GAME OVER: EVEN THE DEFENDANT COLORADO PERA DISAGREES WITH THE DENVER DISTRICT COURT DECISION IN JUSTUS v. STATE.
In December of 2009, Colorado PERA officials responded to questions relating to contractual public pension rights in Colorado that were posed by the Joint Budget Committee (JBC) of the Colorado General Assembly.
PERA’s responses to the JBC were provided in writing (see link below) and verbally (voice recorded at the General Assembly.)
“PUBLIC EMPLOYEES RETIREMENT ASSOCIATION (PERA)
FY 2010-11 JOINT BUDGET COMMITTEE HEARING AGENDA
December 17, 2009
3:30 pm – 5:00 pm”
Here’s a link to the written PERA responses:
http://www.kentlambert.com/Fil…
This JBC document (from which I have taken excerpts) provides official responses from Colorado PERA to the Joint Budget Committee regarding many questions that are central to the case Justus v. State.
In December of 2009, the Colorado PERA officials who provided these responses to the JBC had no idea that (18 months later) a lower Colorado court would initially uphold the provisions of SB 10-001 taking the contracted retiree COLA benefits . . . let alone the manner in which such a taking would be defended in the lower court’s Decision.
I believe that the Colorado PERA officials providing responses to the JBC assumed that if the COLA taking were to be eventually upheld in a Colorado court such a ruling would be based on the concept of “actuarial necessity” in conformance with the legal opinion that the Colorado PERA Board of Trustees had obtained to address these questions.
I believe that these Colorado PERA officials were surprised that the Denver District Court Decision argued that the PERA retiree COLA benefit was not a contractual obligation of Colorado PERA and PERA-affiliated employers, and that an “unchangeable” PERA retiree COLA benefit could not be considered a “reasonable expectation” of PERA retirees.
I believe that these PERA officials were surprised since the line of argument in the Denver District Court Decision conflicted with a long-standing (and correct) assumption on the part of the Colorado PERA Board of Trustees, and PERA attorneys, that PERA retiree COLA benefits were “automatic” COLA benefits protected under the Colorado and U.S. constitutional contract clauses.
I believe that the reasoning in the Denver District Court Decision is in conflict with the reasoning of the “legal opinion” that was sought by the Colorado PERA Board of Trustees . . . notably, the very legal opinion on which the attempted taking of the contracted PERA retiree COLA benefit was based in the Colorado PERA campaign.
I am surprised (and apologetic) that I haven’t discovered this JBC document earlier. (I’m not sure the document is still available on the website of the General Assembly’s JBC.) I believe that this document has tremendous consequence in the case Justus v. State.
I have excerpted the most significant JBC questions . . . and PERA’s responses to the JBC questions from the document and present these excerpts with comments below:
“3. Please describe the difference between partially vested and fully vested.
PERA Response:
Partially vested is the term used in Colorado case law and the Attorney General Formal Opinion #04-4 to describe a PERA participant who is not eligible to retire. Fully vested is used to describe a PERA participant who is currently receiving a benefit or is eligible to draw a benefit.”
(My comment: Here Colorado PERA officials rely on the Colorado AG Opinion #04-4 in establishing fully-vested PERA public pension rights. It is rather disingenuous for the Defendant PERA to cite and rely upon the Attorney General’s Opinion in their responses to the Joint Budget Committee in 2009, and then 15 months later write on page 16 of the PERA May 6, 2011 “Reply Brief” that “Plaintiffs’ continued heavy reliance on a 2004 Attorney General opinion that expresses general views regarding pension benefit rights does nothing to bolster Plaintiffs’ attempt to create a retirement benefit that has never existed-a COLA frozen at retirement.”)
“9. How does this decision get made for the COLA? Did PERA request the change to the
PERA COLA in the late 90s? Did they oppose it?
PERA Response:
Cost of Living Adjustments for beneficiaries of the PERA Trust Fund are governed by statute. House Bill 2000-1458 changed the COLA from an indexed COLA based upon the lower of the national Consumer Price Index-W or 3.5 percent to fixed 3.5 percent. PERA did not initiate this change, but ultimately the change was incorporated as a part of a more comprehensive bill which had significant additional modifications to the PERA benefit structure and the bill was supported by the PERA Board.
(My comment: As we will see shortly, Colorado PERA officials believe that PERA COLA benefits are “governed by statute” and that these Colorado statutes set forth a “contracted,” “automatic” PERA COLA benefit.)
“10. Why can the State increase the COLA, but not decrease it?
a. When was the last time the state increased the COLA, and why was it increased at
that time?
PERA Response:
“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. The General Assembly can raise the COLA because it would be
considered a benefit enhancement, which is not subject to restrictions.”
(My comments: According to Colorado PERA’s attorneys, the Colorado General Assembly cannot enact legislation decreasing the PERA COLA because the PERA COLA is a “accrued” public pension benefit, and such legislation would breach the pension contracts of PERA retirees who possess “fully-vested” public pension rights, that is, short of “actuarial necessity.”
The “legal opinion” that Colorado PERA obtained, upon which it based its efforts to take the contracted COLA benefit, is directly contravened by the Colorado Supreme Court’s Decision in McPhail:
“In McPhail, supra, we stated that ‘ . . . changes may be made in the pension system looking to strengthening or bettering it . . .’ as long as the vested rights of pensioners are not abridged or weakened.” Here the Colorado Supreme Court makes it clear that the vested rights of current PERA retirees may not be abridged in order to “strengthen or better” the pension system.
I find it rather disingenuous that Colorado PERA writes on page 23 of its May 6, 2011 “Reply Brief” that:
“There is nothing in the text of the PERA or DPS COLA provisions stating, or implying, that the COLA formula may not be amended for those already retired and must, instead, remain frozen for the lifetime of a retiree, plus that of his or her spouse” . . . and “Plaintiffs seek to create a contract right that has never existed-an unchangeable COLA for life triggered (inconsistently) by either the date of their retirement or ‘full vesting.'”
PERA has testified, and provided a written document, to the Colorado General Assembly’s Joint Budget Committee stating that “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,” and yet Colorado PERA is still able to write 15 months later: “Plaintiffs seek to create a contract right that has never existed.” That is simply unbelievable.
The Denver District Court Decision includes the following statements:
From Decision, page 4 – ” . . . the latest COLA changes do not impair the parties’ reasonable expectations.”
From Decision, page 8 – “Plaintiffs could not have had a reasonable expectation that the COLA formula that happened to be in place at the date of their retirement would be unchangeable for the rest of their lives.”
The Denver District Court Decision argues that PERA retirees cannot have a “reasonable expectation” that their contracted, fully-vested, accrued, “automatic” PERA COLA pension benefit will be “unchangeable” for the rest of their lives.
And yet, this expectation is the identical expectation that is held by Colorado PERA’s attorneys. PERA’s attorneys write: “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.” If Colorado PERA’s attorneys have an expectation that the contracted 3.5 percent PERA COLA cannot be taken short of “actuarial necessity,” then why should PERA retirees with fully-vested pension rights not also have this expectation?)
“12. Will the cost of living adjustment (COLA) change based on inflation or will it be based
on the actuarial soundness of the fund?
PERA Response:
Currently, there are three COLA structures in place for the three tiers of members and beneficiaries. For members and beneficiaries hired prior to July 1, 2005 the COLA is statutorily set at 3.5 percent compounded annually. For members and beneficiaries hired between July 1, 2005, and December 31, 2006, the COLA is statutorily set at the lower of CPI-W or 3.0 percent compounded annually. For members or beneficiaries hired on or after January 1, 2007, the COLA is the lower of the following three calculations:
– 3.0 percent compounded annually;
national CPIW; or
-the amount of funds necessary to actuarially exhaust 10 percent of the assets from the Annual Increase Reserve funds of a division.”
“14. Does PERA have a legal opinion as to whether their proposal meets the requirements as
stated in the 2004 Attorney General’s opinion (page 3)?
PERA Response:
PERA has a legal opinion that indicates their proposal is constitutional and thus consistent with our understanding of the 2004 Attorney General’s Formal Opinion.”
(My comment: This PERA “legal opinion” is contravened by long-established Colorado public pension case law.)
“18. Are there legal issues with changing any portions of the retirement plan for any employees?
PERA Response:
“Yes, there are significant legal issues in reducing benefits for current members and retirees of the plan. The Board’s recommendation addresses the legal context surrounding changes to benefits and contributions for current and retired members. In the Boards’ view, the actuarial projections under the current set of actuarial assumptions put the fund at significant risk of running out funds within the actuarial projection period of 30 years. Therefore, a state of actuarial necessity exists that allows the General Assembly to modify benefits to return the plan to actuarial soundness.”
(My comment: PERA argues that the PERA retiree COLA benefit cannot legally be diminished for PERA retirees with fully-vested public pension rights, short of “actuarial necessity,” and that such an “actuarial necessity” exists. And yet, Colorado PERA officials have communicated in the past that even a public pension actuarial funded ratio below 60% is not a “crisis,” a funding level well below the PERA actuarial funded ratio at the time of the taking of the contracted COLA benefit:
Colorado PERA Update – (Spring 2006 – page 4): “See that PERA’s (actuarial) funded status was lower (61.5 percent) 30 years ago than what it is now. You may recall that there was no perceived “crisis” in PERA’s funded status in 1975.”
Colorado PERA News Archive for 2004 (9-16-2004): “PERA’S funded level was below 60 percent in 1970, and there was not a perceived crisis in PERA’s financial health.”
Over the past months, I have reported the following statistics relating to the historical Colorado PERA actuarial funded ratio to place it 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.
• (For the entire decade of the 1970s the PERA AFR was lower than it was at the time of the taking of the contracted COLA, yet there was no campaign to breach retiree pension contracts.)
By Colorado PERA’s logic, one-half of the public pensions in the United States should currently be engaged in efforts to breach their public pension contractual obligations.
As we have seen recently, Fitch Ratings considers a 70 percent actuarial funded ratio “adequate” for public DB pension plans, and an 80 percent actuarial funded ratio to be “well-funded” for public DB plan. And yet, Colorado PERA seeks to breach public pension contracts until the PERA Trust Funds reach an actuarial funded ratio on 100%.
It must also be remembered that a mere 15 years ago, the Colorado “actuarial projection period” was set in Colorado law at 60 years . . . twice its current duration.
Remember the comments of Senator Penry, one of the prime sponsors of SB 10-001. From “Penry Republican Legislative Preview”:
“Senator Josh Penry, in a videotaped discussion with Representative Mike May, (videocenter.denverpost.com) said ‘we can’t, can’t miss this window.’ “You cannot change course and this year, when PERA’s investment numbers come out, their investment returns . . . numbers are going to be significant, like double, 15-16% investment return. So that could change the specter of actuarial necessity. We gotta’ do it this year or else these other structural changes won’t be possible.”) Here’s a link:
http://www.leg.state.co.us/Cli…
Senator Penry told us that under PERA’s new investment return numbers “actuarial necessity” could disappear. What instructions were given to Colorado PERA’s actuaries relating to SB 10-001 analyses?
Further, we know that many “less drastic” alternatives to the breach of fully-vested public pension contracts were available to the Colorado General Assembly.
The option of reducing the rate of accrual of the pension benefits of active PERA members who have “partially-vested” pension rights is clearly a “less drastic” means of achieving the stated goals of the sponsors of SB 10-001.
Expediting the increase of Colorado PERA employer contributions to PERA is an option. These PERA employer contribution rates should be raised to a level commensurate with public employer pension contribution rates in other states:
• 2.16 – percent of Colorado state and local government spending dedicated to public pension support in 2008 (Census Bureau/NASRA).
• 2.89 – average percent of state and local government spending dedicated to public pension support among the states in 2008.
• 5.55 – highest percent of state and local government spending dedicated to public pension support among the states in 2008 (Nevada).
• #32 – Colorado 2008 rank among the states in taxpayer support for public pensions.
Such a pension reform is another example of a “less drastic” alternative to the breach of fully-vested PERA pension retiree contracts.
The issuance of state pension certificates of participation to meet unfunded pension liabilities is a “less drastic” option. Rather than taking advantage of historically low interest rates to issue such PCOPs the Colorado General Assembly has focused its efforts on the breach of its public pension contractual obligations.
Recall that we read recently in a Congressional Research Service paper addressing public pension contractual obligations:
“. . . a State is not completely free to consider impairing the obligations of its own contracts on a par with other policy alternatives. Similarly, a State is not free to impose a drastic impairment when an evident and more moderate course would serve its purposes equally well.”
“As the Supreme Court has explained with respect to the impairment of public contracts, reasonableness must be considered “in light of the surrounding circumstances.” Necessity depends upon two considerations: first, whether the impairment was essential or whether a less ‘drastic modification’ was available, and also whether a state could have adopted an alternative means to bring about the desired end without impairing contract obligations.”
Link:
http://www.nasra.org/resources…
Nearly every state legislature in the country that is addressing public pension reform has found ‘less drastic’ means of reducing unfunded pension liabilities than attempting to take fully-vested public pension benefits. Public pensions in many of these states have actuarial funded ratios at or below that of Colorado PERA at the time of the SB 10-001 pension contract breach. If ‘less drastic’ means are available to all of these legislatures, surely ‘less drastic’ means are available to the Colorado General Assembly.
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You have got to learn to shorten your statements. I promise you that no one is reading your posts. You are wasting your time. If you can figure out how to make your message accessible, maybe someone will pay attention. Until then, you are just screaming in a room by yourself.
They are currently advertising for someone to monitor blogs and write their own. I suspect Moncrief’s screeds are the cause.
If I write, God help the poor schmuck who does have to read them. But I don’t care how long they are as long as they are in dairies which we don’t have to read, not in the threads.
no block quotes or formatting.
NEVER FORGET THE EXCLAMATION POINTS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!