PrintMar. 28--Terrence Purcell based his 2006 decision to retire early from the Duluth Fire Department on projections from the Minnesota Public Retirement Association, the state agency that coordinates retirement for state government employees.
The numbers told him he could afford to leave two years earlier than he had planned.
Three years later, he received letters from PERA stating that because of a mistake on the part of the city of Duluth, his pension would be reduced by about $177 a month and he'd have to pay about $4,200 back to PERA.
"That's a chunk of money that we counted on," he said.
Instead of enjoying retirement, Purcell and his wife have had to go back to work.
Now Purcell is one of 60 to 65 retired city employees suing the city, claiming that a scheme was concocted to help the city balance its budget.
The suit stems from the city's announcement in late 2008 that, due to a mistake, employees and the city had overpaid into retirement funds since 1995, when the union contract began requiring that a portion of compensation for employees' insurance costs be recorded as salaries.
PERA told the city that counting that money as salary was illegal and that those contributions should have been listed as "deferred compensation."
As a result, retirees would have to pay back the amount they were overpaid in their pensions, while the city and its current employees would get a refund for their overpayments.
The retirees believe they're being shorted by about $1.2 million. In her argument to the state board reviewing the lawsuit, Beth Storaasli, the attorney representing the retirees, called the city's action "an unconscionable act."
"The sole beneficiary," wrote Storaasli, who declined comment for this story, "is the city of Duluth, in that it will receive payback and credit of the employer portion that should instead result in additional annuity for the retirees."
That's not entirely true. The city initially stood to gain $1.4 million from the payback, but under a compromise plan backed by Duluth Mayor Don Ness last year, the city announced it intended to use a portion of its refund to help pay back the amount retirees owed. The city will get between $500,000 and $600,000 if the plan is approved by a judge. A hearing could be held as early as April 13 to decide the issue.
It's also a plan that will see current employees get a full refund of the amount PERA believes they overpaid into their retirements.
The compromise is partly why Mayor Don Ness says the allegations in the lawsuit do not "reflect reality."
"Clearly, we are motivated by a desire to advocate for the interests of our active employees," Ness said. "If our interest was purely financial, we would be advocating for a much different outcome."
If Ness's plan is enacted, the threat of individual retirees having to repay up to $30,000 to the state will be erased. The lawsuit claims, however, that their pensions still will be cut by up to $250 a month.
Other information claimed or revealed in the lawsuit:
--PERA initially OK'd the designation of the city's insurance contributions as salary in 1995.
--The state auditor's office knew about how the city classified those contributions since at least 2001, but the office never ordered the city to change that classification, despite a review of its procedures.
--In 2001, current city auditor Wayne Parson was then a member of the state auditor's staff that cleared the city's salary designations.
--According to his affidavit, former Duluth Chief Administrative Officer John Hall said department heads during meetings in 2006-07 were "repeatedly asked to brainstorm where they could find expenditure reductions or revenue for the city." That's when Parson volunteered that he believed the deferred compensation plan might not be "in compliance," Hall said.
--After being contacted by Parson in July 2007, a PERA representative told Parson the city was coding its salary incorrectly.
--Following the disclosure from Parson, PERA never followed up with the city to see what procedures it was taking to correct the alleged error.
--In August 2007, Parson ordered then-city auditor Jackie Morris to change the city's salary designations to comply with PERA, Morris said in her affidavit. But Morris said she didn't agree with Parson's interpretation and contacted PERA to obtain clarification. "The individual I spoke to at PERA agreed it was not a mistake," Morris wrote.
--The city stopped treating deferred compensation as salary a month later, but the city's employees, including those who were retiring, were never told about a potential reduction in benefits until 18 months later.
--The city inadvertently destroyed payroll data and attempted to re-create it, but that data didn't match that of some of the retirees' pensions.
--When Morris prepared that re-created data and was ready to send it to PERA, she said in affidavit, she was escorted out of her office and suspended. The city has not responded to the lawsuit, and the director of PERA, Mary Most Vanek, declined comment, as did Parson.
In its response, PERA claims the decision to label city insurance contributions as deferred compensation and not salary is in line with state statutes and is the reason for requiring the refund to the city and its employees and for requiring retired employees to pay back money from their pensions.
PERA attorneys, however, didn't address in their responding documents why the organization initially approved the compensation as salary in 1995, why there was a lag between the first time Parson contacted the organization in 2007 and again 18 months later, and why the error was never followed up on.
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