A month after Chattanooga Mayor Andy Berke's milestone fire and police pension reform was approved, a group of retired officers and firefighters has challenged the legality of the changes.
A class-action lawsuit filed Tuesday by four retired public safety employees in Hamilton County Chancery Court claims that the city's decision to eliminate retirees' annual 3 percent cost-of-living increases violates state and federal law.
That decision -- to reduce COLA adjustments to an average of 1.5 percent per year -- was part of a package of reforms from Berke's 18-member task force commissioned last year to reduce the city's $150 million unfunded liability and address what Berke said was an increasingly unsustainable city contribution to the pension fund.
The legal question is whether the city is decreasing a vested benefit, which would violate the city charter. The State Supreme Court has already ruled that vested benefits are protected, but no Tennessee court has ruled on whether the COLA is considered a vested benefit.
"A city cannot take away vested pension benefits. That's what we think the city has done to these retirees. I think it's a compelling case," said the retirees' attorney, Michael Richardson. "These retirees relied upon this. They were guaranteed it and now the city has curtailed it."
The mayor's spokeswoman, Lacie Stone, said Berke wasn't available for comment. But she said the suit does not cast a shadow on the reforms achieved after six months of work by Berke's task force.
"We have over 1,500 active and retired public safety employees and we have seen tremendous support from the overwhelming majority of them," Stone said. "A lawsuit by four individuals does not change that fact."
But the four retirees aren't alone. Last week, 40 to 50 public safety retirees pitched in money to retain Richardson and file the lawsuit.
If the retirees were to lose this case, retired Sgt. Kirk Salter said there could be implications across the state.
"If we don't win this thing it's going to be open season on public pensions," he said.
In July, Berke commissioned the task force and by Jan. 8, after 14 hours behind closed doors, the task force presented a plan that Berke would go on to accept. The reform also hikes employees' pension contributions by nearly 40 percent, while saving the city more than $220 million over the next 25 years.
City Councilman Moses Freeman said he doesn't think the retirees have a case.
"I can understand their concerns, but I do not believe at all they have the basis for wining anything," Freeman said. "In the long haul it's going to be a better pension plan, last longer and be a better plan for retirees. I regret very much that the people who filed the lawsuit can't see that."
The group -- which is suing both the city and the Chattanooga Fire and Police Pension Fund -- seeks a judge's ruling on the matter, a permanent injunction to prevent any future changes to the annual cost-of-living increases and money to cover any attorney's fees or expenses.
In 2000, the automatic COLA was implemented after a significant increase in police and firefighter benefits was approved via public referendum. Then-Police Chief Jimmy Dodson said the goal was to give public safety workers a better pension system that would encourage people to retire.
But Salter said the city is now going back on its promises and has ignored the retirees' concerns.
"[The mayor's] got a problem with older people and we're going to stand our ground," he said.
In its Weekly Credit Outlook for Public Finance, Moody's Investors Service last week praised Chattanooga officials for the pension reform.
Moody's noted that the city could face legal challenges to the reforms, "in part because Tennessee law prohibits changes to vested accrued benefits." However, the city's pension fund attorneys counter that state courts "have never established [cost-of-living adjustments] as vested financial benefits," the report states.
City and state officials have also praised Berke for what he was able to accomplish when many others in Tennessee and elsewhere could not.
Before filing the lawsuit, the group of retirees hired a Nashville firm to send city and pension board officials a warning not to go through with the cuts to retirees' benefits.
But in a private memo to the group, attorneys with the Agee Owens firm noted that public employees elsewhere have filed lawsuits over similar concerns but none has successfully challenged pension reform on constitutional grounds.
"The best chance for the retirees in Chattanooga to avoid these adverse changes is to stop pension reform from being enacted in the first place," the memo states. "If Mayor Burke [sic] succeeds in codifying the changes, they will probably survive all legal challenges and remain in place."
Chattanooga Pension Board officials were unavailable to comment Tuesday evening.
Contact staff writer Joy Lukachick at firstname.lastname@example.org or 423-757-6659. Contact staff writer Beth Burger at email@example.com or 423-757-6406.