PensionPublic safety employees eying possible pension reform lawsuits

by Jeremy Duda

Published: June 6th, 2011

Unions representing police officers, firefighters and other public safety employees worked with lawmakers for months on the Legislature’s marquee pension reform bill, but that may not stop them from suing the state over it anyway.

Several public safety unions are contemplating lawsuits to block key provisions of SB1609, which will increase payments by employees and reduce benefits in the pension systems for public safety employees, corrections officers and elected officials. Other unions are considering suing over a provision in the fiscal 2012 budget that increases retirement system payments for other state employees.

The unions argue the pension reform violates a clause in the Arizona Constitution that prohibits the state from passing laws that interfere with contract obligations, as well as another constitutional provision that says retirement benefits “shall not be diminished or impaired.”

Jimmy Chavez, president of the Arizona Highway Patrol Association, said a lawsuit is likely. But with the changes to the Public Safety Personnel Retirement System not scheduled to go into effect until Jan. 1, he said the lawsuit may wait until later in the year.

Changing the payments or benefits for new hires isn’t a problem, Chavez said. But current employees and retirees bought into the system under specific circumstances, and applying the changes to them would be unconstitutional.

“We’re still trying to figure out what’s going to happen with those,” he said. “It’s anticipated there’s going to be some litigation with those.”

Chavez noted that the unions can’t actually sue over the pension reform plan because they are not technically members.

But any of their members can sue, and the unions can represent those members in court.

Mike Colletto, a lobbyist for the Professional Fire Fighters of Arizona, said some of his group’s members supported the plan, but many, including Colletto, don’t. If the majority wants to challenge SB1609, members can authorize the union’s leadership to move forward at its upcoming convention, which begins June 7.

“There’s a lot of issues that need to be hashed out, but I think there’s some sentiment (in favor of a lawsuit) for sure. Our people are going to lose a lot of money in this environment, and quite frankly most of that wasn’t their fault to begin with,” Colletto said, referring to bad investments that left PSPRS woefully underfunded.

Colletto said the firefighters stayed neutral on SB1609 after Gov. Jan Brewer intervened and got them about 90 percent of what they wanted. But still, he said his union’s lack of opposition shouldn’t be interpreted as tacit support for the bill.

“It’s kind of like some guy’s pointing a gun in your face and says, ‘Give me your wallet.’ You give him the wallet, but you didn’t necessarily want to,” he said.

One unanswered question is whether the unions will form a coalition or pursue separate lawsuits. Chavez said the Arizona Highway Patrol Association has spoken with other member groups in the Arizona Police Association about the possibility of joining forces, and Arizona Fraternal Order of Police President John Ortolano said his organization is also considering banding together with other law enforcement unions.

But Ortolano said the unions that have different goals might be better off filing separate suits. For example, the Arizona Highway Patrol Association is considering challenging changes to the Deferred Retirement Option Plan (DROP), under which retired members can go back to work without paying into the retirement system.

The Fraternal Order of Police, however, considers the DROP changes to be a “far distant third” behind the increased payments and reduced benefits that current PSPRS members face.

“DROP is the least sturdy leg to stand on in saying it’s unconstitutional,” he said.

“There is a belief amongst some people that making people pay into the retirement system while they’re in DROP, that would be legal.”

SB1609 only affects members of the Public Safety Personnel Retirement System, Corrections Office Retirement Plan and Elected Officials Retirement Plan.

But other legislation affected the Arizona State Retirement System, which covers most other state employees.

Under the current system, employees and employers pay equal amounts into ASRS. But one budget bill, SB1614, increased employee contributions to 53 percent, a move that is prompting unions like the Arizona Education Association and the American Federation of State, County and Municipal Employees to consider lawsuits as well.

AFSCME Local 3111 President Sheri van Horsen said union attorneys are analyzing the legislation to determine whether its members’ employment agreements are considered contracts under the Constitution, and, if so, whether SB1614 could legally be considered a breach of that contract.

“It’s a two-part question,” van Horsen said. “If the answers are ‘yes’ to those two questions, it’s going to impact all of those unions, so more than likely we would do something collectively.”

Sen. Steve Yarbrough, who sponsored SB1609, expects the unions to challenge the bill in court. But he also expects the changes to withstand the challenges.

He said legislative attorneys determined the bill does not violate the constitutional contract clause because the state’s higher priority under the Constitution was to ensure that the pensions remained solvent — something that cannot be done without the type of reform the Legislature approved.

“Tying it to the underlying health of the plan makes a difference, because the constitutional responsibility of the Legislature is to preserve the health of the plan,” said Yarbrough, a Chandler Republican.

“Allowing this thing to go the rest of the way to collapse…was the violation of the contract clause.”

Greg Jernigan, the general counsel for the Senate Republican caucus, said he believes that Article 29 of the Arizona Constitution, which establishes guidelines for the pension systems, takes precedence over the contract clause.

“You’ve got a specific provision that says what the Legislature can and can’t do, vis-à-vis the retirement systems. And I think because those are very specific to the retirement systems, those are going to take precedence over a contract clause argument,” he said.

Yarbrough said a loss in court could spell doom the pension systems. He said the bills will make the systems solvent again, but if the provisions affecting current employees are struck down, the remaining reforms dealing with new hires won’t be enough to make the pension funds whole again.

“The actuarial soundness of the plan would then be put back in significant jeopardy,”

he said. “Perhaps, if the Supreme Court were to say, ‘No, what you did isn’t good enough,’ perhaps they’ll give us a road map at that point.”

Under SB1609, current PSPRS members will see their contribution rates, which are currently at 7.65 percent of their salary, go up to 11.65 percent by 2014, while members who join after Jan. 1 will ultimately pay 13.65 percent. Retirees won’t see increases in their benefits unless PSPRS is at least 70 percent funded.

Corrections officers, however, aren’t likely to join any lawsuit against the plan, according to Martin Bihn, an attorney for the Arizona Correctional Peace Officers Association. Bihn said the changes for existing members of the Corrections Officer Retirement Plan don’t take nearly as much of a hit as their counterparts in PSPRS. Current CORP members will see their contribution rates go from 7.96 percent to 8.91 percent.

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