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October 28, 2013 at 6:00 AM

The Washington Supreme Court hears the state pension cases

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In last Thursday’s paper, The Times advised the Washington Supreme Court to rule against public employee unions on two pension cases that together involve about $10 billion over 25 years. Here, from TVW, are the oral arguments by attorneys for both sides as they respond to the questions from the justices. The cases are filed under Washington Education Association v. Washington Department of Retirement Systems.

The first case is about “gainsharing,” an unusual benefit the Legislature put into law in 1998.  According to our editorial, “Under gainsharing, if the investments in a pension fund increased by 10 percent for three years in a row — which they were doing then — the future benefit promised to participants in the fund would go up.” The future benefit would never go down, but in this circumstance it could go up — and there were several periods like this.

Pension law says that once a benefit is promised to employees it can’t be reduced, because it’s taking away something they’ve earned, or partly earned. But in the law creating gainsharing, the Legislature reserved the right to end it. You could keep whatever increase in benefits you’d been promised up to that point, but you’d get no further increases.

To Solicitor General Noah Purcell, the matter was simple. “No one’s pension has declined. All we’re saying is that the state can reserve the right to cancel future increases in benefits.” If gainsharing was a contract, then the “reservation clause,” he said, was part of the contract. By claiming the reservation clause is invalid, the employee unions were “picking the parts of the contract they like and ignoring the parts they don’t.”

James Oswald, counsel for the WEA, argued that gainsharing had to be a contractual right because it if wasn’t, then it was a “gratuity,” or “extra compensation,” which would be forbidden under Article II, Section 25, of the state constitution: “The Legislature shall never grant any extra compensation to any public officer, agent, employee…” etc.  Section 25 goes on to say that it shall not “prevent increases in pensions,” so I don’t get Oswald’s point. Readers can watch the first video above, from TVW, and see if they are convinced. I found Purcell much more convincing.

The second set of arguments is about the Universal Cost of Living Adjustment, or UCOLA, which was in effect from 1995 until 2011 in the PERS-1 and TERS-1 pension plans. As with gainsharing, the Legislature created a mechanism to increase benefits but reserved the right to shut the mechanism down, and the beneficiaries now argue that the state can’t do this.

The state, represented by Special Assistant Attorney General Timothy Leyh, made the same arguments: The mechanism for raising benefits had a “reservation clause” saying that the Legislature could stop it. When it did, it was exercising its rights.

Justice Steven Gonzalez posed a hypothetical. Did the state have the right to promise a retirement benefit of, say, $100, and reserve the right to cut it to zero? No, Leyh said. The state could not cut the amount. But it could reserve the right to stop increasing it.

The WEA was represented by attorney Richard Spoonemore, who I thought made a stronger argument than his counterpart in the gainsharing issue. The UCOLA was a replacement benefit for the 1973 COLA, Spoonemore said. Workers had been promised the 1973 COLA, and had a right to it. The Legislature replaced it with the 1995 UCOLA, which was OK. But by canceling the UCOLA, the state was doing in two steps something the Legislature could not have done in one.

He had me convinced until state’s counsel Leyh said the 1973 COLA was designed to be granted solely at the Director of Retirement Systems’ discretion, based on the existence of surplus in the pension funds; that to PERS-1 members (general public employees) the 1973 COLA was paid for only five years, and never after 1980, and to TRS-1 members (teachers) the 1973 COLA was never paid at all. So by 1995, of what value was it? (And of what value would it be to beneficiaries today, with the Plan 1 funds in the hole?)

Spoonemore argued that the state could not reserve the right to shut down the increase mechanism (UCOLA) at its discretion, because “you can’t reserve a right you don’t have in the first place. ” Justice Gonzalez asked whether the state could have limited the UCOLA to, say, 10 years. Would that be legal?

Both sides said yes.




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