Houston must face pension system lawsuit following state Supreme Court ruling

By Karen Kidd | Jun 20, 2018

AUSTIN (SE Texas Record) — The City of Houston will have to face up to litigation in its ongoing dispute with the Houston Municipal Employees Pension System following a Texas Supreme Court decision earlier this month that found the city has no immunity in the case.

The city had claimed governmental immunity from Houston Municipal Employees Pension System's lawsuit to force the city to make contributions for workers who had been reclassified to work for a nonprofit.

"The appeal before us involves a relationship that is not working out well," Texas Supreme Court Justice Phil Johnson wrote in the court's opinion issued June 8.  

"The controversy concerns the city of Houston's creation of local government corporations to which it transferred some of its employees. Specifically at issue is the adoption of resolutions by the Houston Municipal Employees Pension System's Board of Trustees related to those employees, their status regarding the city's pension fund, and interpretation of the governing statute; and the Houston Municipal Employees Pension System's attempts to enforce what it views as the city's obligation to make contributions to the pension fund."

Texas Supreme Court Justice Phil Johnson  

The high court reversed in part a 14th District Court of Appeals' reversal of a trial court order in the pension system's claims about the city's contributions, but otherwise affirmed the appeals court ruling.

The dispute between the city and pension system stems from the city's decision in 2011 to transfer approximately 100 former municipal employees to work for three city-founded nonprofit local government corporations. Those employees, no longer classified as municipal workers, would no longer be members of the pension system and the city wouldn't make pension contributions based on their salaries. The pension system's court challenge soon followed.

In its latest decision, the state Supreme Court referred to its March 2015 ruling in the dispute, Klumb v. Houston Municipal Employees Pension System. In that decision, the high court upheld the pension system jurisdiction pleas and ruled its board had not overstepped its authority in its resolutions about defining a city "employee".

Krumb resolved arguments over the pension system's statutory authority to define an employee and the city retains discretion about how to comply, not whether to comply, the high court said in its opinion. 

"But we disagree that because a statute authorizes a governmental entity to enter into contracts and that such contracts will be binding on it, the statute requires such contracts to be performed in a particular way," the opinion said.

The city is correct in its claim that the pension system's case depends on whether the workers in question are employees under the pension statute. If they are not employees under that statute, the city doesn't have to make pension fund contributions on their behalf, according to the opinion. "The City argues that the corporations' personnel are not 'members' of the pension system and that contrary to the pension system's claim, the court in Klumb did not decide otherwise," the opinion said.

According to the city, Klumb only addressed the pension system's statutory authority. The city's argument is without merit."

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