Court ruling snarls Minneapolis pension deal

Court decision leaves a merger of Minneapolis pension funds with a statewide fund uncertain.

A Minnesota Court of Appeals ruling Tuesday left both the city of Minneapolis and some of its pensioners claiming they gained legal ground in a battle with big financial implications for both pension recipients and city property taxpayers.

Meanwhile, the ruling, by throwing out a pretrial decision that trimmed the payments of certain police and fire pensioners, made it a little harder to predict whether they’ll continue to support a proposed merger between their closed funds and a statewide pension fund.

Mayor R.T. Rybak has said such a merger, which would need the state Legislature’s approval, is essential if the city is to hold down large property tax increases. If a merger doesn’t happen and the city ultimately loses its court battle, it could owe pensioners an additional $52 million in back payments and $87 million in future payments.

The appeals court overturned a lower court’s decision that the closed police and fire pension funds had improperly included certain items of compensation in the salary base used for calculating pensions. The appeals court said that’s a question to be decided after a more extensive trial.

A Minnesota Court of Appeals ruling Tuesday left both the city of Minneapolis and some of its pensioners claiming they gained legal ground in a battle with big financial implications for both pension recipients and city property taxpayers.

Meanwhile, the ruling, by throwing out a pretrial decision that trimmed the payments of certain police and fire pensioners, made it a little harder to predict whether they’ll continue to support a proposed merger between their closed funds and a statewide pension fund.

Mayor R.T. Rybak has said such a merger, which would need the state Legislature’s approval, is essential if the city is to hold down large property tax increases. If a merger doesn’t happen and the city ultimately loses its court battle, it could owe pensioners an additional $52 million in back payments and $87 million in future payments.

The appeals court overturned a lower court’s decision that the closed police and fire pension funds had improperly included certain items of compensation in the salary base used for calculating pensions. The appeals court said that’s a question to be decided after a more extensive trial.

That potentially means police pensioners could regain most of what they lost from the lower court ruling, with fire pensioners also gaining some.

But city attorneys said they’re still confident they can prove in another trial that pension payments were miscalculated. That’s because the appeals court also affirmed Hennepin County District Judge Janet Poston’s ruling that the pension funds overcharged the city in four areas of compensation.

Barring a merger, the decision likely means further appeals in a legal battle that’s lasted five years so far.

The city and the two pension funds negotiated a merger agreement late in the legislative session and are lobbying for a place for it on the special session agenda.

Larry Ward, president of the police pension fund, said it’s possible the ruling could dampen enthusiasm for a merger. “We still think there is a possibility that we could get a better outcome from the Legislature for our members,” he said.

Al Berryman, who as a union leader helped negotiate some of the compensation at issue in the lawsuit, said he thinks a merger still will come to a member vote if the Legislature approves the deal.

“It means a lot,” Berryman said of the ruling.

But Betsy Hodges, City Council point person on pensions, said the ruling affirms the city’s position, making “a pretty strong statement about recouping the dollars that were overpaid.”

The two funds were closed to new members in mid-1980, and all but 31 of about 1,400 members now are retired.

The appeals court ruled that Poston properly found that only the average amounts actually paid for certain types of compensation can be used in the pension calculation. But it said she erred in ruling, before a more extensive trial, that other items such as overtime, holiday pay or health club dues should be excluded from calculations.

While Rybak claimed a big victory, another city leader was more circumspect. “It’s very complicated and complex,” said Council President Barbara Johnson “It’s going to take some time to vet all of this with staff and elected officials.”

On the funds’ side, appeals attorney Charles Lundberg said: “It’s a big win for police and fire retirees.”

Turbulence continues

According to lawyers familiar with the ruling, it grants far more in potential benefits to the pensioners than it takes away. But it also grants the city another whack at proving those disputed benefits were miscalculated. By one calculation, the ruling is worth $6,000 annually to a typical pensioner, unless the city wins in a trial.

“It’s very significant,” said Trevor Oliver, an attorney representing an association of retired police.

The ruling also poses timing issues. Each side has 30 days to appeal, but that deadline coincides with the date by which the Legislature would have to act in a special session to avoid a state government shutdown. It’s that session that both sides have hoped would approve the merger.

The ruling continues a turbulent ride for the pensioners and surviving spouses. Poston’s ruling cost them 12 percent of their monthly benefit for police retirees and 4 percent for fire retirees. Some fund members suggest pensioners will stick with a merger because they’re tired of fighting the city in a dispute in which legal bills easily top $1 million.

Pension fund attorney Brian Rice has said he thinks the deal will go ahead because the funds, in considering a merger, factored in the possibility of prevailing in their appeal. The merge deal would restore the money pensioners lost in the lawsuit and would boost their benefits even further to offset the lower cost-of-living benefits they’d get in merging with a statewide pension plan.

Steve Brandt • 612-673-4438