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Pennsylvania Courts Continue to Protect Post-Retirement Employee Benefits

March 12, 2012

In recent years, employers have become increasingly aggressive in their attempts to reduce or eliminate post-retirement benefits earned by union workers. This focus on reducing so-called “legacy costs,” in relation to pension and retiree medical benefits, reflects demographic and accounting rule changes that have caused those benefits to make up a greater share of workforce costs than in years past (although not nearly as large as some employers would suggest).

As employers have increased their efforts to cut legacy costs, unions have been forced to defend post-retirement benefits not only at the bargaining table, but also in arbitration hearings and in court. Perhaps the most difficult issue involved in this continuing struggle has been whether post-retirement benefits for current employees or current retirees may be reduced at all—either unilaterally or in bargaining.

Three recent decisions by Pennsylvania courts, at each of the three levels of the judiciary, indicate that the judicial branch remains resistant to employer attempts to break retirement promises made to public employees.  

First, in November 2011, in a case litigated by Richard G. Poulson and John R. Bielski of Willig, Williams & Davidson and the Pennsylvania Labor Relations Board on behalf of firefighters in the City of Erie, the Supreme Court of Pennsylvania issued a unanimous decision protecting the pension rights of public employees. See City of Erie v. Pa. Labor Rels. Bd., 32 A.3d 625, 2011 Pa. LEXIS 2823 (Pa. 2011). In a strongly-worded opinion, the Supreme Court held that the City of Erie violated the rights of its firefighters when it eliminated a deferred retirement pension benefit without first bargaining with its firefighters over the change. The victory by firefighters in the Erie decision will play a powerful role in assisting other public employees to defend their pensions against unilateral attack.

On the heels of the Supreme Court’s protection of pension benefits in its City of Erie decision, on Dec. 29, 2011, Alaine S. Williams of Willig, Williams & Davidson obtained a preliminary injunction on behalf of the American Federation of State County and Municipal Employees (AFSCME) District Council 85 to stop planned pension changes by an Erie County, Pa. nursing home. The changes in that case would have frozen monthly pension benefits payable at retirement for many employees at their current amounts, and created a 401(k) plan to replace their defined benefit pension plan. Unlike the Erie firefighter DROP case, the AFSCME-represented employees were not forced to endure a pension cut while the union litigated the merits of the dispute. The court flatly prohibited implementation of the pension reductions before any reductions could be made.  

Most recently, in February 2012, the Commonwealth Court of Pennsylvania issued a decision that preserved the post-retirement health care entitlement of police officers working in the City of Johnstown. See FOP v. City of Johnstown, 2012 Pa. Commw. LEXIS 68 (Pa. Commw. Ct. Feb. 22, 2012). In that case, an Act 111 interest arbitration panel reduced the benefit due current employees from full dependent coverage to single-coverage only. On appeal, however, both the Cambria County Court of Common Pleas and the full Commonwealth Court determined that the diminishment of the retiree medical benefit ran afoul of the Home Rule Charter law, and restored the benefit in its entirety.

The City of Johnstown decision essentially mirrored a similar victory scored just a week earlier by that city’s firefighters, which went even further by not only reversing cuts to current employees, but also by completely restoring full retiree medical benefits for new hires. Stuart W. Davidson and Richard G. Poulson of Willig, Williams & Davidson represented the firefighters in that matter, which, according to attorney Poulson, was indicative of a greater trend: “I think we are seeing an unwillingness by the courts to permit employers to break promises made to employees over the course of their careers. In Johnstown, for instance, those firefighters earned their retiree medical benefits by risking their lives for decades. It makes perfect sense that an employer shouldn’t be permitted to yank the rug from under their feet on their way out the door, and certainly not when it comes to benefits as critical as pension and retiree health care.”

Exactly what do these recent Pennsylvania court victories portend for the future? How will longstanding constitutional and statutory protections of post-retirement benefits hold up in the face of municipal bankruptcy threats? (For information regarding Willig, Williams & Davidson’s successful defense of police officers and civilian employees in connection with Harrisburg’s failed bid for Chapter 9 bankruptcy, click here.) For now, the only certainty is that as long as “legacy costs” represent a significant portion of employer expenditures, employers will continue to attempt to chip away at those benefits. But the recent decisions referenced above indicate that Pennsylvania’s courts remain hostile to employer attempts to deprive employees, retirees and their unions of the benefit of promises made by their employers concerning their retirement benefits.

For more information on how Willig, Williams & Davidson can help protect your post-retirement benefits, feel free to contact any of our Labor or Employee Benefits Department attorneys.

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