CHICAGO — The Minnesota attorney general’s office and lawyers representing state retirees in a lawsuit challenging legislation that curbed future increases in their pension benefits will return to court Tuesday to argue their sides.
Both have asked Ramsey County District Court Judge Gregg Johnson to issue a summary judgment based on their written and upcoming oral arguments, which would avert a trial.
Retirees last May filed the complaint against the state, the governor, the pension funds, and the funds’ top managers, after legislation took effect limiting future cost-of-living increases for participants in the funds covering teachers, state employees, and local government employees.
The dispute centers on whether retirees are entitled to future increases in their pension annuities based on the formula in place at the time of their retirement or whether the state is within its legal right to alter the formula that is used to calculate future benefits.
The lawsuit argues the legislation violates both state and federal laws governing contractual obligations and the taking of private property for public use. The complaint contends that the average employee in one of the funds stands to lose $28,000 in benefits over the next 10 years as a result of the new law. Lawyers are seeking class action status to represent an estimated 75,000 retirees.
The retirees “have a protectable contractual and promissory entitlement to the annual application of this formula throughout their lifetime and the lifetime of their beneficiaries,” they argue in their latest filing.
In its latest written filing, Minnesota rejects the retirees’ position that cost-of-living increases are a binding contractual obligation. The plans are established by state statute and the Legislature has authority to amend those statutes for future payments, the state argues. “Retirees continue to receive their pension annuities, those annuities have not been reduced, and their annuities will be adjusted in the future,” the filing reads.
The state said it needed to take action in 2009 to counter the impact of investment losses in a way that would benefit all stakeholders and the public interest. While the funds in 2009 were not on the brink of default, the state contends that the legislation posed the best alternative to averting an eventual default in 22 to 28 years.
“In short, the challenged legislation responded to a serious and unprecedented loss of plan capital by preserving the plans for all members and also appropriately balanced the interest of members, the state, and the state’s taxpayers,” Minnesota’s filing reads.
The retirees charge that the state is “cherry-picking” language from the statutes, ignoring the lack of any provision that excludes the calculation used to set future benefit increases from what is considered a retiree’s accrued benefit. The retirees also reject the notion that the state must act in the best interest of all stakeholders, citing statutes that give priority to retirees’ rights and those of their beneficiaries.
While the plan to amend the formula came from the pension plans, the retirees charge that politics played a role as fund managers sought to limit the impact on the state by raising its contribution levels only minimally in order to win approval.
“It’s clear that the decision to cut benefits for retirees was a political one and not one based on actuarial need. It is clear that raising contributions for the state was off the table,” said Stephen Pincus, an attorney with Stember Feinstein Doyle Payne & Cordes LLC, which is representing the Minnesota retirees. The firm is also representing retirees in similar lawsuits pending in Colorado and South Dakota.
The retirees also charge that no case law has been presented by the state in which courts have permitted a Legislature or pension board to cut benefits to a retiree.
Lawmakers across the country are closely following the cases as they eye ways to ease the strains of mounting pension contributions and growing unfunded liabilities on their budgets. The Pew Center on States last year warned that states face a combined $1 trillion pension funding shortfall, based on 2008 figures.
The Minnesota reforms also increased employee contributions and, in some cases, raised the state’s contribution. The changes are expected to save the pension system $2 billion over the next five years. The Public Employees Retirement Association’s rate was 70% funded at the close of fiscal 2009. The ratios of the various funds last year ranged from a low of 54% to a high of 70%.
Either side would likely appeal the eventual court ruling and it is expected that the case will end up before the state Supreme Court.
