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ERIC Number: ED529972
Record Type: Non-Journal
Publication Date: 2012-Feb
Pages: 25
Abstractor: ERIC
Reference Count: N/A
ISBN: N/A
ISSN: N/A
A Legal Guide to State Pension Reform. Education Sector Policy Briefs
Herriot-Hatfield, Jennie; Monahan, Amy; Rosenberg, Sarah; Tucker, Bill
Education Sector
Just 18 minutes before the midnight signing deadline on May 15, 2010, Minnesota state legislators breathed a sigh of relief. Their bipartisan pension reform legislation, which passed both chambers by large margins and aimed to help shore up a potentially failing pension system, had just escaped a veto threat. Under pressure from his Republican legislative allies, Governor Tim Pawlenty signed the omnibus pension bill into law. The relief, however, was short-lived. Fewer than 48 hours later, two retired Minnesota state employees filed a class action lawsuit, claiming that by reducing cost-of-living adjustments, the state had violated contractual rights to promised benefits. As a result, the courts, not the legislators, would have the final say. Minnesota is just one of many states confronting massive pension shortfalls. According to the Pew Center on the States, unfunded state pension obligations total more than $1 trillion and exceed thousands of dollars per resident in many states. If states don't act to rein in pension liabilities, state contributions will eat up an increasingly greater share of revenues, crowding out funding for everything from repairing roads and providing social services to hiring and retaining high-quality teachers and principals. To avoid this threat, 39 states have made significant changes to public pension plans in the last two years. And many more changes are under consideration. But pension reform is not just a financial, ethical, educational, and political issue. It is also a legal issue. And a complicated one at that. As states across the nation wrestle with pension reform, they must strike the right balance in navigating legal constraints, which are often either overlooked in public discussions or overly feared by those involved. States that ignore legal precedents and constitutional protections will find themselves on the losing end of costly court battles. Those that are too timid and tinker only at the edges may also suffer by allowing pension problems to fester and grow. But those that find the right balance, like Minnesota managed to do, can overcome court challenges. The state's Second Judicial District Court ultimately dismissed the case, upholding the reduction in the cost-of-living adjustment (COLA). This brief offers a broad overview of the legal issues that policymakers must confront. State pensions are protected under laws that vary considerably from state to state. Thus, the authors profile four states (California, Illinois, New Mexico, and Ohio) to provide a representative sample of the range of protections mandated under state law. Appended are: (1) State Pension Protection Overview; and (2) Strengths and Weaknesses of Potential Pension Changes. (Contains 1 table and 14 notes.)
Education Sector. 1201 Connecticut Avenue NW Suite 850, Washington, DC 20036. Tel: 202-552-2840; Fax: 202-775-5877; Web site: http://www.educationsector.org
Publication Type: Reports - Descriptive
Education Level: N/A
Audience: N/A
Language: English
Sponsor: Eli and Edythe Broad Foundation
Authoring Institution: Education Sector
Identifiers - Location: California; Illinois; Minnesota; New Mexico; Ohio