State pension fund accountability and transparency is often decided through court decisions. Here’s a look at what’s going on throughout the country.
o ISSUE: Whether Retirement Systems of Alabama executives improperly invested billions of dollars in public employees’ retirement funds over 15 years by earning lower-than-average returns in violation of the “Prudent Man Rule,” dictating that investments must be consistent with those a prudent man acting in a like capacity would make.
o PENDINGin Circuit Court
· Filed 8.11.11 Katie Barnes, et al. v. Arizona State Retirement System
o ISSUE: Whether HB 2264 may constitutionally require public employee contribution increases, effectively implementing a 50/50 contribution between employees and employers.
o HOLDING: The Maricopa County Superior Court held that the law changing the contribution scheme of pension unconstitutional as a violation of the contractual relationship between the state and its employees, and thus a violation of the state constitution and statutes.
· Filed 2.11.12 Arkansas Teacher Retirement System v. State Street Corporation
o ISSUE: Whether State Street Bank violated Massachusetts law in maintaining an foreign exchange practice by inflating foreign exchange purchasing rates and deflating foreign exchange rates when selling currency, affecting the investments of the ATRS pension funds.
§ Class action
o PENDING in District Court for the District of Massachusetts; Oral arguments scheduled February 24, 2012.
· 1997, the California Court of Appeals rules that the Governor could not delay payments to the pension system to balance the budget, because it violated the state employees’ contractual right to an actuarially sound retirement system.
· Held 03.06.12 Civil Service Commission Hearing
o Jeffrey Baker, a county investment officer, calculated risk beyond allowable limits in two sectors of the $8 billion San Diego County pension fund, and was terminated for releasing the information outside the protocols of the San Diego County Employees Retirement Association, a firing upheld by the Commission on March 6, 2012. Baker responded to the ruling by saying he planned to take his allegedly illegal firing to superior court.
· Filed approximately March, 2011 Justus et al v. the state of Colorado and PERA
o ISSUE: Whether SB 1 is unconstitutional because it impairs retirees’ contractual rights to receive pension benefits as the level promised when employees retired or became eligible to do so.
§ SB 1legislated that the COLA will drop to the lower of 2% or indexed based on the Consumer Price Index for Urban Wage Earners (CPI-W). COLA could drop to zero if PERA experiences a negative investment return year.
o The dismissal of the case by a Denver District Court on June 29, 2011 was based on the legally distinguishable contractual right to the base PERA benefits, as opposed to the non-contractual right to specific COLA benefits.
o March 24, 2012, plaintiffs announced intent to appealthe June 29th dismissal of the case, based on their original legal claims that settled law by the Colorado Supreme Court clearly determined that COLA is part of retiree’s contractual rights.
· Settled 9.20.04 Office of Connecticut Attorney General: Pension Fund Settlement
o FACTS: Then-Attorney General Richard Blumenthal sued Forstmann Little & Co. for losing $125 million in state pension funds by making investments that were not consistent with its contract with the state.
o HOLDING:On July 1, 2004, a Connecticut Superior jury found that the investment firm repeatedly breached its contract with the state, violated fiduciary duty and acted with gross negligence, in bad faith or with willful misconduct. The jury did not award monetary damages.
o SETTLEMENT:FL&C agreed to pay the Connecticut Pension Fund $15 million to resolve all issue in the lawsuit and agreed to return to the pension fund $1.2 million that was withheld from the state to cover legal expenses stemming from the suit.
o ISSUE: Whether the legislature requiring a 3 percent contribution to the state pension system is a violation of contractual and/or collective-bargaining rights.
§ The lawsuit centers, in part, around a 1974 law that halted employee contributions to the retirement system; the law also dictates that the rights of the retirement system are contractual in nature and cannot be altered in any way.
o HOLDING: March 6, 2012, the Circuit Court for the Second Judicial Circuit in and for Leon County, Florida, GRANTED the Motion for Summary Judgmentby Plaintiffs, holding that portions of Senate Bill 2100 imposing a 3% mandatory employee contribution and eliminating COLA for future services are unconstitutional as applied to individuals who were members of the FRS prior to July 1, 2011 and defendants are permanently enjoined from implementing these provisions as to such individuals.
o ISSUE: Whether SB 1108 violated the state Constitution when it effectively impaired existing and contractual obligations to teachers, specifically the IEA, by repealing the Early Retirement Incentive Program for public school educators (a means of curbing collective bargaining).
o HOLDING: Idaho District Judge Hansen ceded that the law caused substantial contractual impairments, but that the Constitution allows for such action when it serves a key public purpose. The state has a significant and legitimate public purpose in imposing the regulation as a means of promoting efficiency and accountability within the public school system. The IEA will appeal.
o APPEALED April 27, 2011: IEA filed appeal for declaratory judgment and injunctive relief. See complaint.
· Filed in January, 2005 Board of Education of Chicago v. Public School Teachers’ Pension & Retirement Fund
o ISSUE: Whether the Board of Education violated its legal duty under the Illinois Pension Code submitting a contribution that was $40,635,883.26 short of the requirement with unilateral authority.
§ Currently in a procedural battle over whether the Board must redraft its complaint to name all 3,400 teachers as defendants, in the process having to find and serve each one with a copy of the suit. (10.12.11)
o ISSUE: Whether using age as a factor in a retirement plan “arbitrary,” rendering the plan discriminatory on its face in violation of the Age Discrimination in Employment Act?
o HOLDING:The Supreme Court of the United States held in a 5-4 decision that the Kentucky system does not discriminate against workers who become disabled after becoming eligible for retirement based on age. The differences in treatment were not motivated by age but rather by pension status.
· Released 03.28.12 Louisiana Legislative Auditor Pension Report
o The reportconsiders the likelihood of litigation resulting from the proposed legislation affecting public pension benefits in Louisiana, specifically: 1) increasing the minimum retirement age, 2) increasing employee contributions, 3) increasing the number of years used to calculate final employee average compensation, and 4) the merger of two independent public retirement systems.
o ISSUE: Whether the legislature may constitutionally eliminate retired state employees’ and public school teachers’ COLA for three years and thereafter reduce the adjustments to 3 percent on the first $20,000 of a retiree’s pension.
§ Prior to the change, the retirement system was authorized to grant COLA of up to 4 percent a year.
o PENDINGin Maine District Court
· Filed 4.18.11 General Retirement System of Detroit v. the State of Michigan
o ISSUE: Whether the Local Government and School District Fiscal Accountability Act (the “Act”) Public Act 4may constitutionally and unilaterally require the municipal government to transfer the assets of the local retirement system to another retirement system for any reason under certain circumstances.
§ Filed in U.S. District Court
o PENDING in U.S. District Court Eastern District of Michigan Southern Division
· Filed 6.30.11 Swanson v. PERA
o ISSUE: Whether the MN legislature has the authority to amend the pension statutory formula used to calculate and adjust future pension benefits. HOLDING: The Ramsey County District Court rejected the suit, backing the Legislature’s policy-making authority, emphasizing that “statutes are not contracts” absent plain and unambiguous terms that show intent to contract.”
o ISSUE: Whether the legislature may withdraw more from the paychecks of veteran public employees to support pension reform.
o HOLDING: Merrimack County Superior Court held that it is illegal for the legislature to increase contributions for all employees who had worked for at least 10 years. The ruling declared legal the Legislature’s ability to affect new hires, including raising the retirement age and reducing their ability to pad future pension amounts. At this point, it unclear whether the Attorney General will appeal.
· Filed 10.18.11 Paul DePascale v. State of New Jersey
o ISSUE: Whether the state may constitutionally compel judges to pay more toward pension and health benefits as a deduction that comes directly from their salaries.
o HOLDING: Mercer County Superior Court held that the salary diminishment is unconstitutional, as it is not a tax imposed on all citizens of the state of NJ, but a legislative action in contravention to the Constitution. Specially, the Judge also noted that while NJ may be facing difficult economic conditions, it cannot justify violating the portion of Constitution that does not allow judges’ salaries to be reduced during their term.
o ISSUE: Whether the NJ legislature impermissibly impaired the obligation of contracts and the right to due process by reducing pension benefits through the suspension of pension adjustments (COLA), increasing contribution of active employees, and increasing contributions of employees with fewer than 20 years of service to pay for medical benefits in retirement.
§ NJEA filed a brief arguing that the case belongs in U.S. District Court, rather than Superior Court, citing that because pensions are paid out of the state’s pension fund and not out of the state treasury, the federal court can hear the matter as a violation of the Constitution and contractual rights. No judgment has been rendered as of 2.27.12.
o HOLDINGMarch 5, 2012, Defendant’s Motion to Dismiss for lack of subject matter jurisdiction is granted. The U.S. District Court New Jersey finds that the court is without subject matter jurisdiction because the Plaintiffs’ claims are barred by the Eleventh Amendment, there is no contractual right to any of the disputed items (therefore Contracts Clause claims are dismissed, Due Process claims must be dismissed because they cannot survive rational basis review, and the Plaintiffs’ Takings Clause claims must be dismissed because no protectable property interest in dispute items.
· 1993, the New York Court of Appeals ruled that lawmakers violated the state constitution by trying to change the way government pension fund contributions were calculated. The new method would have been less expensive for NY, but would have damaged the pension fund’s fundamental soundness.
OHIO & NEW YORK
· Filed 7.21.10 In re BP, PLC Securities Litigation
o ISSUE: Whether British Petroleum (“BP”) and its executives made fraudulent statements about the company’s safety measures and about the extent of the Gulf of Mexico spill, leading to losses in the states’ retirement systems between $181 -$229.4 million in aggregate BP stock.
§ Ohio Public Employees Retirement System loss: $71.3 billion
§ New York State Common Retirement Fund loss: $132.6 billion
§ Ohio State Teachers Retirement System loss: $60.9 billion
§ Ohio Police & Fire Pension Fund loss: $10.1 billion
§ Ohio School Employees Retirement System loss: $9.6 billion
o PENDINGin Texas Southern District Court
o GRANTED MOTION TO DISMISS: On March 30, 2012, U.S. District Court for the Southern District of Texas granted BP’s motion to dismissthe ERISA stock drop class action lawsuit against BP. The Judge did leave open the possibility that the plaintiffs may refile and adequately allege that the defendants made misrepresentations while acting in a fiduciary capacity and failed to properly monitor other fiduciaries.
· Ruling 4.12.12 South Dakota Retirement System v. State of South Dakota
o ISSUE: Whether the South Dakota Legislature violated the contract between the state and the SDRS when it trimmed the COLA increase for retirees’ in the state’s public pension plan.
o HOLDING: Circuit Court Judge Mark Barnett held that the Legislature has the constitutional authority to alter COLA benefits, because there is not a contract guaranteeing unchanged COLA benefits.
· Filed 8.10.11 In re Nortel Networks Corp. ERISA Litigation
o ISSUE: In a 401k/ESOP class action suit, whether Nortel Network Corp. violated fiduciary duties owed under ERISA to pension plan participants.
o SETTLEMENT: Related documents available here, although specific details of settlement are not available in full.
· Filed 08.11.11 Commonwealth of Virginia v. The Bank of New York Mellon Corporation
o ISSUE: Whether BNY Mellon made false claims and statements in violation of the Virginia Fraud Against Taxpayers Act, resulting in harm suffered by the Commonwealth of Virginia, the Virginia Retirement System Fund, the Fairfax County and Fairfax County Retirement System Funds and the Arlington County and Arlington County Employees Retirement System Fund.
§ Virginia asked the court for $120 million plus interest in damages, based on $40 million of actual damages and treble damages.
o GRANTED MOTION TO DISMISS: BNY won dismissal of VA’s lawsuit claiming that the bank defrauded state pension funds through foreign-currency transactions. Fairfax County Circuit Judge Terrence Ney dismissedthe complaint, saying that the plaintiffs could not proceed under the Virginia Fraud Against Taxpayers Act, which requires the submission of a claim for payment that didn’t occur in this case.
o ISSUE: Whether the legislature violated constitutional rights of equal protection and freedom from contract impairment when it ended automatic COLA raises for retirees in two of the Washington’s older pension plans in HB 2021. The bill also raised the minimum benefit for older retirees, if they meet certain service and years requirements.
o PENDINGin Superior Court of Washington for Thurston County
· 1972, the Washington State Supreme Court found that the Governor violated the Contracts Clause of the Constitution when he tried to withhold government contributions to the retirement system.