Florida Takes a Proactive Stance on Pension Reform

In 2011, in part to balance the FY2012 budget as well as following years’ budgets, the Florida state legislature passed a law requiring state and local government employees to contribute 3% of their salaries to the pension system and eliminated COLA (cost of living adjustments) to benefit payouts for any employee retiring after the law went into effect. After initially being overturned by a lower court, these pension changes were upheld on appeal in the Florida state supreme court as legal and not impairing government employees collective bargaining rights. This is a major decision at the state level and will materially improve the state of Florida’s ability to maintain sound pension funding levels in the future. According to an article in the Bond Buyer, 51 lawsuits challenging pension reforms have been filed since 2009, and the most significant legal argument raised has been that reforms violate the contract clause of either the states’ constitution or the U.S. constitution. However, courts have come down on both sides of the matter, and according to the article, there is still no definitive legal precedent set. While we view the changes made in Florida as very positive and possibly trendsetting given the size of the state and it’s plan, there are still many public pension plans nationwide that are underfunded. We believe that this issue still warrants close monitoring as part of the ongoing credit analysis we conduct for our client portfolios.