BRADENTON, Fla. — A ruling by the Florida Supreme Court upholding the state’s pension reform measures is a positive credit factor, Standard & Poor’s said Friday.
Thursday’s ruling overturned a lower court opinion that said the Legislature’s July 2011 plan requiring employees participating in the state retirement system to contribute 3% of their salaries toward pensions was unconstitutional because it impaired the contractual rights of the employees. The lower court also tossed out cost-of-living adjustments for those receiving pensions.
The court’s majority ruling, approved by a vote of 4-to-3, recognized the authority of the Legislature to amend the retirement plan prospectively, as long as benefits tied to service performed prior to the amendment date are not lost or impaired.
“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,” S&P analyst John Sugden said.
The ruling is expected to eliminate the risk that state and local governments would have to make retroactive payments if the lower court ruling had been upheld, Sugden said. It also shifts the state’s pension plan from a non-contributory plan to a contributory plan for 623,000 state workers.
No provision was made in Florida’s fiscal 2013 budget for employee reimbursements if the high court ruled against the state, says a notice about the pending litigation in official statements for state bond offerings. The state estimated it would have been required to pay an estimated $530 million to reimburse employees for fiscal 2012 contributions, and that the state’s actuarial liability could have increased by $473 million due to the reinstatement of the COLA.
“The changes made to the Florida Retirement System reflect the Legislature’s efforts to maintain a sound retirement system for our hard-working state and local government employees as well as the reality that Florida taxpayers can no longer bear the full cost of this benefit,” said a statement released by Senate President Don Gaetz, R-Niceville. If appellants of the state’s pension reform law do not seek a rehearing, the Supreme Court order could become final on Jan. 25, according to S&P.
Florida has implied general obligation bond ratings of AAA from both Fitch Ratings and S&P, and Aa1 from Moody’s Investors Service. Fitch has a negative outlook on its rating while Moody’s and S&P have stable outlooks. At least 51 lawsuits challenging pension reform were filed or the subject of a court decision in 24 states between 2009 and January 2013, according to a pension litigation study funded by the Laura and John Arnold Foundation.
The most significant legal claim raised against pension reform legislation is that it violates the contract clause of a state’s constitution or the United States constitution, the study said.
“Courts have expressed a wide range of views on pension reform issues, at times arriving at diametrically opposite conclusions,” said the foundation study. “To date, there is little to no definitive guidance or uniformity of interpretation on these matters, either at a state or federal level.”