PORTLAND, Maine — A federal court on Friday upheld the Maine Legislature’s right to suspend cost-of-living adjustments to beneficiaries of the Maine state pension system.
The ruling is the latest in a long legal battle between the Maine Association of Retirees and the Maine Public Employees Retirement System over pension reforms passed in 2011 that are credited with reducing by about 40 percent the state’s unfunded obligations to retired state workers.
“We’ll be reviewing the decision and talking to the attorney and seeing what the next steps are,” said Barbara Van Bergel, interim executive director of the Maine Association of Retirees.
At issue was whether the state had a contractual obligation to provide annual cost-of-living, or COLA, adjustments to pension recipients. Attorneys representing state employees and retirees argued those adjustments were a part of their benefit plan, while the court found state law indicated otherwise.
The court acknowledged that the impact for individual state employees differs based on a number of factors, but “in general, retirees stand to be paid significantly less as a result of the amendments [to the state pension program].”
The U.S. Court of Appeals for the First Circuit in Boston found that the state had no contractual obligation to provide those cost-of-living adjustments to state retirees prior to 2011 and thereby did not break a contract in suspending those adjustments for three years and limiting the increase to the first $20,000 of pension benefits in subsequent years.
The 2011 pension reform law calls for the reinstatement of the COLA adjustments later this year. Richard Rosen, a former Republican lawmaker recently named the state’s acting finance commissioner, said earlier this month that the law reduced the state’s unfunded pension liability by 41 percent, to $2.4 billion from $4.1 billion.
“It’s an important ruling for the state of Maine,” Rosen said in a telephone interview Monday. “The purpose of [the 2011 law] was to help secure the retirement system for the long haul.”
The credit rating agency Standard & Poor’s had also cited the case decided Friday as a potential threat to the state’s finances.
The issue of pension reform is likely to re-emerge before the Legislature next year, according to Maine State Employees Association Executive Director Chris Quint, who said “strengthening and protecting retirement security for all workers” will be a priority for the organization when lawmakers reconvene in January. He said the state workers’ union is still working on a specific policy goal and has not identified COLA adjustments as a particular objective.
Proponents of the pension reform included the Maine Heritage Policy Center, which had filed a friend-of-the-court brief in the case.
“It’s important that Maine be able to keep promises made to civil servants and retirees,” said MHPC Chairman Peter Anania in a prepared statement. “But our ability to keep those promises is jeopardized by an unsustainable pension system.”
The latest decision upheld an earlier ruling issued last summer in U.S. District Court in Maine.
The Maine case in essence mirrors legal battles in other states over public pension systems, but debates over contractual rights varies from state to state as legal interpretations depend on the language of state law. And, as the circuit court’s decision stated, state laws do not grant contractual rights unless explicitly stated.
Keith Brainard, lead researcher for the National Association of State Retirement Administrators, said that lawsuits regarding such changes in other states have generally found in favor of lawmakers, confirming their right to modify cost-of-living adjustments for retirees.
A decision in Superior Court in New Jersey also issued last week found that the Garden State did establish a contractual obligation to provide COLA adjustments to retirees’ pension plans, but that decision still requires further court review and doesn’t stand to affect Maine state workers or the U.S. Circuit Court case, according to attorney Timothy Woodcock, who represented the Maine Public Employees Retirement System in the case.