Impartial Montana Judge Rebuts Colorado Judiciary’s Pension Contract Breach Cover Up.

(Interestingly, the Montana Court Wrongly Believes that the Colorado PERA Statutory “Annual Benefit Increase” is Tied to the “Cost of Living,” When, in Fact, it is Identical to the Montana Pension Benefit.)

This recent Montana District court decision draws a bright line under our historic and brazen Colorado pension theft, a theft that makes Bernie Madoff look like a pickpocket.

From “Retirees’ cost-of-living increases preserved.”

“A state district court judge on Wednesday struck down a legislative attempt to cut the annual cost-of-living adjustments for retired state and local government employees.”

“District Judge James Reynolds issued a permanent injunction blocking the attempt by the 2013 (Montana) Legislature to reduce what is known as the Guaranteed Annual Benefit Adjustment, or GABA, from 3 percent to 1 percent for retirees under the Montana Public Employees’ Retirement System (PERS).”

“After the Legislature adjourned, the Association of Montana Retired Public Employees and four retirees filed the lawsuit challenging the cut in GABA.”

(Colorado public sector unions joined in the campaign to break Colorado PERA pensioner contracts. Retirees generally don’t pay union dues.)

“’By reducing the GABA, the state has significantly decreased the benefit payments that retired public employees receive,’ Reynolds wrote Wednesday. ‘Decreasing benefits for those who have already given their entire working life to the state, benefits to which they are contractually entitled, is not reasonable or necessary when other broader remedies were available.’”

“In his decision, Reynolds listed some other options available other than cutting the GABA that the Legislature could have used, citing the arguments of the retirees’ group.”

“These included: extending the pension debt amortization period beyond 30 years, adopting the bill as proposed without the GABA reduction, increasing the employer’s contributions, making a one-time payment to PERS from the state general fund reserves, diverting money from other accounts such as the coal severance tax trust fund, the tobacco settlement trust fund or the Big Sky Economic Development trust fund into PERS, or raising revenue through tax increases.”

(All of these options, including a prospective reduction of the rate at which PERA benefits accrue, that is, a reduction in the Colorado PERA pension “multiplier” going forward, were available to the Colorado politicians who broke the Colorado PERA ABI contract in 2010.)

“‘The court thus concludes that reducing the GABA was not reasonable and necessary to achieve the legitimate purpose of maintaining actuarial soundness in PERS,’ Reynolds wrote. ‘The substantial impairment caused by Section 5 of House Bill 454, therefore, is in violation of the contract clause of both the Montana and U.S. Constitutions.’”

“Reynolds said that he was persuaded that reducing GABA ‘constitutes a substantial impairment of retired public employees’ contract rights.’”

“’From a strictly financial point of view, the reduction in the GABA would have a substantial effect on the total value of payments a retiree could receive over his or her retirement – thousands of dollars in some cases,’ Reynolds wrote.”

“He said the publications distributed by the Montana Public Employees’ Retirement Administration made available to PERS members support the interpretation that the GABA is part of the members’ contract. Handbooks from PERS and workshops put on by its board did the same, he said.”

“’These publications show that public employees were told before and after they retired that they could count on the GABA,’ Reynolds said.”

(Colorado PERA publications demonstrating the contractual nature of the Colorado PERA ABI benefit are archived at the website:

Published comments on the article:

“In terms of the state pension, the only reason it was ever in trouble is that the legislature and Administrations, both Democratic and Republican ignored their obligation to fund it adequately, both by raising state contributions and employee contributions. By assuming that the stock market would always be super healthy, they assured the program would ultimately be in crisis.”

“I point out Bullock for his hypocrisy of being the one who introduced the amendment to cut GABA. On that day in April, 2013. He then vetoed it saying it was unconstitutional, as you say. So why did he drag everyone through it?”

“Note to reporter. You start the article saying Reynolds struck down legislature’s attempt to cut cost of living adjustments, Reynolds specifically said they are not COLA’s but are a specific 3% amount guaranteed by the law.”

(This ruse was quite useful in securing the Colorado Supreme Court’s political decision in the Colorado PERA public pension case, Justus v. State.)


Link to the Montana COLA (GABA) Decision:

Excerpts From the Montana Court Decision:

“The GABA is not, strictly speaking, a cost-of-living adjustment (COLA) because it is not dependent on the actual cost of living at the time. Rather, the GABA is applied regardless of whether it is higher or lower than the change in the cost of living.”

(This is a pertinent observation on the part of the Montana Judiciary that unaccountably escaped the Colorado Judiciary.)

“Leading up to the 2013 legislative session, the funding ratio of the (Montana) PERS was 67 percent, meaning the fund was only able to meet 67 percent of its current liabilities.”

(The Colorado PERA pension system had a 69 percent funded ratio at the time of the PERA ABI contract breach in 2010.)

“AMRPE claims that HB 454 violates the contract clause of both the Montana and United States Constitutions because retired public employees have a contractual right to the GABA and, by unilaterally reducing the GABA, the legislature has impaired that right.”

“Beneficial amendments automatically become part of an employee’s contract because acceptance of the modification is presumed, but acceptance cannot be presumed when a modification is detrimental to the employee.”

 (Another important observation by this Montana District Court judge.)

“Montana’s Constitution has no such provision that directly addresses the contractual nature of public retirement benefits.” (Well, just like the Colorado Constitution.)

“The (Colorado) Court compared the COLA statute to other laws it had previously determined created contractual rights, using words such as ‘entitled,’ ‘future,’ and ‘payable for the life of the retiree,’ and noted that the COLA statute did not contain any such language. (Justus) Moreover, the Court noted that ‘[b]y its very nature a statutory cost of living adjustment is a periodic exercise of legislative discretion that takes account of changing economic conditions in the state and/or nation.'” (Justus)

(The Montana court is unaware that the Colorado statutory language creating the Colorado PERA base benefit contract is identical to the statutory language creating the Colorado PERA ABI benefit contract. Both contractual obligations “SHALL” be paid under Colorado statutes. How is it that ordinary public pensioners possess knowledge that court officials miss?)

The Montana Court is Under the Impression that Colorado’s Statutory Annual Benefit Increase [ABI] is a COLA, When in Fact, It is Identical in Form to the Montana Pension GABA, a Fixed Statutory, Periodic Increase.

Montana Court: “While these cases from other states are helpful to the Court’s analysis, none address an identical situation to that in the present case. The (Montana) GABA is not a COLA that is tied to economic factors outside the control of the legislature. It is a fixed percentage that compounds annually, regardless of market performance. In that sense, the GABA is unlike the COLAs in New Mexico, Maine, or Colorado which were not contractually protected because, in part, they were subject to the whims of the economy.”

(The Montana court failed to consider the political nature of the Colorado court’s treatment of the ABI benefit in the case, Justus v. State and thus misinterpreted the legal status of the Colorado PERA ABI benefit.)

“Once that enhancement was made, it became part of the contract.”

(This is the historical [pre-contract breach campaign] position taken by Colorado PERA officials.)

“The legislature did not reserve the right to reduce that enhancement in the future, nor did it declare that the GABA was not part of the contract. The legislature knew that public employees had a contractual right to retirement benefits and chose to guarantee an additional benefit beyond those in existence at the time.”

(Evidence Ignored by the Colorado Supreme Court, Colorado PERA’s Former General Counsel and Current Executive Director:

August 17, 2005, Rocky Mountain News:

“His [Colorado PERA General Counsel Greg Smith’s] briefing paper said ‘there has never been a finding in Colorado that the state has reserved its power to make changes’ in PERA’s benefit structure.”

“Smith said in his opinion that ‘other [non-Colorado] courts have set a high burden to meet the necessity threshold.'”

“The PERA board, however, relying on a legal opinion by General Counsel Greg Smith, thinks benefits cannot be cut for any active PERA member. That means not just current retirees and workers who are eligible to retire but the brand-new employee who has put less than a year of contributions into the plan.”

“Smith argued, however, that there is no precedent for declaring an actuarial emergency unless a pension fund has a serious cash liquidity problem.”

Again, Greg Smith:

“Shrink the COLAs: ‘The attorney general’s opinion seems clear that fully vested employees — those retired or with enough years of service to retire — cannot see any benefits reduced, including cost-of-living adjustments,’ Smith said.”

Back to the Montana Court Decision:

“Given the structure and language of the relevant statutes, and the promises made to public employees, the Court concludes that the GABA is part of the contract between public employees and the state.”

“The Court is persuaded that, by reducing in the GABA from three percent to 1 percent, HB 454 constitutes a substantial impairment of retired public employees’ contract rights. From a strictly financial point of view, the reduction in the GABA would have a substantial effect on the total value of payments a retiree could receive over his or her retirement-thousands of dollars in some cases.”

“As described above, PERB distributed literature and held seminars and workshops that repeatedly assured employees that the GABA was guaranteed, not subject to the whims of the market, and something on which they could rely.”

Colorado PERA’s lawyers, 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.”

If Colorado PERA’s lawyers believe that the PERA ABI benefit is a contractual obligation, why should the relatively unsophisticated PERA pensioners not also hold this belief?)

Montana Court:

“Retired public employees reasonably expected that the GABA would not decrease, despite the fact that the GABA statute had been amended in the past, because the GABA had never been reduced, except for new hires.”

“In 2007, the Montana Legislature reduced the GABA to 1.5 percent for employees hired after January 1,2007. This further strengthens AMRPE’s reasonable expectation that the GABA, as applied to them, would not decrease.”

(As we have observed, similar legislation was adopted in Colorado in 2005.)

“Public employees have a legitimate expectation that the GABA is part of their contracts with the State, and a reduction in GABA substantially frustrates that expectation.

“The burden is on the State to prove that the impairment was reasonable and necessary.”

(Colorado PERA’s lawyers agreed with this point, until they shifted their legal strategy for the PERA pension contract breach from “actuarial necessity” to a simple denial of contractual obligations. The Colorado Judiciary circumvented this problem of having the defendants prove reasonableness and necessity by accepting the defendant’s suggestion that the court simply deny the existence of the PERA ABI contract, a contract which PERA’s lawyers and the sponsor of SB10-001 had previously acknowledged.)

Note that the Montana court cites the federal case, US Trust, a case the Colorado Supreme Court artfully ignored:

Montana District Court:

“Though courts generally defer to the legislature’s judgment, in this case ‘complete deference to a legislative assessment of reasonableness is not appropriate because the State’s self-interest is at stake…. If a State could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contract Clause would provide no protection at all.” (US Trust)

“Nevertheless, the cases both parties cite make clear the when the State is a party to the contract that is substantially impaired, complete deference to the legislature is inappropriate. And the State is clearly a party to the employment contracts of public employees. The Court, therefore, will not grant complete deference to the legislature and will instead apply a heightened level of scrutiny.”

“Even if alternatives might be ‘politically more difficult,’ the State is limited in its ability ‘to abridge its contractual obligations without first pursuing other alternatives.'”

“Decreasing benefits for those who have already given their entire working life to the State, benefits to which they are contractually entitled, is not reasonable or necessary, when other broader remedies were available.”

“The substantial impairment of contract rights caused by Section 5 of HB 454, therefore, is in violation of the contract clause of both the Montana and United States Constitutions. AMRPE is entitled to summary judgment and a permanent injunction.”

“The State is permanently enjoined from enforcing the amendments to § 19-3-1605, MCA, contained in section 5 of HB 454, reducing the GABA for retired public employees.”

From the Montana PERA website:

March 4, 2015

“Judge Reynolds today granted PERS retirees’ request for a permanent injunction to prevent the Board from implementing the decrease in GABA under Section 5 of House Bill 454 (2013).”

“The Judge ruled that the PERS retirees have a contract right to the GABA increases and that the State’s reduction of the GABA to address the actuarial soundness of PERS was not ‘reasonable and necessary’ and thus violated the contract clauses of the Montana and the US Constitutions.”

For reference, I provide links to a few previous articles addressing the attempted governmental theft of the Montana retiree’s GABA pension benefit:

Readers should note that protections afforded to public pensioners by the US Constitution vary dramatically depending on which side of a state line a pensioner happens to be standing. To wit:

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