Financially strapped communities and states across the country are setting up legal fights with retirees by seeking to take back or alter previously negotiated benefits.
Providence sent out the emergency S.O.S. of a sinking ship, claiming it had been pushed to “the brink of bankruptcy” by a recent court ruling that temporarily blocked the city’s plan to move retirees from city-paid Blue Cross coverage onto the federal Medicare program.
In granting retirees an injunction before trial on the city’s right to enforce such a plan, the state Superior Court said the collective bargaining agreement in the case was a private contract and the city hadn’t established a financial threat sufficient enough to disturb benefits before trial. And the state Supreme Court declined the city’s emergency motion to lift the injunction, leaving Providence to make its case at a Superior Court trial tentatively scheduled for May 21.
In a similar contract-based case, Pawtucket was found to have breached its contract with school retirees when it began sending out “coshare” invoices requiring retirees to contribute to their health-insurance premiums in violation of their CBA. Again, the Superior Court used contract-law principles and said that the municipality can’t alter its terms.
Minnesota, Colorado, Michigan and South Dakota courts are likewise entertaining claims by retirees whose cost-of-living, or COLA, increases have either been suspended, frozen at a fixed rate, or taken away altogether.
While the courts in Rhode Island have at least temporarily put the brakes on unilateral actions by local communities to take back or alter negotiated benefits, there’s no clear trend nationally to indicate on which side the courts will eventually fall on the legality of such efforts.
In the Colorado case the retirees signed documents when they retired, acknowledging that COLA adjustments were subject to change. The Colorado court said that because COLAs are based on a formula that is always changing, a “change” in percentage is not a violation of contract.
On the other hand, appeals courts in California and West Virginia have found that retirees have a right to receive the cost-of-living adjustment that was in place at the time of retirement.
States nationwide are clearly keeping a close eye on each other’s court rulings, but Amy Monahan, a law professor at the University of Minnesota, and nationally recognized in the area of pension law said, “There is no easy test. The courts will decide the issues on a case-by-case basis, and a simple difference in facts, like whether the municipality’s fiscal emergency was foreseeable or unforeseeable, [which] could change the outcome.”