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$5M dispute between Lewis & Clark County, retirement system now before district court

Posted at 6:49 PM, May 12, 2020
and last updated 2020-05-12 20:59:41-04

The multimillion-dollar legal dispute between Lewis and Clark County and Montana’s public employee retirement system is now moving forward in a lower court.

On May 1, the Montana Public Employees’ Retirement Board filed suit against the county in Lewis and Clark County District Court. The PERB is seeking an order confirming that it has the authority under the state constitution to demand the county pay up to $5.1 million in order to cover unfunded pension liabilities.

The same day, the Montana Association of Counties filed its own claim, asking the court to rule that PERB does not have that authority.
These lower court motions come after the Montana Supreme Court declined last month to immediately hear the case.

The issue stems from PureView Health Center’s separation from Lewis and Clark County earlier this year. As of March 1, PureView became an independent nonprofit. Previously, its roughly 60 staff members had been county employees.

PureView employees were previously part of the Public Employees’ Retirement System, along with other Lewis and Clark County workers. Employees and the county both made contributions toward their future pension benefits. However, once PureView became independent, PERS administrators ruled its employees were no longer eligible for the system.

The Montana Public Employee Retirement Administration, which managers PERS, contacted the county last year, saying that the loss of PureView’s employees would create a significant unfunded liability in the system. They asked county leaders to provide employment data, which MPERA actuaries would use to calculate the exact amount. The county declined, challenging the agency’s authority to make the request or demand a payment.

In January, the PERB asked the Montana Supreme Court to take up original jurisdiction on the case. Last month, justices declined, saying the issue should go through a trial court first.

“We had hoped that the Supreme Court would have taken up this issue, since it’s purely a constitutional question that will ultimately return to the Montana Supreme Court,” said Dore Schwinden, MPERA’s executive director. “A protracted legal dispute will prove to be costly for both Lewis and Clark County and MPERA.”

The PERB’s district court complaint says the unfunded liability arises because the county won’t be making pension contributions for PureView employees going forward, but the PERB will still have to pay for current and former employees’ retirements.

“A multi-employer pension plan, be it public or private, only succeeds if all the employers either stay in the plan to contribute to the obligations of their retirees and current employees, or pay their actuarial share of any unfunded liability to terminate its or a component unit’s affiliation,” the complaint says.

Schwinden said, if Lewis and Clark County refuses to cover this liability when they privatize a county department, it will create an unfair added burden on other participating agencies – including other counties.

“The millions of dollars at stake in this action is not an insignificant amount to our members, retirees or our public employers,” he said.

The PERB points to Article 8 of the Montana Constitution, which says, ‘Public retirement system assets, including income and actuarially required contributions, shall not be encumbered, diverted, reduced, or terminated…” They argue that provision – approved by Montana voters in 1994 – gives them to authority to compel participating employers to cover liabilities when they separate from one of their departments.

However, Lewis and Clark County and the Montana Association of Counties have argued that provision doesn’t create a specific authority to demand this type of payment.

“This is not the venue for the fix; it is not to come back on a county, unawares, who would have had absolutely no chance in hell of realizing that this ever would have happened, because it was completely unprecedented,” said Lewis and Clark County Commissioner Susan Good Geise, during a Tuesday commission meeting where county leaders discussed the case. “The venue for the fix is the Legislature.”

Commissioners said the outcome of this case will have a significant effect on other counties and local government agencies taking part in the PERS. MPERA has also demanded payment from Cascade County, saying its 2018 separation from its own community health center – now called Alluvion Health – created an unfunded liability of up to $3.1 million.

“I think this was wrong for MPERA to do to partners in the system who’ve been faithful and doing everything that they’re supposed to do all the way along, and then to have this dropped on their front step with no warning, no negotiation, no discussion about it,” said Commissioner Andy Hunthausen.

MACO’s district court complaint says this type of demand for payment would put substantial restrictions on counties.

“Local governments must have the ability to make decisions to restructure and reduce forces when necessary to allow for the continuation of services, without the arbitrary imposition of a severe penalty,” the complaint says. “MPERB’s after-the-fact practice of issuing penalties, as it did against Lewis and Clark County and Cascade County, has a devastating impact on local government governance and the necessary services counties provide.”

Geise echoed that.

“If this action by MPERA were to stand, governments would grind to a standstill, and that is absolutely unacceptable,” she said.