Colorado Retirees Sue on COLA Cut-Back

March 1, 2010 (PLANSPONSOR.com) – A group of retirees has sued Colorado’s state pension plan, arguing that the elimination of an annual pension increase constitutes an unconstitutional reduction in benefits.

According to a press release from the law firms of Stember Feinstein Doyle & Payne, LLC and Richard Rosenblatt and Associates, LLC, which last Friday filed a class action lawsuit on behalf of Colorado Public Employees’ Retirement Association (PERA) retirees, the new law, which was signed by Governor Bill Ritter on February 23, is unconstitutional because it impairs the retirees’ contractual rights to receive pension benefits at the levels promised them when they became eligible to retire or when they actually retired.

“Both the United States and Colorado Constitutions bar reductions in pension benefits once the right to those pension vests. And that is exactly what the legislature did here,” said Stephen M. Pincus, one of the attorneys for the retirees.

Guaranteed Adjustments?

From 1994 until now, the plaintiffs’ attorneys maintain that state law has guaranteed annual pension adjustments, either through a cost of living adjustment (COLA) or a guaranteed 3.5% yearly increase, but that, citing PERA’s underfunding, the state Legislature recently passed Senate Bill 10-001, which eliminated the 3.5% annual increase in effect since 2001.  As a result of the new 2% cap on the COLA, plaintiffs’ counsel maintains that retirees will lose millions of dollars in promised benefits. For example, a public employee who retired in 2002 and who was eligible for $2,772 a month (the average PERA benefit in 2008) will lose more than $165,000 in promised benefits during the next twenty years, according to the law firms.

“The Colorado Supreme Court has repeatedly held that once a public employee is eligible for retirement, his pension benefits may not be diminished,” said lead plaintiffs’ attorney William T. Payne. “This includes not just his base benefit but also any guaranteed, annual increase.”

The suit is filed on behalf of approximately 100,000 PERA members who became eligible to retire or who have retired since March 1, 1994, when annual pension increases were first guaranteed under state law.  The suit asks the court to rule that the recent changes are unconstitutional and to order the defendants not to implement them.

In a press release, the plaintiffs cite a 2004 formal Opinion by then-Attorney General Ken Salazar that they claim acknowledged that “[w]hen a PERA member retires from active service and begins receiving a pension, the member’s pension becomes a vested contractual obligation of the pension program that is not subject to unilateral change of any type by the General Assembly. “

This lawsuit is about the state complying with its own Constitution,” said plaintiff Gary R. Justus, a retired Denver Public Schools math teacher in the press release.  “The General Assembly is trying to correct its past mistakes on the backs of the retirees. We can’t go back and restart our careers.”  Denver Public School retirees are also included in the suit as their pension plan became part of PERA on January 1 of this year. The new law eliminates what the plaintiffs’ attorneys categorized as a “guaranteed 3.25% annual increase owed to them”.

The lawsuit, Justus v. State of Colorado, et al., was filed in the state District Court in Denver. The other named plaintiff, Kathleen Hancock, retired from the Colorado Department of Labor in 2001. Defendants are the State of Colorado, PERA, Governor Bill Ritter, PERA Board Chair Mark J. Anderson and PERA Board Vice Chair Sara J. Valt.   

A copy of the Complaint and the 2004 Attorney General Formal Opinion is available at http://www.stemberfeinstein.com/caseupdates.

More information on Senate Bill 10-001 is available on the Colorado PERA web site at http://www.copera.org/pera/about/legislation/SB10-001.stm

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