The system’s Board of Trustees filed the suit arguing that the Legislature is violating the state constitution by requiring it to recertify employer rates. According to the Associated Press, it points to a clause in the constitution adopted by voters in 1984 to protect the pension fund from raids by lawmakers. The board argues the clause gives it the fiduciary responsibility to set employer rates independently.
The news report said the board voted in June to move ahead with $50 million in higher annual rates for employers on top of already planned rate increases. The Legislature voted to block the board and stick with the planned rate increases. The board argues in its lawsuit that its decision is based on the latest actuarial economic and demographic assumptions.
According to the AP, the board said if the Legislature prevails and lower rates are in place, employer rates will have to be increased for fiscal years 2014 and 2015 and beyond to make up for the reduced employer contributions and any decrease in the plan’s funding. The fund is about 58% funded with a $3.7 billion unfunded liability in the pension fund and almost a $1 billion unfunded liability in its health insurance subsidy.
The Associated Press added that the Legislature included pension reform provisions in the budget package enacted last month that — among other things — increase the contribution rate for employees. Employee groups are suing to block implementation of that increase.The board isn’t taking a position on the employee groups’ lawsuit, but conceded that the outcome could affect its lawsuit.