November 1, 2014

U.S. courts allow pension contract changes, researcher says

SigningContract

Gene Meyer
KansasReporter
TOPEKA, Kan. – Kansas lawmakers preparing next week to resume efforts to mend the state’s underfunded teachers’ pension plan may have more leeway than they realize, according to new legal research commissioned by a conservative Kansas think tank.
In a study of U.S. Supreme Court rulings commissioned by the Kansas Policy Institute, of Wichita, and released Tuesday, former Reagan administration attorney-advisor Ralph Benko said he found that a widely held belief that the U.S. Constitution bars states from rewriting pension plan agreements with public workers appears to be wrong.
At least two Court decisions, including one rooted in Kansas, allow states or local governments to reduce excess pension benefits that are out of line with other workers receive, Benko, now an economist with the Washington policy group, American Principles in Action, said in a telephone press conference Tuesday.
The point is an important one as a new legislatively created Kansas Public Employees Retirement System study commission prepares to hold an organizational meeting next week.
Commission members, appointed by Kansas Gov. Sam Brownback and leaders of both parties in the Kansas House and Senate, are required to come up with plans by January to plug what is officially estimated to be a $7.7 billion gap between the retirement benefits it has promised to pay members during the next few decades and the assets it likely will have to pay those benefits. Critics of government pension fund accounting, including the policy institute, contend the actual gap is far larger when previously uncounted investment losses and potentially lower future market returns are considered.
Even so, many Kansas legislative leaders, including Senate President Steve Morris, the Hugoton Republican named last winter by Kansas Gov. Sam Brownback as legislative point man on pension reform, previously have indicated they believe that past Kansas Supreme Court decisions curb the state’s ability to cut pension costs by potentially reducing benefits promised to workers already on the job.
One particular Kansas Court ruling, Singer v. City of Topeka, in 1980, which involved a dispute over city fire fighters’ pensions, is frequently cited as a barrier.
In that case, the Kansas justices essentially declared a pension agreement to be a vested contract right that according to federal constitutional law cannot be “whisked away by the stroke of legislative or executive pen.” The justices also wrote that changes which result to disadvantages to the employees “must be accompanied by offsetting of counterbalancing advantages.”
However, two subsequent U.S. Supreme Court rulings appear to trump that finding, Benko said Tuesday.
In one, Energy Reserves Group v. Kansas Power and Light, which was a dispute over natural gas pricing, the federal justices held that states can unilaterally change the terms of contracts if an impairment exists that creates a significant and legitimate public purpose for seeking such a change.
And in the other, United States Trust Co. of New York, the justices wrote that prohibitions against such contract changes are not absolute and that changes may be allowed if they are necessary and reasonable.
None of the court opinions that Benko reviewed provided any specific definition of what is significant and legitimate or necessary and reasonable, he said.
Efforts to reach KPERS study commission members for their views on the findings weren’t successful Tuesday.
The Kansas Policy Institute, which commissioned Benko’s study, also created KansasReporter in 2009. KansasReporter since then has become one of about 40 similar online news organizations that are now more directly affiliated with the Franklin Institute for Government and Public Integrity, in Alexandria, Va.

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