Chattanooga Retirees Lose Pension Reform Challenge

The US 6th Circuit Court of Appeals has ruled against retired Chattanooga firefighters who sought to block the city’s pension reform that reduced their “guaranteed” cost of living allowance.

The suit was filed in 2014 by retired firefighters William Melhorn and James Gaston, along with two retired Chattanooga police officers, Johnny Frazier and Reuben Salter. They claimed the city’s amendment to their pension plan that reduced the COLA from 3% to a variable rate averaging 1.5% violated the Contract Clause of the United States Constitution, was a breach of contract. According to the retirees the city “guaranteed” them a 3% COLA in 2000.

The city removed the case to US District Court where Judge Curtis L. Collier granted the city’s motion for summary judgment in November, 2015. Last Thursday, the 6th Circuit took just 7 pages to affirm Judge Collier concluding:

  • The retirees do not have a contractual right to the fixed three-percent COLA, because the City Code does not bind the Fund to the fixed COLA.
  • The City Code does not unmistakably bind the Fund to the fixed three-percent COLA.
  • Under § 2-411(d), the city may amend the pension plan, “provided that such amendment shall not in any way decrease any vested financial benefits accrued by any participant or beneficiary.” Code § 2-411(d) (2016).
  • Through § 2-411(d), the city expresses an intent to be bound only to vested, accrued financial benefits. Otherwise, subject only to § 2-411(d)’s other limitations, the city may freely amend the pension provisions.
  • The retirees do not have a contractual entitlement to the fixed COLA, even assuming it is a financial benefit within the meaning of the City Code, because the COLA is neither vested nor accrued.

The court went on to discount a pamphlet published by the city in 2000 about changes to the pension system titled “Explanation of changes” that stated “A guaranteed annual 3% cost-of-living adjustment (COLA) will be given to all retirees and beneficiaries, regardless of age.” Here is how the court reasoned the outcome:

  • “The fact that the Fund described the fixed three-percent COLA as “guaranteed” when enacting the 2000 amendment also does not prove that the city intended to be bound to the fixed COLA.”

When is a guarantee not a guarantee? According to “The enacted reforms were projected to save the city $227 million over 26 years.” Viewed another way, the retirees and their survivors will now receive $227 million less than they were “guaranteed.”

Here is a copy of the decision: Frazier-v-Chattanooga 15-6405-2016-11-03

About Curt Varone

Curt Varone has over 40 years of fire service experience and 30 as a practicing attorney licensed in both Rhode Island and Maine. His background includes 29 years as a career firefighter in Providence (retiring as a Deputy Assistant Chief), as well as volunteer and paid on call experience. He is the author of two books: Legal Considerations for Fire and Emergency Services, (2006, 2nd ed. 2011, 3rd ed. 2014) and Fire Officer's Legal Handbook (2007), and is a contributing editor for Firehouse Magazine writing the Fire Law column.

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