Justus v. State, Supreme Court Case No. 12SC906

• Docket Nº: Supreme Court Case No. 12SC906
• Citation: 2014 CO 75, 336 P.3d 202
• Case Date: October 20, 2014
• Court: Supreme Court of Colorado

336 P.3d 202
2014 CO 75

Gary R. JUSTUS; Kathleen Hopkins; Eugene Halaas, Jr.; and Robert P. Laird, Jr., Petitioners/Cross-Respondents
v.
The STATE of Colorado; Governor John Hickenlooper, in his official capacity; Colorado Public Employees' Retirement Association; Carole Wright, in her official capacity; and Maryann Motza, in her official capacity, Respondents/Cross-Petitioners

Supreme Court Case No. 12SC906

Supreme Court of Colorado.

October 20, 2014

Attorneys for Petitioners/Cross–Respondents: Rosenblatt & Gosch, PLLC, Richard Rosenblatt, Greenwood Village, Colorado, Feinstein Doyle Payne & Kravec, LLC, William T. Payne, Stephen M. Pincus, Pittsburgh, Pennsylvania.

Attorneys for The State of Colorado and Governor John Hickenlooper, in his official capacity: John W. Suthers, Attorney General, Daniel D. Domenico, Solicitor General, Bernard A. Buescher, Deputy Attorney General, William V. Allen, Senior Assistant Attorney General, Megan Paris Rundlet, Assistant Attorney General, Denver, Colorado.

Attorneys for Respondents/Cross–Petitioners Colorado Public Employees' Retirement Association; Carole Wright, in her official capacity; and Maryann Motza, in her official capacity: Reilly Pozner LLP, Sean Connelly, Daniel M. Reilly, Eric Fisher, Caleb Durling, Denver, Colorado.

En Banc

Opinion

JUSTICE HOBBS delivered the Opinion of the Court.

¶ 1 In 2010, the Colorado General Assembly adopted amendments to existing statutes governing the Colorado Public Employees' Retirement Association (“PERA”) pension program. To address economic conditions and projections demonstrating a severely underfunded plan, the legislature approved measures designed to protect present and future retirees by providing for an adequately funded plan. The stated goal of Senate Bill 10–001 was to make “modifications to [PERA] necessary to reach a one hundred percent funded ratio within the next thirty years.” Ch. 2, sec. 4, 2010 Colo. Sess. Laws 4. One of the measures included in the act changed the formula for the annual cost of living adjustment (“COLA”) that applies to increase each retiree's vested base retirement benefit. Challenged in this appeal, sections 19 and 20 of SB 10–001 reduced the COLA from an annual increase of 3.5%, a fixed percentage that the legislature had approved in its 2000 session, and replaced it with a different COLA formula that capped the annual increase at 2% of the retiree's base retirement benefit. Ch. 186, sec. 7, § 24–51–1002, 2000 Colo. Sess. Laws 782; ch. 2, sec. 20, § 24–51–1002, 2010 Colo. Sess. Laws 20–21.¹

336 P.3d 205

¶ 2 The plaintiffs in this case are retired public employees (collectively referred to as “Justus”)² who contend they have a contract with the State of Colorado (“State”) entitling each of them, upon retirement, to have their base pension benefit annually adjusted by the specific COLA formula in existence at the time they were eligible to retire, for the rest of their lives without change. On summary judgment, the district court ruled they had no such contract right to an unchangeable COLA formula. The court of appeals disagreed. It determined that the retirees have a contract right to the formula in place at the time of eligibility for retirement or actual retirement based on the so-called “public policy exception” and remanded for further review to determine whether or not SB 10–001 violated the Contract Clauses of the United States and Colorado Constitutions. See U.S. Const. art. I, § 10, cl. 1 ; Colo. Const. art. II, § 11.

¶ 3 The district court ruled that there is no contractual right to the COLA formula:

The Court's determination, which deals only with COLA and not with base retirement benefits, relies heavily on the plain language of the PERA and Denver Public School Retirement System (“DPSRS”) COLA provisions which have never included durational language stating or suggesting that a particular COLA provision formula (and there have been many) was for life without change. For four decades the COLA formulas as applied to retirees have repeatedly changed and have never been frozen at the date of retirement.

Order on Plaintiffs' Motion for Partial Summary Judgment at 3, Justus v. State, Case No. 2010CV1589 (Denv. Dist. Ct. June 20, 2011).

¶ 4 The court of appeals disagreed with the District Court and ruled that the retirees do have a contractual right to the COLA formula:

On appeal, plaintiffs contend that, under the holdings of Police Pension & Relief Bd. v. McPhail, 139 Colo. 330, 338 P.2d 694 (1959), and Police Pension & Relief Bd. v. Bills, 148 Colo. 383, 366 P.2d 581 (1961), they have a contractual right to the COLA in effect when they became eligible to retire or retired, which could not be reduced. We agree with plaintiffs, subject to certain limitations explained below. Specifically, we conclude that plaintiffs have a contractual right, but that the court must still determine whether any impairment of the right is substantial and, if so, whether the reduction was reasonable and necessary to serve a significant and legitimate public purpose.

Justus v. State, 2012 COA 169, ¶ 3, 337 P.3d 1219 (Colo.App.2012).

¶ 5 We disagree with the court of appeals and agree with the district court. We hold that the PERA legislation providing for cost of living adjustments does not establish any contract between PERA and its members entitling them to perpetual receipt of the specific COLA formula in place on the date each became eligible for retirement or on the date each actually retires.³ Accordingly, we reverse the judgment of the court of appeals and uphold the trial court's summary judgment order dismissing this case.

I.

¶ 6 The Colorado General Assembly created PERA in 1931 to provide retirement and other benefits to public employees. Ch. 157, §§ 111–1–1 et seq., 1931 Colo. Sess. Laws 742–52. Today, PERA serves more than 440,000 public employees from over 400 government agencies and public entities, providing these members with a retirement program

336 P.3d 206

as a substitute for Social Security. It is composed of five divisions: state, school, local government, judicial, and, since 2010, Denver Public Schools.⁴ § 24–51–201(2), C.R.S. (2014).

¶ 7 PERA is pre-funded by working members and their employers, whose contributions are fixed by statute. See § 251–51–401(1.7), C.R.S. (2014) (first added in ch. 175, sec. 1, § 24–51–401(1.7), 1992 Colo. Sess. Laws 1133). When a member retires, the member's monthly base benefit is calculated using a formula that takes account of the member's age at retirement, the number of years of service credit (through employment with a public entity that participates in PERA in combination with any years of purchased service credit), and the member's highest average salary over his or her years of public employment. See § 251–51–602, C.R.S. (2014); § 251–51–603, C.R.S. (2014) (first added in ch. 194, sec. 1, § 24–51–603, 1987 Colo. Sess. Laws 1060). PERA members' monthly base benefits may be increased annually by a statutorily created COLA. The annual percentages used to calculate the COLA are also fixed by statute. § 24–51–1002, C.R.S. (2014).

¶ 8 The COLA formulas have been amended numerous times⁵ since the General Assembly first enacted provisions authorizing a base COLA and a supplemental COLA in 1969.⁶ From 1970 to 1973, the base COLA was the lesser of 1.5% noncompounded or the Consumer Price Index (“CPI”) in the prior year. Ch. 256, sec. 1, § 111–1–37, 1969 Colo. Sess. Laws 904 (state division); ch. 257, secs. 5–6, §§ 111–2–10–11, 1969 Colo. Sess. Laws 908 (local government and school divisions). From 1975 to 1978, supplemental COLA “catch up” payments were appropriated from the General Fund and paid in addition to the base COLA formula. Ch. 222, sec. 1, § 24–51–136, 1975 Colo. Sess. Laws 839–40 (state division); ch. 222, sec. 3, § 24–51–224, 1975 Colo. Sess. Laws 841–42 (local government and school divisions).

¶ 9 Every two years, from 1980 to 1992, the legislature approved a supplement to the base COLA, paid from PERA pension funds to match past inflation. Ch. 118, sec. 3, § 24–51–136, 1980 Colo. Sess. Laws 604. For 1993, the base COLA was changed to the lesser of 4% noncompounded or the CPI increase. Ch. 175, sec. 7, § 24–51–1002, 1992 Colo. Sess. Laws 1136. From 1994 to 2000, the base COLA was capped at the lesser of 3.5% compounded or the CPI increase.⁷ Ch. 138, sec. 7, § 24–51–1002, 1993 Colo. Sess. Laws 478–79. From 2001 to 2009, the base COLA was capped at 3.5% compounded annually. Ch. 186, sec. 7, § 24–51–1002, 2000 Colo. Sess. Laws 782.

¶ 10 In 2009, concerned about PERA's severe underfunding, the General Assembly directed the PERA board to submit specific, comprehensive recommendations regarding possible methods to respond to the decrease in the value of PERA's assets to ensure that PERA will become and remain fully funded. Ch. 288, sec. 10, § 24–51–211(2), 2009 Colo.

336 P.3d 207

Sess. Laws 1337. In response to the board's recommendations, the Colorado General Assembly passed SB 10–001, which, among other measures, modified employee/ employer contributions, put a cap on COLA...