Six current and retired educators and the MEA-MFT union filed a lawsuit Friday challenging part of a new law that will lower annual cost-of-living raises for retired teachers from 1.5 percent to 0.5 percent on Jan. 1.
They asked state District Judge Mike Menahan of Helena for a preliminary injunction to block that part of the law from being implemented by the Teachers’ Retirement System. They contend it violates the contracts and the takings clauses of the Montana Constitution.
The lawsuit was filed against the state of Montana and Teachers’ Retirement System and its board.
The individual plaintiffs worked for public schools and began paying into their retirement system before July 1, 2013, the effective date of the new law, the lawsuit said.
“They have a contract with the state for retirement benefits,” the lawsuit said. “Since 1999, those benefits have included a guaranteed 1.5 percent annual benefits adjustment (GABA). That annual benefit adjustment is part of their contract with the state, and when the 2013 Legislature reduced that adjustment, it impaired that contract.”
The lawsuit came as no surprise.
MEA-MFT President Eric Feaver has said since the legislative session this year that the union would challenge the reduction of benefits in court.
At issue is one provision of House Bill 377, a major law passed earlier this year to shore up the finances of the Montana Teachers’ Retirement System pension fund. Its investments had lost about one-fourth of their market value during the national recession in 2008.
As of July 1, TRS had 12,229 active full-time and 6,020 active part-time members, and 13,868 retired members and beneficiaries.
The law also temporarily raised the mandatory contributions made by teachers and their employers to the pension fund and included an infusion of coal tax revenues and a one-time deposit of excess reserves from some school districts. These changes aren’t challenged in the lawsuit.
“The illegal reduction in the guaranteed annual benefit adjustment constitutes a legislative act that illegally impairs a state contract and takes property without compensation in violation of the federal and Montana constitutions,” the lawsuit said.
In 1999, the Legislature approved a 1.5 percent annual cost-of-living, or GABA, increase to the pensions of all TRS retirees who had been receiving pensions for at least 36 months.
“By way of example only, the average annual benefit for retired TRS members in 2000 was $12,995,” the lawsuit said. “Solely as a result of the GABA, that benefit amount increased to $15,537.05 after Jan. 1, 2013.”
The 2013 law provided that the 1.5 percent GABA would drop to 0.5 percent if the most recent actuarial valuation concluded that the TRS pension system liabilities were less than 90 percent funded. A recent actuarial valuation found that the TRS pension liabilities are less than 90 percent funded, thus triggering the GABA reduction in January.
However, the most recent valuation, released late last month, also found that the TRS pension is actuarially sound, taking into account all of the changes made in benefits and contributions in HB377. It said that that the contributions are sufficient now to amortize, or pay off, all the unfunded liabilities within 20 years.
The Montana Constitution requires public pensions to be actuarially sound. State law defines that as meaning the pensions can be amortized in 30 years or less.
The recent valuation also found that the TRS system would be actuarially sound, even if that provision to lower the GABA was declared unconstitutional.
TRS officials said they had just received the lawsuit and were not ready to comment.
Gov. Steve Bullock said his bills would have improved the finances of the two major pension funds without reducing cost-of-living increases for retirees.
“I think we certainly could have done it without the GABA reduction,” he said earlier this week.
Besides the MEA-MFT, the other plaintiffs are: Judy Byrne of Great Falls, Janet Kransky of Billings, Susan Nardinger of Joliet, Hazel Johnson of Helena, Lori Bremer of Red Lodge and Charlene Suckow of Great Falls. All are retired, except for Bremer.
The attorneys filing the lawsuit were Karl Englund of Missoula, Jonathan McDonald of Helena and Jay Sushelsky of Washington, D.C., of the AARP Foundation Litigation.
A similar lawsuit is expected to be filed soon challenging a forthcoming GABA decrease in a separate pension fund, Montana Public Employees’ Retirement System.