Is This The Way Out For States On Retiree Benefits?

William A. Jacobson
Legal Insurrection
4/16/2010

Underfunded state retirement systems are one of the greatest problems facing states. There does not seem to be a way out, as municipal and teachers’ unions are loathe to negotiate substantial reforms and state governments simply do not have the money to meet unsustainable promises.

An interesting case was just handed down in federal court in Rhode Island, which may provide a legal path for state governments to modify retiree benefits through legislation.

The gist of the decision is that once a union contract has expired, the state may have the right to alter retiree benefits promised under such contract. To oversimplify a bit, once the contract is over, the contractual rights under the contract are over.

The full case decision in Rhode Island Council 94 v. State of Rhode Island is embedded [at Legal Insurrection]. Here is a summary as reported in The Providence Journal, Judge sides with R.I. on retiree health benefits:

U.S. District Court Judge William E. Smith has upheld the state’s trimming of health-care benefits for state employees who retire early.

Governor Carcieri on Thursday proclaimed the decision “a victory for all taxpayers” that affirms state officials’ legal authority to better align employee benefits with what the government can afford.

“It was a huge cost-saver to the state,” said Carcieri spokeswoman Amy Kempe. A savings estimate was not immediately available.

But Kenneth DeLorenzo, executive director of the employees labor union, Rhode Island Council 94 of the American Federation of State, County and Municipal Employees, denounced the decision as a historic repudiation of the state’s obligations to its employees.

Council 94 had sued to block implementation of the law on state-subsidized health-care benefits — a law that Judge Smith described as an attempt by the state amid a fiscal crisis in 2008 “to tighten its belt” by reducing the amount it spends on those benefits.

In a decision entered Tuesday, Smith rejected claims by the union that the reduction in benefits violated employee rights under the contract clauses of the Rhode Island and U.S. Constitutions. Contrary to the union claims, he said, no enforceable contract exists for retiree health benefits under the state’s past practice regarding retirees, the negotiated collective-bargaining agreement between Council 94 and the state, state statute and common law.

At the time the law took effect, on Oct. 1, 2008, the collective-bargaining agreement had expired and pronounced by the governor to have been “terminated” — an important legal distinction, according to the judge.

Council 94 contended that the agreement’s provision for retiree health benefits nevertheless remained in force. The judge said no.

This case certainly will be appealed, because it has tremendous implications nationwide.

The article continues at Legal Insurrection.

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