Threat of lawsuit over special pension payments still hangs over Colorado Springs

July 5, 2013 Updated: July 5, 2013 at 7:10 pm

City talks with a group of former Memorial employees have broken down, and now the group is threatening a lawsuit, the city attorney recently advised Colorado Springs City Council.

The council is expected to discuss the Memorial pension fight at its July 9 meeting.

It is unclear if the item will be discussed in open or be taken behind closed doors.

On June 25, City Attorney Chris Melcher delivered a packet of confidential documents to the council moments before Council President Keith King called the meeting to order and warned that a lawsuit is looming. The council was asked to discuss the issue behind closed doors but instead voted to discuss the issue in the open.

For months, council has been discussing a fight involving 15 former employees and one surviving spouse and their pensions from Memorial Hospital. The former employees say they had been getting their pension every month, but when Memorial joined the University of Colorado Health System, the payments stopped.

The payments were not part of the regular pension disbursement from the Public Employees Retirement Association, but were in a different category, and it is not clear whether the city, Memorial or PERA is responsible for continuing them.

At issue is 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 receive the 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.

When Memorial moved under the governance of UCHealth, it no longer was part of PERA. The question is who would be responsible for the payment of the excess benefits.

Melcher has advised the council that it is PERA's obligation, not the city's. He told the council June 25 that the city and its legal representatives have met with the retirees and tried to come to an agreement. But the group has shown no interest in settling the issue, he said.

The retirees have joined together to hire an attorney, and while a lawsuit hasn't been filed, the group has threatened to do so, he said.

"We don't know if that will occur," Melcher told the council June 25. "But we are prepared for that event."

In the meantime, the city recently stopped making the excess payments to the retirees. Melcher also asked council to formally terminate the 1999 PERA-Memorial plan for excess benefits and added that the city believes the plan never was valid. He said the council should take formal `action to terminate the plan before the issue gets to court.

Council member Don Knight said at the meeting that he was not prepared to make that decision because he had just been handed the information. He asked that the discussion be put off until July 9.

The council has met about five times in closed session to discuss the issue, which has been listed on the agendas as "legal advice, consultation and negotiation strategy discussion with the city attorney regarding potential claims related to Memorial Health System."

If a lawsuit is filed, it would be the third stemming from the Memorial lease, and the second involving PERA. The city maintains that it has no obligation to pay the replacement benefits or take care of other pension payments, which are at the heart of a lawsuit filed in Denver.

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