Illinois Supreme Court Refuses to Let Politicians Gut Pensions. Will the Colorado PERA Contract Breach Survive?

Chicago Sun Times:

"A final note: For all those outraged with the (Illinois) Supreme Court Justices, save your fire.  Their job is to interpret the law and the Constitution."

An Illinois' teacher's response to this Chicago Sun Times editorial:

"The Court made clear that our Constitution still functions as a guide to civic behavior; that it is not merely an irksome obstruction around which to craft clever legislative end runs."

"For decades, we Illinois citizens have enjoyed cut-rate public services at least partially subsidized by the willful, cynical stiffing of pension funds.  Let’s fix our money problems without demonizing and punishing public sector citizens/retirees who have done their part, through many decades of teaching and protecting their neighbors, to make Illinois strong."

(My comment: On August 11, 2009, at the Denver meeting of the Colorado PERA “Listening Tour” Colorado PERA’s General Counsel Greg Smith blamed the Colorado General Assembly for the decline in PERA’s actuarial funded ratio: “We have not been paid what’s called the actuarially required contribution.” “We’ve not been receiving that full contribution in any of our divisions for many years . . . seven years to be specific.”

http://www.copera.org/pera/about/listeningtour.htm)

In 2010, Colorado state legislators passed a bill (SB10-001) breaking Colorado PERA pension contracts.  Since then, politically connected lawyers hired by Colorado PERA have struggled to create legal contrivances designed to support the Colorado Legislature's "end run" around those Colorado public pension contracts.

http://coloradopols.com/diary/59115/colorado-pera-pensioners-expose-deception-by-pera-lawyers-at-the-colorado-supreme-court

http://coloradopols.com/diary/59208/pressing-questions-relating-to-the-colorado-pera-public-pension-lawsuit-justus-v-state

On June 4, 2014, the Colorado Supreme Court heard oral arguments in the case addressing the Colorado PERA pension contract breach, Justus v. State.  A lawyer hired by Colorado PERA, and the Colorado Solicitor General presented their latest legal contrivance supporting the Colorado Legislature's planned "end run" around pension contracts.

The latest Colorado PERA contrivance is that, although the statutory language establishing the Colorado PERA "base benefit" and the Colorado PERA "COLA benefit" is identical, statutory language in another Part of the Colorado PERA statues supports the PERA "base benefit," but not the PERA "COLA benefit."  That Part of the PERA statutes sets forth choices for delivery of the lifetime PERA annuity and states that the PERA annuity is "paid for a lifetime."  Why are Colorado PERA's lawyers surprised that the statute setting forth options for payment of PERA benefits for a lifetime states that Colorado PERA pension benefits are "paid for a lifetime"?  They are lifetime annuities.

Why do Colorado PERA's lawyers believe that this language in the Part of the PERA statutes providing options for payment of the PERA annuity supports the PERA "base benefit," but not the PERA COLA benefit?  There is no basis for this claim.  It is purely a contrivance designed to allow Colorado state and local governments a means of escaping their legal debts.

Since the Colorado Court of Appeals has rejected the prior contrivances of Colorado PERA's lawyers in the case Justus v. State, the creativity of Colorado PERA's lawyers has been taxed.  The arguments of Colorado PERA's lawyers now desperately cling to gossamer threads.  (I am amazed that Colorado PERA pension members are forced to pay for the crafting of such legal contrivances out of their own trust funds.)

During the June 4, 2014 oral arguments Colorado PERA's lawyers presented the latest Colorado PERA legal contrivance:

"If you look at the language of the PERA statute . . . Section 801.1, of the PERA statutes, says that the monthly benefit is payable for the lifetime of the beneficiary."  "COLAs are instated in Part 10 of the PERA statutes . . . "  "The COLA statutes in Part 10 simply don't.  That language is conspicuously absent from the COLA statutes."

Apparently, Colorado PERA's lawyers are not troubled by the fact that this "durational language" is also "conspicuously absent" from the statute creating the PERA base benefit contract (Part 6) which they agree creates a contractual obligation.

Here is the response of the retiree's attorney Rosenblatt during the oral arguments:

"First of all, I want to disagree with my colleagues as to what creates the base contract, the base pension contract, it is 24-51-602, which reads, that members . . . SHALL upon written application and approval of the board, receive service retirement benefits pursuant to a benefit formula . . ."  "So, it's 'SHALL RECEIVE' is the language that creates the contract for the base pension, which they (defendant's attorneys) agree is a contract."  "And, the COLA statute says "SHALL," uses the same mandatory language."  "The durational language that they speak of is under a section that sets forth options for payment of lesser amounts if the retiree wants the benefit to cover the life of a spouse."  "The actual creation of the (base benefit) contract is based on the mandatory language 'SHALL RECEIVE" in 24-51-602 and I would submit that the mandatory language is the same as the mandatory language in the COLA."

It should be noted that the Colorado Supreme Court (like the Illinois Supreme Court) has determined that any ambiguity in public pension statutes shall be liberally construed in favor of the rights of the pension member (Endsley.)  This only makes sense.  What justice would there be in allowing state governments to casually break their contracts with public employees who have given thirty years of service?  Further, the U.S. Supreme Court has deemed that any attempt by a state government to escape its financial obligations shall receive heightened scrutiny.  No discovery or trial has yet occurred in this case, Justus v. State.

Colorado Law – Section 24-51-1002 (1), Colorado Revised Statutes, “ . . .the cumulative increase applied to benefits paid SHALL be recalculated annually as of March 1 and SHALL be the total percent derived by multiplying three and one-half percent, compounded annually, times the number of years such benefit has been effective . . .”

Under Colorado law, members of Colorado PERA who purchase PERA service credit SHALL receive Colorado PERA pension benefits in effect at the time of the purchase:

Colorado Law – Section 24-51-502 (3), Colorado Revised Statutes, “Service credit purchased by members . . . SHALL be subject to the benefit provisions in effect for the existing member contribution account.”)

Colorado Supreme Court (in the case, Bills):

“. . . until an employee has earned his retirement pay, or until the time arrives when he may retire, his retirement pay is but an inchoate right; but when the conditions are satisfied, at that time retirement pay becomes a vested right of which the person entitled thereto cannot be deprived; it is ripened into a full contractual obligation.”

Here is a link to the June 4, 2014 Colorado Supreme Court Oral Arguments in the Colorado PERA retiree lawsuit, Justus v. State:

http://www.courts.state.co.us/Courts/Supreme_Court/Oral_Arguments/Index.cfm

In 2010, when Colorado PERA and Colorado legislators began to plot the SB10-001 COLA taking they admitted that the COLA was a Colorado PERA contractual obligation (See comments of SB10-001 sponsor Senator Josh Penry.)  Their plan, at that time, was to admit to the contract, but argue that it was "actuarially necessary" to break the contract.

Today, their legal strategy is to deny the existence of the PERA COLA contractual obligation.  But, it's too late to change the legal strategy, they have already acknowledged their contractual obligations to pay the PERA COLA benefit.  Just as Colorado PERA administrators cannot retroactively take accrued PERA COLA benefits, they cannot retroactively change their legal strategy to take accrued PERA COLA benefits.

Thus, Colorado PERA's lawyers have a difficult task.  The evidence of the Colorado PERA COLA contract includes admissions of its existence by all parties.  There is no question that the PERA COLA is a contractual obligation.  The Colorado PERA COLA contractual relationship under discussion has been confirmed in written testimony provided by Colorado PERA's lawyers to the JBC in 2009, and by the sponsor of SB10-001, Senator Josh Penry, and by members of the Legislature during floor debate of SB10-001, and by PERA's representative Rob Gray at the inception of the "automatic" PERA COLA benefit (a Colorado PERA "liability,") and by PERA's current Executive Director in a public statement, and by PERA's hired actuaries.  Further, the contractual obligation is clear in Colorado PERA statutes, and it has been confirmed in a Colorado Attorney General's Opinion.  All involved parties agree, on the record, that the PERA COLA is a contractual obligation.  Colorado PERA's lawyers are currently trying to persuade the Colorado Supreme Court to don the blinders and ignore the many acknowledgements of the PERA COLA contract by Colorado PERA and state officials.  Their latest Clintonesque undertaking is to persuade the Colorado Supreme Court that "shall" does not mean "shall."  Colorado PERA's lawyers created this new contrivance to feed to the Colorado Supreme Court judges.  They hope the judges will swallow it whole and allow Colorado governments to engage in what is, in my opinion "theft."

In Colorado, public pension contracts are strongly supported in case law.  Colorado is one of the states in which courts follow the strict "California Rule" of public pension jurisprudence.  For 60 years, the Colorado Supreme Court has recognized the contractual public pension relationship, including the specific right to the pension "escalator" (COLA or ABI.)  This makes sense.  Otherwise, Colorado governments would be free to retroactively take the earnings of their employees.  Colorado governments would be free to include an "automatic" COLA provision in a public pension plan, force their employees to fund that COLA benefit, underfund their pension plan, and then take and use employee consideration supporting the COLA to pay off plan unfunded liabilities.

Newspapers editorialize on the recent Illinois Supreme Court Decision, Chicago Sun Times:

"By ruling that the subsidized health care benefits of retired state employees are protected by the Illinois Constitution, the court raised the unpleasant specter that there may be only one way out of the pension mess facing the state as well as local governments.  That is: come up with the money, no matter how painful."

"At every turn and in the strongest of language, the high court seemed to go out of its way to uphold the ironclad sanctity of the 1970 Illinois Constitution’s 'pension protection' clause for public employees."

Quoting from the Illinois Decision:

“Under settled Illinois law, where there is any question as to legislative intent and the clarity of the language of a pension statute, it must be liberally construed in favor of the rights of the pensioner.”

"Others noted Thursday’s ruling did not directly deal with the two main legal arguments raised in defense of the state’s pension-reform legislation.  One is that the state faces a financial emergency that allows it to do what it needs to protect the welfare of its citizens.  The other is that state employees are receiving 'consideration' for their reduced benefits in the form of lower contributions."

(My comment: Colorado PERA Board Trustee [and judge] Casebolt assured PERA retirees present at the August 11, 2009 Colorado PERA Denver “Listening Tour” meeting that: “PERA faces no immediate danger of being unable to pay benefits, in fact, PERA can pay benefits for many years to come, based on our current funding and our benefit structure coupled with over $30 billion in assets, at present market value.”

Link: http://www.copera.org/pera/about/listeningtour.htm)

http://www.suntimes.com/news/brown/28462666-452/supreme-court-throws-wet-rag-on-pension-plan.html#.U7rD7WcU8dc

From chicagobusiness.com:

"Cash-strapped government budget makers 'cannot write (the Illinois Constitution) to include restrictions and limitations that the drafters did not express and the citizens of Illinois did not approve,' said a more restrained but equally decisive Illinois Senate President John Cullerton."

"The court ruled that retiree health insurance benefits for state workers mandated by the Legislature deserve the same level of protection as pensions, which according to the constitution 'cannot be diminished or impaired.'"

"'If the justices can read the pension clause of the constitution to protect health benefits, they certainly would use it to protect pension benefits,' former state Budget Director Steve Schnorf said."

(My comment: Colorado's state budget director, Henry Sobanet was "intimately involved" in crafting SB10-001, the 2010 Colorado PERA "COLA-taking" legislation.  Henry Sobanet has also worked as a "consultant," and a "policy advisor" for the business group "Colorado Concern" that supported the bill, SB10-001, with its hired lobbyists in 2010.  From the Colorado Association of School Boards: "Sobanet also served under former Gov. Bill Owens and was intimately involved in the crafting of SB 10-001, the bill passed in 2010 to shore up PERA."

http://www.casb.org/event/casb-annual-convention/saturday-sessions

Henry Sobanet's employment history includes: "Consultant: Colorado Concern, Economic and Policy Advisor: Colorado Concern, Director: Colorado Office of State Planning and Budgeting."

Link:
http://www.zoominfo.com/p/Henry-Sobanet/58878975)

Chicagobusiness.com:

"'This bodes very, very ill' for the pension cuts the Legislature approved for state workers, and for a similar set of trims Mayor Rahm Emanuel wants for his workforce, he added."

"Time after time, without finally resolving the issue, the court seemed to go out of its way to knock down any changes not agreed to by workers unions, and perhaps by each individual worker."

(My comment: Why do Colorado PERA administrators cite union support for the SB10-001 PERA pension contract breach?  These unions have no authority to relinquish the contractual rights of any individual Colorado PERA member.  Most PERA members do not belong to these unions.)

Chicagobusiness.com:

"But, said the court, 'In light of the constitutional debates, we have concluded that the (pension) provision was aimed at protecting the right to receive the promised retirement benefits, not the adequacy of the funding to pay for them.'"

"But, ruled the court, 'Under settled Illinois law, where there is any question as to legislative intent and the clarity of the language of a pension statute, it must be liberally construed in favor of the rights of the pensioner.'"

"So, the current 3 percent guaranteed annual COLA would appear to be here to stay."

"'Time and again we have urged legislators to respect the constitution they are sworn to uphold and to work together with us to develop fair and constitutional solutions,' AFSCME said in a statement."

"I wouldn't be at all surprised if House Speaker Michael Madigan revives his campaign to force local units of government, particularly school districts, to pick up pension costs that the state now pays."

(An online comment was made on this Chicagobusiness.com article: "The politicians that crafted this legislation knew all along they were going against the constitution.  They proceeded anyway thinking nobody would challenge it.")

http://www.chicagobusiness.com/article/20140704/BLOGS02/140709915

Chicago Tribune:

"The Supreme Court has come close to declaring that whatever retirement benefits were in place on THE FIRST DAY (my emphasis) of a worker's public job can't be reduced for however many decades he or she is alive."

(My comment: Here the Chicago Tribune refers to the "California Rule" of public pension jurisprudence.  Recall that Professor Amy Monahan in the article “Statutes as Contracts? The ‘California Rule’ and Its Impact on Public Pension Reform,” (Iowa Law Review article) expresses her surprise at the Denver District Court's initial decision in the case Justus v. State:

“The court’s ruling is surprising both because the court broke from the previously endorsed [by Colorado courts] California Rule, under which it is clear that detrimental changes to the benefits of current employees are only permissible where they are offset with comparable new advantages, and because the change at issue is one that could be characterized as a retroactive change to benefits, which is the type of change that invites the most scrutiny under a contract clause analysis.”

Public pension Legal Scholar Professor Amy Monahan in yet another law review:

"The (Denver District) court’s ruling is surprising both because the court appeared to break from earlier Colorado decisions that found pension benefits to be contractually protected prior to retirement and because the change could be characterized as a retroactive change to benefits, which is the type of change that invites the most scrutiny under a contract clause analysis.")

The Chicago Tribune cites language from the Illinois Supreme Court Decision:

"(W)e have concluded that the provision was aimed at protecting the right to receive the promised retirement benefits, not the adequacy of the funding to pay for them."

http://www.chicagotribune.com/news/opinion/chi-health-care-pension-ruling-edit-20140703,0,2677793.story

On-line responses to the Chicago Tribune editorial:

"There is no public pension crisis.  States have the money to fully fund their pension obligations, but they would rather spend it on corporate subsidies.  U.S. public pensions face a 30-year shortfall of $1.38 trillion, or $46 billion dollars on a annual basis. This is dwarfed by the $80 billion a year states and cities spend on corporate subsidies."

"The war on public pensions is a distraction to prevent citizens from seeing the real cost of entitlement programs for corporations.  The money the states should have been contributing to pensions have been going to subsidize corporate tax breaks.  End the corporate tax breaks, and states will save $80 billion dollars a year.  That is almost double what they need to fulfill their pension obligations."

"The charge against public pensions is being lead by a former Enron trader.  His mission is two-fold.  Protect corporate entitlement programs and change public pensions from Defined Benefit (DB) to Defined Contribution (DC).  If he is successful in changing public pensions from DB to a DC model, Wall Street will rake in trillions in fees while all the risk falls upon public retirees."

"Write to your state representatives.  Let them know that you know the real problem is entitlement programs for corporations, and that these tax breaks have to end.  To read more about this subject, read David Sirota’s article: “The Plot Against Pensions”.

"Exactly, and that's the thing people don't talk about.  You can't compare public to private workers because private sector workers don't just have their 401(k)s, they have Social Security. Public workers have only their pensions to look to for retirement."

"Politicians failed to follow up on the terms of the contract and now the state wants to punish the employees.  I guess the Supreme Court of Illinois is good at interpreting a contract."

"Let's not paint with such a broad brush of blame, levels of government didn't cause this problem.  Elected officials who failed to do their job with integrity are to blame."

"This is progress.  The Court has ruled that it is not its responsibility to bail out the legislators, governors, aldermen, and mayors who got us into this mess.  Anybody waiting for the pension fairy to wave her magic wand is out of luck."

"Finally!  Back to you, lawmakers – see to it that all public pensions are fully funded – do your jobs!"

"It was the State of Illinois that chose not to allow state employees to be in Social Security.  That was because then the State would have been forced to make contributions and could not divert the payments to roads, welfare and other expenditures."

Chicago Sun Times;

"The Illinois Supreme Court on Thursday said loudly, clearly and ominously that public employee pension benefits in the state cannot be cut."

"That can mean only one thing: State and local lawmakers had better get working on a Plan B. Illinois needs alternatives to the state pension-reform law passed in December and to the Chicago pension-reform law passed in May."

"In this case, the justices ruled that subsidized health care for retired state employees is protected under the Illinois Constitution and can’t be cut, just like pension benefits."

"Just like pension benefits."

"No one ever thought a pension-reform law would breeze through the Supreme Court; the Constitution prohibits benefits from being 'diminished or impaired.'  State lawmakers took that into account in drafting the reform bill, looking high and low for ways to inoculate the bill constitutionally.  In the state worker bill, for example, employees will get a state funding guarantee and a reduction in their annual contributions in exchange for reduced benefits."

"A final note: For all those outraged with the Supreme Court justices, save your fire. Their job is to interpret the law and the Constitution."

http://www.suntimes.com/opinions/28456548-474/time-for-pension-reform-20.html#.U7rTUWcU8dc

A Teacher Responds to the Sun Times Editorial. 

Illinois blogger Glen Brown draws attention to a teacher's response to the Sun Times editorial in his blog post today.  Here are a few excerpts:

"Dear Editors:

"As a retired teacher, I resent the relentless and often cavalier attacks on my pension and its relationship with state government."

"Yes, the Illinois Supreme Court reiterated what has been crystal-clear all along.  Our teacher/public worker health benefits are a contractual obligation, freely entered into by all parties, enforceable by Constitutional law, and supported by the time-honored American values of ethics and fairness."

"The Court made clear that our Constitution still functions as a guide to civic behavior; that it is not merely an irksome obstruction around which to craft clever legislative end runs."

"In following your false premise to its (necessarily) illogical conclusions, your editorial staff has failed to struggle with the larger, more germane issue: Illinois has an antiquated and unsustainable tax structure.  Revenues are only remotely correlated with the demand for public services.  Corporations and wealthy individuals are offended by the idea that they should pay more because they have more."

"It’s time for ethics, fairness, and justice to take the floor in Springfield.  For decades, we Illinois citizens have enjoyed cut-rate public services at least partially subsidized by the willful, cynical stiffing of pension funds.  Let’s fix our money problems without demonizing and punishing public sector citizens/retirees who have done their part, through many decades of teaching and protecting their neighbors, to make Illinois strong."

Jane Artabasy

http://teacherpoetmusicianglenbrown.blogspot.com/

Support the Rule of Law in Colorado at saveperacola.com.

One Community Comment, Facebook Comments

  1. hawkeye says:

    Interesting question … Will the Colorado PERA contract breach survive?

    Although the PERA statutory language, on-point legal precedent and a legal opinion from a previous AG clearly and unambiguously backs the plaintiffs' contract claims, the outcome of the SB10-1 lawsuit is still a toss up at best. Deciding in favor of the defendants may be just too darn irresistable to pass up, as the political establishment and public employee associations have collectively thrown the retirees under the bus.  There appears to be a concensus among the justices that the retirees can afford to take a trim.  As they say, opportunity knocks! 

    However, I can't help but think that some of the justices may be somewhat angered that they've been placed in this untenable position.  Although they will receive much praise if they rule in favor of the defendants (i.e., no contract), it would also prove to be quite an embarrassment, likely tarnishing the court's reputation and credibility.  A nationwide audience of legal scholars and constitutional experts will provide critique and commentary for years exposing the constitutional flaws and legal absurdities … such as the meaning of "shall".

    I sure hope the Colorado Supreme Court justices righteously applies the law as written, along with settled law and on-point legal precedent and rule in favor of the retiree plaintiffs.  Do what's right, and put a stop to all the charades coming from the defense legal team! 

     

      

     

     

     

     

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