Minnesota judge Ok’s discovery in pension suit

By   /   September 15, 2010  /   2 Comments

By Jonathan Miltimore — Plaintiffs want state documents and employee depositions on decision to limit cost of living increases for retirees.

A Minnesota court deferred judgment Wednesday on a lawsuit challenging legislation limiting benefit increases for retirees currently drawing checks.
 
Stephen Pincus, an attorney representing retirees in Minnesota, Colorado and South Dakota, said plaintiffs need internal state documents and state employee depositions to determine if officials had explored all policy options available to shore up pensions, such as increasing contributions or reducing benefits of future hires.
 
 “From our point of view there is no reason to rush to have this case decided,” Pincus said. “We had no idea the state wanted to have the entire case decided up front.”
 
While many states — including sixteen this year alone — have overhauled pensions in the wake of the stock market crash, only Minnesota, Colorado and South Dakota passed legislation that trimmed the cost of living adjustments (COLA) for current recipients.
 
The Minnesota case, first on the docket and involving an estimated $1 billion in future allocations, has been cited as a possible bellwether for cash-strapped states struggling to find immediate means to shore up pension systems that were in trouble even before investment values plunged.
 
Wednesday morning’s hearing, which lasted nearly three hours, ended with Ramsey County judge Greg E. Johnson granting the plaintiffs’ request for additional time for discovery.
 
The state had objected to the request, arguing Minnesota case law made it clear the state had the right to modify benefits because no contract existed between employees and the state.
 
“There is no contract here, express or implied,” Assistant Attorney General Rita Coyle DeMueles said. “Any delay creates a cloud of (public) uncertainty.”
 
But Johnson, noting the likelihood of appeal and the scope of the case, denied the request and granted the plaintiffs an additional 90 days.
 
“If I grant summary judgment it’s going to appeal, and you’ll have that cloud of uncertainty anyway,” Johnson said. “Part of my job as judge is to make sure the record is complete.”
 
In 2009, the legislature lowered its 2.5 percent COLA to a rate ranging from 1 to 2 percent for the majority of the 65,000 retirees and suspended increases for retirees in the Teachers Retirement Association.
 
In addition to the benefit cuts, the state has phased in a series of contribution increases, but despite the law changes the funding level of state systems remains about 70 percent based on state assumptions of high future investment returns.
 
These figures, which assume average rates of return of about 8 percent — a number many economists believe is unrealistic — do not include other post employment benefits such as health care, which are almost entirely unfunded.  
 
Though the judge did not rule Wednesday, the hearing did provide a glimpse of the arguments the case will likely hinge on, as attorneys sparred over jurisdiction and case law.
 
The strategies of the opposing councils were easy to identify, with state arguments relying heavily on state legal precedent and plaintiffs invoking federal precedent in states with more expansive histories of worker rights.
 
Pincus cited case law from several states in which courts determined worker benefits could not be “drastically impaired” unless the state was under severe financial stress. He charged the state with backing  down on promises to workers.
 
“The state itself took on this obligation,” he said. “Did they even think about other (available policy) options.”
 
 DeMueles said the cases cited by Pincus have no bearing on this case and the legislature has clearly defined authority to adjust benefits to accommodate retirees, current employees and taxpayers.
 
“Minnesota’s laws on the interest and rights (of workers) are distinctively different from those in other states,” she said. “All the cases mentioned involved states employing collective bargaining contracts.”
 
DeMueles also said Minnesota statute makes no distinction between the fiduciary obligations to current employees and retirees.
 
More than a dozen people attended the hearing, including Richard Maus, a retired teacher who lives in Northfield.
 
Maus said he enjoyed watching the hearing, but was surprised to hear the state’s council say he didn’t have a contract defining his retirement benefits.
 
“I saw a lot of contracts in my 30 years teaching,” he said.
 

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  • Algernon Moncrief

    ADOPT THE SIMPLE COLORADO PENSION SOLUTION! BREACH CONTRACTS!

    Obviously, legislators around the country are not quite as sophisticated as their counterparts in Colorado. It never occurred to them that they could just pass a bill stating “Oh, by the way, we are no longer bound by our contractual obligations.” Simplicity itself! This approach makes life much easier in difficult budgetary times, and takes the burden off of GASB, state and local governments, plan sponsors and the SEC!
    Under Colorado’s “state debt relief scheme” . . . . . you simply seize vested, accrued, contracted benefits from retirees (incredibly, with help from your local unions) until your unfunded pension liabilities are sufficiently reduced to raise your funded ratio. This plan also improves the status of your bonded debt.

    If you are as brazen as we are in Colorado you claim that your goal is to achieve a 100 percent funded ratio, instead of the 80 percent level that is considered well-funded in the industry. May as well go for the 100 percent, no one understands all this pension mumbo jumbo out here in the west.

    The 100 percent goal provides lots of wiggle room for unexpected investment shortfalls, or needed under-funding in the future. Also, another ingenious provision that we invented. If it happens that your pension investment team consistently underperforms benchmarks (last year we underperformed by about a billion) and accordingly you have an investment loss for the year, no problemo, just state in the bill you enact that retiree contracted benefits will be further cut to accommodate the loss! My guess is that when pension investment staff around the country hear about this sweet no-accountability gig they are going to beat a path to Colorado PERA. Where can I get that kind of a job? To be fair, credit for finding this solution should go to the bright administrators at Colorado PERA. You can imagine how difficult it is psychologically to recommend a course of action that you yourself have earlier declared illegal, (see this excellent Denver Post article.) http://www.denverpost.com/news/ci_11105271

    Hello state and local governments . . . round up those rascally debt problems and herd ‘em out west to us in Colorado, we’ll fix ‘em right good fer ya!
    (Visit saveperacola.com for more info.)

  • Algernon Moncrief

    ADOPT THE SIMPLE COLORADO PENSION SOLUTION! BREACH CONTRACTS!

    Obviously, legislators around the country are not quite as sophisticated as their counterparts in Colorado. It never occurred to them that they could just pass a bill stating “Oh, by the way, we are no longer bound by our contractual obligations.” Simplicity itself! This approach makes life much easier in difficult budgetary times, and takes the burden off of GASB, state and local governments, plan sponsors and the SEC!

    Under Colorado’s “contract breachin’ plan”. . . . . you simply seize vested, accrued, earned, contracted benefits from retirees and pension members (incredibly, with the help of your local union lobbyists) until your unfunded pension liabilities are sufficiently reduced to raise your funded ratio. This plan also improves the status of your bonded debt (keepin’ those SEC fellas happy).

    If you’re as brazen as we are in Colorado you claim that your goal is to achieve a 100 percent funded ratio, instead of the 80 percent level that is considered well-funded in the industry. May as well go for the full 100 percent, no one understands all this pension mumbo jumbo out here in the west.

    The 100 percent goal provides lots of wiggle room for unexpected investment shortfalls, or needed under-funding in the future. Also, here’s another ingenious provision that we invented. If it happens that God provides you with a lame pension investment staff, they consistently underperform their benchmarks (last year we underperformed by about a billion), and accordingly you have an investment loss for the year, no problemo, just state in the bill you enact that retiree contracted benefits will be further cut to accommodate the loss! My guess is that when pension investment staff around the country hear about this sweet no-accountability gig they are going to beat a path to Colorado PERA. Where can I get that kind of a job? To be fair, credit for finding this solution should go to the bright administrators at Colorado PERA. You can imagine how difficult it is psychologically to advocate a course of action that you yourself have earlier declared illegal, (see this excellent Denver Post article.) http://www.denverpost.com/news/ci_11105271

    We know it’s burdensome for busy pension administrators (particularly short timers) to have to tell elected officials that they really ought to make their annual required contributions . . . it’s much easier to just let those unfunded liabilities build up year after year after year, until you have a good pile, then wipe the slate clean with a good contract breachin’!

    Our Colorado pension administrators are straight shooters. They’ve been telling us for a couple years now, “We can’t invest our way out of this.” Now they’re keeping their word . . . by missing their investment performance benchmarks by wide margins.

    Meeting contractual obligations? Performing your fiduciary duty? Acting in a moral fashion? No need to fret about these things. We looked into it in Colorado and dang if they haven’t been optional all along. Hello state and local governments . . . round up those rascally debt problems and herd ‘em out west to us in Colorado, we’ll fix ‘em right good fer ya!
    (Visit saveperacola.com for more info.)