PERA dismisses lawsuit against city, UCH

Posted by Pam Zubeck on Fri, Sep 7, 2012 at 1:43 PM

After a flurry of legal activity in the last week or so, the city and the Public Employees' Retirement Association have agreed to start over, clearing the way for the city's deal to lease Memorial Health System.

PERA Memorial Health System UCH

The lease, with the University of Colorado Health, will close Oct. 1 as planned. That had been placed into question by litigation filed Aug. 15 and Aug. 31 by the city and PERA, respectively. The city sought a declaratory judgment saying it owes PERA nothing. PERA sued the city and UCH alleging it's owed $220 million on behalf of the departing Memorial employees and seeking an injunction to prevent the lease transaction from going through.

Late yesterday, the city issued a press release saying all is well, and PERA followed up with its own press release today.

Here's what the city said:

The City is pleased to announce that it has successfully negotiated with PERA an agreement not to seek to delay the Memorial partnership with University of Colorado Health. The parties today completed and signed an agreement in which PERA withdrew their request for injunctive relief regarding the Memorial Lease; PERA agreed to dismiss UCH from its current lawsuit and to not name UCH in any future lawsuit and PERA agreed not to seek to undo or invalidate the City’s partnership with UCH to operate the Memorial Health System. As part of the agreement, the parties will place the initial proceeds from the UCH transaction in the amount of $259 million into escrow to be supervised by the court pending the final resolution of the dispute between PERA and the City regarding the Memorial employees’ transfer to new employment with UCH.

The City had announced its intention previously to place the $259 million initial payment from UCH in segregated accounts pending resolution of any issues related to the transaction, including any PERA issues, for a period of up to five (5) years. Today’s arrangement is consistent with the stated intention as presented to the voters and the community regarding the use of the lease proceeds. PERA and the City further agreed to voluntarily dismiss their respective lawsuits in Adams County and El Paso County on the PERA issues, and allow the City to refile its declaratory judgment action in the Denver District Court. The City will retain all rights to raise the facts and the law associated with its view that the UCH partnership will not create any obligation for the City to provide additional payments to PERA.

City Attorney Chris Melcher provided the following comments: “We are very pleased to have successfully removed the last major uncertainty with regard to the exciting new partnership between the City and UCH for the operation of a world-class health system in Colorado Springs. The community and Memorial can now focus without any further distraction on a smooth transition of the health system, the creation of a new branch Medical Campus at UCCS, and a bright future for higher levels of healthcare and potential economic development in our community. The City and PERA will revisit in the future the disagreement regarding whether the City is obligated to make any additional payments to PERA, and the City remains well positioned to present and defend its view that no additional payments are due following transfer of operations at Memorial.”

The City and UCH will continue to work diligently on all transition issues, and remain confident that the partnership will be finalized and completed on October 1st, as scheduled. This development provides reassurance to the Memorial employees, the physicians, the patients, and the entire community that the trust and overwhelming support shown for this new partnership was justified and will move forward on schedule.

And here's PERA's version:

DENVER—On Thursday, September 6, the Colorado Public Employees’ Retirement Association (PERA), the City of Colorado Springs, and the University of Colorado Hospital (UCH) agreed to set aside $259 million of the Memorial Health System transaction proceeds in a court-supervised escrow account pending resolution of the dispute between PERA and the City. The parties agreed that existing lawsuits would be withdrawn and that the claims would be re-filed in Denver County District Court. The new lawsuit will ask the court to determine how much the City owes to PERA for funding Memorial employees’ earned retirement benefits.
“The creation of a court-supervised escrow account to secure the funds is appropriate and now the court will decide how much is owed to PERA for the retirement benefits already earned by Memorial employees,” said Gregory W. Smith, PERA’s Interim Executive Director. “All along it has been PERA’s goal to ensure that this transaction does not negatively impact the employers and members in PERA’s Local Government Division Trust fund. We believe this is a good first step toward reaching that goal,” Mr. Smith added.
Colorado PERA provides retirement and other benefits to more than 483,000 current and former employees of more than 500 public entities in the state of Colorado. Colorado PERA is the 21st largest public pension plan in the U.S. with more than $40 billion in defined benefit and defined contribution assets.

UCH has agreed to pay the city $185 million for the PERA obligation and another $74 million up front, and $5.6 million annually for 30 years during the 40-year lease. It also will pay $3 million a year for 40 years toward a medical school branch.

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Colorado PERA has filed a countersuit seeking a preliminary injunction against the City of Colorado Springs’ proposal to lease Memorial Hospital and repudiate their contractual PERA pension obligations.
From a recent Colorado PERA new release:
“On Friday, August 31, the Colorado Public Employees’ Retirement Association (PERA) filed a lawsuit against the parties to the Memorial lease transaction in order to have the court take control of the funds from the transaction. This lawsuit is in response to the suit filed by the City of Colorado Springs on August 15 which asserts that nothing is owed to PERA for the retirement benefits already earned by Memorial employees, despite the payment by University of Colorado Hospital (UCH) to the city of $185 million earmarked for the PERA liability.”
(My comment: PERA has a point here . . . why did Colorado Springs set aside $185 in the lease agreement if they really believe they owe PERA nothing? This does not demonstrate a high level of confidence in their case. In my opinion, they really have no case. I believe the Colorado Springs attempt to escape their PERA debt outside of bankruptcy is a colossal waste of time and tax dollars. It feels good to support PERA here. I wish the PERA Board had never decided to attempt to breach retiree contracts, and I could have been a staunch PERA supporter for the last three years. I’m happy to see that the PERA Board of Trustees voted to meet their fiduciary obligations in this situation. Given their support for SB 10-001, I had limited confidence that the board would determine that it was their fiduciary duty to make the Local Government Division trust funds whole in this situation.
How will Colorado PERA’s actuary calculate the unfunded liability? Actuaries, when you begin this calculation remember that Colorado PERA has provided the following written statement during testimony to the Joint Budget Committee of the Colorado General Assembly:
“The General Assembly cannot decrease the COLA (absent actuarial necessity) because it is part of the contractual obligations that accrue under a pension plan protected under the Colorado Constitution Article II, Section 11 and the United States Constitution Article 1, Section 10 for vested contractual rights.”
Disclaimer: By pointing out the hypocrisy of Colorado PERA in this blog post I don’t mean to imply that PERA’s in-house and external attorneys did not do an admirable job in preparing their brief in this Memorial Lease case. Also, I mean no personal offense to the attorneys forced to defend an untenable PERA Board decision in backing SB 10-001.)

“PERA is asking the court to determine that in order for Memorial to terminate its affiliation with PERA, the parties must comply with the law, which includes paying for the retirement benefits already earned by Memorial employees.”
“In particular, the law calls for reserves to be created for the payment of benefits earned as of the disaffiliation date by the employees of the disaffiliating employer. The law requires that the reserve be sufficient to ensure that there is no adverse impact on the remaining employers in the division.”
“PERA believes this is unfair because these benefits have already been earned as a result of work performed for the disaffiliating employer.”
Here’s a link to the full Colorado PERA news release:…

Here’s a link to article about the countersuit in the Colorado Springs Independent:…

Here’s a link to a PDF of the 39-page countersuit filed in the Adams County District Court:…

(My comment: It looks like many of the same attorneys hired for the Justus V. State case have been retained for this Colorado Springs legal battle.)
From the lawsuit:

“In 1988, the Colorado legislature provided a limited, proscribed method for Local Government
employers to terminate affiliation with PERA that ensures the protection of employees and the
financial health of the trust fund . . .”
(My comment: I think PERA’s attorneys meant to say “prescribed method” here, rather than “proscribed method.” Reader take note that payment of the total, fully-vested, contracted PERA retiree benefit by means of a COLA escalator is also a “prescribed method” set forth in Colorado PERA statutes. The choice of the Colorado General Assembly to enact laws requiring the payment of the defined PERA benefit by means of a “COLA method” does not allow PERA or PERA-affiliated employers to escape their contractual obligations. The General Assembly could just as well have written statutes requiring that the total, defined PERA benefit be paid in larger monthly installments, rather than by means of a “COLA method.”)
From page 13 of the brief:

“In no state may an employer unilaterally leave a public pension plan without following a
proscribed statutory procedure.”
(My comment: Is this a repeat of the earlier solecism? To “proscribe” is to “forbid.” Am I missing something? Did they let the paralegals draft this? Did the attorneys fail to give it a close read? Just teasing paralegals.)
“ . . . a goal which is eviscerated if employers are allowed to unilaterally leave without paying their share of the actuarial liability.”

(My comment: Only Colorado PERA is allowed to eviscerate pension actuarial liability. Stay off of their turf!)

“ . . . those requirements include: (1) a vote of Memorial’s employees with 65% choosing to leave PERA; (2) payment for an actuarial study to determine Memorial’s unfunded liability for its current and future retirees; (3) payment of Memorial’s unfunded liability—last calculated at approximately $220 million; and (4) approval by the PERA Board.”

(My comment: I believe that this “unfunded liability” will be recalculated when PERA’s legal contrivance is eventually overturned in court in the case Justus v. State, and that this event will increase the Colorado Springs PERA debt by an additional (approximate) 25%. That will make some Colorado Springs heads explode!)

“Congress, through ERISA, likewise prohibits a private employer from withdrawing from multi-employer pension plans without paying its unfunded liability.”

“For multiemployer plans, ERISA ‘assigns a withdrawing employer immediate liability
for a fixed and certain debt owed to the plan, which is known as withdrawal liability.’”

(My comment: When I read these sentences from the Memorial Lease lawsuit brief I observe an impressive level of hypocrisy on the part of Colorado PERA. Why? Under ERISA, the taking of vested retiree COLA benefits is “proscribed.” ERISA includes an “anti-cutback” rule preventing the retroactive taking of a contracted COLA benefit. To ignore the ERISA “anti-cutback” rule in the case Justus v. State, and then rely on ERISA provisions in this Memorial Lease case is the height of hypocrisy. PERA attorneys, you have to agree with me here.)

“The General Assembly set up a specific, detailed statutory provision for withdrawal . . .”
(My comment: I wonder, does this detailed statutory provision employ the word “SHALL”? I seem to recall Colorado PERA recently arguing that the word “SHALL” is not quite as absolute as is commonly understood. The PERA COLA provisions were “specific and detailed” prior to the enactment of SB 10-001.)

PERA’s legal brief includes the following argument: “The fact that no such provision exists in
either Chapter 9-15 or Chapter 3-12 leads directly to the conclusion that the Legislature did not
intend to permit withdrawal.”

(My comment: Similarly, the fact that no provision exists in Colorado law allowing the General Assembly to retroactively take contracted COLA benefits from retirees with fully-vested pension contracts [there was no reservation of this right] leads directly to the conclusion that the Legislature did not intend to permit such takings of fully-vested pension benefits.”)

Back to the PERA brief:

“The bill’s Senate sponsor, when she presented the bill to the Senate Finance Committee . . .”

(My comment: In 1988, Senator Bill Schroeder was prime sponsor of the legislation Colorado PERA refers to here. He will not be pleased to know that PERA questions his gender. PERA the sponsor wasn’t Pat.)

“Defendants Have Repeatedly Acknowledged Their Responsibility for the PERA Liability.”

(My comment: Likewise Colorado PERA, you have acknowledged the contractual nature of the PERA retiree COLA benefit. You have done so in testimony before the Colorado General Assembly, and you have done so by including the fixed “automatic” 3.5% PERA retiree COLA benefit in the actuarial assumptions of your CAFRs for many years.)

“The City and Memorial’s current claim that the withdrawal statute does not apply to the
contemplated transaction is contrary to their repeated statements over the past two years
acknowledging that Memorial’s PERA liability must be paid as a condition of the transaction.”

(My comment: Now PERA, to be fair, the initial decision in the case Justus v. State is also contrary to your organization’s assertions two years ago that the retiree COLA benefit is a PERA contractual obligation, and yet, your organization persists with the lawsuit in Justus v. State. Double standard anyone? Making claims contrary to earlier statements is not acceptable for the City of Colorado Springs? But, this is acceptable behavior for Colorado PERA?)

“ . . . city officials, including the City Attorney, stated that $185 million of the $259 million that Memorial and the City would receive as upfront proceeds from UCH will be placed in a segregated account to address the PERA liability.”

(My comment: PERA, now is it really fair that you hold the Colorado Springs City Attorney to his word? After all, your own PERA General Counsel has been quoted in the newspaper as follows:

Denver Post Article, November 30, 2008:
Greg Smith, Colorado PERA General Counsel: “The attorney general's opinion seems clear that fully vested employees — those retired or with enough years of service to retire — cannot see any benefits reduced, including cost-of-living adjustments.” (Link:…)
“PERA is statutorily directed to act in the best interests of its members and must enforce the statutory provisions as written.”

(My comment: Those statutes, prior to the unconstitutional SB 10-001, stated that PERA “SHALL” pay the retiree COLA benefit.)

“She urged the city council members to talk to Memorial employees because they were going to suffer a significant financial loss and had been ignored.”

(My comment: PERA, where was your concern for PERA retirees with fully-vested pension contracts in 2010? These retirees suffered “significant financial loss” as a result of your unconstitutional scheme to take up to one-quarter of their contracted PERA benefits.)

“For example, Memorial employees are being forced to decide now whether to purchase service credit in order to become eligible to retire prior to the stated October 1, 2012 closing date.”

(My comment: Many PERA members purchased service credit under the assumption that the PERA COLA benefit was a “contractual obligation” of PERA. PERA, these are the words your organization used to describe the PERA COLA benefit in testimony before the Colorado General Assembly. These PERA members kept their end of the bargain, they sent in checks to cover their obligations. After receiving the checks, the PERA Board of Directors voted to attempt to diminish the value of the service credit purchases that were made. Where was Colorado PERA’s concern regarding service credit purchases of PERA members in 2010?)

“ . . . a full retirement but that benefit will be 50% of a final salary that will have been earned 20 years earlier and thus diminished by inflation.”

(My comment: Colorado PERA, where were your concerns regarding the impact of inflation on PERA retirees when the PERA Board voted to attempt an unconstitutional reduction of PERA retiree’s contracted “inflation protection” in 2009?)

“This is the reason why the Colorado General Assembly mandated that affected employees be protected from their employers’ financial motivations that could be at odds with their retirement benefits and rights.”

(My comment: “Protected from their employers’ financial motivations?” When one recognizes that SB 10-001, and its COLA-theft provisions, was intended primarily for the financial benefit of PERA-affiliated employers, and that this fact was acknowledged by the bill’s sponsor, one sees that this statement achieves a new pinnacle of hypocrisy.)

“The City’s desire to leave PERA is not being caused by an outside force over which the City and UCH do not have control, but rather by the City’s desire to realize the largest, shortterm
profit without concern for the long term impact of this action on Memorial, its employees or
other PERA employers or members.”
(My comment: PERA, can you blame the City of Colorado Springs for attempting to reduce a tax burden through breach of contract? This public policy objective was endorsed by the Colorado General Assembly, with the enactment of PERA-supported SB 10-001!)
“PERA is a body corporate and instrumentality of the state under C.R.S § 24-51-201. PERA thus is also considered an arm of the state.”

(My comment: I agree that PERA is an arm of the state, and I am glad to have this fact acknowledged by Colorado PERA. Recall that state governments cannot declare bankruptcy under federal law . . . as long as Gingrich doesn’t have his way.)

Visit, Friend Save Pera Cola. Support the effort to force the Colorado General Assembly to abide by the rule of law.

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Posted by Algernon Moncrief on 09/07/2012 at 2:03 PM you really think anyone reads such a long cut and paste posting?

Posted by TejonTech on 09/07/2012 at 5:10 PM
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