May 25, 2012 12:12 AM UTC

Musings on the Colorado PERA Answer Brief: Contracted COLA, by A. Moncrief

•  
• by: PolDancer

Like one of our favorite former Congressmen I occasionally find myself in a mood to muse.  So last night I took a look at the PERA Answer Brief that was just posted on the saveperacola website.  It offers limitless musing opportunities.

Straight away I have to point out that the central argument of the PERA Answer Brief has a fatal flaw.

The brief argues that “no contract was created by the PERA statute granting retirees the right to a particular COLA formula for life without change.”

Here’s the flaw.  Even the prime sponsor of the bill that PERA is trying to defend, Senator Penry, disagrees with them.

As we recently discovered, Prime SB 10-001 Sponsor Senator Penry’s stated position on this question is as follows:

“what the courts have said with the case law and opinions have said is that you can’t (take the 3.5 percent guaranteed COLA), it is a contract unless there is actuarial necessity . . .”

The PERA Defendants Answer Brief stresses the importance of legislative intent.  Well, the intent of the sponsor of the bill is that PERA retirees have a contractual right to the 3.5% COLA and that “actuarial necessity” is needed to take it.  PERA should have “got the story straight” with all of the key players at beginning of their effort to take the contracted COLA.

Penry says “it is a contract.”  Now that’s my kind of legislative intent!

Senate Bill 10-001 included a provision requiring PERA to provide written notice to its members, that in the event of an actuarial emergency, the General Assembly may alter member benefits provided by the plan.  Why did the Legislature feel compelled to put this provision in the law?  It appears that they agree with the bill sponsor that they are limited in altering pension benefits short of an actuarial emergency.

Essentially, the PERA Answer Brief is attempting to establish a legal distinction between statutory pension COLA provisions and statutory pension base benefit provisions. This attempt is a contrivance designed to permit defined benefit plan sponsors to escape their debts.  There is no reason to believe that the COLA provisions somehow enjoy a lesser legal status than the other PERA provisions.  Improvements that have been made to the COLA over time are not a breach of contract, no vested pension rights were trampled.  The pension contract is breached when an automatic COLA benefit is diminished.  The fact that something has been given to a person in the past does not grant the entity offering the benefit the legal right to take something from that person in the future.

PERA is arguing that the pension COLA benefit is a gratuity.  This opinion flies in the face of the historic evolution of pension rights in the United States establishing statutory public pension provisions as contractual.

Recall that the Colorado Supreme Court, told us in Colorado Springs Firefighters v. Colorado Springs, 1989:  “Rights which accrue under a pension plan are contractual obligations . . . entitlement to annual pension payment increases is also statutorily determined. These statutory provisions have established a defined benefit contributory pension system in which most public employees are required to participate . . . . . By making these contributions, employees obtain a limited vesting of pension rights, which ripen into vested pension rights upon attainment of the respective eligibility requirements.”

It also seems that PERA’s General Counsel does not buy PERA’s central “no contracted COLA” argument:

Greg Smith, Colorado PERA General Counsel:  “The attorney general’s opinion seems clear that fully vested employees – those retired or with enough years of service to retire – cannot see any benefits reduced, including cost-of-living adjustments.”  (Link:

http://www.denverpost.com/news…

Why is PERA changing its tune now?  They have argued for years that the pension benefits are contractual and that the COLA is guaranteed.

Meredith Williams, Colorado PERA Executive Director: “The AG’s opinion states that when a PERA member retires and begins receiving pension benefits such member’s pension rights have fully vested and such pension benefits may not be reduced.”

Colorado PERA:  Retirees “will receive an automatic increase of 3.5 percent in their monthly retirement benefit to help keep up with the cost of living.”

Colorado PERA:  “If you began PERA membership on or before June 30, 2005, you will receive an annual increase of 3.5 percent.”

PERA told us in their 2004 PERA News Archives:

http://www.copera.org/pera/abo…

“The fact is that benefits guaranteed to PERA members are of a contractual nature, and that means that unless benefits are increased, contribution rates for members cannot be increased.”

“PERA’s legal research concluded that employee contribution rates could not be raised absent a showing of fiscal necessity.”

From PERA Legislative Update, February 2006:

http://www.copera.org/pdf/Legi…

“Employees hired before January 1, 2007 remain in PERA Pioneer (and will receive) automatic increase of 3.5% per year after retirement.”

“PERA members hired January 1, 2007 or later, called PERA Centennial, no guaranteed annual increase after retirement.”

So, Colorado PERA, retirees have a “guaranteed annual increase.”  Thanks for that.

From “Colorado PERA Fund Secure, Board of Trustees Seeks to Improve Funded Status.”

http://www.copera.org/pera/abo…

“PERA believes that state constitutional provisions that prohibit the reduction of benefits to existing retirees and restrict the changes which can be imposed on vested members of PERA further limit alternatives.”

“PERA Benefits being paid are guaranteed . . .”

“In any event, members and retirees with fully vested rights and entitlements provided by the PERA Statutes will not suffer any impairment of those rights and the Board of Trustees will continue to fight to protect the PERA membership.”

From:  http://www.copera.org/pdf/Misc…

“As a comprehensive retirement plan, PERA benefits are guaranteed for life.”

I’m beginning to suspect that PERA officials secretly believe that the COLA is contractual, and accordingly they do not believe the central argument of their Answer Brief.

I think we should continue to explore the strength of PERA’s stated conviction that the COLA is not contractual.

Here’s what I propose.  First, we obtain a copy of PERA’s “secret” legal opinion that they commissioned before the campaign to take the COLA began.  During the PERA political and lobbying campaigns PERA officials mentioned on numerous occasions that they were acting to take the COLA based on a confidential legal opinion.  Where is this “secret” legal opinion?  Why has it not been mentioned in any of the defendant’s briefs?  It was the basis for taking the COLA, it must have relevance.  What mortals have actually read it?  Why is a public agency able to order legal opinions and keep them secret for years?

I propose that we make public policy in Colorado in an open process, perhaps public pension policy options might be considered by an interim study committee of the Legislature . . . the public could be invited to attend.

Also helpful in discovering if PERA believes its central argument that the COLA is not contractual would be its 2004 legal research regarding “fiscal necessity” that is mentioned in PERA’s 2004 news archives.

Further, I think that PERA’s General Counsel, Greg Smith, should provide any writings or legal opinions he has authored throughout his career that are germane to this question of the contractual nature of pension benefits.  I seem to recall reading that he has done some writing on this topic in the last decade.

Any formal or informal opinions that were given to PERA officials or legislators by the Colorado Office of Legislative Legal Services that are germane to the question of contractual pension rights should be acquired.

Can you now see why summary judgment in this case was a mistake?  There is truly a boatload of pertinent information and documents that are relevant to the case that have not seen the light of day.

While we’re at it, let’s listen to these tapes of PERA board meetings:

(The PERA Board extensively discussed financial remedies including changing COLAs for new hires at this meeting:

http://www.copera.org/pdf/Boar…

(The PERA Board discussed an Oregon Retirement System case with contract law implications which staff is “looking at as a possible case model” at this meeting:

http://www.copera.org/pdf/Boar…

Finally, it appears that Judge Hyatt has previously ruled that the statutory PERA COLA provisions are a contractual obligation of PERA plan sponsors?  Let’s explore this further.

A comment from “Alan B” was posted in the on-line version of the Denver Post regarding his divorce case.  If Alan’s post is authentic and accurate it makes one wonder whether or not Judge Hyatt believes the COLA (aka, annual benefit increase) is contractually protected.  In any event it’s worth checking out.  Here’s what Alan wrote:

“What truly confounds me in this case is that Judge Hyatt ruled the opposite in my divorce case. Which only shows what I have read before that it takes the courts 5 to 10 years to figure something out. He ruled that my wife was entitled to her share of PERA discounted at the legal rate assuming that PERA would pay my pension compounded at 3.5 percent for the rest of my life. Her lawyers argued that her social security could not be guaranteed yet the PERA could be. Judge Hyatt ruled for her and in this case he ruled the opposite of what he had ruled in the current case. Is the 3.5 percent annual adjustment guaranteed or not, Hyatt has spoken on the record, yes and no.”

More musings to come.