U.S. Supreme Court Deals With Two Cases Affecting Teacher-Retirement Plans

By Mark Walsh — October 15, 2019 5 min read
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Retired teachers from Washington state and Puerto Rico had the attention of the U.S. Supreme Court on Tuesday, however briefly or tangentially.

In one case, the justices declined to take up a case involving the accrual of interest in the Washington state teachers retirement system. The Washington system and a national group for public employee retirement systems had urged the high court to review a federal appeals court decision that they contend threatens the autonomy of such state pension plans.

In the other, the court heard arguments in a set of consolidated cases over the legal status of appointments to a federal Financial Oversight and Management Board for Puerto Rico. The island’s retired teachers are part of a committee of retired public employees that backs the federal board, which was created in 2016 to try to deal with $74 billion in bond debt and $49 billion in unfunded pension liabilities.

As the oversight board pursued efforts to adjust Puerto Rico’s debts, some creditors sued. Because six of the seven voting board members were appointed by then-President Barack Obama from a list provided by the U.S. House and Senate leadership (with the seventh chosen by the president himself), the challengers said the board ran afoul of the U.S. Constitution’s appointments clause, which requires “officers of the United States” to be nominated by the president and confirmed by the Senate.

The U.S. Court of Appeals for the 1st Circuit, in Boston, agreed that the board violated the appointments clause. But the court refused to undo the various actions the board has taken in the last three years, ruling that it was acting in good faith.

Numerous parties appealed to the Supreme Court, which consolidated them under the lead case, Financial Management and Oversight Board for Puerto Rico v. Aurelius Investment LLC (No. 18-1334).

Puerto Rico’s retired teachers are among 167,000 retired public employees who are represented by an entity called the Official Committee of Retired Employees of the Commonwealth of Puerto Rico. Although the teachers and other retirees are creditors of the island’s government, their committee supports the federal oversight board.

“In the face the impending collapse of Puerto Rico’s economy, Congress enacted [the Puerto Rico Oversight, Management, and Economic Stability Act] to chart a course with speed out of the fiscal mire and back toward economic health, allowing stakeholders such as the Retiree Committee to work toward a solution that will provide long-term financial stability for the island,” the committee’s brief says.

The justices heard extended arguments Tuesday in the case, with two former U.S. solicitors general on opposite sides of the case.

Donald B. Verrilli Jr., a former solicitor general under Obama, represented the oversight board and argued that it mainly dealt with Puerto Rico territorial issues, and secondarily issues of national importance.

“It’s just not right to say that what you’ve got here is a federal overlord or a federal master,” Verrilli said.

The U.S. Department of Justice also defended the law and the federal oversight board.

“The board’s been acting for three years,” said Jeffrey B. Wall, the principal deputy U.S. solicitor general. “We have, you know, nearly 100 adversary proceedings, hundreds of thousands of claims, hundreds of millions of dollars collected or paid out, [and] $12 billion in bonds issued. ... I have no idea how one unwinds this.”

Theodore B. Olson, a U.S. solicitor general under President George W. Bush, represented Aurelius Investment LLC and other holders of Puerto Rico’s public debt.

He began by citing the Federalist Papers and arguing that failure to follow the appointments clause harms the Constitution’s separation of powers, “without which, in the words of the framers, we have the ‘very definition of tyranny.’”

Justice Samuel A. Alito Jr. had a question about Olson’s high-minded arguments.

“Mr. Olson, are you and your client here just to defend the integrity of the Constitution, or would one be excessively cynical to think that something else is involved here involving money?” Alito said.

Olson eventually said that some $100 billion of public debt was at stake in various proceedings stemming from the federal board.

“There are these extraordinarily large claims ... which the agencies of Puerto Rico have defaulted on, have not been able to pay these claims,” Olson said. “So, yes, you’re right. Of course, it involves a lot of money.”

The board has filed a restructuring plan with a federal district court that would cut some $65 billion of Puerto Rico’s public debt and other liabilities to $12 billion.

By the end of the argument, it appeared the justices were inclined to uphold the law establishing the federal oversight board.

Washington State Teachers

In the teachers-retirement system case from Washington state, the justices declined to review a decision of the U.S. Court of Appeals for the 9th Circuit, in San Francisco, that reinstated a lawsuit challenging the interest-accrual practices of the Washington system.

A group of retired teachers alleges that the Washington state system did not credit their accounts with the proper amount of interest when they switched from one retirement plan to another. The teachers alleged this “skimming” of their money was an unauthorized government “taking” of their property under the Fifth Amendment’s takings clause.

A federal district court threw out the teachers’ suit, but the 9th Circuit court panel last year revived the teachers’ claim. The appeals court also ruled that Washington state was not immune from the suit under the 11th Amendment.

The Washington teachers’ retirement plan appealed to the Supreme Court in Guerin v. Fowler (Case No. 18-1545). It received support from the National Conference on Public Employee Retirement Systems and from seven states.

The justices considered the case at two of their private conferences, a sign that the possibly gave it a close look. But they ultimately denied the appeal without comment.

A version of this news article first appeared in The School Law Blog.