Tuesday, September 23, 2014

UPDATE: City agrees to pay PERA $190 million

Posted By on Tue, Sep 23, 2014 at 1:57 PM

City city will pay $190 million for retirement accounts of Memorial workers under a settlement announced today. The lawsuit stemmed from the lease of Memorial Hospital to UCH. - FILE PHOTO
  • File photo
  • City city will pay $190 million for retirement accounts of Memorial workers under a settlement announced today. The lawsuit stemmed from the lease of Memorial Hospital to UCH.

This just in from PERA:
DENVER–Today, the Colorado PERA Board of Trustees announced an agreement with the City of Colorado Springs to resolve the lawsuit between the City and PERA over the amount due to PERA to ensure that Memorial Health System’s departure from PERA does not negatively impact the 146 employers and 11,954 members in PERA’s Local Government Division Trust Fund. The agreement provides for the City of Colorado Springs to pay PERA $190 million for the liabilities associated with the retirement and health care benefits already earned by 7,380 Memorial employees for the work that they performed before Memorial ceased to the a PERA employer. The employees of Memorial were covered by PERA until Memorial was leased to the University of Colorado Hospital Authority on October 1, 2012.

“This agreement ensures that Memorial’s decision to exit PERA will not negatively impact the other employers and members of the Local Government Division,” said Gregory W. Smith, PERA’s Executive Director. “We are happy to reach closure on this issue and believe this is an appropriate result for PERA members, beneficiaries and employers,” he concluded.

This agreement restores the funded status of the Local Government Division trust fund which will return the trust to fully funded status approximately eight years sooner than is currently estimated. This payment enhances the long term sustainability and retirement security for the 30,000 local government employees, retirees and their employers who participate in Colorado PERA.

Colorado PERA’s General Counsel Adam L. Franklin added, “This agreement adheres to the law that no PERA employer can leave the financial obligations they owe to their employees and retirees for other PERA employers and members to cover. It helps maintain the integrity of one of Colorado’s best investments.”
—————————————ORIGINAL POST, TUESDAY, SEPT. 23, 2014, 1:57 P.M.——————————————————

After nearly two years of litigation and more nearly $2 million in lawyer fees, Colorado Springs City Council today unanimously approved a settlement that will pay the Public Employees Retirement Association $190 million.

That sum is $5 million more than the University of Colorado Health gave the city to pay off PERA when the 40-year lease deal of city-owned Memorial Health System was inked on Oct. 1, 2012. 

Former City Attorney Chris Melcher oversaw negotiations of the lease, which yielded the $185 million commitment to PERA. Melcher later advised Council to sue PERA and argue the city owed nothing for the roughly 4,000 Memorial employees covered by the plan who would be moved into a different retirement system. Melcher left the city in January, although he was paid through July in a severance pay arrangement in which he collected more than $100,000.

Since the city sued, it has suffered two critical decisions in court that, if the case went to trial, could have cost the city $30 million more in interest accruals.

Hogan Lovells law firm, which represented the city, has been paid well over $1.5 million during the saga.

Here's the Council's news release, which tends to put a happy face on the whole affair:

The City Council of Colorado Springs today approved a Settlement Agreement with the Colorado Public Employees’ Retirement Association (PERA), regarding pension claims arising from the lease of Memorial Health System (Memorial) to University of Colorado Health (UCH) in October 2012.

Under the arrangement, a lump sum payment of $190 million will be made to PERA. The settlement payment will be made from the nearly $259 million that the City and UCH set aside during the lease transaction. The settlement does not constitute any admission of liability by Memorial or the City, but avoids the risks and cost of continued litigation and will ensure that the community receives the major benefits of the Memorial lease.

“City Council believes that it is in the best interest of the Colorado Springs Health Foundation, the City and former Memorial employees to settle,” stated City Council President Pro-tem Merv Bennett.

This agreement provides closure of disputed contingent claims, and will free approximately $70 million of additional funds held in escrow for the Colorado Springs Health Foundation, a nonprofit corporation. In total, by October 2017, the Foundation should have, not including interest on investments, a total of approximately $86 million. This includes approximately $16 million currently held by the Memorial Hospital Enterprise.

“One of the important elements from the lease with UCH was the creation of the Colorado Springs Health Foundation. The Foundation was established with the intent of improving the health and quality of life of the community. This agreement will allow the Foundation to begin the important job it was designed to do — fund grants to provide quality healthcare to those who would otherwise not have access, and to encourage healthy living,” said City Councilwoman Jan Martin.
Instead of having $259 million to do its good works, the Colorado Springs Health Foundation will have about $85 million. It currently has $16 million from annual payments made by UCH, and would presumably add the remainder of the initial payment, or $69 million, to that total.

We've asked both PERA and Mayor Steve Bach for a comment on the settlement. Bach in the past has said the lawsuit was the Council's issue, not his.

We'll update if and when we hear from them.

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