Commonwealth Court has invalidated a provision of the Mt. Lebanon police officers' pension plan that would have allowed early retirees to earn annual cost-of-living adjustments until they reached 90 percent of their final average monthly salary.
A three-judge panel ruled that the police union's interpretation of the provision's cost-of-living adjustment, or COLA, benefits violated the Municipal Pension Plan Funding Standard and Recovery Act, known as Act 205, because it differed from the calculation upon which the municipality relied when it enacted the provision.
The ruling could mean some early retirees will miss out on thousands of dollars a year in potential pension benefits.
Judge Renee Cohn Jubelirer, writing for the court, said Mt. Lebanon officials had enacted the COLA provision of the Mt. Lebanon police officers' pension plan based on a cost analysis that assumed such benefits would be capped at 15 percent of each retired officer's final average monthly salary.
According to Judge Jubelirer, that cap must apply, despite the fact that the plan itself was eventually written and enacted to provide for early retirees to collect benefits up to 90 percent of their final wages.
"In short, there is no evidence in the record that, prior to the adoption of the language in the ordinance, the municipality specifically promised to calculate the COLA for early retirees differently than they would for normal retirees," Judge Jubelirer said.
"This is, therefore, not a case of fundamental unfairness where a retroactive advantage is attempted to be gained when a fundamental term of an agreement is later found to be altered by an existing statute."
Judge Jubelirer was joined by Judges Dan Pellegrini and Rochelle S. Friedman.
In United Police Society of Mt. Lebanon v. Mt. Lebanon Commission, according to Judge Jubelirer, 13 retired police officers and several active officers filed a claim petition informing the pension plan administrator of a grievance with the COLA cap in July 2006, but the administrator denied the petition as "untimely" and "not ripe for review."
The officers appealed to the Mt. Lebanon Commission, which affirmed the denial, and then to the Allegheny County Court of Common Pleas.
Eventually, the case was bounced back to the commission, which found that the cost estimate performed prior to the adoption of the plan's COLA provision assumed there would be a lifetime cap of 15 percent, based on a good-faith belief of how the provision would be implemented.
Therefore, the commission found, the 15 percent COLA cap should apply to both normal and early retirees, citing the state Supreme Court's 2003 ruling in Borough of Ellwood City v. Ellwood City Police Department Wage and Policy Unit, in which it found that Act 205 requires a plan modification to be preceded by a cost estimate in order to determine its likely financial impact.
The decision was again appealed to the trial court. Allegheny County Common Pleas Judge Judith L.A. Friedman determined the 90 percent COLA cap should apply, reasoning the plan's contractual language was unambiguous.
On appeal to Commonwealth Court, the defense argued that Judge Friedman's ruling was in direct conflict with Act 205 because the cost estimate the municipality's actuary performed did not analyze the financial impact of a 90 percent COLA cap, Judge Jubelirer said.
The plaintiffs argued that the clear language of the plan must be applied.
Judge Jubelirer, citing Ellwood City and the Commonwealth Court's 2006 ruling in Upper Merion Township v. Upper Merion Township Police Officers, said Act 205 is specifically applicable to all pension plan modifications.
According to Judge Jubelirer, Mt. Lebanon's actuary, G. Herbert Loomis, testified that his cost estimate was based on a 15 percent COLA cap and that an analysis of a 90 percent COLA cap would have significantly increased the projected financial impact of the plan modification.
Counsel for the defense, Joseph F. Quinn of Buchanan Ingersoll & Rooney in Pittsburgh, could not be reached for comment.
Counsel for the United Police Society of Mt. Lebanon, Eric C. Stoltenberg of Lightman Welby Stoltenberg & Caputo in Pittsburgh, also could not be reached.
Bethel Park attorney Ronald P. Koerner, who represented retired Mt. Lebanon police officers Les Palombine and Robert Gehrmann, said he was "disappointed" by the ruling.