July 10, 2013 06:44 PM UTC

How Do Unions Respond to the Breach of Public Pension Contracts? Oregon AFSCME: "We'll See You in Court." Colorado AFSCME: We'll Help You Break Our Former Member's Pension Contracts.

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• by: PolDancer

In 2010, Colorado AFSCME officials supported SB10-001, a bill that took accrued, "automatic" public pension COLA benefits from their retired union "brothers and sisters," breaking these retiree's pension contracts.  Note that retired union members pay no union dues, and the breach of retiree pension contracts can reduce the level of pension contributions needed from active union members.  Does this explain Colorado AFSCME's support for the breach of public pension contracts in SB10-001?  If so, is this an acceptable public policy position, supporting the breach of the contracts of former union members to minimize costs for current members?  From my perspective such a policy is patently immoral.

Colorado AFSCME's support for the bill that broke Colorado PERA retiree pension contracts in 2010 is recorded on the Colorado PERA website at the following link:

“In Colorado, Senate Bill 1 passed with the support of  . . . AFSCME Colorado . . .".

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

On October 11, 2012, the Colorado Court of Appeals confirmed the contractual, "automatic" nature of the PERA COLA benefit.  Colorado Court of Appeals 2012 decision in the case Justus v. State: “We consider McPhail and Bills dispositive (indisputably bringing to a conclusion a legal controversy) of whether plaintiffs here have a contractual right to a particular COLA.”

http://saveperacola.files.wordpress.com/2010/01/2012-10-11-judgment-reversed-and-case.pdf

So, how have Oregon AFSCME officials responded to a recent breach of the pension COLA contracts of their retired union brothers and sisters?  We see Oregon AFSCME filing a lawsuit to protect the accrued, contracted, pension COLA benefits of retired union members.

What do Colorado AFSCME and Oregon AFSCME have in common?  Does the parent organization for AFSCME lack uniform standards for supporting the contractual rights of their union members?  Is it acceptable to the AFSCME parent organization that one union local aggressively protects public pension COLA contracts, while another union local supports legislation taking contracted pension COLA benefits?

It should be noted that 90 percent of the cost-shift in the 2010 legislation, SB10-001, was directed at Colorado PERA retirees in the PERA pension system.  Colorado PERA officials were asked during their 2009 "Listening Tour" campaign (seeking to break PERA contracts) why the pension reform options under consideration placed such an enormous burden on the parties who DO NOT OWE the pension debt (retirees), rather than on the PERA employers who actually DO OWE the pension debt.

Oregon AFSCME:

'WE'LL SEE YOU IN COURT' — Our own inimitable Mary Botkin had the quote du jour June 27 in her testimony on SB 857 before the Senate Finance and Revenue Committee.  After Gov. John Kitzhaber and several business groups testified in favor of the measure that would take another chunk out of PERS members, Botkin, Council 75's longtime PERS lobbyist, led the opposition.  Her blunt assessment — "We'll see you in court" — was picked up by the Associated Press and appeared in newspapers and other media outlets across the state.

[Botkin's assessment was spot on, because the PERS Coalition's legal challenge to SB 822, the initial PERS 'reform' legislation passed early this session, was filed Monday (July 1)."

http://www.oregonafscme.com/?zone=/unionactive/view_page.cfm&page=E2Dlerts

From oregonafscme.com:

"AFSCME and the PERS Coalition have filed suit with the Oregon Supreme Court to overturn Senate Bill 822, the PERS reform legislation passed earlier this year by the 2013 Oregon Legislature."

"While the lawsuit was filed on behalf of 13 specific plaintiffs, any decision rendered by the court would impact all PERS members."

"SB 822 addressed two main issues that AFSCME is fighting.  The measure dropped retirees' annual cost-of-living adjustments, or COLAs, from a straight 2 percent across-the-board to a four-tier system that sees retirees receiving 2 percent for their first $20,000 of retirement income, $1.5 percent for the next $20,000, 1 percent for the following $20,000 and 0.25 percent on any PERS retirement income above $60,000.  SB 822 also removes a tax offset for retirees who live out-of-state."

"PERS Coalition lead attorney Greg Hartman says the underlying basis for the legal challenge is that the Legislature both impaired and breached retirees' contracts via SB 822, under both state and federal constitutional guarantees.  Simply put, you can say that the legislation is 'unconstitutional,' that it's an 'impairment of contract' or that it's a 'breach of contract' — all three terms are correct in this instance, said Hartman."

"The 120-page lawsuit document seeks 12 different 'claims for relief' ranging from both impairment and breach of contract under the Oregon and United States constitutions to 'unauthorized takings.'"

"Hartman says while the filing document may be complex, the underlying premise is simple.  'A promise is a promise,' says Hartman.  'In this case, it's a contract promise.  Members were told that if you accept this employment offer and fulfill your end of the bargain, this is what you'll get in return.  The employees did their part, and now the state is forcing PERS to renege on their part.  That's what this is all about."

"SB 822 contained a provision that directed any legal challenge immediately to the Oregon Supreme Court, thereby shortening the amount of time needed for a decision.  Even so, it will likely be 18 to 24 months before the high court issues its verdict."

http://www.oregonafscme.com/index.cfm?zone=%2Funionactive%2Fview_article.cfm&HomeID=295779

June 2011

National Institute on Retirement Security on “automatic” and “ad hoc” public pension COLAs: “One key design feature of a COLA is whether it is automatic or ad hoc in nature. An automatic COLA means the retiree’s benefit increases automatically every year by a certain percentage. An ad hoc COLA is granted at the discretion of the plan sponsor, usually when the fund is in a well-funded position and investment gains have exceeded expectation."

http://www.nirsonline.org/storage/nirs/documents/Lessons%20Learned/final_june_29_report_lessonsfromwellfundedpublicpensions1.pdf

August 8, 2012

Douglas Greenfield: “The theory behind that is that a pension that has a COLA is the equivalent of a fixed pension . . . that you could just have a higher fixed pension and no COLA . . . and is just a method by which you are providing the benefit.”  Greenfield participated in a panel discussion hosted by the National Conference of State Legislatures. The panel discussion was titled: “How Much Can States Change Existing Retirement Policy?”

http://www.ncsl.org/issues-research/labor/how-much-can-states-change-existing-retirement.aspx

AFSCME'S PARENT ORGANIZATION SUPPORTS CONTRACTUAL RIGHTS TO "AUTOMATIC," ACCRUED PUBLIC PENSION COLA BENEFITS . . . SO, WHY IS COLORADO AFSCME SUPPORTING THE BREACH OF PENSION COLA CONTRACTS?

Note that AFSCME's national, parent organization has a clear position on the contractual nature of "automatic" public pension COLAs.  On September 17, 2010, AFSCME sent a letter (Letter of Comment #103) to the Governmental Accounting Standards Board (GASB) addressing proposed changes to state and local public pension accounting and financial reporting.  The AFSCME "comment letter" is available here:

http://www.gasb.org/cs/ContentServer?site=GASB&c=Page&pagename=GASB%2FPage%2FGASBSectionPage&cid=1176157376653

Here are a few excerpts from the letter that I find particularly pertinent to the Colorado General Assembly’s attempted taking of the contracted PERA retiree “automatic” COLA benefit:

“AFSCME agrees with the GASB view expressed in Chapter 2: ‘that for accounting and financial reporting purposes, an employer has an obligation to its employees for pension benefits by virtue of the employment exchange, and this obligation is not satisfied until the defined pension benefits have been paid to the employees or their beneficiaries when due.’”

“Our disagreement arises where GASB intends to project the cost of ad hoc COLAs.  The reason pension plans utilize ad hoc COLAs, as opposed to automatic COLAs, is so that they can make a decision about whether or not the COLA can be funded on a regular basis.” 

(My comment: Here AFSCME recognizes the distinction that is made in public defined benefit pension administration between “ad hoc,” i.e., “discretionary” COLA benefits and “automatic” pension COLAs, i.e., COLA benefits that are a contractual obligation of public pension plans and their employer-affiliates.)

“We also have concerns with the added subjectivity that arises when determining whether facts and circumstances exist to conclude that ad hoc COLAs are not substantively different from automatic COLAs.  Actuaries and accountants should not be required to guess at future employer decisions.”

(My comment: If one skims through all of the comment letters that have been sent to GASB on this subject of state and local public pension accounting and financial reporting it is interesting to note that there is no debate at all regarding the contractual obligations of public pension plans and their employer-affiliates to pay “automatic” pension COLA benefits.  The debate in these GASB comment letters surrounds the degree to which public pension plans are contractually obligated to meet long-standing “ad hoc” pension COLA promises and expectations.)

This GASB comment letter was submitted by:

“Steven Kreisberg, Director of Collective Bargaining and Health Care Policy, AFSCME.”

From seattlepi.com:

"Ore. public employee unions challenge pension cuts."

"As expected, public employee unions have filed a legal challenge to the Oregon Legislature's effort to cut benefits for retired public employees."

"The Oregonian reports (http://bit.ly/12HuHYd) that a coalition of unions has petitioned the state Supreme Court to review Senate Bill 822, which has been signed by Gov. John Kitzhaber."

"The bill reduces cost-of-living increases for people who get benefits under the Public Employee Retirement System."

http://www.seattlepi.com/?controllerName=search&action=search&channel=news&search=1&inlineLink=1&query=%22Public+Employee+Retirement+System%22

From oregonlive.com:

"PERS cuts challenged by Oregon union coalition."

"The first legal challenges have been filed against the Oregon Legislature's effort to cut benefits for retired public employees."

"A coalition of public employee unions has petitioned the state Supreme Court to review Senate Bill 822, which passed both chambers and has been signed by Gov. John Kitzhaber. Two retirees who now live outside the state also have asked for a review."

"The bill reduces cost of living increases for people who get benefits under the Public Employee Retirement System.  It also cuts benefits for PERS members who live out of state and don't pay Oregon income taxes."

"The main challenge, filed by Portland attorney Greg Hartman, contends the changes amount to an unconstitutional breach of contract.  It asks the court to appoint a special master to hear evidence and make fact-findings for the court to review.  It further asks the court to declare SB 822 unconstitutional in part or in its entirety."

http://www.oregonlive.com/politics/index.ssf/2013/07/pers_cuts_challenged_by_oregon.html#incart_river_default#orpol#orleg#pers

From NW News network:

"Attorney Greg Hartman filed the suit on behalf of 13 current and past employees of state and local governments in Oregon.  He says the public pension cuts signed into law in May violate the Oregon Constitution.  'When the legislature made a contract, they stated very specifically in the statute that people were entitled to get a COLA, a cost of living increase, in a certain amount.'"

"The new pension law cuts that amount for people with annual pensions above $20,000. Lawmakers said the cuts were needed to reduce expensive pension costs for state agencies, schools and local governments."

"Separately, two other retired public employees have also filed lawsuits to overturn the law."

http://nwnewsnetwork.org/post/union-backed-lawsuit-seeks-overturn-pension-cuts

Incredibly, Oregon state legislators (in breaking public pension COLA contracts) ignored the advice of their own attorneys.  Prior to acting, the Oregon Legislature requested an opinion on a proposal to take back accrued public pension COLA benefits from their in-house legislative attorneys, the Oregon Legislative Counsel.  Here is the February 4, 2013 response of Oregon’s legislative attorneys:

“You asked about the legality of a proposal to limit the cost-of-living adjustment (COLA) to service retirement allowances of retired members of the Public Employees Retirement System (PERS) by applying the COLA only to the first $24,000 of annual benefits. The proposal would amend ORS 238.360, which has long required that PERS make annual adjustments to service retirement allowances based on changes to the cost-of-living as reflected in the Consumer Price Index.”

“Based on recent Oregon Supreme Court precedent, we conclude that an attempt to limit the COLA in this way would be found to be a violation of the contract rights of the members.”

“The Oregon Supreme Court has found several times that the 1953 law establishing PERA created a contract between public employers and public employees.”

“The court stated several times in Strunk that there is a contract right to the COLA. For example, the court found that:

‘We note that the status of the law is particularly clear with regard to retired members, and there can be little question that the COLA is a fully accrued benefit for a member who has retired.’”

Here is a link to the complete February 4, 2013 opinion of the Oregon Legislative Counsel:

http://media.oregonlive.com/politics_impact/other/LC%20Opinion.pdf

Colorado PERA active and retired members, help put an end to the cavalier treatment of your PERA pension contracts by politicians, pension administrators and public employers.  Defend public pension contractual rights and the rule of law in Colorado by contributing at saveperacola.com. "Friend" Save Pera Cola on Facebook!