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Florida Court Decision on Pension Reform Is Credit Positive: S&P

Standard & Poor's Ratings Services said Florida's (GO debt rating: AAA/Stable) Supreme Court decision yesterday in favor of the state's pension reform efforts is a positive credit factor.

While the decision is still subject to a rehearing motion, if final, the ruling should bring the state and participating governments long-term budget relief and enhance the retirement system's funding over time.

The reform reduced government contributions by shifting a portion of the contribution, equivalent to 3% of salary, to current and future employees, and eliminated cost of living adjustments for service provided after June 30, 2011.

The Supreme Court's decision overturned a March 6, 2012, decision by a Florida Circuit Court, which had ruled the legislation unconstitutional and had required employers participating in Florida Retirement System to reimburse, with interest, all funds deducted or withheld as a result of the legislation.

The ruling is expected to eliminate the risk that the state and local governments would have to make these retroactive payments.

The state had estimated that if the Circuit Court's decision had been upheld, it would have had to pay an estimated $530 million to reimburse employees for fiscal 2012 contributions and could also increase Florida's actuarial liability by an estimated $473 million for fiscal 2012 due to the reinstatement of the cost-of-living adjustment.

The Supreme Court order could become final on Jan. 25 unless there is a motion for a rehearing filed on or prior to that date.

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