Florida Supreme Court Upholds Law Requiring Pension Contributions

Florida Supreme Court Upholds Law Requiring Pension Contributions
February 4, 2013

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)

Florida’s public school teachers, state and county workers, and some municipal employees must send 3 percent of their pay to the state’s pension plan, according to a 4-3 ruling of the Florida Supreme Court.

The court’s January ruling upheld a law that had been championed by Gov. Rick Scott (R).

The 4-3 decision reversed a trial judge's ruling that the law violated the collective bargaining, contract, and property rights of more than 600,000 state and local government employees. The law went into effect on July 1, 2011. In addition to requiring the 3 percent pension contribution, the law also repealed a 3 percent annual cost of living increase for benefits accrued after that date.

The ruling was a victory for Scott and the Republican-controlled legislature and a defeat for government employee unions. The Florida Education Association led the challenge to the law.

‘A Promise Is a Promise’

"The court's ruling today supports our efforts to lower the cost of living for Florida families," Scott said in a statement. "This means even more businesses will locate and grow in our state."

"Balancing the state budget on the backs of middle-class working families is the wrong approach," teachers union president Andy Ford said in a statement. "We still believe that a promise is a promise. We are more determined than ever to change the face of the Florida legislature. The next elections in 2014 can turn this decision around."

J. Robert McClure, president and CEO of the Florida-based James Madison Institute, said the ruling is “good news” for the state’s taxpayers but more must be done.

“While the state’s pension system is in relatively good shape, many of Florida’s major cities have their own plans apart from the state retirement system, and many of those cities face daunting problems,” he said. “Therefore, the legislature now needs to follow up this ruling by taking two important steps.”

Calls for More Steps

The first step, McClure said, is to put all new hires in a 401k-style plan. Such plans, known as defined contribution plans, do not guarantee a set benefit at retirement. Instead, the employer and employee contribute to the plan, with investment decisions made by employees. The amount of retirement benefit depends on how much money is contributed and how well the investments perform.

McClure said the second step should be to “alter the 1999 law that limits how local officials may use the revenue from the insurance premium tax.” That could help cities restore budgets cut because of the economic downturn, he said.

“Unless we take prudent steps now, future public pensions could meet the fate of those in a growing list of cities where government retirees ruefully discovered that their municipalities could no longer afford to keep pension promises,” he said.

In Other Words . . .

“One of the priorities for Florida House Speaker Will Weatherford and Senate President Don Gaetz this spring? Pension reform.

“That once-sacred promise to workers is on the chopping block. The two Republican leaders want to enroll all state workers hired after Jan. 1, 2014, in 401(k)-style investment plans.

“It’s a move bound to anger government employees, especially on the heels of last month’s Florida Supreme Court ruling requiring that state workers start contributing to their own retirement.

“It’s also the only responsible path to follow. As Florida continues to dig out of the worst economic period since the Depression, lawmakers have to look for any way they can to cut costs. And that includes pensions.

“No doubt this will be quite a battle, reaching far beyond the halls of government in Tallahassee. The Florida Retirement System covered about 623,000 people in 2012, but only about a quarter of them worked at state agencies or state-run universities or colleges. Almost half come from school districts, about 23 percent work for counties and the rest work for municipalities or special taxing districts. Miami-Dade and Broward counties are part of the FRS. . . .

“Both say the time to make the change—and it is a major one—is now, before there’s a crisis and taxpayers have to pick up the tab to pay for the retirement of thousands of workers.”

—Miami Herald editorial, February 3, 2012

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)