Nora Lockwood Tooher
In the St. Louis area, Dan Tobben is the attorney government workers call when they think their pension plans are in danger.
Tobben, a principal with Danna McKitrick, a 25-lawyer firm in St. Louis, was co-lead plaintiffs' counsel in a 2003 suit by city firefighters and police alleging that the city breached its obligation to fully fund its pension fund for fiscal years 2004 and 2005.
After the Missouri Supreme Court ruled in favor of the firefighters and police last year, Neske v. City of St. Louis, 218 S.W.3d 417, St. Louis agreed to issue up to $155 million in bonds to fund the firefighter, police and municipal retirement systems.
After the decision, Tobben - who has spent most of his career specializing in insurance defense - began receiving calls from other city and state employees in the area.
He is currently representing several other municipal pension plans, including city workers in Joplin, Mo. In June, Tobben announced a settlement with Alton, Ill., a small city about 15 miles north of St. Louis, in a lawsuit seeking full funding of the city firefighters' pension plan.
In North Carolina, E. Hardy Lewis, a principal at Blanchard, Miller, Lewis & Styers, a seven-lawyer firm in Raleigh, is spearheading a lawsuit to ensure the state properly funds the teachers' and state employees' pension funds.
And in West Virginia, Harry F. Bell Jr., a partner at Bell & Bands, a six-lawyer litigation boutique in Charleston, is battling the state's retirement board on behalf of 19,000 teachers who claim they were hoodwinked into buying risky annuities.
While most public pension plans rely on their trustees and general counsels to protect their interests, an increasing number of disgruntled government pension plan members are hiring private attorneys to represent them.
"It's an emerging practice area," Tobben said
Fighting back
Nationwide, most state pension plans are "quite well funded," said Mary Beth Almeida, executive director of the National Institute on Retirement Security, a Washington-based research organization.
A study released earlier this year by the Government Accountability Office showed public pension plans in the majority of states were on track to being fully funded.
But "there are some exceptions," Almeida noted, "and those are the ones that tend to get the headlines, where maybe contributions haven't been as steady into the system and they've fallen behind."
Plans in Illinois, Kentucky and Pennsylvania, for example, have failed to make required contributions, the GAO report found.
Overly generous benefits in past years and an economic downturn can make public pension plans a tempting target for cash-strapped cities and states to tap.
"Almost all these cases that involve an actual dip into the system in one way or another, either by cutting an appropriated amount unilaterally or actually raiding the system and taking a flat-out loan, generally arise in the context of a state revenue crisis," Lewis noted.
The same problems can occur at the local level.
"Cities have not come to grips yet with the concept that a pension contribution isn't a discretionary item," Tobben commented. "It's a fixed budget item."
But public workers are fighting back, with lawsuits that accuse governments of breaching their obligations to fully fund the plans.
"Increasingly, funds are fed up with the fact that everyone else is playing by the rules, including employees, and the states sometimes take a politically expedient way out, which includes putting on hold something they should commit to," said Dan Pedrotty, director of the AFL-CIO's office of investment.
Public employees have successfully sued state governments in California and New York to force them make their required contributions, but lawsuits in other states, including New Jersey, have failed.
'Horrible public policy'
Lewis, a plaintiffs' trial lawyer, scored a major victory in North Carolina in August when the Court of Appeals ruled that Gov. Mike Easley had violated the state and federal constitutions when he diverted $130 million in employers' contributions from the teachers' and state employees' retirement funds to fill budget gaps (Stone v. State, 664 S.E.2d 32).
"In 2002, North Carolina decided not to make a contribution at all," Lewis said. "They decided it was fully funded and to take a year off. That's a tax holiday. It's horrible public policy and there are actual victims."
The ruling is significant, Lewis said, because "it adopts what is essentially the universal holding in all of these cases, which is that this sort of unilateral adjustment of the funding mechanism violates the federal contract statutes."
The issue is different in West Virginia, where teachers claim they were encouraged to transfer their retirement savings in the 1990s from a defined benefit plan into commission-based, front-loaded annuities by a brokerage firm selected by the state retirement board.
Aggressive salespeople - many of them former teachers and school administrators - would "corner teachers on break periods," and mislead them into buying high-risk annuities sold by Variable Life Insurance Co., which was later acquired by AIG, Bell said.
"It was a total breakdown and a terrible disservice to the teachers," he commented.
The state legislature earlier this year passed a law allowing affected teachers to transfer back into the defined benefits plan, which may reduce the losses from $28 million to about $10 million.
But Bell said the action will not affect the lawsuit.
"We want to find out how much money was transferred, and how much was taken out in commissions," Bell said.
September 22, 2008
