January 18, 2013 05:24 PM UTC

Florida Supreme Court Public Pension Decision Instructive for Colorado General Assembly.

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• by: PolDancer

Florida Supreme Court: Accrued Public Pension Benefits Are Inviolate; However, Pension Benefits Not Yet Earned Can Be Altered . . . Prospectively.

Vested Public Pension COLA Rights in Florida Remain Untouched – Legislative Impairment of Previously Accrued Benefits is Unconstitutional.

The Florida Legislature “Cannot Retroactively Alter Accrued Benefits.”

The Florida Supreme Court has reached a decision (January 17) in the Scott V. Williams public pension case. Yesterday, the Florida Supreme Court held that while the Florida Legislature cannot take back pension benefits that have already been earned, it can change benefits yet to be earned . . . prospectively.  The ruling impacts current, active public pension members in the state.  In accordance with the ruling, public employees will continue to contribute three percent of their salaries toward their pension benefits (previously, the public pension system was “non-contributory.”)  Florida public sector retirees, of course, have completed accrual of public pension benefits, and are unaffected by the ruling.

The Florida Supreme Court ruling reverses an earlier trial court ruling, and is a sad loss for Florida public sector unions.В  Undeterred, union members vow to reverse the decision through the legislative process.

The sponsors of the challenged Florida pension reform legislation argued that the reform measure operated on a purely prospective basis, and accordingly, did not impair any of the state’s existing contractual relationships.  (I cannot fathom how so many members of the Colorado General Assembly reached the conclusion in 2010 that they could legally breach existing public pension contracts in SB 10-001 . . . retroactively seizing previously accrued public pension benefits.)

The Florida Supreme Court decision is in conformance with legal arguments made by law professor Amy Monahan at the University of Minnesota School of Law.В  In her paper, Public Pension Reform: The Legal Framework, Monahan writes:

“What if, ten years into X’s tenure with the state, the state announces that effective immediately, pension benefits will only accrue at the rate of 1% of salary per year?  I have argued that such prospective changes should be permitted absent an explicit agreement protecting against such changes.”

Monahan concludes:

“This Article has argued that pension benefits that have already been earned through services rendered to the state should be protected against impairment, but that it is hard to find legal justification for protecting the rate of future benefit accruals.”

Link to Monahan law article:

http://www.law.umn.edu/facultyprofiles/monahana.html

As I have previously written, Monahan’s arguments have been contested.  Also, many state courts have ruled that employee rights to public pension benefits vest upon commencement of employment, or in the early years of public employment.  It is also legally relevant that prior to enactment of the challenged public pension reform legislation in Florida, the state’s pension system was “non-contributory.”  This fact significantly alters the contractual relationship of the parties in Florida and limits applicability of the decision’s legal rationale to most other public pension systems in the United States.

From the Florida Supreme Court ruling:

“Section 121.101(3), as amended in 2011, continues to provide a 3% cost-of-living adjustment to those persons who retired prior to July 1, 2011.”

(My comment: Note that, according to the Florida Supreme Court, public pensions with 80 percent funded ratios are adequately funded.В  Why does the Colorado General Assembly propose to breach Colorado PERA pension contracts until a 100 percent funded ratio is achieved?В  A ridiculous and unnecessary overreach?)

From the decision:

“the FRS has been operating well above the 80% funding ratio recommended by experts . . ”

From the Orlando Sentinel:

“‘We recognized the authority of the Legislature to amend a retirement plan prospectively, so long as any benefits tied to service performed prior to the amendment date are not lost or impaired,’ wrote Labarga.”

Link:

http://blogs.orlandosentinel.com/news_politics/2013/01/supreme-court-upholds-pension-changes.html

From Reuters:

“Florida legislators were mindful enough of constitutional considerations that when they passed amendments to state pension law in early 2011, they made the changes prospective. В Past pension benefits weren’t affected by the amendments, but after July 2011, the new law said, state workers would have to contribute 3 percent of their gross compensation to a plan that had previously required no employee contribution; and they would have to forgo 3 percent annual cost-of-living adjustments to their pensions. В The prospective consequences of the law seemed to comply with the Supreme Court’s 1981 holding in Florida Sheriffs Association v. Department of Administration, which said that although past benefits are protected under the state constitution’s contract clause, the legislature has the power to change future pension rights.”

“Thursday’s ruling by the Supreme Court reversed the trial court but stopped well short of offering broad support for the constitutionality of pension cost-shifting. В The court reiterated its holding from Florida Sheriffs that state law ‘does not create binding contract rights for existing employees to future retirement benefits’ and said that the new law’s changes were, indeed, prospective and thus legal.”

Link:

http://newsandinsight.thomsonreuters.com/Legal/News/2013/01_-_January/Florida_high_court_upholds_pension_changes,_but_on_narrow_grounds/

From NW Daily News:

“A law championed by Gov. Rick Scott that requires teachers, state and county workers and some municipal employees to contribute 3 percent of their pay to the state’s pension plan was narrowly upheld by the Florida Supreme Court on Thursday.”

“The 4-3 decision reversed a trial judge’s ruling that the law violated the collective bargaining, contract and property rights of about 600,000 public employees including police, firefighters and other first-responders.”

“The law, which went into effect on July 1, 2011, also repealed 3 percent annual cost of living increases for benefits accrued after that date.”

Link:

http://www.nwfdailynews.com/local/florida-supreme-court-upholds-pension-law-1.80585

From the Miami Herald:

“Scott argued it was unfair that Florida’s public employees didn’t contribute because workers in most other states and the private sector are required to help pay for their pensions if they still have that benefit.”

“The high court majority cited a 1981 Supreme Court opinion that said the law protected rights and benefits already earned but did not preclude the Legislature from altering benefits prospectively for future service.”

“Justice Jorge Labarga wrote for the majority that the same principle applied to the new law that restored employee contributions, so it does not violate employees’ contract rights nor take away property in the form of their pension benefits.”

Link:

http://www.miamiherald.com/2013/01/17/3187166/florida-supreme-court-upholds.html

Link to the Florida Supreme Court decision:

http://www.floridasupremecourt.org/decisions/2013/sc12-520.pdf

From the Florida Supreme Court Ruling:

“In so ruling, the circuit court acknowledged this Court’s 1981 decision in Florida Sheriffs Ass’n v. Department of Administration, 408 So. 2d 1033, 1037 (Fla. 1981), in which we held that the preservation of rights statute ‘vest[ed] all rights and benefits already earned under the present retirement plan’ but did not preclude the Legislature from altering benefits prospectively for future state service in the existing noncontributory plan.”

(My comment: According to the Florida Supreme Court, virtually no degree of impairment of existing contracts will be allowed.)

“In determining the question of unconstitutional contract impairment in Florida, where a contract has been found to exist and to have been impaired by subsequent legislation, this Court in Pomponio v. Claridge of Pompano Condominium, Inc., 378 So. 2d 774 (Fla. 1979), adopted a balancing approach to determine if a statute unconstitutionally impairs a contract. We recognized in Pomponio that ‘virtually no degree of impairment’ will be tolerated . . .”

“The government’s significant impairment of its own contract is not justified by necessity if ‘the State[] could have adopted alternative means’ of achieving its goals without altering the contract rights.”

(My comment: At saveperacola.com, dozens of “less drastic” alternatives to the breach of Colorado PERA public pension contracts have been documented.)

From the Florida Supreme Court decision:

“We again hold, as we did in Florida Sheriffs, that the preservation of rights statute was not intended to bind future legislatures from prospectively altering benefits for future service performed by all members of the FRS.  We further hold that the 2011 amendments requiring a 3% employee contribution as of July 1, 2011, and continuing thereafter, and the elimination of the COLA for service performed after that date are prospective changes within the authority of the Legislature to make. The preservation of rights statute does not create binding contract rights for existing employees to future retirement benefits based upon the FRS plan that was in place prior to July 1, 2011.”

“As correctly held in Florida Sheriffs, this interpretation would be contrary to the Legislature’s intent as well as the logical meaning of the statute, which is to ensure that the Legislature cannot retroactively alter accrued benefits.”

“The State contends that the 2011 amendments to the FRS operate prospectively only and, thus, the trial court’s order finding that the law impairs existing contract rights of current members of the FRS is inconsistent with this Court’s interpretation of the preservation of rights statute in Florida Sheriffs.”

“Both parties agree that if an existing member of the FRS retired on June 30, 2011, none of his or her benefits would be diminished.”

“Further, the amendments provide that upon retirement, any right to a COLA is limited to a calculation giving credit only for the employee’s service performed prior to July 1, 2011.”

“The State contends that because the 3% contribution requirement and the elimination of the COLA did not take effect until July 1, 2011, and did not diminish any benefits earned as of that date, the amendments were purely prospective.”

“We explained: ‘That rule of law has now been changed by the ‘preservation of rights’ section which modifies the Voorhees rule and vests all rights and benefits already earned under the present retirement plan so that the legislature may now only alter retirement benefits prospectively.’”

“We stress that the rights provision was not intended to bind future legislatures from prospectively altering benefits which accrue for future state service.”

“A reading of the entire decision discloses our conclusion that the preservation of rights statute was enacted to give contractual protection to those retirement benefits already earned as of the date of any amendments to the plan.  We recognized the authority of the Legislature to amend a retirement plan prospectively, so long as any benefits tied to service performed prior to the amendment date are not lost or impaired.”

“We again hold, as we did in Florida Sheriffs, that the preservation of rights statute was not intended to bind future legislatures from prospectively altering benefits for future service performed by all members of the FRS.  We further hold that the 2011 amendments requiring a 3% employee contribution as of July 1, 2011, and continuing thereafter, and the elimination of the COLA for service performed after that date are prospective changes within the authority of the Legislature to make.”

“As we held in Florida Sheriffs, we again hold that the actions of the Legislature have not impaired any statutorily created contract rights and, thus, we reverse the judgment of the trial court on this ground.”