CHICAGO — Moody’s Investors Service this week said it views positively recent court rulings in Colorado and Minnesota dismissing litigation that challenged legislative cuts to retirees’ pension cost-of-living increases, and expects the rulings will spur other states to act.
“These decisions are credit-positive, indicating that those states can reduce benefit costs attributable to existing retirees, rather than only prospectively capping or reducing future retirees’ benefits,” Moody’s analysts wrote in their weekly credit outlook. The agency rates both states’ general obligation bonds Aa1.
Colorado’s legislation that was challenged caps cost-of-living adjustments at 2% or, in the event of investment losses, the lesser of 2% or three-year average inflation. Minnesota’s law suspends or cuts COLAs, depending on the plan, until a 90% funded ratio is achieved. Minnesota’s pensions were funded at 84% in fiscal 2009.
Judges in both states issued separate rulings on the same day, tossing the cases on summary judgment. Retirees in both states filed lawsuits last year challenging the enactment of legislation limiting the inflation adjustments to their base pension payments. Retirees argued they were entitled to future increases based on the formula in place at the time of their retirement. The judges upheld the states’ right to change the benefit.
While the rulings are limited to Colorado and Minnesota and the rights afforded to various pension benefits vary by state, Moody’s wrote that it expects “other states to follow suit because reducing current retirees’ and employees’ benefits will yield more immediate and greater savings than merely capping COLAs prospectively.”
Lawyers for the retirees have not yet decided whether to appeal the rulings.