U.S. Markets closed

Montana public employees sue over pension cuts

Matt Gouras, Associated Press

HELENA, Mont. (AP) -- Retired public employees in Montana argue in a new lawsuit that pension cutbacks are an unconstitutional contract change. It's the second legal challenge to reform plans aimed at fixing troubled pension systems.

The lawsuit was filed late Wednesday by the Association of Montana Retired Public Employees and four retirees. It challenges portions of the pension overhaul plan put in place earlier this year by lawmakers and signed by Gov. Steve Bullock.

That measure cut in half the annual inflationary increases of 3 percent given to Public Employees Retirement System beneficiaries.

The lawsuit does not challenge the portion of the overhaul that also increased the amount paid into the system by employees and employers.

An actuary has said the measure will balance the public employee pension system in about 16 to 25 years. If the lawsuit is successful, it could take about 40 years to balance the system.

Teachers recently filed a similar lawsuit objecting to the bill that changed the system covering that group's retirees.

Bullock has said that he thinks the reform measures will be successful and balance the systems even if the retirees win their lawsuits.

The public employees suing the system include one who purchased extra service time, as allowed in the system, to increase the lifetime pension award. The lawsuit argues that the cost of extra money he put into the pension system was calculated based on the inclusion of a 3 percent inflationary increase.

The lawsuit said the pension system, which dates back to the 1940s, covers almost 20,000 retirees and includes more than 28,000 active employees.

An inflationary increase of 1.5 percent was first put into place in the 1990s and increased to 3 percent in 2001 amid rosy projections for the system's future. That increase, along with the subsequent stock market dive, have been blamed for putting the system out of balance.

Lawmakers in 2007 reversed course and reduced the inflationary increase to 1.5 percent for all new hires — but left the higher figure in place for all past and current employees.

This years' House Bill 454 reform measure then reduced it for everyone, and allows for further cuts if the system doesn't balance.

The lawsuit argues that the measure "balances the PERS fund on the backs of the retirees."

It said the average 2012 retiree was about 60 years old and had earned a $1,159 monthly benefit after almost 20 years of service. The 3 percent inflationary adjustment would increase that benefit to $2,356 over the next 25 years of expected lifespan, compared to $1,657 if the adjustment is cut to 1.5 percent.