NJEA wins Round 2 of COLA lawsuit

A contractual right, says Appellate court

Published on Thursday, June 26, 2014

A three-judge panel of the New Jersey Superior Court’s Appellate Division has ruled that cost-of-living adjustments (COLAs) that were stripped from the pensions of current and future retired public employees in 2011 are a contractual right under the New Jersey Constitution.

The panel reversed a lower court decision and remanded the case back to that court for reconsideration.

“This ruling is a major win,” said NJEA President Wendell Steinhauer.  “Hopefully, it will lead to a significant victory for NJEA members and other public employees who were substantially harmed by passage of Chapter 78 of the Acts of 2011, which eliminated COLAs for current and future retirees – their sole protection against seeing their pensions eroded annually by the increase in the cost of living.”

The judges wrote that a 1997 law saying public employees had a “non-forfeitable” and contractual right to their pensions also applied to their COLAs.

 “This is a significant ruling for thousands of currently retired teachers, school employees, and other public employees, who have already been severely harmed, as will all future retirees,” said Steinhauer. “The court has told them they have every right to believe that cost-of-living adjustments will be a part of their pension.”

Christie signed Chapter 78, which eliminated COLAs, but also required the state to ramp up its annual contributions to the pension fund to the fully required amount over seven years.  Gov. Christie and the Legislature made the first two payments (1/7 and 2/7 of the fully required contribution) but he has unilaterally refused to make this year’s 3/7 payment of $1.6 billion, and proposes to contribute only $691 million.

Today’s ruling also established that public employees’ pensions and COLAs are not separate entities because they are identically funded by a combination of employee payments, state contributions, and investment income, and are paid out of the retirement systems in the same way as all pension benefits.

The judges remanded the case back to the trial court which dismissed it in 2012, to determine whether the State can impair employees’ contractual rights to COLAs by citing fiscal necessity.

Gov. Christie has steadfastly refused to comply with the state’s obligations under Chapter 78 – which he signed – to adequately fund the pension systems.

“We cannot blindly defer to the State’s own evaluation of a law’s reasonableness and necessity,” the judges wrote, “lest political expediency replace objective fiscal evaluation.”

To bolster that point, they cited a 1997 U.S. Supreme Court ruling, which said: “The Contract Clause [under the U.S. Constitution] is not an absolute bar to subsequent modification of a State’s own financial obligations…. If a State could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contract Clause would provide no protection at all.”

Steinhauer seized on that point.

“Gov. Christie has used more than 4 billion dollars in state revenues for corporate tax breaks that have failed to produce significant job growth,” he said.  “That was his choice.  But it wasn’t his only one, and now he’s saying he doesn’t have the revenue to meet his contractual obligations to teachers and school employees.”

An attorney for the NJEA, one of the plaintiffs, predicted it would probably be several months before the trial court would rule on the issue.

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