Trial begins Tuesday in the Baltimore police and fire unions’ pension litigation against the city, but this week’s round in U.S. District Court might not settle the issue of what benefits they are owed.
The plaintiffs will have to win more than once to reach their ultimate goal: a finding that the City Council’s overhaul of the system last summer was unconstitutional, and that the city must invest millions more into the pension pot.
The issue in the current trial is whether a change from a variable benefit to a staggered annual cost-of-living adjustment (plus increased survivor benefit) constitutes a “substantial impairment” of the roughly 6,000 union members’ rights.
If the safety workers win, there will be another trial next month to determine whether the ordinance was a reasonable and necessary action in light of the larger economic circumstances. And appeals could prolong the battle further.
In their pretrial brief, the unions argue the replacement of the variable benefit with an age-tiered annual benefit adjustment “without question” substantially impairs their rights under the constitution’s Contract Clause and is a “blatant grab” of their securely invested trust funds.
“The City Council, instead of putting in more money, decided to take away the benefits,” said Charles O. Monk II, managing partner of the Baltimore office of Saul Ewing LLP, the plaintiffs’ lead lawyer.
The plaintiffs claim the change costs them approximately $300 million.
“There’s a billion and a half or thereabouts … dollars in the pension fund right now,” Monk said. “So what we’re really talking about the level of funding by the city.”
City Solicitor George A. Nilson said everyone realized that the variable benefit component of the public safety pensions had to be fixed as the city faced a budget crunch. Now, he said, the fight is over whether the council’s solution unfairly shortchanges the police and fire unions’ members.
“The question is whether this is a substantial impairment or an insubstantial impairment … and the plaintiffs have the burden on that,” he said. “There are reasons why it had to be changed: for budgetary reasons and stability reasons and the soundness of the plan.”
Modification or abolition?
According to the city’s brief, increases in the variable benefit have long been subject to legislative modification and the council’s ordinance was one more modification, rather than the abolition of the post-retirement increase.
“While plaintiffs could reasonably rely on the basic benefit they earned, they could not reasonably expect future increases …, let alone an increase in a particular amount or at a particular time,” the city’s lawyers wrote in a brief filed Friday. Nilson is on the brief along with lawyers from Kramon & Graham P.A. in Baltimore.
The unions sued the city on June 3, before the City Council had passed ordinance 10-306, which made several changes to the city’s public safety employee pension system, including how long one had to work before becoming eligible for a full pension.
Senior Judge Marvin J. Garbis denied the unions’ motion for a preliminary injunction in early October, instead promising an expedited trial. Garbis narrowed the case before Christmas, and after further briefing, entered his “first trial decision” last Wednesday.
Garbis decided the employees’ contractual right to their pensions does not vest when they’re hired, and that the variable benefit elimination was the only retrospective piece of the ordinance.
Monk pointed to a section of the city code that says the benefits of the pension plan “shall not be diminished or impaired, in any way, after becoming a member.”
“We thought that meant something,” Monk said. “The judge didn’t agree with us.”
During the trial, scheduled to run through Thursday, Monk will call a pair of actuaries in addition to a police officer plaintiff to testify about the effect of the change. They argue it turned an average 3 percent increase for all retirees into a 0 to 2 percent increase, depending on age.
“There are lots of perfectly appropriate ways to address the funding problem, so maybe that means that the city, if it can’t afford the full amount that it ought to pay today, it may end up with a net pension obligation,” Monk said. “But the city is not going away. Baltimore is actually a pretty fiscally well-run city with substantial resources.”
“We think the city isn’t doing everything it could’ve done to protect those promises,” he said.