Colorado Springs Fire Fighters Ass'n, Local 5 v. City of Colorado Springs

• Decision Date: 18 December 1989
• Docket Number: No. 88SA228,88SA228
• Citation: 784 P.2d 766
• Parties: 11 Employee Benefits Cas. 2589 COLORADO SPRINGS FIRE FIGHTERS ASSOCIATION, LOCAL 5, Colorado Springs Police Protective Association, Colorado Springs City Employees Association, Carl Petry, Hurstle Stidham, Donald Krabbenhoft, Leonard Huscher, Leland Kinney, Dean Clapper, Robert Sawall, John Gordon, and Donald Johnson, Plaintiffs-Appellees, Cross-Appellants, v. CITY OF COLORADO SPRINGS, Defendant-Appellant, Cross-Appellee.
• Court: Colorado Supreme Court

Page 766

784 P.2d 766

11 Employee Benefits Cas. 2589

COLORADO SPRINGS FIRE FIGHTERS ASSOCIATION, LOCAL 5,

Colorado Springs Police Protective Association, Colorado

Springs City Employees Association, Carl Petry, Hurstle

Stidham, Donald Krabbenhoft, Leonard Huscher, Leland Kinney,

Dean Clapper, Robert Sawall, John Gordon, and Donald

Johnson, Plaintiffs-Appellees, Cross-Appellants, v. CITY OF COLORADO SPRINGS, Defendant-Appellant, Cross-Appellee.

No. 88SA228.

Supreme Court of Colorado,

En Banc.

Dec. 18, 1989.

Brauer & Buescher, P.C., Thomas B. Buescher, Denver, for Colorado Springs Fire Fighters Ass'n.

Sherman & Howard, Raymond M. Deeny and Theodore A. Olsen and James G. Colvin, II, City Atty. for Colorado Springs, Colorado Springs, for City of Colorado Springs.

Justice ROVIRA delivered the Opinion of the Court.

In this class action lawsuit the appellant, the City of Colorado Springs (City), appeals the trial court's grant of summary judgment in favor of the plaintiffs/appellees. The trial court held that a 1966 city ordinance which provided that the City would pay the health insurance premiums for retired city employees created a vested quasi-pension type benefit. It also found that the two ordinances subsequently adopted by the city council, which limited the City's premium contribution, were an unconstitutional impairment of the plaintiffs' contractual rights in violation of article II, section 11, of the Colorado Constitution and article I, section 10, of the United States Constitution. ¹ Because we believe that the 1966 city ordinance did not create a pension type benefit, nor a contractual obligation, we reverse.

I.

On January 25, 1966, the Colorado Springs City Council passed Ordinance No. 3256, which stated that the City's group health plan would be available to all employees, that the City would contribute $6 per month toward the cost of the program for each employee, and that upon an employee's retirement the City would pay "the cost of continuing" health plan coverage if the employee met certain eligibility requirements. ² On June 14, 1966, the city council enacted Ordinance No. 3307 which amended Ordinance No. 3256. The amendment incorporated Medicare coverage into the health plan and provided that the City's payment of premiums for non-retired employees was subject to future adjustment by the city council.

Between January 1, 1966 and January 1, 1979, the City paid the full health plan premium cost for all eligible retirees. On December 26, 1978, the city council passed Ordinance No. 78-232, which placed a cap of $91.40 per month on the amount the City would contribute toward the individual health insurance premiums of employees who had retired prior to January 1, 1979. ³

On November 23, 1982, the city council passed Ordinance No. 82-195 which reinstated, as of January 1, 1983, payment by the City of the full health insurance premiums for employees who had retired prior to January 1, 1979. Subsequently, the city council adopted Ordinance No. 84-115, which required the City to pay the full premium cost for those employees who were eligible to retire as of January 1, 1979. Employees in this group were reimbursed the premium expense they incurred from January 1, 1983 to the time this ordinance was enacted in June 1984.

As a result of these ordinances, the current premium for those employees who were eligible to retire or did retire prior to January 1, 1979, is being fully paid by the City. Employees who retired prior to January 1, 1979, however, have not been reimbursed for the premium costs they incurred between January 1, 1979 and January 1, 1983. Employees who were eligible to retire as of January 1, 1979, who retired between January 1, 1979 and January 1, 1983, have not been reimbursed for the premium expenses they incurred during this period. Finally, employees who were hired before January 1, 1979, but were not eligible to retire on that date, are subject upon retirement to the $91.40 limitation. Employees in this group, who have retired, are incurring out-of-pocket costs to the extent that their monthly premiums exceed the $91.40 limitation. Employees in this group, who have not yet retired, have not suffered any economic harm as a result of the 1978 ordinance.

In September 1985, the plaintiffs filed suit, alleging that the 1966 ordinance created a pension type benefit which involved a contractual commitment and that Ordinance No. 78-232 was an unconstitutional impairment of "contracts and previously vested rights" violative of article II, section 11, of the Colorado Constitution, and article I, section 10 of the United States Constitution. The plaintiffs bringing this action are comprised of three subgroups. The first group are those employees who retired prior to January 1, 1979. The second group is composed of those employees who were eligible, but had not retired, prior to January 1, 1979. Finally, the third group is composed of those employees who were employed as of January 1, 1979, but were not then eligible to retire. ⁴

The plaintiffs seek declaratory relief regarding their claim that the 1966 ordinance created a contractual quasi-pension type benefit. They also seek an injunction prohibiting enforcement of the subsequent ordinances which limit the City's health benefit premium contribution. Finally, they seek monetary damages for the expenses they have incurred as a result of the City's failure to fully pay these premiums.

The City moved for summary judgment on March 15, 1988. Plaintiffs opposed the City's motion and filed a cross-motion for summary judgment. The trial court granted plaintiffs' cross-motion for summary judgment, finding that the 1966 ordinances created a "vested, quasi-pension benefit" for employees and retirees, and that Ordinance No. 78-323 was an unconstitutional impairment of these rights in violation of article II, section 11, of the Colorado Constitution and article I, section 10, of the United States Constitution. ⁵

II.

The plaintiffs' primary contention is that the 1966 ordinance, in which the City agreed to pay the health insurance premiums for eligible retirees, created a contractually enforceable pension benefit. As the trial court indicated, and the respondent candidly admitted during oral argument before this court, ⁶ the resolution of this case is dependent upon whether the 1966 ordinance created a quasi-pension benefit.

A.

Rights which accrue under a pension plan are contractual obligations which are protected under article II, section 11, of the Colorado Constitution and article I, section 10, of the United States Constitution. Police Pension & Relief Bd. v. McPhail, 139 Colo. 330, 338 P.2d 694 (1959). As we stated in Kirschwing v. O'Donnell, 120 Colo. 125, 129, 207 P.2d 819, 821 (1949), pension plans promote important public policy considerations because they are structured "to reward efficiency, to encourage officers to remain in the service, and to give assurance of a decent living upon retirement...."

Plaintiffs contend that those employees who had retired or were eligible to retire as of January 1, 1979, had fully vested pension rights, analogous to the rights we considered in McPhail. Those workers who were employed prior to January 1, 1979, but who were not eligible to retire as of that date, are alleged to have partially vested pension rights which may be modified only under limited circumstances. Police Pension & Relief Bd. v. Bills, 148 Colo. 383, 366 P.2d 581 (1961).

In determining whether these health insurance benefits are, in fact, pension type benefits, it is helpful to compare the Colorado statutory provisions addressing pension plans with the attributes of the city ordinance. The Public Employee Retirement Association (PERA) creates a pension system for most state employees, as well as municipal, city, county, and school district employees. ⁷ The Policemen's and Firemen's Pension Reform Act created a pension fund for these employees and requires certain municipalities to participate in the program. ⁸ These pension plans are intended to provide employees with an actuarially sound fund from which eligible retirees will receive periodic benefit payments. The payment to which retirees are entitled is calculated based upon their length of employment and their salary level. Entitlement to annual pension payment increases is also statutorily determined. ⁹

These statutory provisions have established a defined benefit contributory pension system in which most public employees are required to participate. ¹⁰ These plans are funded through mandatory employer and employee contributions of a specified percentage of the employee's salary to the applicable pension fund. For PERA the required contribution is statutorily determined, and for the police and firemen's pension fund it is set periodically by the Policemen's and Firemen's Pension Reform Commission. By making these contributions, employees obtain a limited vesting of pension rights, which ripen into vested pension rights upon attainment of the respective eligibility requirements. See Police Pension & Relief Bd. v. Bills, 148 Colo. 383, 366 P.2d 581 (1961); City of Aurora v. Hood, 194 Colo. 80, 82, 570 P.2d 246, 247 (1977); Benson v. City of Sheridan, 31 Colo.App. 540, 544-45, 506 P.2d 401, 403 (1972). Employees who terminate their employment prior to retirement are entitled to a refund of their contributions to the pension plan. ¹¹

Employees may also elect to participate in the PERA health benefit insurance plan. Under PERA, a separate health care fund has been created to "provide a premium subsidy for health care benefit recipients choosing to enroll in the health care program...." ¹² The amount of the insurance premium subsidy to be paid from the health care fund is determined annually by the General Assembly. The amount of the premium subsidy may also be affected by the retiree's years of service and Medicare benefit eligibility. The administrative board "may change...