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Published on Friday, December 14, 2012

County court rejects Legislature’s repeal of PERS 1 and TRS 1 annual increases

On November 9, a Thurston County judge ruled that the 2011 Legislature improperly repealed an annual increase provided to retirees and beneficiaries of PERS 1 and TRS 1.

In 1956, the Bakenhaus v. Seattle decision established that “payments under government pension plans are a form of deferred compensation for past services rendered to the employer”. In other words, pensions granted to public employees are not a gratuity, but a deferred compensation rendered on a contractual basis. No law can be passed that would “impair the obligations of contracts” held between the employer and employee. The result is a prohibition on retroactively changing public employee pension benefits.

In 1995, the Legislature stipulated that the provision for annual increases was not a contractual right and the state could amend or repeal it. In 2011, the Legislature passed a law discontinuing annual benefit increases for retirees and beneficiaries in the Public Employees’ Retirement System Plan 1 (PERS 1) and the Teachers’ Retirement System Plan 1 (TRS 1). This was quickly challenged in court by education associations and state employees groups. Budget impacts included a total of $524 million in cost savings for the state and $389 million in cost savings for local governments for 2011-2013. This was the motivation behind the legislation.

In early November of this year, a Thurston County Superior Court ruling, found here, invalidated the discontinuance of the annual benefit increase. Judge Chris Wickham ruled that the repeal violated the state constitution. The decision is expected to be appealed, and it is likely the case will be decided by the State Supreme Court.