February 18, 2013 02:47 PM UTC

Divorce Case Filed: Colorado PERA v. Reality.

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• by: PolDancer

Colorado PERA public pension officials live in a different world than their counterparts in public pension administration across the nation.  In Pennsylvania, state public pension administrators will NOT TAKE POSITIONS on their Governor’s proposed public pension reforms.  On February 9, 2013 a Pennsylvania newspaper, The Morning Call, published a very thorough article addressing proposed reforms to pensions in Pennsylvania.  According to the article:

“Officials at SERS and PSERS declined to comment on the governor's plans, stating they do not take positions on proposed legislation to the systems.”

In Colorado, our state pension administrators at Colorado PERA not only take positions on public pension reform, they go a bit further:

–  they hire a lobbying troop to implement their policy preferences;
–  they run political, lobbying, public relations and now legal campaigns to break the pension contracts of pension members;
–  they spend $400,000 annually on their lobbying efforts;
–  they take money from Colorado PERA retiree resources (trust funds) to finance litigation to retroactively seize contracted benefits from those same PERA retirees; and
–  as we have seen, they get angry when Colorado legislators do not march in lockstep with Colorado PERA dictates.

This active lobbying and advocacy on the part of Colorado PERA officials also calls to mind the words of Jeanne Chenault, spokeswoman for the $42 billion Virginia state retirement system.  “We do not take positions on bills,” she said. “We provide information on bills.”

Another distinguishing feature of Colorado PERA’s world is the fact that Colorado public sector unions support the breach of the labor contracts of their retired union “brothers and sisters,” while Pennsylvania public sector unions defend labor contracts.  Public sector unions in Pennsylvania are fighting proposed changes to the “partially-vested” public pension contracts of current employees.  In 2010, Colorado public sector unions supported the breach of “fully-vested” public pension contracts of Colorado PERA retirees.

I believe that this support of Colorado public sector unions for the breach of labor contracts was rather myopic.  If the Colorado Legislature succeeds in breaking Colorado PERA pension contracts once, this contract breach will without question be repeated.  There will, in effect, be no Colorado PERA pension contract.  The Colorado Legislature will use the resources of Colorado PERA at its pleasure in accordance with the formula: underfund PERA pension, create “crisis,” use “crisis” to justify PERA contract breach, repeat.  The Colorado PERA pension plan will revert to the legal status of public pensions a century ago . . . that of “gratuities.”

The comprehensive February 9 article in the Pennsylvania newspaper, The Morning Call, reports the support of unions (AFSCME and the Pennsylvania Education Association) for public pension rights in their state:

“David Fillman, executive director of Council 13 of the American Federation of State, County, and Municipal Employees, said his union is not challenging Corbett's plan to change contributions of future employees.  That's legal and was done in 2010, Fillman said.  But it will fight Corbett's attempt to change current employees' future benefits, he said, because it would violate the 1934 McGovern decision.  ‘For him to dabble in that area, I think is going against the Pennsylvania Constitution,’ Fillman said.”

“The Pennsylvania State Education Association, the state's largest teachers union, is also pointing to the McGovern ruling.  Like Fillman's union, the teachers union also is against changing benefits for current workers.  And it has expressed concern about moving new employees to a system like a 401(k), saying it could increase taxpayer costs in the long run.”

“‘The governor's pension plan is unconstitutional, unpopular and incomplete,’ PSEA spokesman David Broderic said. ‘The fact is, the system he has proposed would actually cost more to operate than the systems we have now.’”

“After Corbett's budget address, Senate Majority Leader Dominic Pileggi, R-Delaware, said the state should move to a 401(k) system because taxpayers demand it.  But he said the administration could face legal challenges by trying to change existing benefits and Corbett could have a very hard time finding enough votes in the House and Senate to make it happen.”

“‘Changes to current employees has serious constitutional questions,’ he said.”

Here are a few more excerpts from The Morning Call article and my comments:

“Under Corbett's plan, the state would not alter the benefits of current retirees or the benefits that current employees have already earned.”

(My comment: Governor Corbett is proposing changes to the rate of future accrual of pension benefits for current, active members of Pennsylvania public pensions.  The theory is that, since these pension benefits have not yet been earned, changing them does not impair the pension members’ contractual rights.  This is a legal theory advocated by Law Professor Amy Monahan of the University of Minnesota School of Law.  Her paper on public pension contractual rights has been referenced many times in my earlier articles.)

The Morning Call’s description of Governor Corbett’s plan:

“But in 2015, current employees would have their future retirement earnings adjusted downward by a change in the retirement formula.  Employees would have the option to offset that by increasing their own contribution.”

“The same year, all new hires would be given retirement packages like a 401(k) that would require them to contribute at least 6.25 percent of their salaries.”

“He wants to put new state and school employees into a separate retirement system that resembles a private sector 401(k), an idea that hasn't ruffled many feathers.  But some union leaders and lawmakers are calling his plan to reduce the future pension benefits of current workers unconstitutional.”

The Morning Call article addresses Pennsylvania public pension case law:

“In ruling against McGovern, the Pennsylvania Supreme Court said a pension benefit granted to workers could not be taken away as long as those workers abided by the terms of their employment.  The court based its decision on a strict interpretation of the state constitution's contract provision.”

“The decision set the precedent. It has been cited in legal opinions concerning pension-related lawsuits over the last 79 years.”

(My comment: Out west, we can’t be bothered with the niceties of constitutional law.  Although we have ample, on-point Colorado Supreme Court precedent establishing the contractual nature of public pension rights in Colorado, this precedent was ignored by the Colorado Legislature in 2010.  Colorado case law, AND a Colorado Attorney General’s opinion on the subject were disregarded by Colorado legislators in 2010 when they opted to attempt a Colorado PERA contract breach.  How did a majority of Colorado legislators arrive at the conclusion in 2010 that they were above the law?  This was no simple matter.  The assistance of 17 statehouse lobbyists was required to force the blinders onto the faces of these Colorado legislators.)

The Morning Call article notes that states cannot declare bankruptcy under federal law:

“No matter how far the pensions slide into the red, they can't bankrupt the state because unlike municipalities, states can't declare bankruptcy.”

(My comment: Recall that we looked at the Northern Mariana Islands Retirement Fund’s efforts in this direction [declaring bankruptcy] last year.  This public sector retirement plan confronted a brick wall in the form of a federal judge.  “According to a federal judge, the answer is no.”

Links:

http://pensiondialog.wordpress.com/2012/04/24/can-a-pension-plan-go-bankrupt/
http://pensiondialog.wordpress.com/2012/06/01/can-a-pension-plan-file-for-bankruptcy-part-2/)

From The Morning Call article:

“In 1983, SERS and PSERS were in worse financial shape than they are today as the percentages of their unfunded liabilities were higher, according to state records.”

“Instead of letting the surpluses build and act as a cushion against hard times, the Legislature has offset the gains by reducing the payments the state and school districts have had to make.”

(My comment: Colorado PERA’s funded ratio was as low as 58 percent in the 1970s and yet Colorado PERA’s administrators at the time did not advocate breaking public pension contracts in Colorado.  The fact that Colorado PERA’s funded ratio has been much lower in the past than the 69 percent funded level that was reached in 2010 demonstrates just how ridiculous Colorado PERA’s claim is that contracts must be broken at that level.

According to the U.S. Federal Reserve, public pension actuarial funded ratios in the 50 to 60 percent range were typical in the 1970s and yet pension contractual rights were, nevertheless, upheld by U.S. courts.

California’s huge teacher pension system, CalSTRS, reached a funded level as low as the “30s” during the decade of the 1970s, and yet contractual rights were upheld:

“After being about 30 percent funded during the 1970s, CalSTRS funding slowly improved with an increase in state funding in 1990 and then large investment fund earnings during a high-tech boom later that decade.  As funding peaked at about 110 percent around 2000, the ‘surplus’ was not regarded as a cushion to offset future investment earnings shortfalls.  As often happens with public pensions, the surplus was viewed as a windfall that should be spent.

Legislation began divvying up the windfall in 1998 when the surplus was still a projection.  A cut began in the state contribution, 4.3 percent of pay, that would reduce the rate by half, a drop in pension funding of 2 percent of pay similar to the teacher diversion.”

http://calpensions.com/2013/02/15/how-much-calstrs-debt-due-to-mismanagement/

Colorado Governor Bill Owens followed this same playbook in our state in 2001.)

I’ll conclude with a bit more evidence that Colorado PERA officials have lost touch with reality.  In December 2009, the official line at Colorado PERA was that Colorado PERA COLA benefits are contractual.”

Colorado PERA in a written document, to the Colorado General Assembly’s Joint Budget Committee on December 16, 2009 states that the PERA COLA benefit IS a contractual obligation of PERA, “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.”

Link:

http://www.kentlambert.com/Files/PERA_JBC_Hearing_Responses-12-16-2009_Final.pdf)

Sixteen months later, (after the contract breach) Colorado PERA officials were telling us that Colorado PERA COLA benefits ARE NOT contractual.  The organization Friends of PERA notes (on their website) that Adam Franklin, senior staff attorney at PERA informed them on April 5, 2011 that: “PERA believes that the COLA formula is not contractual.”

Link:

http://www.friendsofpera.com/0405meeting.pdf

So dear reader, decide: Are Colorado PERA officials simply fickle?  Or, is this borderline schizophrenia?

Complete article at The Morning Call:

http://articles.mcall.com/2013-02-09/news/mc-pa-corbett-pension-reform-sunday-20130209_1_pension-reform-sers-and-psers-pension-battle#.URvru78zD9s.facebook

P.S. While you ponder this question, don’t forget to support public pension contractual rights and the rule of law in the United States.  Contribute to saveperacola.com.  (Their website explains how to make a donation.)  Also, Save Pera Cola is on Facebook.  “Friend” them!