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Pension Sustainability Law Challenged

Two retirees are challenging the retiree annual inflation adjustment reduction contained in the law.
(Published May 26, 2010)

On May 17—only two days after Gov. Pawlenty signed the 2010 omnibus pension bill—a lawsuit was filed challenging part of the legislation.

Two Public Employees Retirement Association (PERA) retirees are challenging the retiree annual inflation adjustment reduction contained in this year’s omnibus pension bill. Although the plaintiffs are PERA retirees, they are seeking to certify the matter as a class action, on behalf of all current retirees, against PERA, the Minnesota State Retirement System (MSRS), and the Teachers Retirement Association (TRA).

The new 2010 omnibus pension act includes a reduction in the annual pension benefit adjustment to General Plan retirees to one percent from the current 2.5 percent while the annual retiree adjustment in the Police and Fire plan is reduced from 2.5 percent to 1 percent for two years and then is adjusted according to the consumer price index, with a limit of no more than 1.5 percent per year.

The plaintiffs, Howard Swanson and Lambert Niesen, are seeking a permanent injunction barring implementation of the 2009 and 2010 omnibus pension bills, arguing that the 2009 and 2010 legislation violates the contract clause of the Minnesota Constitution and the contract clause, takings clause, and substantive due process protections of the United States Constitution. They are also seeking monetary damages and attorney fees.

The 2010 omnibus pension bill includes a host of plan reforms and employer and employee contribution increases designed to stabilize PERA, MSRS, and TRA. The plans were battered by the severe downturn in the markets and without the stability modifications, the plans are projected to see a continued erosion of asset value. (Read related article.)

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