Court ruling in pension cases could cost state billions of dollars
Oct 24, 2013, 3:33 PM | Updated: Oct 25, 2013, 6:17 am
An unusual trial started Wednesday, pitting Detroit's emergency manager and his legal team against unions and pension funds that claim the city isn't qualified to scrub its books clean under Chapter 9 bankruptcy. (AP Photo)
(AP Photo)
For tens of thousands of current and retired state employees, when it comes to their pension, a promise is more than just a promise, it’s a contract. The Washington Supreme Court is considering two cases that could cost the state billions of dollars in retirement benefits.
At issue are pension benefits repealed by the Legislature to save money; benefits union employees and retirees want back.
The state’s high court heard arguments Thursday on the issue of automatic cost-of-living increases. The COLAs were repealed by the Legislature in 2011. The second case deals with something called “gain sharing.” It was instituted in the 1990s, allowing retirees to share in any larger-than-typical investment gains. It was designed to encourage employees to switch into a new pension plan that is less expensive for the state.
The state considers the benefits in question, enhancements. The unions call them guarantees.
The costly gain sharing provision was replaced by the Legislature with a different benefit in 2007. Noah Purcell, arguing for the state Department of Retirement Systems said that was not a violation of the state’s promise of pension benefits.
“That promise was not gain sharing for life. The promise was that they would receive gain sharing while the statute was in effect.”
Retirees and public employee unions, including the Washington Education Association and the Washington Federation of State Employees sued the state. They’re hanging their hats on a court ruling that prevents an employer from eliminating vested retirement benefits.
“To give a promise and then reserve the right to take it away is an absurdity because it promises nothing, it’s wholly illusory,” said Rick Spoonemore, an attorney representing retired state employees.
Attorney Tim Leyh, a special Assistant Attorney General, said the cost-of-living increases were always considered temporary, not a guaranteed part of the state’s pension system. Unions call the benefit changes “takeaways.”
“There’s no takeaway involved here,” said Leyh. There was a limited grant of an enhancement and a termination of that grant.”
Spoonemore said the COLA is an integral component, a contractual right of the pension than can’t be summarily eliminated by the Legislature.
“It’s not an enhancement, as the state keeps on calling it. It is part of the benefit itself, designed that the benefit, throughout your retirement, keeps up with inflationary pressures.”
The 2011 repeal of the cost of living provision is on hold, pending the decision of the State Supreme Court.
Pension benefits helped send the city of Detroit into bankruptcy. In Washington, the state is under court order to increase education funding by billions of dollars. If the state is forced to reenact the pension benefits, it could cost the state an estimated $1.3 billion over two years and billions of dollars more in the years to come.
