NMI Supreme Court rules against COLA protection for retirees

Decision affirms only core pension benefits guaranteed

The NMI Supreme Court ruled Monday that cost-of-living adjustments, or COLAs, for retirees are not constitutionally protected, finding that only the core pension promised at the time of employment is guaranteed under the CNMI Constitution.

This decision stands to affect hundreds of former government employees across the commonwealth.

The decision was issued by Justices Pro Tempore Robert J. Torres Jr., F. Philip Carbullido, and Sabrina S. McKenna.

The justices held that Section 8334(e) of the Northern Mariana Islands Retirement Fund Act of 1988 did not grant Class II members a constitutionally protected accrued COLA benefit under Article III, Section 20(a) of the Constitution.

In their ruling, the justices emphasized that while membership in the Retirement Fund is a contractual relationship, only the core pension promise existing at the time of employment is constitutionally protected.

“Because COLAs were introduced after appellant Rosa A. Camacho joined the Fund, they were not part of her vested benefits,” the court stated. “The Commonwealth’s repeated amendments and suspensions of COLAs reflected policy adjustments rather than constitutional entitlements.”

Citing precedent from Colorado, Alaska, and Hawai‘i, the ruling noted that “legislatures may revise or reduce COLAs without violating constitutional protections for public employee pensions.”

The ruling stemmed from a certified question submitted last December by the U.S. Court of Appeals for the Ninth Circuit, which sought guidance on whether COLAs for CNMI retirees are protected and cannot be diminished.

The Ninth Circuit panel—Chief Judge Mary H. Murguia and Circuit Judges Susan P. Graber and Salvador Mendoza—asked whether Section 8334(e) granted Class II members an accrued COLA benefit that may not be diminished or impaired under Article III, Section 20(a).

The NMI Supreme Court answered in the negative.

Background

In 1980, the CNMI established the Northern Mariana Islands Retirement Fund for public employees. After the Commonwealth fell behind on contributions, retirees filed a class action lawsuit. The dispute was settled, and the NMI Settlement Fund was named trustee.

The settlement guaranteed class members at least 75% of their “Full Benefits,” as defined by statute and the Constitution.

In 2016, the Settlement Fund informed Rosa A. Camacho, a class member, that she had been overpaid due to a miscalculation involving past overtime compensation. Her future benefits would be reduced.

Camacho filed an administrative appeal, arguing that she had been underpaid due to the Fund’s failure to provide COLAs.

The Settlement Fund contended that the COLA issue belonged in federal court. Camacho asked the district court to resolve both the COLA and overtime claims.

The District Court ruled that Camacho’s “Full Benefits” did not include COLAs. It found that COLAs were not statutorily guaranteed, as Section 8358(d) made them subject to legislative discretion as of July 26, 2013. The court also concluded that Article III, Section 20(a) did not guarantee COLAs because they were not part of Commonwealth law when Camacho joined the Fund in 1980.

Camacho, represented by attorney Jeanne Rayphand, appealed, seeking unpaid COLAs from 2009 onward at a rate equal to or greater than 2% annually, mirroring U.S. Social Security adjustments.

She did not challenge the district court’s interpretation of Section 8358, as amended in 2011. Instead, she argued that COLAs became part of her benefits during her membership and that applying the current version of the law violated her constitutional rights.