STUMP » Articles » Pension Quick Takes: Lawsuit (and Scott Walker teaser) Edition » 27 February 2015, 06:11

There’s lots more on lawsuits going on other than my recent post.

Let’s hit it.

New Jersey lost in a lawsuit.

As Chris Christie rehearsed for today’s annual budget address, a state court changed his script by handling, the New Jersey governor a major setback.

Late Monday, Mercer County Superior Court Judge Mary C. Jacobson ordered the state to restore $1.57 billion that Christie cut from this year’s pension contribution, a ruling likely to cause chaos with a budget that must be balanced by the end of June.

“The court cannot allow the state to ‘simply walk away from its financial obligations,’ especially when those obligations were the state’s own creation,” wrote Jacobson, referring to the 2011 pension reform championed by Christie.

As part of that measure, the state was required to add $1.6 billion last year and $2.25 billion this year to the pension fund. But faced with a revenue shortfall last year, Christie chopped its contribution by $900 million last year and $1.57 billion this year by executive order.

In response, labor unions representing hundreds of thousands of public employees filed a lawsuit, charging the governor with unlawfully reneging on statutory obligations. Jacobson decided in their favor Monday.

This is the kind of pension lawsuit that should be occurring more often, not the lawsuits over cutting benefits.

Public employees: when the pension is not funded, they are implicitly cutting your benefits. Wake up.

John Bury summarizes/points out key points in New Jersey ruling.

PAGE 11-12
Moreover, the Legislature further emphasized the necessity of making the annual payments by deliberately modifying the provision of the statute that had reserved the right of the State to change the retirement systems by adding that, “The rights reserved to the State in this subsection shall not diminish the contractual rights of employees” created by Chapter 78. N.J.S.A. 43:3C-9.5(e). The clear intent of this language was to insulate the State contributions into the pension funds from the vicissitudes of the political process that had placed the integrity of the funds in significant jeopardy in the past. Indeed, the Governor himself characterized this pension legislation as constituting “historic reforms” that “bring to an end years of broken promises and fiscal mismanagement by securing the long-term solvency of the pension and benefit systems.” Press Release, New Jersey Leads the Way with Landmark Bipartisan Pension and Health Benefits Reform (June 23, 2011), http://www.state.nj.us/governor/ news/news/552011/approved/20110623d.html.

Way more at the post. John Bury is all over the NJ pension situation.

Okay, enough fun with NJ. Let’s hop to the other coast.

Calpers spends $7 million on lawyers fighting bankruptcy cases…and loses.

CalPERS has paid two law firms more than $7 million in the Vallejo, Stockton and San Bernardino bankruptcies, even though a federal judge doubts that it has the legal standing to object to city pension cuts.

The high-priced legal representation, at top rates of $530 an hour, did not dissuade the judge in the Stockton case from ruling that CalPERS pensions can be cut in bankruptcy like other debt.

But Vallejo did not try to cut pensions, reportedly fearing a costly legal battle threatened by CalPERS. Stockton did not want to cut pensions, leaving the CalPERS issue to bondholders. And a San Bernardino deal with CalPERS protects pensions.

At times in the Stockton case, Judge Christopher Klein verbally jabbed the CalPERS attorney, Michael Gearin (once said to be “bellowing and pawing the sidelines”), as if he were an over-blown nuisance of questionable relevance.

$350/hour? Pikers.

What did the judge write?

Klein ruled that Stockton has contracts with unions and CalPERS. He said the “third leg” of the triangle, the relationship between CalPERS and active and retired employees, is not a contract but a “third-party beneficiary relationship.”

Contrary to the widespread “myth” that CalPERS is Stockton’s largest creditor, the judge said, it’s a “small-potatoes creditor” and “pass-through conduit” only owed administrative expenses. The big pension debt is owed to employees and retirees.

Ooooh, interesting.

Klein ruled that the threat of a CalPERS termination lien forcing a $1.6 billion payment is a “toothless tiger” in a bankruptcy. CalPERS seems to agree that the lien, which only takes effect in bankruptcy, is vulnerable.

Part of the judge’s finding that the CalPERS lien is unenforceable is federal bankruptcy law that “authorizes the avoidance of liens that are not perfected or enforceable at the time of the commencement of the case.”

HA HA.

Calpers has been running around like a headless chicken since the Detroit bankruptcy, claiming that NO NO NO WE’RE NOTHING ALIKE!

Guess what?

You are.

Other lawsuits:

Chicago case on hold to wait for Illinois Supreme Court to rule on Illinois pension reform:

Feb 23 (Reuters) – Lawsuits seeking to void a law aimed at shoring up the finances of two Chicago pension funds have been put on hold pending a ruling by the Illinois Supreme Court on a law affecting state public retirement funds, participants in the litigation said on Monday.

City unions and retirees had been seeking a preliminary injunction to stop the law, which took effect Jan. 1, in Cook County Circuit Court. Meanwhile, the supreme court announced last week it will hear lawsuits against the Illinois pension reforms on March 11.

That triggered a motion by plaintiffs to stay the Chicago proceedings that was approved on Thursday by Judge Rita Novak.

“Given the relative timing of the state and city cases, and because a decision upholding the (Sangamon County) circuit court in the state case could be determinative in the city case, the plaintiffs decided it is sensible to stay further proceedings until the supreme court’s ruling is received,” said Anders Lindall, a spokesman for American Federation of State, County and Municipal Employees Council 31.

It’s actually kind of nice of the lawyers to say “yeah, we’ll wait”. I guess either they’re on retainer or otherwise salaried employees of the plaintiffs.

A few “things to come:”

I made a FOIA request of the Illinois TRS. They turned it around rapidly (A++++! Would FOIA again!), and now I have actuarial reports going back to 1950.

Watch this space for graphs.

You know my Scott Walker post?

There’s more.

So much more.

I am still digging, but Scott Walker made his name not only battling public unions directly, but pursuing the bad benefit design that ousted his predecessor. It was a key issue when he was first elected governor.

I will be posting more on this next week.