What the Florida Pension Ruling Means for Other States

Florida's high court ruled that pension contracts can be adjusted, weighing in on an issue that many believe will make its way to the U.S. Supreme Court.
by | January 17, 2013 AT 9:00 AM
Courtroom judge's gavel

The Florida Supreme Court this week ruled that public employees’ pension contracts can be adjusted, weighing in on an issue that many believe will make its way up to the U.S. Supreme Court.

The state’s high court on Thursday upheld in a split decision a 2011 state law requiring public employees to contribute 3 percent of their salaries to the state's pension fund. The 140,000-member Florida Education Association had sued the state, arguing that the required contribution amounted to a pay cut and was subject to negotiation, according to their collective bargaining agreement.

But in a 4-3 decision, the court ruled that such a restriction on the state’s pension structure, that “could never be amended or repealed irrespective of the fiscal condition of this state,” could lead to fiscal irresponsibility.”

“It would also impose on state employees an inflexible plan which would prohibit the legislature from modifying the plan in a way that would be beneficial to a majority of employees, but would not be beneficial to a minority,” the ruling said.

If the court had ruled in favor of the employees, the state would have faced repaying about $1 billion in lost wages for 2011 and 2012, according to the South Florida Sun-Sentinel.

The decision hits on a point – whether pensions can be adjusted outside of the bargaining process – that is being tested now in other cases in the country. In Rhode Island, the unions are challenging pension reform passed in 2011 that, among other things, changed the contribution structure and increased the retirement age for current employees. Two bankruptcy cases in California (Stockton’s and San Bernardino’s) are testing whether pension agreements for retired workers can be adjusted.

“I think we’re going to have a lot more courts opine on this in the next few years,” said Frank Shafroth, director of the George Mason University Center for State and Local Government Leadership. “What really struck me this is an important decision because it laid out the [pension] questions the Supreme Court will answer.”

Karen Grande, a municipal finance lawyer at Edwards Wildman Palmer LLP in Providence, said the unions are well funded enough to litigate the issue for as long as they can. But whether they’ll end up on the winning side is another question.

“I think what they’re saying mostly is, it’s not fair,” she said. “And I don’t think anyone’s saying it [isn’t]. The money is just not there.”

But in Florida, the FEA said the pension plan change amounts to an extra tax on public employees because the state has been using money from its pension fund to balance the budget.

“Balancing the state budget on the backs of middle-class working families is the wrong approach for legislative leaders and the governor to take,” FEA President Andy Ford said in a statement. “We’re disappointed that the state’s highest court said this approach was legal.”

Shafroth compared the fight over pension funds to the biblical story in which King Solomon of Israel ruled between two women both claiming to be the mother of a child by proposing to cut the child in half. The moral was that the woman who cared more about the child was willing to let it go rather than see it sacrificed.

“Union employees, they’re terrified their pensions will be cut,” Shafroth said. “But another part is balancing and saying, ‘if you’re not careful, there might not be enough money in the pension fund when current pensioners retire.’”