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Colorado Springs squares off with state's pension fund; feud may see trial

November 3, 2013 Updated: November 3, 2013 at 8:15 am

An unprecedented legal battle involving the state's troubled pension system now rests in the hands of a retired Adams County district court judge.

Colorado Springs residents have 259 million reasons to be interested in the result.

The legal battle between Colorado Springs and the Public Employees' Retirement Association recently took a new turn: moving before a private judge amid a dearth of settlement talks.

Typically, the move is known less for spurring mediation talks or arbitration and more for fast-tracking legal cases. So far, both sides say they're barreling toward trial.

"There are no further settlement discussions at this time," Chris Melcher, the city's attorney, said in a statement.

"We are currently prepared for trial at this point," said Adam Franklin, a PERA attorney.

Whether that actually happens remains to be seen. A March trial date has been scrapped while the new judge reviews a series of briefs filed by both sides.

Only 3 percent of civil cases make it to trial, according to a 2005 Department of Justice study.

"And large cases, where people have a lot at stake, they're willing to gamble even less," said Margaret Kwoka, an assistant professor with the University of Denver's Sturm College of Law.

Far more could be in play than the $259 million Colorado Springs holds in escrow. It isn't tax money but part of the assets left to the city in the wake of Memorial Hospital's long-term lease to University of Colorado Health.

Memorial's employees left PERA as part of the lease deal. PERA protested, asserting the city owes millions in future pension obligations. The city says it owes nothing, but depending on the verdict, it could lose most of that money.

Kwoka acknowledged PERA's risk in the case includes establishing a legal precedent that could make it easier for other PERA members to leave the pension system. In court filings, PERA lawyers revealed their concern that lawyers for the city seek to create precedent for other entities to leave the troubled pension system.

"This is a bigger lawsuit than just Memorial," said Jan Martin, a Colorado Springs City Council member who served on the Memorial task force.

At issue in the lawsuit is $190 million PERA says it is owed by the city in light of Memorial Hospital System's voter-approved lease to University of Colorado Health.

At the time, Colorado Springs lawyers and PERA attorneys disagreed on whether the city could pull employees from the fund. Despite dueling lawsuits, the lease proceeded as planned Oct. 1, 2012.

The hospital transition has proceeded smoothly, observers say, with the hospital hiring dozens of new doctors and investing millions in capital improvements. On Saturday, one of the hospital's hallmark projects, a $40 million electronic health system, went live.

Meanwhile, the $259 million that University of Colorado Health paid Colorado Springs up front remains in escrow.

City and PERA lawyers have battled in Denver District Court, and PERA's lawyers demanded interest on the damages it is seeking. On Oct. 28, that interest tab reached $15 million, according to a brief filed by PERA.

Should the city win and pay PERA nothing, the pension association's lawyers say thousands of other pensioners across the state would shoulder the burden.

PERA breaks down into several different funds by occupation, such as educators.

Memorial, with nearly 4,000 employees, was the largest employer in the local government division. When it left, the exit caused a 25 percent drop in the division's active enrollees - threatening the actuarial soundness of the pension plan.

"Over the last several years, we've had employers leave PERA," said Franklin, PERA's general counsel. "And each and every one of them went through the process required by law to terminate their affiliation."

Colorado Springs lawyers say nothing else is due to PERA. In a statement, Melcher said the city will "continue to defend the rights of MHS (Memorial Health System) and the city in this matter, and we are confident in our position."

Should Melcher's team prevail, there are some stipulations on how the city can spend the $259 million in escrow.

The city has established a foundation to oversee any possible spending for public health purposes, and the foundation's board members plan to submit a list of spending priorities to the City Council in late spring.

Just don't expect that money to be freed up anytime soon. Kwoka doubts the case will even head to trial.

Because the lawyers are only disputing each other's interpretation of the law - and not the facts of this case - the odds of a trial are slim. Both filed motions in October for summary judgment, and such cases typically settle out of court or are decided by a judge.

Any decision is likely to be disputed.

"Of course," Kwoka said, "the losing party in a case of this magnitude will almost certainly appeal."


Contact Jakob Rodgers: 476-1654

Twitter @jakobrodgers

Facebook Jakob Rodgers

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