Employees of Memorial Health System, owned by the City of Colorado Springs, Colorado, have sued the city, claiming they were unlawfully removed from the state’s Public Employees Retirement Association (PERA) and subsequently not given promised benefits.

According to the lawsuit filed in the U.S. District Court for the District of Colorado, the state’s PERA statute provides a process for an employer such as Memorial Health System to terminate its affiliation with PERA, which includes a vote by active members. However, the City proceeded with terminating Memorial’s affiliation with PERA effective October 1, 2012, without holding an employee vote, without obtaining a 65% affirmative vote of employees to terminate, and without obtaining PERA Board approval of the termination.

In addition, the complaint says, the City of Colorado Springs leased most divisions of Memorial Health System to the University of Colorado Health System (UC Health) and the pediatric division to The Children’s Hospital of Colorado. Prior to termination of the City’s administration of Memorial, Memorial employees were repeatedly told that when PERA affiliation was terminated, their pension plan would be replaced by another plan that would be at least as good as the PERA benefit plan.

However, according to the complaint, the lease agreement between the city and UC Health merely provides “such employees with employee retirement and health and welfare plans and programs that, in general, are no less favorable to the employees as an aggregate group than those offered to newly hired employees working with UC Health.” The lawsuit alleges the new employee pension benefit plan for Memorial employees after October 1, 2012, is inferior to the benefits they would have accrued under PERA. 

For Memorial employees (except the Children’s Hospital sublease employees) the retirement benefits accrue at the rate of only approximately 1% of the average of the highest five years of service per additional year of service, instead of 2.5% of the average of the highest three years of service under PERA. The complaint alleges that veteran employees under the new plan would not have sufficient years of work left to accumulate significant benefits to offset the reduced PERA benefits. 

Memorial employees working under the Children’s Hospital Sublease do not have a defined benefit plan; they may now participate in a 403(b) defined contribution plan and do not benefit from their years of service. According to the complaint, their maximum retirement benefits as a percentage of average income is now substantially less than under PERA. In addition, as newly minted private-sector employees, these employees now must contribute to and qualify for Social Security. They have not accrued Social Security credits because previously they did not contribute to Social Security. 

“These differences amount to tens of thousands, or even hundreds of thousands of dollars per employee, in lost retirement benefits,” the lawsuit says. 

The employees are asking the court to order the city to provide them with the benefits they would have if Memorial had continued its participation in the PERA plan from October 1, 2012, to the employees’ normal retirement age. The lawusit is filed on behalf of all affected employees, and the city has acknowledged that approximately 4,000 or more such employees of Memorial Hospital existed as of October 1, 2012. 

The complaint in Romstad v. The City of Colorado Springs is here.