In a pair of rulings that will save Washington billions of dollars in public worker pension payments, the state Supreme Court on Thursday said the Legislature has the right to repeal retirement benefit increases granted during an economic surge in the mid-1990s.
Chagrined public workers unions viewed the rulings as an unfair blow to both current employees and retirees. Two types of benefit enhancements were at stake in separate cases. One was "gain-sharing," which allowed for payment increases to retirees during times when returns on pension fund investments were exceptionally high. The other was a cost-of-living adjustment for some pensioners that increased automatically each year.
"The financial implications of this case, had the state lost, would have been in the hundreds of millions of dollars or more," said Rep. Reuven Carlyle, D- Seattle, who chairs the House Finance Committee. "It simply would have been beyond the imagination."
Had the court ruled that the benefits needed to be reinstated, state and local governments would have had to pay about $8.7 billion in additional retirement benefits over 25 years, according to a 2011 estimate prepared by the Office of the State Actuary. Of that total, an estimated $4.1 billion would have come from the state's hard-pressed general fund.
While the cost savings might help the state's finances, public worker unions affected by the ruling were displeased.
"It was kind of a kick in the teeth for these folks that worked really hard and have modest pensions," said Tim Welch, a spokesperson for the Washington Federation of State Employees, one of the unions involved in the court case.
"They're not making lots of money each year," he added. Welch said that WFSE pensioners in two of the three state retirement plans typically might receive between $15,000 and $22,000 annually.
Washington Education Association President Kim Mead also decried the court's decision on Thursday. “It’s not right for the Legislature to unilaterally cut retirement benefits it promised — and to take away what educators already earned,” she said in a statement.
The cases began with lawsuits that public worker unions and state employees filed in a lower courts after the state Legislature repealed the benefits. The lower courts sided with the unions and employees. The Supreme Court ruling overturned those decisions.
One of the arguments made by lawyers representing the unions and workers was that the state tried to get employees to switch to a pension plan with lower guaranteed benefits, in part, by using gain-sharing as an incentive. Thousands of employees transferred, according to a court brief filed last year.
"They were never given information that [the Legislature] could repeal it," said Welch.
But Thursday's ruling pointed to language in state law that said the Legislature was entitled to eliminate the benefit. "The repeal of gain sharing did not impair any contract rights of employees because the statute enacting gain sharing made provision for its eventual repeal," Chief Justice Barbara Madsen wrote in an opinion for the court.
In the separate case involving the cost-of-living adjustments, the court arrived at the same conclusion, using a similar rationale. These adjustments were partly based on an employee's years of service, were occurring automatically each year and were not necessarily aligned with inflation or the actual cost of living.
The Legislature extended both the gain-sharing and cost-of-living benefits to public workers during the height of the mid-1990s dot-com boom, enacting the gain-sharing program in 1998 and the cost-of-living adjustment in 1995. Lawmakers repealed the gain-sharing provision in 2007 and the automatic cost-of-living adjustment in 2011 in the wake of the recent recession.
"There's no question that this is a strong victory for the state," Carlyle said. "The overwhelming, unanimous ruling by the court is that the Legislature acted responsibly."
In a statement, Attorney General Bob Ferguson said, "Today’s decisions preserve the rights of public employees to receive the basic pension benefits the Legislature has promised, but make clear that the Legislature has the flexibility to add temporary benefits without being locked into providing them forever."