First, I appreciate the input and information from everyone, even if some of the advice is a bit more aggressive and adversarial than we would pursue.
After speaking with the union rep, my wife has chosen not to pursue a grievance. While I might personally choose a different route, I support her decision. Even the union rep said it would be a long hard battle with no guarantee of a positive outcome. As Teacher Terry said, if they want her out, she is going to be out one way or another. It doesn't make sense to fight to stay in a position where you are not wanted and constantly on guard.
Contrary to some of the comments here, we're not naively sitting back hoping this will all go away on it's own. There is a very real chance this may lead to termination, hopefully not, but that's the likely outcome. In the meantime my wife is doing everything she can to comply with the PIP requirements, and documenting everything. If she is terminated anyway, then she may have grounds for wrongful termination, but we'll cross that if we get there. On the other hand, if this is truly just about a performance issue, complying with the requirements may satisfy the plan and allow her to continue on. We'll see.
As for her pension, it's run by the state, not her employer. I have read through all of the contracts and documentation and it seems to confirm that once she is vested (after 5 years, wife has 30+) the pension is guaranteed even if she is terminated.
I have been running a lot of numbers this week, just in case she loses her job. If she can get even a low paying part time job for the next three years, we should still come out OK in the end.