February 04, 2013 01:04 PM UTC

We Will Sue to Protect Public Pension Contracts: Pennsylvania Unions.

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• by: PolDancer

Unlike Colorado’s public sector unions, Pennsylvania’s AFSCME and the Pennsylvania State Education Association aggressively defend public pension contractual rights . . . indeed, they vow to protect these rights in court.

From delcotimes.com:

“Leaders of Pennsylvania's two largest public employee unions on Friday vowed a court fight if Gov. Tom Corbett and lawmakers approve reductions in future benefits for current state workers and school employees.”

“The officials from the Pennsylvania State Education Association and Council 13 of the American Federation of State, County and Municipal Employees said case law makes it clear that any benefit rollbacks for active employees would violate the state constitution.”

Link to full article at delcotimes.com:

http://www.delcotimes.com/articles/2013/02/01/news/doc510bf0137134a023100312.txt

From timesonline.com:

“The unions, however, are willing to work with Corbett to find sources of revenue to help the state with the cost, PSEA President Mike Crossey said at a news briefing in Harrisburg organized by the unions.  The PSEA's 187,000 members include about 120,000 teachers.”

Full article at timesonline.com:

http://www.timesonline.com/news/state/pa-union-leaders-vow-court-fight-if-pensions-cut/article_3849fd35-830b-5e71-9e99-db08ac742bf1.html

Pennsylvania’s Governor Corbett believes that fully-vested public pension benefits earned in the past by public sector retirees in the state are contractually protected against retroactive state seizure.  However, Corbett argues that the future rate of accrual of public pension benefits, not yet earned by public employees, may be legally altered by the state.

From PhillyBurbs.com:

“Corbett said in a recent press conference that he believes it is legally possible to limit the reduction to future benefits that employees have yet to accrue.  For example, he said the ‘multiplier’ — a percentage applied to an employee’s years of service and final average salary to produce his or her retirement benefit — could be reset at a lower rate for the latter part of the employee’s career.  ‘You can cut the multiplier for folks going forward even if they (are) vested … because they still have the benefit of that period that they had the multiplier,’ Corbett said. ‘Legally, can you do that? I believe you can.’”

Link to full article at phillyburbs.com:

http://www.phillyburbs.com/news/local/the_intelligencer_news/could-pennsylvania-pension-liability-hit-current-state-workers/article_c943dc72-424b-5e64-ba36-095c99decbd1.html

Governor Corbett’s public pension reform proposal has been advocated by Law Professor Amy Monahan at the University of Minnesota School of Law.  In her paper, Public Pension Reform: The Legal Framework, Monahan writes:

“What if, ten years into X’s tenure with the state, the state announces that effective immediately, pension benefits will only accrue at the rate of 1% of salary per year?  I have argued that such prospective changes should be permitted absent an explicit agreement protecting against such changes.”

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

(As I have noted earlier, Monahan’s arguments in this paper have been challenged by other public pension legal scholars.)

It’s 2013, and Pennsylvania’s public sector unions are threatening lawsuits over public pension reform proposals in Pennsylvania.  In 2010, Colorado’s public sector unions supported the breach of public pension contracts in Colorado.  I am amazed at the divergence of opinion that exists among public sector unions in the United States on this question of public pension contractual rights.  In some states, public sector unions aggressively defend contractual public pension rights.  In other states, like Colorado, public sector unions support the outright breach of fully-vested public worker pension contracts.  Since, presumably, these organizations share nearly identical public policy goals I find the disparity of opinion in the area of public pension contractual rights inexplicable.

Colorado’s public pension administration arm, Colorado PERA, tells us of the support of Colorado’s public sector unions for the Colorado General Assembly’s bill breaking public pension contracts in 2010, SB10-001:

“In Colorado, Senate Bill 1 passed with the support of the Colorado Coalition for Retirement Security, which brought together Friends of PERA (which includes PERA members and retirees), the Colorado Education Association, the Colorado School and Public Employees Retirement Association, AFSCME Colorado, the American Federation of Teachers Colorado, the Association of Colorado State Patrol Professionals, the Colorado Association of School Executives, and Colorado WINS.”

http://www.copera.org/pera/about/ask.htm

I believe that Colorado’s public sector unions took a rather myopic view when they decided to support the breach of the pension contracts of their retired brothers and sisters in 2010.  I wonder, did Colorado’s public sector union officials really think through the ramifications of their support for this Colorado PERA public pension contract breach?  In the future, when the Colorado General Assembly inevitably attempts further breaches of Colorado PERA pension contracts, what credibility will our public sector union officials have as they attempt to defend public pension rights?  At that time, it will correctly be pointed out that, in 2010, Colorado’s public sector unions went on record in support of SB10-001’s taking of Colorado PERA pension benefits.  What force of argument will our public sector unions be able to bring to future debates of public pension contractual rights in Colorado?  How will our public sector unions defend the “partially-vested” Colorado PERA public pension rights of their members in the future, when they have already supported the breach of “fully-vested” PERA pension contractual rights in 2010?

If Colorado politicians succeed in breaking Colorado PERA pension contracts via their 2010 “pension reform” bill, SB10-001, then going forward, the Colorado PERA pension plan will effectively be given the legal status of a “gratuity.”  Early in the last century, public pensions in the United States were recognized as having this “gratuity” status . . . they were considered to be “gifts of a benevolent sovereign.”  Since then, courts have recognized that participation in these pension plans is not optional for public sector employees.  Courts have recognized that public employees have entered into an exchange transaction, trading their labor in part for retirement benefits, and contributing to the pension plans out of their salaries.  U.S. courts have recognized that this exchange transaction establishes a contractual relationship between the public worker and their governmental employer.  Courts now see that public pension benefits are earned by public workers . . . they are simply deferred compensation for work conducted in the past.

If the Colorado PERA public pension contract breach attempted in SB10-001 is successful, what incentive will Colorado politicians have to adequately fund Colorado PERA public pension obligations in the future?  The answer is: “No incentive at all.”  Such an outcome would make it clear to Colorado politicians that the underfunding of Colorado PERA public pension contractual obligations is an obvious and legal means of funding their discretionary legislative priorities.  The “formula” will have been indelibly impressed on the legislative psyche: underfund public pensions to create a “crisis,” use money made available by underfunding for programs that attract votes, claim that the pension “crisis” necessitated the breach of pension contracts . . . ad infinitum.

In my opinion, Colorado’s public sector unions will have assisted politicians to legally establish that their union members have no contractual right to their earned retirement benefits.  Was this the outcome sought by Colorado public sector unions in 2010?  Did they take the time to carefully consider their support for the bill, SB10-001?

In 2010, did Colorado legislators not find it odd that the Colorado PERA Board of Trustees had so drastically altered its long-standing argument that earned, accrued, contracted PERA public pension benefits were beyond the reach of the General Assembly?  A former Colorado state treasurer, and member of the Colorado PERA Board of Trustees, questioned this abrupt “about-face.”

Former State Treasurer, and Colorado PERA Board Member Mark Hillman writes:

“More significantly, PERA abandoned its long-held legal argument that benefits once promised to its members can never be scaled back, no matter how unaffordable they become.  PERA proposes an immediate reduction of cost-of-living adjustments from the current 3.5 percent per year to no more than 2 percent.”

http://www.markhillman.com/2010/01/26/workers-cant-ignore-cost-of-pera-fix/

“PERA lawyers assert that benefits can be retroactively increased (as they have been), but that once increased, those benefits can never be reduced, even for someone who has worked just one day for a PERA employer.”

 “. . . PERA’s party line is that the responsibility to make up for any shortfall rests with taxpayers, represented by state and local governments who contribute to PERA’s pension funds on behalf of their employees.”

http://www.markhillman.com/2009/01/26/get-taxpayers-off-the-pera-go-round/

A chairman of the Colorado PERA Board has assured PERA members that their benefits are “guaranteed.”

Kim Natale, Chairman, Colorado PERA Board of Trustees, February 15, 2002; March 2002, Colorado PERA Member Update:

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

http://www.copera.org/pdf/Newsletters/MemberUpdate3-02.pdf

Even the Colorado Legislature’s own attorneys seem to recognize that retroactive changes to accrued Colorado PERA benefits are contractual violations.  They write that lawsuits from the taking of public pension benefits are likely:

“Existing PERA members may view any change in their benefits allowed by proposed section 24-51-211.5, Colorado Revised Statutes, as a violation of their contractual rights.  Have the proponents considered this issue and the likelihood that litigation may result from any changes to existing PERA members' benefits?”  (See Question #7 on this document.)

Link:

http://www.leg.state.co.us/lcs/0506initrefr.nsf/dac421ef79ad243487256def0067c1de/5ffa41a8d69d4076872571060055200a/$FILE/ATTG1YAQ/2005-2006%20%2381.pdf

The scale of the legal fiasco I ascribe to decisions of the Colorado General Assembly, PERA pension administrators, and union officials in 2010 is breathtaking.  Let’s ensure that such a colossal mistake is never again repeated.

Support public pension contractual rights and the rule of law in the United States.  Friend Save Pera Cola on Facebook!  Give what you can today to defend your PERA contract at saveperacola.com.  (Their website explains how to make a contribution.)