Florida Supreme Court Upholds Legislature’s Changes to State Pension System

State Court Docket Watch Article, Spring 2013

April 24, 2013

Christine Pratt

On January 17, 2013, in Scott v. Williams, 2013 FL 520 (Fla. 2013), the Florida Supreme Court upheld the Florida Legislature’s amendments to the Florida Retirement System (“FRS”) in a four-to-three decision.1 Governor Rick Scott regarded the decision as a “victory for taxpayers,” while union leaders complain that the governor is balancing the budget on the backs of state workers.2

By way of background, Senate Bill 2100 converted Florida’s retirement program from a noncontributory system to a contributory system, required all current FRS members to contribute 3% of their salaries to the retirement system, and eliminated the retirement cost-of-living adjustment (COLA) for any service rendered after July 1, 2011.3

The court’s decision reversed the trial court’s ruling and explicitly rejected the trial court’s conclusion that the pension amendments violated the Florida Constitution’s contracts clause (article 1, section 10), takings clause (article 5, section 6), and collective bargaining clause (article 1, section 6).4 Williams makes clear that, while the Legislature is barred from retroactively altering the benefits to which a member of its retirement system is entitled, the Legislature is free under the Florida Constitution to alter such benefits prospectively, that is, before the member has retired.5

I. Background

At a time when Florida lawmakers faced a budgetary shortfall of $3.6 billion and the possibility of a slipping credit rating,6 the Legislature instituted one of the most drastic changes the FRS had seen in decades. Prior to the 2011 pension amendments, the main features of the FRS had remained largely unchanged since the Florida Legislature had made the plan noncontributory in 1974.7 At that time, however, many public employees expressed misgivings about making the retirement system noncontributory, claiming that since the employee was no longer contributing to the system, the Legislature would feel free to change a member’s retirement benefits anytime it wished.8 Indeed, such fears were grounded in Florida law, as the Florida Supreme Court had previously held that “even where an employee had already retired, the legislature had the authority to reduce the retirement benefits under a mandatory plan.”9

To assuage public employees’ apprehension about sudden changes to their retirement benefits, in 1974 the Legislature—at the same time it made the FRS noncontributory—enacted a preservation of rights provision.10 The provision reads, in relevant part:

As of July 1, 1974, the rights of members of the retirement system established by this chapter are declared to be of a contractual nature, entered into between the member and the state, and such rights shall be legally enforceable as valid contract rights and shall not be abridged in any way.11

The decisive issue the court faced in Williams was whether the preservation of rights provision, by expressly creating contract rights for all existing members of the retirement system, bound future legislatures to the noncontributory retirement system that the 1974 Legislature established. As already stated, the Florida Supreme Court held that it did not.12

II. The Trial Court

The trial court, deciding the case on cross motions for summary judgment, answered the above inquiry in the affirmative.13 Seizing on the provision’s language that the FRS members’ contract rights “shall not be abridged in any way,” the court held that the preservation of rights provision granted to FRS members “continuous, unconditional rights to a noncontributory plan with a cost of living adjustment.”14 Having found that the Legislature substantially impaired FRS members’ contract rights, the court then evaluated the constitutionality of the impairment15 by asking whether the state’s impairment was reasonable and necessary to serve an important public interest.16 The court held that the state’s breach was not justified when the state intended to “make funds available for other purposes,” and when other, reasonable alternatives existed to preserve the state’s contract with FRS members.17

The trial court also acknowledged a previous Florida Supreme Court case, Florida Sheriffs Ass’n v. Dep’t of Administration, 408 So. 2d 1033 (Fla. 1981), in which the court authorized the Legislature to lower the special risk credit benefit for a certain subset of FRS members who had not yet retired.18 The trial court distinguished the case, however, reasoning that Florida Sheriffs did not, in the court’s view, empower the Legislature to “completely gut” the FRS.19

Since the state, in the court’s view, unconstitutionally breached its contract with FRS members, the court went on to declare that the funds that the state had withdrawn from the members’ salaries following the amendments’ effective date constituted an unconstitutional taking of private property.20 The court also held that the amendments abridged the rights of public employees to bargain collectively over retirement benefits.21

III. The Florida Supreme Court

When the state appealed the case to Florida’s First District Court of Appeal, the court certified to the Florida Supreme Court that the appeal presented issues of “great public importance” and required immediate resolution by the high court.22 The court accepted the case and reversed the trial court’s ruling, upholding the pension amendments as constitutional under the Florida Constitution.23 Focusing most of its analysis on the preservation of rights provision and the Florida Constitution’s contracts clause, the court reversed the trial court’s ruling primarily under Florida Sheriffs.

The court had explicitly held in Florida Sheriffs, as it held again in Williams, that the preservation of rights provision had the effect of barring the legislature from altering retirement benefits retroactively, but did not affect the Legislature’s ability to make prospective changes to a member’s retirement benefits.24 The court reiterated dicta from Florida Sheriffs in which the court stressed that “the rights provision was not intended to bind future legislatures from prospectively altering benefits. . . . This view would, in effect, impose on the state the permanent responsibility for maintaining a retirement plan which could never be amended or repealed irrespective of the fiscal condition of this state.”25 In Williams, the court found that since the 2011 pension amendments will not diminish any benefits earned before the effective date of July 1, 2011, the amendments operate purely prospectively and are therefore constitutional.26

The court briefly addressed the trial court’s holdings regarding the Florida Constitution’s takings and collective bargaining clauses.27 The court found that there could not have been an unconstitutional taking, since no contract between the state and members of the FRS had been breached.28 Regarding the collective bargaining clause, the court noted that the amendments’ challengers had neglected to raise any proper claim identifying any specific collective bargaining agreements which the amendments violated, nor did the challengers address the effect of the amendments on any specific collective bargaining agreement.29 Furthermore, the court reasoned that nothing in the amendments prohibited public employees from collectively bargaining on the issue of retirement pensions or benefits.30

IV. Separately Concurring and Dissenting

Justice Pariente wrote a concurring opinion in which she emphasized that the court’s decision does not express an opinion as to the amendments’ wisdom or fairness, or even the necessity of the Legislature’s actions.31 Justice Pariente’s concurrence then went on to respond to Justice Lewis’ dissent.32 In their dissents, Justices Lewis and Perry claimed that the majority’s reading of the preservation of rights provision rendered the contract created by the provision “wholly illusory.”33 Both Justice Lewis and Justice Perry quoted large portions of the trial court’s analysis, stating that they agreed with the trial court, and furthermore, that they would overturn Florida Sheriffs as having been incorrectly decided.34 Justice Lewis in particular emphasized how the 2011 amendments changed the fundamental nature of the FRS and therefore violated the protection of rights provision.35 Justice Perry focused on the rights provision’s plain meaning and argued that the provision plainly gives state employees a contractual right to a noncontributory retirement system.36

V. Conclusion

Williams makes very plain the Florida Legislature’s authority to make prospective changes to its retirement system’s benefits, as Florida lawmakers gear up for more pension reform in the coming months. Indeed, only one week after Williams was decided, Governor Rick Scott and several legislators announced plans to implement further changes to the FRS that would include shifting new state employees to a 401(k)-style plan.37 Politicians and voters may of course disagree on whether this is good public policy, but proponents of Governor Scott’s pension amendments point to the $1 billion saved by the state and $600 million saved by local governments.38 Time will tell whether the Florida Legislature’s cost shifting measures will pay dividends in the long run towards the state’s financial health.

 

*Christine Pratt graduated from the University of Florida Levin College of Law in 2011 and practices law in Florida. While in law school, she was secretary of her law school’s chapter of the Federalist Society.

 

Endnotes

 

1 Scott v. Williams, No. SC12-520 (Fla. 2013), available at

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

2 Florida Supreme Court upholds law requiring state workers to contribute 3 percent of pay to state pension plan, The Miami Herald, Jan. 17, 2013, http://www.miamiherald.com/2013/01/17/3187217/florida-supreme-court-upholds.html.

3 Id. at 2.

4 Id. at 3.

5 Id. at 18.

6 Jef Feeley & Christine Jordan Sexton, Florida High Court to Weigh $1 Billion State Pension Case, Bloomberg, Sept. 7, 2012, available at http://www.bloomberg.com/news/2012-09-07/florida-high-court-to-weigh-1-billion-state-pension-case.html (last visited Mar. 6, 2013).

7 Scott v. Williams, No. SC12-520, slip op. at 3 (Fla. 2013); see also id. at 28–29 (Lewis, J., dissenting).

8 Id. at 37 (Lewis, J., dissenting) (quoting Fla. Dep’t of State, H.R. Comm. on Retirement, Personnel and Claims, Legislative Program Overview, June 24, 1974).

9 State ex rel. Holston v. City of Tampa, 159 So. 292, 293 (Fla. 1934).

10 Scott v. Williams, No. SC12-520, slip op. at 6 (Fla. 2013).

11 See Fla. Stat. §§ 121.011(3)(d) (1974), 121.011(3)(d) (2012).

12 Scott v. Williams, No. SC12-520, slip op. at 16 (Fla. 2013).

13 Order on Motions for Summary Judgment, Williams v. Scott, Case No. 2011 CA 1584 (Fl. Cir. Ct. Mar. 6, 2012), available at http://www.afscme1542.org/FRS_2nd_Circuit_Ct_Ruling_030612.pdf.

14 Id. at 6.

15 Id. at 7.

16 The trial court followed the United States Supreme Court’s analysis in U.S. Trust Co. of New York v. New Jersey, 431 U.S. 1 (1977).

17 Order on Motions for Summary Judgment, Williams v. Scott, Case No. 2011 CA 1584, slip op. at 7–8 (Fl. Cir. Ct. Mar. 6, 2012), available at http://www.afscme1542.org/FRS_2nd_Circuit_Ct_Ruling_030612.pdf.

18 Id. at 5–6.

19 Id. at 2.

20  Id. at 8–9.

21  Id. at 9–10.

22 Scott v. Williams, No. SC12-520, slip op. at 1 (Fla. 2013).

23 Id. at 1, 3.

24 Id. at 16.

25 Id.

26 Id. at 11–12.

27  Id. at 18–21.

28 Id. at 18–19.

29 Id. at 19.

30 Id. at 20.

31 Id. at 23 (Pariente, J., concurring).

32 Id. at 26–27.

33 Id. at 31 (Lewis, J., dissenting); id. at 44 (Perry, J., dissenting) (quoting the circuit court opinion).

34 Id. at 36 (Lewis, J., dissenting); id. at 43 (Perry, J., dissenting).

35 Id. at 32 (Lewis, J., dissenting).

36 Id. at 39–42 (Perry, J., dissenting).

37 Kathleen Haughney, Legislators Considering Pension System Overhaul, Sun Sentinel, Jan. 24, 2013, available at http://articles.sun-sentinel.com/2013-01-24/news/fl-major-pension-changes-considered-20130124_1_pension-system-new-employees-florida-retirement-system (last visited March 6, 2013).

38 Feeley & Sexton, supra note 5.

 

Florida Supreme Court Upholds Legislature’s Changes to State Pension System