Several high-profile court cases and the prospect of more might be writing the next chapter of public pension reform, as bold — or desperate — legislators take aim at current workers' benefits, once considered untouchable.
“There is just so much pressure on state budgets, and pensions eat up more and more of them. It's going to drive more changes, and a lot will be decided in the courts,” said Amy Monahan, professor of law at the University of Minnesota, Minneapolis, who specializes in pension law.
Right now, all eyes are on New Jersey and Rhode Island, where legal challenges to dramatic pension reforms affecting current workers await decisions by the states' supreme courts. Similar cases also have been filed by employee groups in Louisiana, Michigan and New Hampshire, challenging benefit changes that include greater employee contributions, higher retirement ages or lower pension multipliers.
“It's an emerging area of law,” agreed Steve Kreisberg, director of collective bargaining at the American Federation of State, County and Municipal Employees, Washington. While he doesn't expect widespread cuts to current workers' benefits, “we're preparing for it. Any change is a deal we will fight.”
While he and other public employee advocates also are braced for skirmishes later this year in other states, including Montana and Texas, the next battleground is likely to be Ohio.
Five bills — one for each of Ohio's five public pension funds — await legislative action scheduled for Sept. 12. They would raise employee contributions or reduce pension formulas for all public defined benefit plan participants, including those in the $75 billion Ohio Public Employees' Retirement System and the $63.8 billion Ohio State Teachers' Retirement System, both in Columbus.
In New Jersey, where the Division of Investment, Trenton, oversees $67.2 billion in pension assets, legislators dared to touch what Gov. Chris Christie called “the third rail of politics” by passing a package of pension reforms in 2011 that included higher contributions from current workers and the elimination of cost-of-living adjustments. Within two months, public employee groups led by the New Jersey Education Association sued to have the changes considered contractual violations. Dismissed by a district court, the lawsuit is now before the state's superior court.
In Rhode Island, pension plan changes passed by the General Assembly in 2011 to raise the funding level of the $7.2 billion Employees' Retirement System of Rhode Island, Providence, swiftly drew four lawsuits. The suits challenge, among other things, a mandatory defined contribution plan, a higher retirement age and the correlation of COLAs to investment returns. As the legal challenges work their way up to Rhode Island's highest court, Treasurer Gina Raimondo is confident that the state's actions, which “represent the culmination of 11 months of thoughtful, fact-based analysis and input,” will hold up in court, she said in a statement after the suits were filed.