Florida Supreme Court Allows Retirement Reductions That Impact Current Employees

In 2011, the Florida Legislature changed the Florida Retirement System in two substantial ways. The System had been non-contributory for members, with employers paying the entire retirement contribution. The Legislature required all current members to contribute 3% of their salaries to the retirement system. The second change enacted by the Legislature was to eliminate a 3.0% cost of living adjustment for retirees.

Both changes applied only to service after the effective date of the amendments. For example, if an employee was eligible to retire with 20 years of service, and if the changes to the System occurred during the employee’s seventeenth year of service, the employee would be entitled to the COLA adjustment on the portion of the pension received for the first seventeen years of service, but not on the portion of the pension earned for the rest of the employee’s career.

Groups of law enforcement officers, firefighters, teachers, and other employees challenged the amendments on constitutional grounds. The employees argued that the amendments violated a provision in the Florida Constitution (similar to a clause in the United States Constitution) that prohibits laws “impairing the obligation of contracts.” In January 2013, the Florida Supreme Court rejected the challenge and allowed the law to go into effect.

The Court found that so long as a change in the pension system only impacted “future service,” it did not impair the contractual rights of employees. As the Court analyzed it, “to hold otherwise would mean that no future legislature could in any way alter future benefits of active employees for future services, except in a manner favorable to the employee. 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impose on the state the permanent responsibility for maintaining a retirement plan which could never be amended or repealed irrespective of the fiscal condition of this state. Such a decision could lead to fiscal irresponsibility. It would also impose on state employees an inflexible plan which would prohibit the legislature from modifying the plan in a way that would be beneficial to a majority of employees, but would not be beneficial to a minority.

“We hold that the preservation of rights statute was not intended to bind future legislatures from prospectively altering benefits for future service performed by all members of the System. We further hold that the 2011 amendments requiring a 3% employee contribution as of July 1, 2011, and continuing thereafter, and the elimination of the COLA for service performed after that date are prospective changes within the authority of the Legislature to make. The preservation of rights statute does not create binding contract rights for existing employees to future retirement benefits based upon the System’s plan that was in place prior to July 1, 2011.”

Scott v. Williams, 2013 WL 173955 (Fla. 2013).