PERA suit claims city owes $220 million for Memorial

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Update: The city and PERA have reached an agreement to remove UCH from the lawsuit, to drop both suits and to allow the city to refile its case in Denver District Court. Read more here.

The Public Employees’ Retirement Association has filed a lawsuit of its own in an ongoing legal battle with the city of Colorado Springs.

On Aug. 31, PERA filed suit in Adams County asking for an injunction to keep Memorial from exiting PERA without following what it claims are the procedures for exiting the retirement benefits program. It’s also asking a judge to hold $254 million from lease proceeds until the issue is resolved.

According to the lawsuit, the city must follow these steps to exit PERA: a vote of 65 percent of the employees in favor of leaving PERA, paying for an actuarial study to determine Memorial’s unfunded liability, and paying the unfunded liability of $220 million to the local government division. Finally, PERA’s board would have to approve the exit.

The suit names the city, University of Colorado Health, the University of Colorado Hospital Authority, Memorial Health System and Poudre Valley Health Care.

PERA’s suit says allowing Memorial to exit the plan without paying the money would cause “irreparable harm” to employees’ retirement benefits and options without giving them the chance to vote to remain in PERA. In fact, the suit maintains that a fully vested employee would have to wait an additional 10 years to receive full benefits.

“The damage will be immediate and irreparable,” the suit said. “For all employees, being deprived of a defined benefit retirement … constitutes irreparable harm and will represent a significant diminishment in both the security and payments to retirements. There is no way to measure such losses…”

Failing to pay the $220 million also won’t let the city completely off the hook. According to the suit, the city of Colorado Springs and Colorado Springs Utilities are the second- and third-largest employers in PERA’s local government division. PERA says they’ll have to pay to make up for Memorial’s losses.

The consequences, the suit said, will be “drastic” for employers, retirees and members in the local government division.

“The city and Memorial failed to disclose … that if not paid by the defendants, 40 percent of this liability will necessarily become the obligation of the city and Colorado Springs Utilities,” the suit said. “Colorado Springs citizens would thus become responsible for more than $88 million for Memorial’s withdrawal liability that exceeds $220 million.”

Memorial’s exit means that PERA’s unfunded liability — equal now to $1.3 billion — will be even higher in the future if the system doesn’t receive the money it says it is owed.

That puts the retirement benefits of about 20,000 people at risk if Memorial exits without paying the money. And, the suit says, the city has received $185 million from UCH to settle its financial obligations with PERA.

“The defendants’ recent decision to disregard the mandatory statutory obligations … and to withhold the $185 million it will receive toward payment of its PERA liability comes after they have for months publicly acknowledged that they must pay Memorial’s unfunded liability to the PERA local government division trust fund,” the suit says.

The city filed its lawsuit last month, with the belief that it doesn’t owe PERA any additional money for employees of Memorial Health System once the University of Colorado Health takes over the hospital. That suit was filed in the Fourth Judicial District, which includes El Paso and Teller counties.

But PERA’s suit claims that the local courts have no standing — and should be moved to Denver district court because it challenges the organization’s termination procedures.

No matter where the suit is tried, the city’s stance is that it doesn’t owe money for Memorial’s employees — just as it doesn’t owe PERA additional money if it fires a worker.

“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 [city] employees.”

Melcher said that the city doesn’t owe PERA when it fires employees or when someone leaves of his or her own accord.

“We don’t think we owe anything now,” he said. “These people no longer work for the city. They work for a different entity.”

University of Colorado Health officials are asking for quick resolution to the legal battle.

“This is an issue solely between the City of Colorado Springs and PERA, and because we’re not a party in it, we were inappropriately named in this action,” said UCH spokesman Dan Weaver in an email. “We hope the involved parties resolve this quickly. If they don’t, it will delay the October 1 transfer of responsibility for Memorial Health System from the City to University of Colorado Health.”

In the meantime, the groups are still working to transition Memorial into the UCH fold.

“We continue to work on integrating MHS into University of Colorado Health, and we’re planning for a long and positive relationship with Memorial and Colorado Springs,” he said.

Memorial and PERA, by the numbers

Memorial represents 25 percent of the 16,000 active members

Other large employers include:

  • Colorado Springs Utilities
  • Boulder County
  • City of Colorado Springs
  • City of Boulder
  • City of Pueblo

Assets equal $2.9 billion

$4.2 billion in projected accrued retirement benefit obligations

$1.3 billion in unfunded liability

1,000 — number of Memorial retirees currently receiving benefits

4,100 — number of Memorial employees now paying into system