More COLA Briefs and the 411(d)(6) Questions

November 12 saw more briefs filed in Berg v. Christie by the Plaintiffs (P) and the Unions (U).

Interesting (with some nonsensical) excerpts below:

Given the recent line item veto of a proposed appropriation that itself was below actuarial projections, defendants’ claims that COLAs must be eliminated to save the pension funds is hollow. Their claim that they merely “froze” COLAs is disingenuous. Their conduct shows no intent to solve the problem. The appropriations for “unfreezing” them are very likely never going to happen. (P-1)

Defendants argue that pensions must not be paid in full because COLAs jeopardize future solvency. Given the Court’s holding in Burgos, the future health of the pensions based on present projections is immaterial. Government funding, if any, will be on an annual basis. But, no one has argued that the pension funds are insolvent. They are and will remain so for an indeterminate time, with COLAs. (P-2,3)

As long as political expediency requires limitations on appropriations, there is no hope of reaching the statutory levels required for reinstatement. (P-6)

After living in an economic fantasyland for years, defendants generically (i.e., governors and legislatures) want to force that on plaintiffs as part of a gloom and doom reality. As this brief is written, the stock market is approaching 18,000 again for the first time in years. No one can predict the future, and dueling actuaries are not legislators. (P-8)

if the employer had no obligation to pay a COLA along with a pension, it would not need to fund it. Pre-funding eases future problems but only if there is an obligation. In arguing to the contrary, defendants actually prove plaintiffs’ case. (P-9)

Paying COLAs may or may not hasten the process. There are any number of methods that the public fisc can be protected, but they are political, from forcing shared services to legalizing and taxing marijuana to legalizing forms of gambling that pass federal muster or, raising existing taxes. (P-11)

However, Defendants now argue that the scope of the non-forfeitable rights section of Chapter 113 is directly related to the IRC sections of Chapter 113, in particular to the list of pension systems in section 1, and the statutory citations to those systems. This Court should view skeptically Defendants’ attempt to change their argument to now assert that the IRC sections of Chapter 113 inform the non-forfeitable rights section. However, in any event, Intervenors will show that the IRC sections of Chapter 113 in fact support the conclusion that, in enacting the non-forfeitable rights statute, the Legislature intended to protect all aspects of the benefits program, including COLAS, except for retiree medical benefits. (U-4)

Section 401 (a) (2) of the IRC protects the corpus and income of the trust of a qualified pension plan from any diversion of assets for purposes other than for the exclusive benefit of the employees or their beneficiaries. (C-14)

Similarly, Section 415 of the IRC sets specific dollar limits on the amount of annual benefits a retiree can receive under a qualified pension benefit plan. 26 u.s.c. § 415. Those maximum annual benefit amounts include both base benefit and COLA benefits. (C-15)

The Unions brief basically does two things:

1. signs on to a lot of arguments made by co-plaintiff Charles Ouslander; and
2. tries to insert the Internal Revenue Code (IRC) into the debate.

However the main argument they would naturally gravitate to from the IRC is a section that all private-plan actuaries use as a noun – 411(d)(6):

(6) Accrued benefit not to be decreased by amendment

(A) In general

A plan shall be treated as not satisfying the requirements of this section if the accrued benefit of a participant is decreased by an amendment of the plan

.

This would seem like a slam-dunk for the plaintiffs as New Jersey did amend the plan to eliminate COLAs which are unquestionably part of the definition of an accrued benefit in the private-sector pension world (or they were when COLAs existed in the private-sector pension world) but the very next IRC section – 411(e) -starts off:

(e) Application of vesting standards to certain plans

    (1) The provisions of this section (other than paragraph (2)) shall not apply to—

             (A) a governmental plan (within the meaning of section 414 (d)),

.

So why are the Unions referencing the IRC?  And, more to the point, why isn’t the state?