Benefits

Arizona Court Bars Pension Cuts for Judges

By Kevin McGuinness editors@plansponsor.com | February 21, 2014

February 21, 2014 (PLANSPONSOR.com) – The Arizona Supreme Court affirmed a lower court’s ruling that state pension changes called for by a 2011 state law violate the state’s constitution.

The court upheld a March 2013 decision by the Maricopa County Superior Court (see “Judges Win Partial Victory Against Arizona Pension Reform”) that Arizona lawmakers acted illegally when they passed legislation in 2011 requiring most sitting judges in the state to pay more into their retirement system, the Elected Officials Retirement Plan (EORP). The higher court also rejected the state's argument that reducing pensioners annual cost-of-living adjustments does not violate the state's constitution, saying the term "benefits" includes the promise of future benefit increases using a specified formula.

In the case of Hon. Fields v. Elected Officials Retirement Plan, the Arizona Supreme Court wrote that previously established standards, specifically Arizona Revised Statutes Section 38-818, set up “a formula for calculating pension benefit increases for retired members of the EORP. In 2011, the legislature modified that formula. Because that [2011] statute diminishes and impairs the retired members’ benefits, we hold that it violates the Pension Clause of Article 29, Section 1(C) of the Arizona Constitution.” The court points to the language of this section, which says, “Membership in a public retirement system is a contractual relationship…and public retirement system benefits shall not be diminished or impaired.”

In 2011, the law known as S.B. 1609 prohibited the transfer of any investment earnings that exceeded the 9% rate of the plan’s reserve fund. As a result, says the court, retired plan members received a 2.47%, rather than 4%, increase in mid-2011, and no increases for 2012 and 2013. The Hon. Fields lawsuit was filed in September 2011 by those affected by S.B. 1609. The suit states that these changes to the plan impaired contract obligations, namely that the formula for determining the plan benefits was a contractual agreement made between the state and the retired participants of the plan.

The court also points to the case of Yeazell v. Copins, which says, “An employee [is] entitled to have his retirement benefits calculated based upon the formula existing when he began employment, rather than a less-favorable formula subsequently adopted during his employment.”

While the state and the plan argued that the retired judges “do not have a vested right in the formula because it is contingent on future events,” the court again points to Yeazell, citing, “the right to a pension becomes vested upon acceptance of employment.”

The recent ruling also notes that, “The justices of this court are not members of the class of retired judges who are appellees in this case.”

The full text of the recent court decision can be downloaded here.