April 30, 2013 12:32 PM UTC

Colorado Legislature . . . Pay Your Debts!

• 3 Comments
• by: PolDancer

THE COLORADO PERA COLA IS SIMPLY A METHOD OF DELIVERING A DEFINED PERA PENSION BENEFIT.

USE OF THIS METHOD DOES NOT JUSTIFY BREACH OF PENSION CONTRACTS.

Three years ago, a majority of Colorado legislators decided to attempt to break state contracts to cut the debt of Colorado state and local governments.  In 2010, Colorado legislators passed a bill, SB10-001, that attempts to discard the obligation of Colorado governments and the state's pension system, Colorado PERA, to pay cost-of-living (COLA) increases due retirees under their state pension contracts.  Retirees in the Colorado PERA pension system, unwilling to allow the State of Colorado to take one-third of their contracted PERA pension benefits, immediately filed a lawsuit (Justus v. State.)  Last year, the Colorado Court of Appeals agreed with the retirees that Colorado state and local governments have a contractual obligation to pay the annual cost-of-living adjustments due under the retiree's contracts.  The Court of Appeals also decided that (since the matter has not yet been heard by a jury) the retiree's lawsuit should be sent back to the trial court (Denver District Court.)  The trial court was ordered to determine if the Colorado General Assembly's breach of Colorado PERA contracts in 2010 was "reasonable," or "necessary."  Immediately after the Court of Appeal's ruling last year, both the PERA retirees and the State of Colorado appealed the Court of Appeal's decision to the Colorado Supreme Court.  Both the plaintiffs and the defendants in the case are currently waiting to see if the Colorado Supreme Court will take the case, or send it back to the Denver District Court to make a determination as to "reasonableness" and "necessity."

http://saveperacola.com/

In 2010, a majority of Colorado legislators decided to attempt to break Colorado PERA pension contracts to free up money for "discretionary" state and local public programs.  Although the constituents of these state legislators want public services (good roads, education, police and fire protection) they do not want to pay for these services.  Incredibly, many of the constituents of Colorado legislators do not want to pay for public services that they have already consumed.  Therefore, they encouraged Colorado legislators to break Colorado PERA pension contracts.

For some reason, in 2010, a majority of Colorado state legislators arrived at the conclusion that Colorado's public pension contracts are inferior to the state's corporate contracts.  If there is a threat to the financial well-being of the State of Colorado (i.e., the state with an extra billion dollars to spend next year) all Colorado contracts should be on the table, not just one set of contracts.

Like salary, Colorado PERA pension COLA benefits are compensation for work performed; specifically "deferred compensation," presently earned.  When a Colorado PERA member has completed the job, and finished earning her salary, her employer cannot retroactively take that salary from her.  Her right to receive her earned salary is plainly a contractual obligation of her employer.  The pension benefits that this PERA member earns each day are, similarly, a contractual obligation of her employer.

For each day that a Colorado PERA member works she is entitled to know precisely what she is earning that day.  She deserves to know both the salary and the pension benefit that she earned in exchange for her day of labor.  When her day of work is complete, her employer cannot retroactively change the agreement.  Her compensation for the day of work is defined, just as her deferred pension compensation is defined in Colorado law.  As we have seen, deferred compensation due Colorado PERA members must stand "immutable for work already performed."

A public pension COLA is simply a method by which a defined pension benefit is provided.  There is nothing inherent in this "method" (provision of a pension COLA) that negates its essence as a contractual obligation of Colorado PERA-affiliated employers.

The Colorado Legislature has placed into Colorado law an agreement to provide an "automatic," fixed, pension COLA "escalator" to PERA members upon retirement.  When the Colorado Legislature created the Colorado PERA contract in statute, the Legislature could just as well have offered PERA members a higher total pension benefit and no COLA escalator.  Instead, Colorado legislators chose to deliver accrued Colorado PERA pension benefits by means of a pension COLA "escalator."

If I buy an annuity from a private insurance company, and I opt to have my purchased income stream delivered via a cost-of-living escalator, does the insurance company that sold the annuity to me have the right to eliminate that purchased COLA benefit after the fact?  Does the insurance company have the right to retroactively diminish the total value of my purchased, contracted income stream simply because I selected an escalator as a method of receiving the income stream?  Perhaps the insurance company wants to use the money made available by breaking the COLA contractual provision to make desired discretionary expenditures.  Perhaps the insurance company wants to construct a new headquarters building or increase the compensation of its executives.  What court would permit this private sector insurance company to ignore its contractual COLA obligations?  Why do we not see insurance companies in the United States attempting to escape their contractual COLA obligations?  We do not see this happening because attorneys working for these insurance companies recognize such arguments as ridiculous, self-serving contrivances.  Why should the State of Colorado be permitted to retroactively take a COLA benefit that has been paid for (through paycheck deductions and labor) by Colorado PERA members for decades?

Purchased annuity COLA benefits in the private sector:

"One way to address this problem is by purchasing a cost-of-living adjustment (COLA) option with the immediate annuity. The COLA option increases the dollar amount of future payments to keep up with inflation, with the goal of preserving the buying power of the immediate annuity payments."

http://www.myretirementpaycheck.org/savings-investments/immediate-annuities.aspx

The contractual obligation of an accrued pension benefit does not disappear simply because state legislators have agreed to use a particular method of delivering the benefit.  If the Colorado Legislature had, historically, placed into statute a Colorado PERA pension contract setting the initial Colorado PERA pension benefit at a maximum 20 percent of highest average salary (HAS), with a 10 percent annual COLA escalator, could the Colorado Legislature retroactively take 90 percent of the total contracted benefit by simply striking the COLA provision from Colorado law?  The contractual obligation of Colorado PERA-affiliated employers to honor statutory COLA provisions does not disappear due to the fact that Colorado statutes mandate payment of a PERA member's accrued pension benefit by means of a COLA escalator.  This contrivance was embraced by the proponents of SB10-001in 2010 in the hope that Colorado PERA-affiliated employers could somehow escape their pension debt.

For fifty-two years, (since the Bills and McPhail cases) the Colorado Legislature has known that public pension COLA benefits are contractual obligations in our state.  They cannot claim ignorance of this fact, they are obligated to read case law and know the implications of legislation they enact.  For fifty-two consecutive legislative sessions, Colorado legislators have had opportunities to adopt any legal, prospective public pension reform they feel is appropriate.  They have had many decades of opportunity to reform the Colorado PERA pension without breaking PERA contracts.  While U.S. equity markets have endured extreme volatility over these decades (1987 and 2001) Colorado PERA contracts were honored.  As Colorado PERA officials have noted many times, pension administrators expect market volatility.  The State of Colorado cannot legitimately argue in court that the "unanticipated severity of an anticipated event" justifies the breach of Colorado PERA pension contracts.

Note that critics of public pensions focus on a single aspect of future state and local government expenditures (public pension obligations) when they argue that these governments are in "crisis." The critics argue that public pensions are in "crisis," because states and cities have not banked the three or four percent of future state revenues that will be needed to meet these pension obligations.  The critics call this a public pension "shortfall."  State and local governments have not banked sufficient funds to cover the other 95 percent of expected future expenditures and yet, somehow, this lack of accumulated resources is not a "crisis."  As we know, public pension obligations to current workers will come due over the next 70 years, like a mortgage, they are not due tomorrow.

What entity on high has decreed that a government's lack of current resources to immediately cover all of its accumulated pension obligations is a "crisis," while a government's failure to set aside resources sufficient to meet all other future expenditures is just standard operating procedure?  Is the State of Colorado in "crisis" because it has bonds outstanding?  Why are accumulated state financial obligations in the form of bonded debt not a "crisis," but accumulated state financial obligations in the form of public pension debt are a "crisis"?  Who decided that one of these state debt obligations has inferior legal status?

Colorado PERA active and retired members.  Help restore some degree of rationality to discussion of Colorado PERA public pensions.  Contribute at saveperacola.com, and "Friend" Save Pera Cola on Facebook!