The D.C. Retirement Board, which controls $759 million in pension funds for the city's teachers, police officers, firefighters and judges, has filed lawsuits seeking $5.3 billion from the federal government in an attempt to resolve a longstanding dispute over the city's growing unfunded pension liability.
The suits, filed last month in the U.S. Claims Court and the U.S. District Court, allege that the federal government ignored its obligations when it enacted legislation that, in effect, made the District responsible for an unfunded pension liability for District employes who previously had been covered on a pay-as-you-go basis by the federal government.
The unfunded liability represents the difference between money committed to employes and money being deposited in the pension funds. In the next 19 years, the unfunded liability, estimated at $5.3 billion now, is expected to grow to between $9 billion and $12 billion. By contrast, the city government's entire operating budget for fiscal 1986 is substantially less than $3 billion.
The suits filed by the Retirement Board allege that unless the federal government meets the unfunded liability, the District employes covered by the pension programs could experience disruption, reduction or elimination of their benefits.
Court documents show that action on both suits has been halted for six months to give representatives from the Retirement Board and the U.S. Justice Department an opportunity to try to resolve the issue out of court.
Prior to the advent of limited home rule in the District, Congress established pension programs for the District's teachers, police officers, firefighters and judges and maintained the pension funds in accounts at the U.S. Treasury.
The present dispute over the unfunded liability began after home rule when the federal government reduced its financial involvement with the pension funds to an annual $52 million payment, which is slated to end in 2004.
At that time, the District government would become solely responsible for the difference between the amount of money in the trust funds and the amount of money pledged to retirees.
"The lawsuit to recover the money is realistic to the extent that the federal government had a hand in creating this liability," said Retirement Board member James W. Dyke Jr. "It is not as though this unfunded liability dropped out of the sky last week."
In fact, the city's five-year-old Retirement Board, which has exclusive authority to manage the pension trust funds for 20,976 current and former District employes, has been aware of the massive unfunded liability problem since its creation.
The board's actuaries have concluded that regardless of how well it performs in investing the pension funds, the city would still be faced with a substantial unfunded liability if the federal government withdraws its annual payment.
"The unfunded liability could be an extremely substantial burden on the [District] taxpayers," said Arthur M. Reynolds, chairman of the Retirement Board. "With an obligation of that magnitude outstanding, we would be remiss in our duties if we did not pursue it."
During the recent legal effort to resolve the problem of unfunded liability, the Retirement Board's legal fees have increased from an average of $150,000 a year to $500,000 this year, said Earl Johnson, the board's executive director. Johnson estimated that $200,000 in legal fees has been spent on the suits.
The law firms of Hogan & Hartson and Long, Peterson & Zimmerman represent the Retirement Board.