Court orders PERA to recalculate benefits for retired Duluth city employees

• Retirees receive good news

The Minnesota Court of Appeals ordered the Public Employees Retirement Association to recalculate the benefits it provides to Duluth city retirees who received deferred compensation payments from the city. (2009 file / News Tribune)

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A group of retired Duluth city employees received welcome news Monday thanks to a decision by the Minnesota Court of Appeals.

The court ordered the Public Employees Retirement Association to recalculate the benefits it provides to retirees who received deferred compensation payments from the city. If the decision stands, it will force PERA to restore many retirees’ original pension benefits. The ruling also will mean workers won’t be required to reimburse the association for what it claimed were overpayments.

In 2009, when PERA determined that former Duluth city retirees were being overpaid, the association estimated that through June of that year, 485 employees had collected $1.76 million more in benefits than they were due.

As a result, retirees faced reduced monthly pension checks and the prospect of being required to repay funds collected since 1995. Some former city employees were notified they owed PERA in excess of $20,000.

Meanwhile, Duluth appeared poised to reclaim about $1.3 million in excess payments it had made to PERA pension funds, according to David Montgomery, the city’s chief administrative officer.

PERA determines its monthly pension payments on the basis of city employees’ compensation before retirement. Beginning in 1995, the city of Duluth signed its first contract offering deferred compensation to employees. Some collective bargaining agreements also allowed city employees to channel this money to pay insurance costs.

Following PERA’s guidance at the time, Duluth treated both the deferred compensation and the increased insurance payments as part of employees’ total salary. The required financial contributions of both the city and of its employees were based on this salary figure.

But in 2007, PERA changed its stance, telling Wayne Parson, who was then the city auditor, that neither the deferred compensation payment nor the supplemental insurance payments should be counted as part of an employee’s total salary. This change in interpretation triggered the change in pension benefits.

In its decision Monday, the Minnesota Court of Appeals ruled that PERA had incorrectly excluded the deferred compensation payments from the salary calculations. At the same time, the court validated PERA’s decision to exclude supplemental insurance payments from the equation.

Montgomery said that until the city digs back into its records and runs the numbers, it’s unclear what the implications of Monday’s ruling will be.

But Elizabeth Storaasli, an attorney representing the former city employees who had their pension payments reduced, said “the vast majority” of the 485 Duluth city retirees who were affected by the change in PERA policy had received deferred compensation instead of supplemental insurance payments. Consequently, she expressed confidence that if the ruling stands, it will restore pension benefits to most of the retirees.

The Court of Appeals’ ruling is in keeping with the findings of Bruce H. Johnson, an administrative law judge, who ruled in January 2011 that PERA had incorrectly reduced the benefits of Duluth city retirees who received deferred compensation payments.

But the administrative law judge’s findings carried little weight with PERA’s board of directors, which disagreed with much of the ruling.

“They just ignored it,” said Storaasli. “It was very frustrating, but that’s the power of an administrative agency.”

The retirees responded by successfully taking their case to the Minnesota Court of Appeals.

Mary Vanek, PERA’s executive director, said Monday afternoon that the association had just received the court decision and would review it with counsel before making any decision about whether to appeal the matter to the Minnesota Supreme Court. PERA has a 60-day window from the date of the decision to file an appeal. Vanek said any vote on a prospective appeal would likely occur when PERA’s board meets Sept. 13.

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