Fasano Statement in Response to Gov. Malloy’s Press Conference & Comments about the Legality of Proposed Pension Changes

Hartford – Senate Republican President Pro Tempore Len Fasano (R-North Haven) released the following statement in response to Governor Dannel P. Malloy’s press conference today.

“What the governor said today is the same thing he’s been saying for weeks. The only problem is he’s wrong. The governor continues to argue that pension reform 10 years from now cannot affect any state employee who is vested. But numerous courts have upheld the rights of the legislature to make such changes. For example, take Rhode Island where a Democrat governor stood up for pension reform in the face of threats of a lawsuit. Multiple cases on COLAs specifically suggest the governor’s legal analysis is in error. A self-serving analysis from the governor’s own budget secretary is not an objective review of the legal standing of the budget that passed the legislature. Obviously Gov. Malloy knows this is a critical issue and people are starting to believe he’ll do anything to protect his biggest supporters – even if it means working to prevent an honest discussion on the needed changes to reform unsustainable benefits. The numbers we received on proposed pension changes, calculated by the very same actuaries employed by the governor’s office, show that significant savings can be achieved and that is not a question.”

Below are examples of case law that support proposed reforms:

Buffalo Teachers (2nd Circuit Court of Appeals 2006)

A state appointed “Buffalo Fiscal Authority” ordered the city to institute an immediate wage freeze.  Unions with contracts that promised wage increases sued.

Court found that there was a contract right and the wage freeze substantially impaired that right by denying employees bargained for raises.  However, court found the wage freeze was reasonable and necessary in light if the dire financial crisis facing the City.  The court noted the prospective and temporary nature of the wage freeze.  Also, the City had considered and tired other measures, including layoffs, school closures, and previous tax increases and yet still faced persistent structural deficits.  The court rejected the argument that the City or State was required to raise taxes.  While the court would give “less deference” to the city/state’s determination that the wage freeze was reasonable and necessary, it would still give some deference and not engage in a de novo review.

http://caselaw.findlaw.com/us-2nd-circuit/1229323.html

Cranston Police Retirees Action Committee v. City of Cranston (RI Superior Court 2016)

Under the Rhode Island Retirement Security Act, (RIRSA) towns with pension systems less than 60% funded were deemed “critical status” and required to submit an improvement plan or risk losing state aid.  Cranston had a chronically under funded pension system and limited ability to raise funds by virtue of its small size and tax base. It had only 57 active employees supporting over 400 retirees. It had cut services and raised taxes and was in real danger of bankruptcy.  After considering many alternatives, the mayor decided to suspend the contractually promised 3% COLA.

The court found that that COLA suspension was a substantial impairment, but that it was reasonable and necessary to further a legitimate public purpose.  Addressing a fiscal emergency is a significant and legitimate public purpose.  The city has considered and tried other alternatives and the court gave “great weight” to the mayor’s testimony that residents were already overtaxed and overburdened. The temporary COLA suspension was reasonable and did not reduce the base pension benefit, health benefits or other aspects of the pension.

http://law.justia.com/cases/rhode-island/superior-court/2016/13-1059.html

Marin Assoc. of Public Employees v. Marin County Employees’ Retirement Assoc. (Cal Court of Appeals 2016)

Legislature amended retirement statutes to eliminate, prospectively, the inclusion of certain non wage items in pension calculations (unused vacation days, standby pay, callback pay, etc.)

County employees sued arguing that they had a vested right to the benefits promised at the time they were hired and such benefits could not be reduced. The court rejected such a strict construction and instead found that while employees were entitled to a “reasonable” pension they were not entitled to the exact pension promised at the time of hire. Not until the employee actually retires, is he or she entitled to a fixed benefit.  Until that time, reasonable modifications to adjust to changing circumstances and protect the integrity of the system were permissible.   Indeed, “short of actual abolition, a radical reduction of benefits or a fiscally justifiable increase in employee contributions is allowed before the pension becomes payable and until that time the employee does not have a right to any fixed or definite benefits but only to a substantial or reasonable pension”

The court noted the need to balance the employees’ rights under the contract clause with the “essential attributes of sovereign power” and the two must be read in harmony.  In other words, legislatures have constitutional policy making authority that must be recognized and balanced against the rights of employees.

The court noted that reasonable modifications would include –

Increasing the retirement age

Increasing the years of service to qualify for a pension

Reducing the percentage cap or max doallr amount of a pension

Reducing or eliminating COLAs

Increasing employee contributions

Changing what is considered pensionable income

http://californiapolicycenter.org/mcera-california-court-ruling-allows-pension-changes/

http://law.justia.com/cases/california/court-of-appeal/2016/a139610.html

Courts in Kentucky, Colorado, New Jersey and other states have found that COLA reductions are permissible as there is no contract right to any specific COLA formula.

http://reason.org/news/show/2016-pension-litigation-year-in-rev

Pineman Case (1985 Conn State Supreme Court)

In the Pineman case – a 1985 case from the Conn State Supreme Court –  involved pre-collective bargaining (or non collectively bargained at that time) benefits.  The court looked at it as a statutory issue and whether active state employees (the case did not involve an impairment of existing retirees’ benefits) had a “vested” contractually protected interest in the benefits provided under the state employee retirement act.

The court sided with the traditional view that, absent an express contract or statutory language clearly evidencing an intent to create a contract, retirement statutes do not create constitutionally protected contract or “vested” rights.  It rejected those cases from other states that found protected contract rights in retirement statutes but then allowed unilateral changes that are “reasonable” or related to the financial integrity of the program.

https://www.leagle.com/decision/1985600195conn4051564