Colorado court: Things go better without COLA

Something that initially escaped my attention. The Colorado Supreme Court recently restored a measure of fiscal sanity to public sector retirement law in the Centennial State by reversing a Court of Appeals ruling which said that the state could not cut cost-of-living adjustments to help return the state’s pension system to health.

The case had been in the court for years after pension reform legislation in 2010 eliminated mandatory annual COLAs for retirees. Colorado is one of those states where the courts had previously set a very bad precedent on public sector pensions by ruling that the pension contract between the state and workers severely limited the ability of legislators to make any changes to the retirement system. Colorado was one of a dozen states following the so-called California Rule on pensions banning virtually all changes, but when retirees sued to overturn the 2010 pension reform legislation, a lower court ruled in the state’s favor, arguing that COLAs were not part of the basic pension contract and therefore could be adjusted or eliminated.

An appeals court reversed that decision, saying that while it was permissible to adjust COLAs, the state couldn’t eliminate the practice. Now the supreme court has weighed in, reversing that decision and permitting the 2010 reforms to stay in place. ”By its very nature a statutory cost of living adjustment is a periodic exercise of legislative discretion that takes account of changing economic conditions in the state and/or nation,” the court said.

While the Colorado court didn’t completely overturn its previous rulings, which limit the state’s ability to make other changes, having flexibility on COLAs is an important victory. As this study suggested, COLAs are deceptively expensive and cutting them goes a long way toward reducing state and local pension liabilities.

 

 

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