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Published on Thursday, August 14, 2014

Court Decision on Pension Cases Released

Today the State Supreme Court released two decisions in related cases upholding the Legislature’s actions that repealed gain-sharing and eliminated automatic COLA increases for some retirees. A decision the other way would have meant significant increases in employer costs and contributions to the retirement systems. 

Gainsharing was adopted by the Legislature in 1998 for PERS 1 and PERS 3 and for plans covering teachers and school employees. The basic premise was to share significant pension investment gains over a several year period with retirees through increased benefits. The 1998 law also included the ability for the Legislature to repeal gain-sharing in the future as a protection measure from unintended impacts.

In 2007, the Legislature did repeal gain-sharing as a result of actuarial analysis that showed significant long-term increases to pension costs. Then in 2011, the legislature ended automatic Uniform COLA (UCOLA) increases, which also included specific language regarding repeal, for PERS 1 retirees. 

The lawsuit was brought by retirees who believed that the changes violated their contractual benefits rights and case law under Bakenhus. Bakenhus is a 1956 Supreme Court ruling that pension benefits are a vested contractual right and cannot be changed or reduce retroactively without providing a similar benefit of equal value. 

Today’s decision clarifies the ability of the state to reserve the right to make changes to pension benefits. It was estimated to cost $5 billion over 25 years to local governments if the Court went the other direction and reinstated the UCOLA and gain-sharing.  

For more background and additional resources, click here

If you have any questions, please contact Candice Bock at AWC.

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