Supreme Court rulings issued in gain sharing, UCOLA lawsuits

August 14, 2014

The Washington State Supreme Court today issued opinions in two cases related to the state’s pension systems. One case involves gain sharing provisions and early retirement benefits for members of certain state retirement plans; the other involves an annual increase for retirees in two closed pension plans (also known as the Uniform COLA or “UCOLA”).

In both cases, the court confirmed the Legislature’s authority to reserve the right to repeal or modify benefit enhancements at the time the enhancements were enacted, and to act on that reservation language at a later date. The rulings uphold the Legislature’s repeal of gain sharing in 2007 and discontinuation of the UCOLA in 2011.

The decisions are not effective until the Supreme Court issues a final order for each one. Under court procedures, the earliest final orders would be issued is 20 days from the date the opinions were released. During the 20-day window, all parties in the cases may file motions for reconsideration with the court.

One effect of the court’s ruling is to allow the continuation of benefits that were enacted in place of gain sharing, including provisions for early retirement (also known as the 2008 Early Retirement Factors, or ERFs). These provisions allow members of Plans 2/3 of PERS, TRS and SERS with 30 years of service to retire as early as age 62 without a benefit reduction. The provisions only apply to those hired prior to May 1, 2013.

“Many pension system members have been ‘on the bubble’ for months about whether to retire under the ERFs, not knowing if the provisions would be in place,” said Department of Retirement Systems Director Marcie Frost. “Today’s ruling brings some certainty and ability to plan effectively for retirement.”

Gain sharing, originally enacted in 1998, gave members and retirees of certain state pension plans a share of “extraordinary investment returns” whenever the pension trust funds had average investment gains of more than ten percent over the preceding four years. The Legislature repealed gain sharing provisions in 2007 and replaced them with other pension benefits, including options for early retirement. In approving the replacement benefits, the Legislature made them contingent on the successful repeal of gain sharing.

The other case concerns a 2011 law which discontinued an annual increase provided to certain retirees and beneficiaries in the state’s older pension plans for general government employees and teachers. The annual increase, also known as the Uniform COLA or “UCOLA,” was provided in the Public Employees’ Retirement System Plan 1 (PERS 1) and the Teachers’ Retirement System Plan 1 (TRS 1). Both plans have been closed to new members since 1977.

Both cases involve similar legal issues around the Legislature’s ability to reserve the right to cancel or change certain benefit enhancements at the time of enactment. When gain sharing and UCOLA provisions were originally approved, the Legislature specified that they were not a contractual right and that the Legislature reserved the right to amend or repeal them. In today’s rulings, the Supreme Court upheld that “reservation of rights” authority.

Frost noted that today’s rulings only relate to the specific benefit enhancements containing reservation language that were at issue in these cases. She said the rulings do not address the treatment of core pension benefits.

 “The courts have consistently held that these core benefits are a contractual right that cannot be later amended or repealed,” Frost said.

The published opinions are available on the Washington Courts website. The UCOLA case is #88546-0 Washington Education Association et al. v. Washington Department of Retirement Systems. The gain sharing case is #87424-7 Washington Education Association et al. v. Washington Department of Retirement Systems.

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