Texas Supreme Court: No Early Withdrawls

In a landmark decision, the Texas Supreme Court has upheld a controversial ruling that prevents public employees in the city of Houston from cashing in early on their pensions. Below is the press release in full, announcing the decision.

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HOUSTON, March 24, 2015 – Baker Botts LLP, a leading international business law firm, announced that on March 20, 2015, the Texas Supreme Court unanimously affirmed the Houston Municipal Employees Pension System (HMEPS) board’s decision that City of Houston convention and hotel workers who were transferred to a quasi-governmental entity controlled by the city remain city employees covered by the city pension plan.

The city and a small group of employees had sued the board and the system contending that the employees were no longer employees of the city and thus they had a separation of service so that a pension distribution should be made, and that going forward they would no longer be eligible for the city pension plan. Both the district court and the First Court of Appeals had ruled for HMEPS that the board had the authority to make the determination that the employees were still employees covered by the pension plan. The city and the plaintiff group of employees appealed to the Texas Supreme Court.

“We are extremely pleased that the Supreme Court agreed with both the district court and the First Court of Appeals and rejected the City’s backdoor efforts to avoid its legal obligations which hurt the majority of city workers for the benefit of a few,” said Travis Sales, partner at Baker Botts LLP, who along with Tom Phillips argued for HMEPS.

Following extensive briefing and oral argument, the Texas Supreme Court agreed with the board and against the City and the handful of employees who had wanted to get early distribution of their pension while continuing to be paid for the same job while also collecting a new 401(K) benefit. The Supreme Court noted that the City had formed “quasi-governmental entities to perform the same governmental functions using the same employees.” The Court also noted that the board had the duty and authority to review the facts and to conclude that the employees were still covered employees and that the board’s decision is legally driven by what is in “the greatest benefit of all members” of the plan. The Supreme Court said that the decision was consistent with the common understanding of the term “employee” as someone who is under the control of the employer.

The Court also found that the board’s actions were consistent with its legal authority and duty and observed that the “pension board has a legitimate interest in preserving sources of pension funding that are adequate to meet the demands of the fund.” The Court also observed that the board had prevented “double-dipping”—that the board “had disallowed functional City employees from collecting government-funded HMEPS retirement benefits while also receiving salaries and 401(K) contributions originating in the dollar-for-dollar expense reimbursements CCSI (the newly created entity) collects from Houston First, the City controlled and tax-funded local government corporation.”

The Baker Botts team representing HMEPS included Partners Travis Sales and Rob Fowler of Houston, Partner Tom Phillips of Austin, Associates Michelle Stratton of Houston and Maddy Dwertman of Austin, and Legal Assistant Sheila Bickel of Houston.

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