Even State Pensions Aren't Safe Anymore

Though many current state workers believe their pension plans are protected from cuts, three states are moving forward with reductions in cost-of-living adjustments. It establishes a precedent that concerns many current and future retirees. Guest host Rachel Martin talks with Keith Brainard, research director for the National Association of State Retirement Administrators, and Stephen Pincus, a Pittsburgh lawyer representing retirees in a legal fight over benefits.

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RACHEL MARTIN, host:

West of I-95, lawmakers and state workers in three states are locked in a debate over public pension funds. At issue: whether a worker's benefits are protected from cuts. Lawmakers in Colorado, Minnesota and South Dakota have passed laws that reduce cost of living increases - increases that were promised to state workers.

Keith Brainard is the research director for the National Association for State Retirement Administrators. It's a nonprofit association with members who run public retirement plans. Brainard says the cuts are necessary in these tough economic times.

Mr. KEITH BRAINARD (Research Director, National Association for State Retirement Administrators): Well, the state has an obligation to ensure the long-term sustainability of the fund. And, certainly in the case of Colorado, the Colorado PERA - Public Employee Retirement Association - took a look at the condition of the fund after the 2008 market decline, recognized that they would not be able to invest their way out of the loss of the assets and that they needed to make some changes. They did make some changes that, again, focused on a shared responsibility approach, in which case everyone, all stakeholders, plan participants - active, retired - and employers and taxpayers alike would bear some of the responsibility for bringing the plan back to sustainability.

MARTIN: But state workers say they want the pension benefits they claim they're owed.

For more, we turn to Stephen Pincus. He is an attorney representing retirees who filed suit over the pension cuts. He joins us on the phone from his office in Pittsburgh, Pennsylvania. Welcome to the program, Stephen.

Mr. STEPHEN PINCUS (Attorney): Thank you, Rachel.

MARTIN: So, first, explain to me what is the thrust of these suits? What do the retirees who you're representing want to happen?

Mr. PINCUS: These suits are really about contracts. A state pension is considered a contract between the worker and the state itself, or the local government. The worker pays into a fund a certain percentage of his or her income every month, works the necessary years, and when he or she retires is entitled to a certain level of pension benefits. What we are claiming is that it's a violation under the contracts clause of the United States and the state constitutions to now go and lower the promised benefits.

MARTIN: So, how much money are we talking about here? How much does an average retiree lose with these cost of living reductions?

Mr. PINCUS: Well, when people say, well, we're just reducing it, you know, one percent, there is a magnifying effect on the pensions. So, for example, our retirees in Colorado, who may I point out do not receive Social Security, so this is their only retirement money that they receive unless they save privately, they are going to be facing, for the average person, a reduction of over $160,000 over the next 20 years.

MARTIN: So, what is the potential effect of all of this? Is there a chance that these cases could set some kind of precedent for other states?

Mr. PINCUS: Well, this is not a new type of a case. There are states all over the country for many, many years who have tried to reduce their promises that made to retirees, mostly in the health care arena. And the courts have looked at these cases and they say, well, if there's a substantial impairment to the contract, to the pension, is it reasonable and necessary for an important public purpose for the state to reduce the benefits?

And the key word is necessary - and we're talking about on the verge of bankruptcy. And that's what the case laws really hold that you have to honor your contracts. You can't go around and say, well, we're not going to be paying the contractor who built the bridge this month because we don't have the funds. No, that's an obligation that you have.

So, too, they have obligations to our clients, the retirees. And our retirees have certainly done their share both by working the 30 years and by paying money into the funds. The money that we're talking about is, for a large part, money that our retirees paid into the system. And so, they're just asking for what they were promised, no more and no less. Cutting benefits to people who are already retired, people have no opportunity to go back to work, people who are in nursing homes, who are counting on the extra cost of living increase to keep up with inflation does not seem fair.

MARTIN: Stephen Pincus - he's an attorney representing retirees in Colorado, Minnesota and South Dakota who are suing to have their public pension benefits restored. Thanks for being with us.

Mr. PINCUS: Thank you very much.

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