Final order in gain sharing litigation clears the way for appeals

Posted 04-Jun-2012

The state of Washington has appealed portions of a King County Superior Court decision which invalidated the Legislature’s repeal of gain sharing benefits in 2007.

The appeal was initiated following the signing of a final judgment in the gain sharing litigation by King County Superior Court Judge Richard Eadie. On Friday (June 1), Eadie signed an order formalizing his rulings in a two-phase lawsuit that began after the Legislature repealed gain sharing provisions and replaced them with other pension benefits, including options for early retirement. The Legislature also stipulated that the replacement benefits will terminate if gain sharing is reinstated by a final court of law.

In Phase 1 of the litigation, Eadie ruled that the repeal of gain sharing was invalid; in Phase 2, he ruled that the state can terminate the replacement benefits in the event gain sharing is ultimately restored. The state is appealing the Phase 1 decision.

The replacement benefits will remain in place until there is legal certainty regarding all issues of the case. Legal certainty is not reached until the expiration of all opportunities for review by the Court of Appeals and/or the Supreme Court.

The litigation stems from legislation approved in 2007 which repealed gain sharing provisions that had allowed members of PERS and TRS Plans 1 and 3 and SERS Plan 3 to share in "extraordinary investment returns" under certain conditions. Language in the repealed statutes stipulated that gain sharing was not a contractual right and that the Legislature reserved the right to amend or repeal it.

The 2007 Legislature also provided certain benefits as a replacement for the repeal of gain sharing, including new provisions for early retirement. These 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 actuarial reduction in their benefit. The factors also allow these members to retire before age 62 with less of a benefit reduction than had previously been provided.

In approving the replacement benefits, the Legislature made them contingent on the successful repeal of gain sharing. The law requires that the replacement benefits be terminated 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.

Members and retirees of Plans 1 and 3 challenged the repeal of gain sharing shortly after the law took effect in 2007. On Sept. 9, 2010, Judge Eadie ruled in favor of the plaintiffs, finding that the repeal of gain sharing was invalid.

On Dec. 16, 2011, Eadie heard oral arguments in Phase 2 of the litigation, which focused on the termination of the replacement benefits. In the order issued Jan. 30, 2012, he ruled that plaintiffs do not have a right to the replacement benefits if gain sharing is restored.

On Aug. 17, 2012, Eadie will hear arguments on the plaintiffs’ requests for attorneys’ fees. This hearing does not affect the time period or the process for filing appeals.

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