Appellate Court: Pension Funds Overcharged City

In the latest decision in a long legal dispute between two pension funds and the City of Minneapolis, an appellate court agreed with a district court ruling that said the funds miscalculated benefits and overcharged the city.

The Minnesota Court of Appeals on Tuesday affirmed a ruling that police and firefighter pension funds in Minneapolis miscalculated benefits and overcharged the city.

The Minneapolis Police Relief Association (MPRA) and the Minneapolis Fire Relief Association (MFRA) were closed to new members in 1980 but have continued to pay out benefits to those who joined before then. In 2004, the state auditor said that the closed funds have overcharged the city's taxpayers over the past decade, and the city took the funds to court.

Hennepin County District Court in 2009 ruled that the funds had overcharged taxpayers by roughly $76 million since 2000-and it froze all benefit levels, which allowed the city to cut property taxes for 2010 by $10 million, the city said. The fund managers were ordered to form a plan to recoup the overpayments, but they held off on collecting the money pending the final outcome of the ongoing legal dispute.

The appeals court agreed that the fund managers had miscalculated benefits and that they owe money to the city. The city and employees both contribute to pension plans to fund benefit payouts, and the city has said that soaring pension obligations, largely due to the MPRA and MFRA, has caused it to raise taxes.

“Simply put, the court agreed with us,” Minneapolis Mayor R.T. Rybak said in a statement. “The funds have overcharged Minneapolis taxpayers, and Minneapolis taxpayers will get relief.”

But the appeals court sided with the pension funds on a couple of issues. It reversed an earlier ruling and stated that pension funds were allowed to make some changes to benefit amounts without the city's approval.It also reversed a part of the district court's order that required the funds to “oppose any and all challenges to the recoupment.” The appeals court agreed that members of the pension fund shouldn't seek further litigation regarding the paying back of funds, but said that requiring the pension funds to oppose all challenges to recoupment “limits the appropriate exercise of discretion and could prevent the members from participating in the process to determine how recoupment will be achieved.”

The appeals court decision remanded the case to another trial. The decision comes at a time when legislation has been introduced to merge the MPRA and MFRA with the statewide Public Employees Retirement Association. The city of Minneapolis said last month that the consolidation would benefit taxpayers, but the appeals court ruling and the ongoing legal dispute could affect whether all parties support a merger.