact a premeditated attempt to breach pension COLA contractual obligations?

Recall Senator Lundberg’s statement on the Senate floor during the SB 10-001 debate: “This bill is a deal that was cut before this body met.”

Was Colorado PERA’s ostensible, impartial examination of pension reform options in 2009 in reality an elaborate ruse constructed by PERA lobbyists to add legitimacy to a process with a predetermined conclusion?  To falsely portray a preordained conclusion to breach pension COLA contracts as the result of an extensive, deliberative process?

Colorado PERA active and retired members.  Continue the fight for public pension contractual rights and the rule of law in Colorado.  Contribute at saveperacola.com.  "Friend" Save Pera Cola on Facebook!