DALLAS — The Arizona Supreme Court
The ruling Thursday upholds a lower court's finding that state lawmakers' changes to the pension system in 2011 under Senate Bill 1609 violated the constitution. The decision is expected to hit the state hard as it wrestles with new restraints on revenues.
Under S.B. 1609, the formula for retirees' cost of living adjustments was adjusted, resulting in a reduction.
A voter-approved section of the state constitution makes public pension plans a contractual relationship that says benefits "shall not be diminished or impaired," the court noted.
Although the case has a narrow application to retired judges and elected officials, observers of efforts to reduce pension costs for state and local governments took notice.
Arizona, Illinois and New York are the only three states with constitutionally mandated protections for state pensions.
Ralph Martire, executive director of the Center for Tax and Budget Accountability called the ruling "predictable."
"All the Arizona Supreme Court did is read the plain language and said there's no need for legal construction here: The language is plain on its face," Martire told Crain's Chicago Business Journal. "Hence, it's unconstitutional."
Judges are covered by pensions under the Elected Officials Retirement Plan, with cost of living increases determined by investment results rather than the typical inflation rate.
Due to lower returns, EORP's ratio of assets to liabilities began to decline in 2000. However, fund managers still provided a 4% benefit increase each year.
Under the 2011 law, the new formula for calculating benefits resulted in just a 2.47% benefit increase and no increases in 2012 and 2013. The law contains other measures that could constrain future benefit increases to less than 4%.
The law prompted a lawsuit from retired judges.
State Supreme Court Justice Robert Brutinel rejected the state's arguments that the constitutional provision protecting "benefits" shields only the actual amount they were receiving, not any increase, noting that a state law enacted even before the voter-approved constitutional amendment said that retirees are "entitled" to receive benefit increases.
Brutinel acknowledged that he and the other four are members of EORP and will be entitled to pensions when they retire. But he wrote that none of those involved in the case asked any of them to recuse themselves from hearing the case.
