A five-day trial pitting Colorado Springs against the Public Employees Retirement Association will start Oct. 28.
At risk is $185 million from the lease proceeds of Memorial Hospital to University of Colorado Health. The money could be used to jump start a new foundation that will distribute grant money once it is up and running next year.
“The city believes we do not have any further obligation to PERA for Memorial employees,” said City Attorney Chris Melcher. “The Memorial enterprise exists, but it no longer has any employees.”
PERA has given different estimates in the past about how much unfunded liability the city owes because Memorial employees are no longer paying into its local government fund. Memorial had been the largest employer in that sector.
When the issue first came up in 2010, PERA said the city owed around $250 million. In 2011, it said the city owed $191 million, thanks in large part to an improved stock market that gave it a larger return on its investment.
The city filed a suit against PERA last summer in the fourth Judicial District, and PERA countered by filing a suit of its own in August in Adams County. PERA wants the judge to determine that the city must pay for the future retirement benefits already earned by Memorial employees.
“Colorado State law sets forth requirements for when an employer in PERA’s local government division ‘disaffiliates’ and moves its employees into another retirement system,” the retirement agency said last summer in a press release announcing its suit. “In particular, the law calls for reserves to be created for the payment of benefits earned as of the disaffiliation date by the employees of the disaffiliating employer. The law requires that the reserve be sufficient to ensure that there is no adverse impact on the remaining employers in the division.”
PERA said the cost of providing future benefits for Memorial employees who were paying into the fund could be shifted to the remaining employees in the local government division – including Colorado Springs and Colorado Springs Utilities, both groups remain in the local government sector of PERA.
“PERA believes this is unfair because these benefits have already been earned as a result of work performed for the disaffiliating employer,” said then-interim executive director Gregory Smith.
Melcher maintains that the city doesn’t owe any further money, because those employees at Memorial are no longer city employees.
“We’ve paid every penny that they’ve asked us to pay, over the years,” said City Attorney Chris Melcher. “We consider that these employees don’t work for the city any longer, so we won’t owe them any money. Memorial as an enterprise still exists, we’re leasing the assets, but it doesn’t have any employees.”
Both parties agreed last September to allow the lease transfer to occur and to move the court case to Denver District Court.
Melcher said he had hoped to reach an out-of-court settlement with PERA, but that the group had refused to attend any further discussions.
But before any court case, PERA must tell the city what it estimates it owes for Memorial’s remaining pension liability. That number has changed twice as the value of PERA’s investments changed, Melcher said.
“We expect to receive that number in late February or early March,” he said. “And we fully expect it to be lower than previous estimates, because the stock market has improved so much. We expect it to be well under the $191 million PERA gave us earlier. Even if we lose the court case – and we don’t think we will – we think there will be money left over for the foundation.”
