HELENA – Four retired public employees and their group have sued the state, contending that the 2013 law cutting cost-of-living raises for pensioners is an unconstitutional violation of their contracts.
The Montana Association of Montana Retired Public Employees and the retirees filed the lawsuit and a request for an injunction late Wednesday against the state, its Public Employee Retirement Administration, its Public Employees’ Retirement Board and Gov. Steve Bullock. The case was assigned to District Judge Kathy Seeley of Helena.
It comes on the heels of a similar lawsuit filed Oct. 11 by some current and retired educators and the MEA-MFT union, challenging a different law that reduced cost-of-living increases for retirees under the Teachers’ Retirement System.
The lawsuits challenge two laws passed by the 2013 Legislature as part of an effort to shore up the state’s two largest public employee pension systems. Both funds have struggled financially since their investments lost one-fourth of their market values during 2008-09 recession.
The 2013 Legislature passed House Bill 454 late in the session to address the Public Employees’ Retirement System finances.
Bullock signed it into law, although the former attorney general told reporters he thought the reduced cost-of-living increases for retirees’ pensions are likely unconstitutional.
The lawsuit asked Seeley to temporarily block the reduction in the guaranteed annual benefit adjustment, or GABA, paid to retirees in the Public Employees’ Retirement System.
The law reduced the GABA from 3 percent to 1.5 percent as of July 1, with the possibility of further cuts if pension system liabilities are less than 90 percent funded.
The PERS actuary recently projected the GABA would have to be reduced to 1 percent on Jan. 1, 2014.
Those challenging the GABA cuts contended that provision of the law violates the contract and takings clauses of the Montana and U.S. constitutions.
In 1997, the Montana Legislature established a 1.5 percent GABA for retired employees under the PERS. It doubled the GABA to 3 percent in 2001.
“Simply put, HB454 balances the PERS fund on the backs of the retirees,” the lawsuit said. “It deprives current retirees of the 3 percent GABA they were promised and are entitled to and uses this ‘savings’ to bring the pension system back to actuarial soundness.”
The lawsuit used an example of an average state employee who retired in 2012 at age 59 after working nearly 20 years. The retiree’s monthly pension would grow from $1,159 in the first year to $2,356 after 25 years because of 3 percent GABA. But it would increase to only $1,657 a month after 25 years with a 1.5 percent GABA, for an $89,000 loss over the period.
Besides the GABA cuts, the law increased contribution rates for both employees and employers to the pension fund and pumped millions of dollars of state coal tax revenues into the fund.
The individual plaintiffs are Russell Wrigg, president of the group and a retired state Transportation Department employee; Marlys Hurlbert, a retired state employee who worked at Warm Springs State Hospital; Carole Carey, a retired District Court clerk in Carter County; and I. Edward Sondeno, a retired university system and Bozeman School District employee.
Leo Berry, the lawyer and lobbyist for retired public employees’ group, testified repeatedly at the Legislature that the reduced GABA was unconstitutional.
Berry, Chad Adams and Jessie Luther are the lawyers who filed the lawsuit.