Millions at Stake in Retirees’ Suit

November 1, 2010

Investigative Reports

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The NerveSouth Carolina’s top court on Wednesday will hear a case involving thousands of government “working retirees” who collectively claim that the state retirement system wrongfully withheld millions of dollars in retirement contributions from their paychecks.

Columbia attorney Cam Lewis, one of the lawyers for the plaintiffs in the class-action lawsuit, told The Nerve in a recent interview that the state would owe “probably over $10 million” in refunds to his clients should the S.C. Supreme Court rule in their favor, though he couldn’t provide a more precise figure.

According to figures provided to The Nerve by the S.C. Budget and Control Board, which oversees the state retirement system, that amount could be as much as $42.6 million.

In a related case in 2006, the S.C. Supreme Court ordered refunds, which totaled nearly $38 million, to about 14,000 government retirees who participated in another working retirement program for higher-salaried employees, known as the Teacher and Employee Retention Incentive (TERI) program.

The case Wednesday before the Supreme Court comes amid public debate on how the state will cover an unfunded liability for future public retirees, which has been projected at about $12 billion to more than $53 billion.

As of June 30 of this year, there were 5,044 non-TERI employees, referred to in court papers as “working retirees,” who were rehired before July 1, 2005, according to BCB records. That represents about 22 percent of the total 23,038 TERI and non-TERI employees currently in the system.

The number of working retirees who might receive refunds – assuming the Supreme Court rules in their favor – likely is higher than 5,044 because it doesn’t include eligible retirees who are no longer working in government jobs. The BCB couldn’t provide The Nerve with the number of retirees in that group.

Supporters of the TERI and working retiree programs contend that they keep experienced workers in agencies and areas of the state that badly need help. Critics contend those programs drain the state budget.

At issue in Wednesday’s case is whether the state retirement system could deduct employee retirement contributions from the paychecks of working retirees rehired before July 1, 2005. The law was changed then to require the deductions; the state contended it applied to anyone rehired before July 1, 2005, while the working retirees took the opposite position.

“We feel confident in our interpretation of the law,” BCB attorney David Avant told The Nerve when contacted recently.

The five-member Supreme Court is under no deadline to rule after Wednesday’s scheduled arguments. Rulings typically are issued several months after arguments.

Under the law in effect before July 1, 2005, eligible retired government employees – mainly teachers, general government employees and police officers – could return to public jobs and earn up to $50,000 annually while receiving their retirement checks. After four years, they would have to decide whether to return to the retirement system or continue working in the program.

The separate TERI program back then allowed eligible public employees – teachers and general government employees – to earn more than $50,000 annually while accumulating their retirement benefits for up to five years. The retirement benefits were paid out in a lump sum or through a tax-deferred program after the employee left the program.

“It’s a simple issue of whether people who earn less than $50,000 are going to be treated the same as people who earn more than $50,000,” Lewis told The Nerve. 

In the 2006 ruling involving the TERI group, the S.C. Supreme Court said the state broke a contract with those workers rehired before July 1, 2005, by deducting retirement contributions from their paychecks.

But the high court sent part of the case dealing with the non-TERI retirees back to a lower court to determine whether the state broke a contract with them. In a June 2009 order, Circuit Judge James Williams ruled that although there wasn’t a specific contract, the state wrongfully withheld retirement contributions from those employees rehired before July 1, 2005.

Williams ordered the state to quit deducting the contributions and refund all previously withheld amounts. His ruling was appealed to the Supreme Court.

From July 1, 2005, through June 30 of this year, a total of about $42.6 million was withheld from non-TERI retirees’ paychecks, BCB records show. Avant told The Nerve that if the Supreme Court rules in favor of the plaintiffs, the state will not be able to deduct employee retirement contributions from that group going forward, in addition to owing refunds to them.

Besides the state case, another group of non-TERI retirees filed a lawsuit Aug. 2 in U.S. District Court in Florence contending that the state retirement system could not, under the U.S. Constitution, deduct employee retirement contributions for those employees rehired after July 1, 2005.

An estimated “tens of millions of dollars” are at stake in that case, Columbia lawyer Dick Harpootlian, who is representing the plaintiffs with Lewis, told The Nerve in an Aug. 19 story. Harpootlian also is working with Lewis in the pending state case.

Reach Brundrett at (803) 254-4411 or rick@thenerve.org.