Legal issues cloud PERA's future

By Megan Schrader Published: August 17, 2013 | 7:20 pm 0

Adding to the uncertainty for the Public Employees' Retirement Association financial outlook are two pending court cases that could change the multibillion-dollar retirement fund's bottom line.

Denver District Court will decide in coming months whether PERA is owed roughly $200 million by Memorial Health System for the unfunded liabilities of employees who departed when Memorial merged with University of Colorado Health. If PERA loses that case, it will force other local government employers and retirees around the state to absorb the liability.

In a separate case with broad implications, the Colorado Supreme Court has agreed to rule on whether PERA violated its contract with current and future retirees when it lowered the annual cost-of-living adjustment.

Lawmakers removed a guaranteed 3 percent annual cost-of-living increase to current retirees, instead capping the increase at 2 percent. If retirees win that case, the cost-of-living increases will continue into perpetuity, costing PERA millions every year.

PERA is a more than $42 billion retirement fund that 500,000 public employees rely on.

The outcomes of these lawsuits will not immediately affect the ability of PERA to meet obligations but will extend the fund's growing unfunded liability.

Employees at the Colorado Springs hospital were part of the local government PERA retirement fund until in September 2012 the city leased the operation to a nonaffiliated group.

The Denver District Court has been asked to determine whether the city and Memorial are still responsible for the unfunded liability of future pension obligations for those employees.

PERA estimates the amount owed to be $200 million to $250 million. The city received $259 million for a 30-year lease agreement with University of Colorado Health for Memorial, and that money is sitting in a fund awaiting a ruling.

The loss of Memorial - formerly the largest PERA employer in the local government division - had a huge impact on the financial outlook of the fund. Almost immediately, less money was coming into the fund, but obligations for retirements still existed.

As part of the reforms passed in SB1, the annual cost-of-living increase for current retirees was reduced. It had been a 3.5 percent annual guarantee.

A group of retirees sued PERA, saying it was a breach of contract.

Denver District Court ruled in favor of PERA, saying the annual increase was not contractual and could be adjusted.

This month, the Supreme Court agreed to hear the case on appeal.

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Contact Megan Schrader: 719-286-0644

Twitter: @CapitolSchrader

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