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Gazette Premium Content Memorial Hospital retirees in pension fight

BARBARA COTTER Updated: March 15, 2013 at 12:00 am

Each month since retiring from Memorial Hospital last year, Alana would receive about $700 from her pension account, automatically and on time.

Then, in October, without notice, the payment stopped.

It was the same month Memorial joined the University of Colorado Health system under a voter-approved lease, a transaction that has put a huge question mark over the future of Alana’s payments — and about $53,000 more that is distributed among 14 other Memorial retirees each month.

The payments are not part of the regular pension disbursement from the Public Employees Retirement Association to Memorial’s retirees. They’re in a category all their own, and it’s not clear who is responsible for continuing the payments.

Is it the city of Colorado Springs, which resumed the special payments “in good faith,” but may not continue?

Is it Memorial, which made the payments until the lease took effect?

Or is it PERA?

Each entity said it’s not responsible for continuing the payments, and the retirees are becoming increasingly frustrated as money they had counted on for their post-employment years is becoming mired in legal quicksand.

“I was promised this indefinitely, until I die,” said Alana, who asked that her real name not be used. “We all plan and budget for our retirement, and that $700 a month makes a difference in my budget.”

For retirees who were at the top of the executive ladder, the monthly payments amount to a small fortune. A city document shows that former Memorial CEO Dick Eitel is to receive about $20,000 a month. Former Chief Financial Officer Gary Flansburg gets the next-highest payment, about $11,000 a month. The other retirees are getting $120 to about $8,350 a month.

More than half of the retirees have joined together to hire an attorney, and while a lawsuit hasn’t been filed, the threat hangs over the city. At its informal meetings on Feb. 11, Colorado Springs City Council went into executive session to discuss “potential litigation regarding former MHS employees.” At another informal meeting March 11, council returned to executive session for “legal advice, consultation and negotiation strategy discussion with the City Attorney regarding potential claims related to Memorial Health System.” Both were tied to the pension payments.

If a lawsuit is filed, it would be the third stemming from the Memorial lease, and the second involving PERA.

PERA sounds a warning

The issue centers around what is known as “excess” or “replacement” benefits. Under IRS code, there’s a maximum amount that qualified pension plans such as PERA can pay directly to retirees, a provision meant to limit how much of the money can receive special tax treatment.

But retirees subject to the IRS limits can get an overage if an employer agrees to participate in an excess benefit plan.

In May 1999, PERA and Memorial agreed to such a plan. Under the arrangement, Memorial was able to reduce its contributions to PERA by the overage amount for each retiree. Memorial would then pass the overage to the retirees each month.

As the effective date for the lease drew near, PERA sounded a warning. Because Memorial was moving under the governance of UCHealth, it would no longer be part of the PERA family. So while the retirees would continue to receive their under-the-IRS-limit payments directly from PERA, someone needed to address who would be responsible for the payment of the excess benefits.

“All throughout the discussions surrounding the sale/lease of Memorial, PERA has made Memorial aware of the existence of these payments and the fact that PERA cannot pay any benefits beyond the limits set forth in Section 415(b) of the Internal Revenue Code,” PERA wrote in a July 23, 2012, letter to retirees. “Due to the fact that PERA cannot pay the excess benefit, the obligation to pay the excess amount must be addressed amongst the parties to the transaction.”

In another letter dated Nov. 15, PERA executive director Gregory Smith responded to one of the retirees with an even more pointed comment:

“Throughout this process, which has taken over a year, PERA has made both Memorial and the City aware of the fact that PERA could not legally pay benefits to retirees that are in excess of the limits imposed by federal law. Despite PERA’s repeated attempts to engage the City and Memorial regarding this issue, it appears that the matter has not been resolved and that the City and Memorial are now refusing to continue payments to the retirees.”

City Attorney Chris Melcher said it’s PERA’s obligation, not the city’s, to continue the payments. Although Memorial’s operations are under UCHealth and its employees no longer contribute to PERA, the Memorial Enterprise remains a city entity.

“Memorial, the enterprise, has not left PERA,” Melcher said. “When we leased the operation of Memorial, it was a lease, not a sale. So the operations are leased to UCHealth, but the enterprise still retains the assets and liabilities of the system.

“Memorial and the city are both part of PERA; the city has over 3,000 people in PERA. We have not disaffiliated,” he said. “We have informed former employees to bring complaints and demands forward to PERA.”

PERA is sticking by its position that it’s not responsible for the overage payments, because it didn’t make the payments in the first place. And the lease of Memorial to UCHealth terminated the replacement benefit agreement between the hospital and PERA.

“Memorial has always been the entity making the excess benefit payments,” PERA Executive Director Gregory Smith said in an email. “Memorial ceased making these payments on its own despite the promises made to employees.”

Officials with Memorial and UCHealth would not weigh in.

“Any questions about benefits at Memorial prior to the start of UCHealth’s lease of the hospital should be directed to the city of Colorado Springs,” Memorial spokesman Brian Newsome said in an email.

Retirees weigh options

Since the lease went into effect, the city has paid the overage amounts to the retirees, taking it out of about $27 million in the Memorial Enterprise fund.

“We thought it was the right thing to do for these employees who have had PERA unilaterally decide not to continue with the payments,” Melcher said.

But Alana and a handful of other retirees who are not part of the group that has retained an attorney say they had to initiate the process for getting their overage payments with a call to the city. The group with the attorney apparently got theirs automatically, she said.

“I thought it was extremely unfair,” said Alana’s former co-worker who retired in 2010. “You’re kind of in a trusting place where you assume they’re going to do the right thing, and to only pay people who call and say, ‘I want my money,’ is wrong. When I found out, I called everybody I knew.”

No one from the group of retirees who have an attorney would comment, nor would their attorney, Rebecca Hudson of Holland & Hart in Denver.

Alana wonders why the city won’t pay the excess benefits out of the $185 million it received from UCHealth in the lease transaction to take care of any PERA liabilities. But with the city maintaining that it has no obligation to pay the replacement benefits or take care of other pension payments that are at the heart of a lawsuit filed in Denver, the $185 million is likely to remain untouched for the time being.

While most, if not all, of the Memorial employees eligible for replacement benefits are getting their payments, it’s uncertain how long they’ll continue, or who will pay them. It’s creating headaches for Alana and the other retirees.

“My thought is, I paid in. I planned my retirement based on ‘x’ amount of years and ‘x amount of dollars,” said Alana’s former co-worker. “I’ve been making decisions on my retirement, my family, unbeknownst that this was ever going to be an issue.”

An answer may come soon from City Council as it weighs options that Melcher has laid out in executive session.

“Council has authority over this,” Melcher said. “We are providing legal advice and options going forward.”

If nothing is done, where does that leave the retirees? PERA’s executive director sees only one option.

“Regrettably, if the city decides not to continue these payments, the individuals impacted will be forced to bring legal proceedings to hold the city and Memorial accountable for its promises and obligations,” Smith said.

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LEGAL BATTLES

The lease of Memorial Hospital to University of Colorado Health spawned two lawsuits with outcomes yet to be decided. Here’s where they stand:

• A battle in Denver district court will take place in October to determine whether the city owes about $240 million to PERA to fund the pension obligations for Memorial’s 4,000 employees. The employees are no longer in the PERA system, but PERA says the city is obligated to cover liabilities they already earned. The city says no payment is due to PERA. Under the lease agreement, the city received $185 million from UCHealth to cover any PERA liabilities.

• Wells Fargo and eight mutual funds sued the city in October over its early payoff of $30.8 million in tax-exempt bonds for Memorial. The plaintiffs claim that the city didn’t have the right to pay the bonds off early, and they are owed $14 million in interest. City Attorney Chris Melcher said the parties are working to settle the dispute.

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