Like contracts offered by Colorado's largest public pension system, Colorado PERA, Montana public pension system contracts include an "automatic," annual cost-of-living adjustment (COLA). In Montana, the automatic pension COLA benefit is called the GABA, "guaranteed annual benefit adjustment."
Also like Colorado, a majority of legislators in Montana have decided to try to escape the state's public pension contractual obligations by taking the pension COLA benefit in state legislation. Although Montana's Governor and attorneys for the Montana Legislature believe that the breach of Montana retiree pension COLA contracts is unconstitutional, Montana's Governor opted to sign the bill taking the COLA benefit in order to enact the balance of the pension reform bill.
In Colorado, Governor Ritter supported the breach of Colorado PERA retiree pension COLA contractual obligations in 2010 (as does Governor Hickenlooper) and the Colorado Legislature did not bother asking their own attorneys for an opinion on the constitutionality of the "pension default" bill, SB10-001. It is odd; however, that Colorado legislators are making this attempt in light of the fact that attorneys at the Colorado PERA pension system have confirmed in testimony before the Legislature that the PERA COLA benefit is a PERA contractual obligation:
December 16, 2009
Colorado PERA officials in written testimony to the Joint Budget Committee: “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.”
COLA benefits are included in public pension contracts to slow the erosion of the purchasing power of pensioners during their remaining years. "Automatic" public pension COLA benefits are contractual obligations of public pension plan sponsors, identical to contractual COLA provisions in annuities that are sold by private insurance companies. 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."
No attorney for a private insurance company is brazen enough to argue in court that the insurance company should have the right to break contractual COLA provisions in annuities that the insurance company has sold, simply because the insurance company is a party to other annuity contracts with varying COLA provisions.
Colorado PERA and Montana COLA benefits are "automatic" COLA benefits as opposed to "ad hoc" COLA benefits:
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.”
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?”
State legislators in a half-dozen states have decided to attempt a breach of retiree public pension contracts:
August 16, 2010
“Asked why states are taking the risky strategy of aiming at current retirees, Robert Klausner, a Florida attorney who specializes in public pension law, says many state officials believe they have less to lose in the courtroom by challenging pension protections than taking no action at all. ‘The belief is that if the employer [the state] prevails, it will have been worth the political risk,’ Klausner says. ‘And if they lose, they will be no worse off than before.’ Klausner adds that legislatures are taking the politically-difficult step and letting the courts be the ‘bad guy’ if they overturn the law.”
On October 11, 2012, the Colorado Court of Appeals confirmed the contractual, "automatic" nature of the Colorado 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.”
MONTANA RETIREES ON THE STATUS OF THEIR COLA-THEFT LAWSUIT.
The Association of Montana Retired Public Employees, supported by Montana public sector unions, is preparing to file their lawsuit contesting Montana's breach of public pension contracts. Here's a link to the latest AMRPE newsletter:
"AMRPE needs your help. We will file a lawsuit over the provision in HB 454 that lowers the 3% Guaranteed Annual Benefit Adjustment (GABA) to 1.5% or even lower. AMRPE believes this action is in violation of the contract clause in our state and federal constitutions."
"House Bill 454 was introduced at the request of the Governor’s office and originally provided that employers and employees would contribute an additional 1% of salary to the fund. It also included the unallocated portion of the coal severance tax, as well as a portion of the interest earned on the coal severance tax trust fund. AMRPE was the first to propose the use of coal severance tax revenues to help the various pension funds become actuarially sound (House Bill 632 in 2011 and HB 382 in 2013 Legislative Sessions). As introduced, this session’s HB 454 assisted in making the PERS system actuarially sound. It initially did not contain provisions to modify the GABA."
"The AMRPE board has retained the law firm of Browning, Kaleczyc, Berry and Hoven to represent us in this important legal undertaking."
"While the monies from the coal tax certainly help, the bottom line is that by reducing the GABA, retirees are carrying the biggest burden in making the fund actuarially sound. This is clearly a breach in the employment contract and is constitutionally suspect." "Your Association has decided to legally challenge the provisions of HB 454 that reduce the GABA in court, and we will need your help in doing so. We will have our day in court . . ."
(My comment: the Montana Legislature's taking of the GABA benefit will cost a Montana retiree with a $12,000 annual contracted pension benefit a total of $135,000 if they manage to live for the next 30 years, or $88,000 if they can only squeeze out another 25 years.)
"Your AMRPE Board of Directors has voted to pursue litigation against the State of Montana over the Guaranteed Annual Benefit Adjustment reduction included in HB 454. The reduction harms and places the brunt of the pension fix on the backs of PERS retirees. We feel this is a direct violation of our Contract Rights specified in Montana Law, 19-2-502(2) MCA which states:
“Benefits and refunds to eligible recipients are payable pursuant to a contract as contained in statute. The contract is entered into on the first day of a member’s covered employment and may be enhanced by the legislature. Unless specifically provided for by statute, the contract does not contain revisions to statutes after the time of retirement or termination of membership.”
MONTANA PUBLIC SECTOR UNIONS TO SUE OVER PENSION COLA THEFT. (COLORADO'S UNIONS SUPPORTED THE TAKING OF THE COLORADO PERA COLA BENEFIT FROM PERA PENSIONERS.)
"We keep getting calls and emails asking if MEA-MFT is in fact going to litigate legislated amendments seriously truncating and delaying Guaranteed Annual Benefit Adjustments or GABAs in PERS and TRS."
"The answer is YES!"
"MEA-MFT is right now working with other advocate organizations representing current and future retirees on a common, comprehensive legal challenge to the legislature's GABA attacks. We have retained counsel. We are developing compelling legal arguments. We are vetting possible plaintiffs. We will file when it is the right time to file. And we expect to win."
"The plan is expected to face legal challenge from unhappy retirees who will argue in court that the changes unconstitutionally break the contractual obligations the state made to employees."
"The state's largest employee union, MEA-MFT, said it expects to support the litigation — even though it also still supports the overall fixes."
Eric Feaver, President, MEA-MFT:
"There are constitutional questions, questions of contract rights that are raised by so doing (changing guaranteed annual benefit adjustments.)"
MONTANA GOVERNOR: THE COLA TAKING IS UNCONSTITUTIONAL.
"In response, Bullock’s budget director Dan Villa said the governor’s office opposed the amendment that sought to change the GABA (COLA) and questioned its constitutionality."
"'We understand that both current employees and retirees are considering legal challenges to address the amendments, and we support that action,' Villa said. 'It’s important to keep in mind that this likely unconstitutional amendment doesn’t change one important fact: by implementing the remainder of Gov. Bullock’s plan, Montana is the first state in the nation to fix our pension system without raising taxes.'"
"The Legislature’s own attorneys have repeatedly advised it that GABA is a constitutionally-protected contract with public employees and should not be broken. If the Legislature chooses to advance legislation to renege on this important commitment it has to raise concerns with all citizens as to what other contracts the state may choose to ignore. If a 'deal’s a deal' only when the Legislature chooses to honor it, then what about Montana’s other contract commitments?"
"The Legislature should not violate the contract it statutorily committed to with Montana’s public employees. Rather, it should honor the commitments made to current and future government retirees including fully funding GABA."
"Unlike other states that have variable Cost of Living Adjustments in their pension plans, Montana enacted a guaranteed statutory annual percentage adjustment for its public employees."
(My comment: Again, Montana and Colorado have "automatic" public pension COLA benefits rather than "ad hoc" COLA benefits.)
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