State Supreme Court hears public pension arguments

This morning the state Supreme Court heard arguments on the public pension gain sharing and uniform COLA cases. The Department of Retirement Services summarized the issues yesterday:

At issue in one case is a law from 2008 which repealed gain sharing provisions for members and retirees of certain state retirement plans and replaced them with other pension-related benefits, including options for early retirement. In approving the replacement benefits, the Legislature made them contingent on the successful repeal of gain sharing.

A King County Superior Court ruling found that the repeal of gain sharing was invalid, but it also held that the state can terminate the replacement benefits if gain sharing is ultimately reinstated. . . .

The other case that will go before the Supreme Court concerns a 2011 law which discontinued an annual increase provided to certain retirees and beneficiaries in the Public Employees’ Retirement System Plan 1 (PERS 1) and the Teachers’ Retirement System Plan 1 (TRS 1). Both plans have been closed to new members since 1977.

When the annual increases were approved in 1995, the Legislature specified that they were not a contractual right and that the state reserved the right to amend or repeal them. A Thurston County Superior Court ruling, however, found that the repeal was a violation of the state constitution.

Washington case law on these issues is based on the “California Rule,” which I wrote about here. As the Economist writes,

Last week the Democratic mayors of four Californian cities (and one Republican) unveiled a reform they hope to place on the ballot next year. If voters approve the Pension Reform Act of 2014, public employers will be able to change the pension arrangements of employees for future work (benefits already earned will not be touched). Federal law empowers private employers to do this, but the “Californian rule” of case law, which several other states have copied, means that once a public worker signs a contract his or her pension arrangements are guaranteed for life. [Emphasis mine.]

Effectively, it is next to impossible to reduce any future benefits for current employees. This means that the only way for pension systems to save money is to reduce benefits for new employees.

Will the Court allow these provisions to be repealed — hard to say after listening to the arguments — or will the state budget take the hit? As the Seattle Times notes, “At stake is $10 billion in taxpayer money over the next 25 years — money that will be needed for public schools, community colleges and universities.”