Maryland Appeals Court Upholds $30 Million Award to Baltimore Retirees

The Maryland Court of Appeals has upheld a trial court award of $30 million to retired Baltimore firefighters and police officers whose pensions were unilaterally reduced by the city. The suit, which was originally brought in federal court in 2010 and later refiled in Baltimore County Circuit Court, contended that the city’s plan to deal with financial problems with the pension fund by replacing a variable cost-of-living adjustment with a fixed cost-of-living adjustment was a breach of contract.

As explained by the Court of Appeals:

• Over the course of time, governing bodies of large cities face many challenges.
• One such challenge that some cities and other local governments may confront is how to change a public pension plan that is actuarially unsound.
• Often, the public employees who participate in these plans are represented by unions that register legitimate objections to proposed modifications.
• Taking such action in the face of opposition by public employees can be difficult politically.
• The challenge is magnified when the city is in dire financial straits.
• In such a situation, the city may have to choose between the lesser of two evils: change the plan without the consent, and to the consternation, of employees who have devoted their careers to public service; or keep the plan as is and put the city deeper into debt, perhaps even risking financial ruin.
• In 2010, Baltimore City faced this choice.
• Baltimore City maintains a Fire and Police Employees’ Retirement System to provide pension benefits to uniformed officers in the City’s police and fire departments.
• The statute governing the Plan provides that a contractual relationship exists between Plan members and the City, and that the benefits provided under the Plan “shall not thereafter be in any way diminished or impaired.”
• In June 2010, facing a perfect storm of financial challenges, the City enacted Ordinance 10-306 by which the City changed some of the key terms of the Plan to make it actuarially sound.
• Most notably, it replaced a variable post-retirement cost-of-living adjustment that was based entirely on the investment performance of Plan assets with a guaranteed, tiered cost-of-living adjustment that is not market-driven.
• On behalf of themselves and others similarly situated, several City police officers and firefighters filed a class action lawsuit against the Mayor and City Council of Baltimore.
• After a bench trial, the circuit court ruled that the City breached its contract with the Retired and Retirement-Eligible Sub-classes, finding that Ordinance 10-306 retrospectively divested the members of those sub-classes of benefits they had earned.
• The court awarded more than $ 30 million in damages to members of the Retired and Retirement-Eligible Sub-classes.
• However, the circuit court found no breach of the City’s contract with the Active Sub-class, ruling that, as to the Active members, Ordinance 10-306 did not affect vested benefits, but rather made permissible prospective changes to the Plan.
• Finding no factual or legal errors in the circuit court’s rulings, we affirm its judgment in all respects.

The ruling explains the details behind the ruling in much greater depth for those who are interested. Unfortunately for current Baltimore firefighters, the ruling also upheld the ability of the city to change length of service requirements to qualify for a pension. More on that aspect can be found here. Here is a copy of the decision: