June 30 (Bloomberg) -- Colorado and Minnesota state judges threw out lawsuits by retired public employees who challenged reductions in their benefits, ruling state pension funds have the legal right to alter some post-retirement terms.
In separate rulings yesterday, Judge Robert S. Hyatt in Denver and Judge Gregg E. Johnson in St. Paul rejected claims by the former workers that they had a right to specific cost of living adjustments.
Hyatt said that while the plaintiffs had a contractual right to their pensions, they didn’t have a right to “the specific COLA formula in place at their respective retirement, for life without change.” Johnson said Minnesota retirees didn’t have a constitutionally protected property interest in COLA increases.
Public pensions lack from $700 billion to more than $3 trillion they will need to pay for all the benefits promised in coming decades, depending on the assumptions used to calculate the obligations. Those shortfalls have contributed to credit-rating cuts to borrowers including Cook County, Illinois, New Jersey and Pittsburgh, and fostered speculation about looming debt defaults by cities and states.
States and municipalities have been targeting employee pension benefits, seeking to save money as diminished revenue forces spending cuts on schools and public safety.
While almost two-thirds of U.S. states have curbed employee benefits or raised required contributions for retirement and benefit plans, the measures have typically affected current workers rather retirees, said Keith Brainard, research director for the National Association of State Retirement Administrators, a trade group for pension funds.
“Other legislatures might consider the legal experience in Colorado and Minnesota in considering possible changes to their benefit structure,” he said.
Attorney Stephen Pincus, whose Pittsburgh firm represented the retirees in both lawsuits, said he and his clients are discussing whether to appeal.
While the trial court decisions don’t create legal precedent, other courts or politicians may look to them, Pincus said.
“State legislatures may be emboldened by the decisions,” said Pincus, a partner in Stember Feinstein Doyle & Payne LLC, “Courts may look at these at least as a roadmap that they want to follow.”
Johnson heard arguments in the case at a May 22 hearing where Pincus said he’d been unable to find another case where a court sanctioned cuts to “the vested benefits of a group of retirees.”
The cuts violate guarantees in state and federal constitutions against the government taking property without just compensation, his Minnesota clients claimed.
Assistant Attorney General Rita Coyle Demeules, arguing the cuts should be upheld, told the judge at the hearing that pension terms for active employees were also altered to spread the burden.
“The benefits they cite are future and speculative,” she said.
Ben Wogsland, a spokesman for Minnesota Attorney General Lori Swanson, didn’t immediately respond to a telephone message seeking comment.
The Colorado workers claimed the cuts breached contractual guarantees in the state and U.S. constitutions and deprived them of property.
Colorado Attorney General John Suthers said the decision will help shore up the finances of the Colorado Public Employees’ Retirement Association, or PERA, a pension system relied upon by 441,000 current and retired public emloyees.
“This ruling represents a step toward long-term solvency for the PERA retirement fund,” he said in a statement after the rulings were announced yesterday.
The Colorado case is Justus v. State of Colorado, 10-01589, District Court for Denver City and County, Colorado (Denver); The Minnesota case is Swanson v. State of Minnesota, 10-05285, Ramsey County, Minnesota, District Court, Second Judicial District (St. Paul).