Judge sides with PERA in Memorial Hospital pension dispute

February 12, 2014 Updated: February 12, 2014 at 5:21 am
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Memorial Hospital Central Saturday, January 28, 2012. Photo by Mark Reis, The Gazette

A retired judge sided with the Public Employees’ Retirement Association on Tuesday in a $190 million dispute over whether Memorial Hospital employees could leave the pension fund without Colorado Springs paying anything.

The ruling means Colorado Springs must pay its pension liabilities to PERA after pulling about 4,000 hospital employees out of state’s pension system in fall 2012.

The ruling was handed down by Harlan Bockman, a retired Adams County judge who was hired by both sides to oversee the case.

Bockman said the city ignored the process outlined in state statutes for leaving the fund, noting that city officials should have asked lawmakers to change state law if they were “unwilling or unable” to follow the right steps.

PERA had sought $190 million plus interest that accrued at a rate of 8 percent a month, a tab that reached $15 million in late October.

The immediate impact of the ruling — and the fate of $259 million waiting in escrow for the case to close — remained unclear Tuesday evening.

The city can appeal even though the case was being overseen by a privately-hired judge.

In a statement, city attorney Wynetta Massey stressed that Bockman’s order applied only to each side’s motion for summary judgment — in other words, requests by each side for a wholesale decision in their favor.

“The judge did not say the city owed a specific amount,” said Massey, in a statement issued by the city. “The judge ruled that the city should comply with the termination statutes.”

PERA executives, who announced the decision late Tuesday, hailed it as a critical step toward assuring PERA’s actuarial soundness for years to come.

The fund’s attorneys long framed the city’s pitch as possibly precedent-setting — a move that could have paved the way for other entities to easily, and unfairly, leave the fund.

“We think this is a significant victory for PERA, for the members and the employers within the local government division,” said Adam Franklin, the fund’s general counsel. “And we think that the courts recognized the need to ensure that that trust fund is made whole, if an employer would like to leave the system.”

The case began when the city began leasing Memorial Hospital to University of Colorado Health on Oct. 1, 2012.

As a part of the hospital’s lease, UCHealth gave the city $259 million up front — $185 million of which was earmarked for any possible PERA obligations. All of that was placed in escrow, pending the case’s adjudication.

State statutes mandate that before certain local government entities can leave they first must seek permission from PERA’s board, and they also must get 65 percent of departing employees to approve of the departure, Bockman said in his ruling.

Further, entities can leave only “as long as the financial integrity of the system remains,” Bockman wrote, meaning that they must pay any future liabilities.

In a January hearing, a city lawyer said state statute didn’t apply because the employees weren’t moving to another public entity, but a private one.

Also, the city argued that it didn’t owe anything because it was up to date on its payments when the Memorial Hospital employees left the fund — a line of reasoning Bockman that labeled as “inconsistent with the fundamental nature of a defined benefit plan.”

Colorado Springs City Councilwoman Jan Martin said attorneys directed her not to comment about the decision, adding that the council plans to discuss the issue next week during an executive session.

The case’s outcome will heavily affect a foundation that was established to oversee all funds received from the lease — including any money left over from the dispute.

The foundation, which is overseen by a nine-member board, plans to discuss adopting a mission statement later this month, said chairman Jon Medved.

Exactly how much money that board will have to dole out in grants for public health purposes remains unclear.

“We’re hoping to get as much of it as we can,” Medved said.

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