LAS VEGAS — Analysts trying to gauge the creditworthiness of a state or local government may have to delve into state pension laws and specific provisions of labor contracts, panelists said Friday at the National Federation of Municipal Analysts’ annual meeting here.
Speaking during a panel session on pension and other post-employment benefits, Amy Monahan, professor at the University of Minnesota Law School, said public pension plans and other retirement benefits are governed by widely varying state laws and, in some cases, provisions in state constitutions.
As a result, it may not be easy for analysts to determine if financially troubled municipalities have the ability to make changes in their plans, she said.
“There is no one single answer when it comes to public [pension] plans,” Monahan said. She added that analysts have to look at the “laws specific to each state to know what [municipalities] can and cannot do from a legal perspective.”
Another speaker, David Dubrow, a partner at law firm Arent Fox, agreed.
“There’s a lot of ambiguity and uncertainty, outside of Chapter 9 [bankruptcy], when it comes to what municipalities and states can and cannot do in terms of restructuring their pension plans,” he said.
A hundred years ago, Monahan said, pensions in some states were considered gifts that municipalities could change or revoke without running into legal difficulties.
Since then, state laws have changed and made it increasingly difficult for municipalities to make changes to retirement benefits, she said.
“This is an area of law that has had some dramatic changes over the last decades,” she said.
In some states, Monahan said, pension plans are considered to be the property of former employees, meaning municipalities must follow due-process requirements, such as notifying retirees about plan changes in writing. And a handful of states – Illinois, Alaska, New York and Michigan, for example – protect pension benefits in their constitutions.
Municipalities’ ability to make changes to health care and OPEBs is usually determined not by state law, but by provisions in labor contracts.
“Almost without exception, the legal assumption … is that there is no continuing legal right to these benefits, absent clear evidence of the contrary. In almost all cases, this is going to come down to … the particular collective bargaining agreement,” Monahan said.
