September 10, 2010

Judge rules for union, overturns state's repeal of gainsharing benefits for PERS3 and PERS1 members.

A judge Thursday ruled in favor of the Washington Federation of State Employees and ordered the state to resume gainsharing benefits for those in the PERS 3 and PERS 1 retirement systems.

King County Superior Court Judge Richard Eadie on summary judgment found that the gainsharing benefits are protected by the state constitution – basically that pensions are a promise the state can’t break. “The state may not divest members of gainsharing unless that benefit is replaced with comparable new advantages,” which didn’t happen when the Legislature in 2007 repealed the gainsharing benefit, the judge said.

“To terminate gainsharing for participating members, the state must show that the termination serves the purpose of maintaining the integrity and flexibility of the retirement system and further that any resulting disadvantage to the covered employee has been replaced by comparable new advantages,” Eadie wrote.

The judge said gainsharing has not negatively impacted the retirement system’s flexibility. “To the contrary, gainsharing was designed as a flexible tool to recognize and equitably share extraordinary returns on the systems’ investments; to appeal to a wider range of potential members, specifically those who may come into covered employment for a shorter time than would allow full retirement…,” the judge said.

“An earned pension right, such as gainsharing for covered employees, may not be removed without adding counterbalancing benefits. While some benefits were added when gainsharing was removed, the record before this court would not support a finding that those added benefits meet the standard of ‘counterbalancing.’”

The faulty counterbalancing was earlier retirement benefits for PERS 2 and PERS 3 members—to retire at age 62 with 30 years of service with no reduction in benefits.

According to union counsel, Judge Eadie’s ruling also wipes out the “poison pill” provision in the gainsharing repeal so the earlier PERS 2 and PERS retirement remains as well even if gainsharing is restored.

That interpretation may be contested by the state, which is expected to appeal Eadie’s ruling.

Gainsharing is the term given to sharing extraordinary returns on retirement fund investments. The Legislature adopted a program that would divide a portion of investment returns that exceeded 10 percent over a four-year period between the state and those in PERS 3 and PERS 1. It was meant as an incentive for new hires to join PERS 3 and for PERS 2 members to switch to PERS 3.

The union’s legal action was a class action on behalf of all PERS 3 and PERS 1 enrollees. The named plaintiffs were two Department of Corrections members, Dana Hufford of Local 308 and Paulette Thompson of Local 53.

CLARIFICATION: the judge did not rule on the earlier retirement for PERS 2 and 3 members, but it's our position it remains in effect.

That’s it for now.


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