PHOENIX (AP) - The Arizona Supreme Court on Thursday ruled that it was unconstitutional for the Legislature to change the amount active judges have to pay into their state pension plans and the yearly increases they receive upon retirement.
The ruling could immediately cost state retirement plans for judges and law enforcement officers about $220 million in refunds while increasing the unfunded liabilities of the plans by $1.3 billion.
The court also said the state itself is on the hook for the cost of reinstating those benefits for active judges in the retirement plan when the law was passed, and it awarded back interest and attorney fees.
The court ruled that the 2011 law making the changes violates the state Constitution’s ban on diminishing promised pensions and a provision protecting contracts.
The ruling is the second from the state’s highest court in recent years saying that pensions granted to state employees can’t be changed after an employee begins working. A 2014 decision overturned changes to current judicial retirees’ promised cost of living increases on the same Constitutional grounds.
Both rulings come in lawsuits against the Elected Officials’ Retirement Plan that provides pensions to state legislators, elected officials at the state and county level, and some city officials as well as most judges. But their precedents apply to three other retirement plans, for police and firefighters, corrections officers and regular state employees.
Pension plan spokesman Christian Palmer said about 26,000 public safety plan contributors are affected, as are about 1,200 judges and elected officials. A spokesman for the main state retirement plan, the Arizona State Retirement System, said that plan operates under separate laws and isn’t directly affected by the ruling.
The law was passed as part of a Legislative effort to stabilize the underfunded pension plan. Judges who took office before the 2011 law took effect sued, saying the pensions were a constitutionally protected promise and that the Legislature can’t change provisions for current employees. That group includes most state court judges and four of the five current Supreme Court justices.
Those four justices stepped aside from the case, and Justice Clint Bolick and four lower court judges who aren’t covered by the changes issued the decision.
The Legislature eliminated pensions for newly appointed judges and new elected officials in 2013 because their pension plan was so badly underfunded, replacing it with a 401(k)-style plan. Voters approved an overhaul of the state’s public safety pension program earlier this year to cut unfunded liabilities.
Court of Appeals Justice Randall M. Howe wrote the opinion that held the increase in the judges’ required contributions to the pensions violated the terms of the employment contract they accepted when they were hired. He also wrote that the changes to yearly cost-of-living increases violated the Constitution.
Bolick and another judge dissented, writing that by freezing employee contribution rates in perpetuity, the court jeopardizes the retirement plan’s financial integrity. That imposes “an enormous uncontemplated burden on taxpayers” and prevents the state from having to shoulder part of the increased burden of their retirement benefits. They agreed on the cost of living increase portion.
Voters approved an overhaul of the state’s public safety pension program earlier this year to cut unfunded liabilities.
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