HELENA — The 2013 Legislature unconstitutionally broke a contact with retired educators when it reduced their annual cost-of-living increases for their pensions, attorneys for the MEA-MFT union and some current and retired education employees said in court Wednesday.
“It’s an unconditional promise to pay,” said Karl Englund, a Missoula lawyer for the teachers’ union and the individual plaintiffs.
But a lawyer for the state argued that no reasonable expectation exists that these pension benefits are never subject to change.
Mike Black, an assistant attorney general, said there is an understanding that with “the vicissitudes of the economy” and government finances, it may be prudent to adjust the cost-of-living raises at times.
“It can be cut and it may go up,” Black said.
The lawsuit, filed in October, is one of two lawsuits challenging 2013 laws that reduced future cost-of-living increases for public pensioners in Montana, in an effort to bring the pension funds into fiscal solvency.
The second lawsuit, involving the Public Employees Retirement System, will be heard in state District Court in Helena next week.
Attorneys for the MEA-MFT asked District Judge Mike Menahan on Wednesday for a preliminary injunction to stop the scheduled Jan. 1 decrease in annual cost-of-living raises for retired educators. The automatic increases are scheduled to drop to 0.5 percent from the current 1.5 percent rate, established in 1999.
Menahan said he will try to have a decision ready before Jan. 1.
Educators covered by the Teachers’ Retirement System are eligible for a fixed monthly pension, based on a formula of how many years they worked and the average of their highest annual salaries.
Known as a defined-benefit pension, it provides a set monthly payment that doesn’t vary with how financial markets are performing.
TRS members become eligible for the annual cost-of-living raises after being retired for 36 months.
At issue is part of a 2013 law overhauling the TRS pension plan to shore up its finances after the fund’s investments lost about one-fourth of their market value during the 2008-2009 recession.
The Teachers’ Retirement System provides pensions to nearly 14,000 retired members or their beneficiaries and has more than 18,000 active and part-time members contributing.
Besides the cut in cost-of-living raises, the new law also temporarily increased the mandatory contributions made by educators and their employers to the pension fund, added an infusion of coal tax revenues from the state treasury and a one-time deposit of excess reserves from some school districts.
The reduction in the cost-of-living increase, formally known as the Guaranteed Annual Benefit Adjustment, or GABA, is the only part of the law being challenged.
Englund said former Gov. Brian Schweitzer and Gov. Steve Bullock, the Teachers’ Retirement System board and constituents such as the MEA-MFT agreed on a plan prior to the legislative session to repair the pension fund financially.
“But the Legislature on its own accord added the reduction in the GABA,” Englund said.
“That was not necessary. It violates the constitutional limits on legislative power.”
Montana now has a $500 million general fund budget surplus, he added.
Black said the Legislature took the necessary step to cut the GABA, adding: “We don’t want to end up like Detroit,” which filed for bankruptcy.
But Jonathan McDonald, a Helena lawyer representing MEA-MFT, said, “Montana thankfully is not Detroit. … There is plenty of money in the register. Without cutting into GABA benefits, the system is sound.”
Black suggested the annual cost-of-living raises were like dental rates in a government health insurance plan and can vary year to year.
McDonald countered that pensions are “not dental contracts, which change year to year.”
Instead, they are a promised, constitutional obligation to people who in some cases worked 30 to 35 years teaching Montana’s children.