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