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Status update on gain sharing litigation

Originally Posted October 22, 2012

Updated March 22, 2013

Editor's Note: This article has been updated to reflect the revised schedule for filing of briefs.

“Watch and wait” continues to be the order of the day for those monitoring litigation over gain sharing and early retirement provisions for members of certain state pension plans.

All parties in the case have petitioned the state Supreme Court to take direct review of lower court rulings in the litigation and are now preparing legal briefings to submit to the court over the next several months. Under the most recent schedule, all written arguments are expected to be filed by the end of May 2013 (changed from the end of March 2013).

Once all briefs have been submitted, the next steps will be up to the Supreme Court. The court could decide to accept the petition and schedule a date for oral arguments, or it could decline a direct review, which would put the appeals on the regular track of first going to the State Court of Appeals.

If a direct review is granted, it is not clear when oral arguments would take place. There would also be an undetermined amount of time after arguments are heard for the justices to render an opinion. It is not unusual for the process to take months and, in some cases, over a year.

At issue is a law approved in 2007 which repealed gain sharing provisions for members of certain state retirement plans and replaced them with other pension-related benefits, including options for early retirement. In approving the replacement benefits, the Legislature made them contingent on the successful repeal of gain sharing.

Pension plan members and retirees affected by the repeal brought suit, challenging both the repeal and the contingency provisions. In the first phase of the lawsuit King County Superior Court Judge Richard Eadie ruled that the repeal of gain sharing was invalid. But he also ruled in the second phase that the state can terminate the replacement benefits if gain sharing is ultimately reinstated.

Under the law, the replacement benefits continue to be available until there is legal certainty regarding all issues of the case. Legal certainty is not reached until all parties have used up their opportunities for appeal.

The original gain sharing provisions, approved in 1998, allowed members of PERS and TRS Plans 1 and 3 and SERS Plan 3 to share in "extraordinary investment returns" under certain conditions. The law also stipulated that gain sharing was not a contractual right and that the Legislature reserved the right to amend or repeal it.

When the Legislature repealed gain sharing in 2007, it provided certain benefits as a replacement, including new provisions for early retirement. Those early retirement reduction factors (known as ERFs) allow members of PERS, TRS and SERS Plan 2 and Plan 3 with at least 30 years of service to retire at age 62 (instead of 65) with no reduction in their benefit. They can also retire before age 62 with less of a benefit reduction than had previously been provided.

Under the law, the replacement benefits will no longer be available if a final court of law determines that the repeal of gain sharing is invalid and orders a reinstatement of gain sharing or other alternate benefits as a remedy.

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