Georgia Supreme Court says DeKalb schools violated retirement contract

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A Georgia Supreme Court ruling found that the DeKalb County School District violated a contract with employees when it ended contributions to a supplemental retirement fund.

The Oct. 21 decision, which upheld an appellate court ruling, is credit negative although its impact probably won’t be material to the school district’s budget, revenue-raising flexibility and low debt burden, Moody's Investors Service said Wednesday.

“Despite a wide range of potential liabilities the district may incur, the district will likely be able to absorb the potential loss without a material weakening in its credit quality,” said analyst Lauren Von Bargen.

Moody’s rates the school district’s bonds Aa3 with a stable outlook.

The case on which the Supreme Court ruled has been in court since 2011. Four employees sued after the district stopped contributing to the DeKalb County Tax Shelter Annuity Plan, alleging that the annuity contract was breached because employees weren’t given two years’ notice before the district stopped making contributions.

The case will now return to the DeKalb County Superior Court, where a judge will determine whether the case can become a class-action lawsuit and the extent of damages against the district, Moody’s said. The Superior Court originally ruled in favor of the district, but the appellate court overturned that decision.

Superintendent Stephen Green said the district would have preferred a different outcome in the lawsuit. “We will move forward with the next phase of this process,” he said.

“Despite the disposition of this case, we remain committed to our teachers and employees,” Green said.

“Our school board takes issues regarding retirement benefits very seriously,” said Michael Erwin, chairman of the board. “We will continue to work with legal counsel to determine the next steps in this matter.”

According to the 18-page Supreme Court ruling written by Chief Justice Harold D. Melton, DeKalb school employees were given the tax-sheltered annuity as a supplemental retirement plan after the school board decided to withdraw from Social Security in 1979.

The annuity plan remained in effect until July 2009, when the school board held an emergency meeting to discuss the reduction of state funding for all of Georgia’s public schools due to the economic recession. At the meeting, the board voted to “temporarily suspend” the plan and ended all contributions to certain employees as of July 31, 2009, the ruling said.

In June 2010, the school board amended the plan’s bylaws, eliminating the two-year notice provision. In March 2011, four employees filed suit alleging the district breached their annuity plan’s contract.

While the school district argued that eliminating the two-year notice provision was a policy decision, the Supreme Court disagreed and determined that the school board failed to follow proper protocol when it removed the notice provision.

According to Moody’s, the district’s liability in the case could range from $50 million to $300 million, depending on the size of the class and how many years of back contributions the district must pay.

“Approximately 14,000 employees were impacted by the reduction in the contributions,” Von Bargen said. “The estimated maximum liability of $300 million is based on 11 years of unpaid contributions.”

The DeKalb County School District serves 102,000 students. Its boundaries are the same as the DeKalb County’s, but the district doesn’t serve students in the cities of Decatur and Atlanta.

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