Changes Baltimore city made to the retirement plan for police and fire employees “retrospectively diminished” their benefits and constitute a breach of contract, a city judge has ruled.
The 2010 revisions to the Fire and Police Employees’ Retirement System of the City of Baltimore, which the city claimed were necessary for the plan to survive, withdrew the rights of certain members, Baltimore City Circuit Judge Julie R. Rubin ruled in a declaratory judgment and order issued Tuesday.
Rubin did not find the changes breached the city’s contract with active members who were not yet eligible to retire but will have a trial to determine if the prospective changes were reasonable and provide active members “substantially the program he bargained for” when joining the plan.
The changes did away with a variable benefit, added in 1983, that increased as the market thrived but made no provision for reduction when the market struggled, according to the memorandum opinion. After the 2008 financial crisis, the city eliminated the benefit, which “threatened to consume entirely the Plan’s basic benefit,” the opinion states. The change was intended to “ensure the Plan’s health and viability for current and future members.”
The benefit was replaced with a tiered cost-of-living adjustment which provided retirees who met certain requirements with an increase of up to two percent depending on age, according to the opinion.
The change has been the subject of litigation since 2010, when the plaintiffs sued in federal court over its constitutionality. A judge ruled it violated the contracts clause and dismissed a takings clause claim, but the 4th U.S. Circuit Court of Appeals reversed because the plaintiffs had not exhausted their breach-of-contract remedies under state law.
The federal lawsuit over a potential takings clause violation is pending but stayed while the state contract claims are litigated. The state court lawsuit was filed in August 2016.
Rubin determined that the city, while entitled to make reasonable modifications to the plan, could not do so retrospectively to members who had satisfied all requirements to qualify for benefits. The elimination of the benefit breached the contract formed when the retired and retirement-eligible members joined the plan, she ruled.
Baltimore City Solicitor Andre Davis said Friday that Rubin’s declaratory judgment order is not subject to appeal, and the next step is to determine liability on the open question of whether the city’s actions were reasonable as applied to the active plan members.
“We look forward to meeting with the judge and figuring out the next steps forward,” he said. “The case is far from over.”
Davis said the city maintains the position that the plan changes do not take anything away but even if they did, under the law it was permissible because it was reasonable to ensure the plan’s continued survival.
(Davis was sitting on the 4th Circuit when the case was heard there but was not involved in the matter.)
Charles O. Monk II of Saul Ewing Arnstein & Lehr LLP in Baltimore, who represented the plaintiffs, did not return a call seeking comment.
The case is Robert F. Cherry Jr. et al. v. Mayor & City Council of Baltimore City, 24C16004670.