Judge Casts Serious Doubt on 3% Pension Contribution by Public Employees
FlaglerLive | October 27, 2011
A judge tasked with deciding the fate of an overhaul of the state’s pension plan voiced extreme skepticism about the plan Wednesday, endangering one of the key accomplishments of the last legislative session and threatening to blow a nearly billion-dollar hole in the current budget. Local governments’ budgets would also be affected, because they’ve all recalculated their revenue based on the decreased amount of dollars they must set aside for employee pensions.
In one particularly pointed exchange, Circuit Court Judge Jackie Fulford forcefully pressed a lawyer for the state on how the changes to the pension plan, including a requirement that employees contribute 3 percent of their pay to their retirement and the elimination of cost-of-living adjustments for any work after June 30, 2011, would affect one of the state employees suing over the revamp.
“He’s paying more, getting less and in fact, the COLA does change. … It’s like you’re punishing him for continuing to work,” said Fulford, who took the rare step of leaving the bench to point to a display on the wall while making her points.
The legal questions about the changes to the pension plan revolve around whether the changes to the program break a portion of the law declaring the system a contractual obligation between the state and its employees.
The employees and unions suing the state contend that the changes go too far. Attorneys defending the plan say it falls within the bounds of a 1981 Florida Supreme Court decision allowing the Legislature to alter pensions as long as it only does so with benefits earned after the law takes effect.
“It happens only in the future,” said David Godofsky. “It affects only the benefits earned in the future.”
But Ron Meyer, a lawyer for the Florida Education Association, argued that asking employees to contribute some of their income “went to the very heart and structure of the pension plan.” And the complicated formula for figuring out the cost-of-living adjustments essentially lowers the COLA percentage for current employees.
Meyer said the Legislature would have been within its rights to make those changes for new employees alone.
“But the state got greedy,” he told Fulford. “The state wanted more money.”
Under the plan approved by the Legislature earlier this year, cost-of-living increases will not apply to wages earned after June 30 — leaving those employees who worked for the state before then with a split set of benefits. The 3 percent COLA remains in effect for benefits earned before that date, but doesn’t apply for those earned after the cutoff.
The state will calculate the COLA for those employees by reducing the 3 percent threshold based on how long after June 30 an employee works. That effectively lowers the COLA for those employees, breaking the state’s agreement, Meyer and an expert witness for the plaintiffs argued.
The state and its expert countered that the annual COLA dollar amount employees receive will be the same as if they retired today; it simply won’t increase as much as it would if the COLA were applied to benefits earned in the future.
“The net effect is zero on the COLA,” said Paul Zeisler, an actuary who served as the state’s expert.
Fulford sounded skeptical. “The benefit from the COLA goes down period, right?” she pressed Zeisler, who denied that would be the effect.
She also questioned the notion that asking employees to contribute to the plan for the first time in more than 35 years could be compared to the changes in the calculation of benefits the Supreme Court was weighing in the earlier case.
“But you’re not changing their benefits,” she said. “You’re saying, ‘Give me money for it.’”
If Fulford were to strike down the changes challenged by the plaintiffs, it could upend a key provision of the state’s drive to slice hundreds of millions of dollars from the budget in a tough economic climate. Documents used by state negotiators in the last legislative session showed they planned to save more than $860 million from the employee contribution and the elimination of COLA, much of that from current state employees.
Meyer said after the hearing that lawmakers should dip into reserves if they have to find the money, though the sluggish economy has already eaten into those reserves and caused state forecasters to predict another shortfall in the fiscal year that begins July 1.
“The Legislature has demonstrated a willingness to be very creative in hurting the workers who are employed by the state of Florida,” Meyer said.
–Brandon Larrabee, News Service of Florida