Justices on the Arizona Supreme Court on June 4 wanted a clear definition of a benefit to help them decide whether the Legislature’s 2011 cut in annual cost-of living-increases for state retirees is constitutional.
Justice John Pelander said in the oral arguments in Fields v. Elected Officials Retirement Plan the case hinges on the meaning of the word benefit, which isn’t defined in the constitutional provision or statutes relevant to the case.
The court wanted to know because it has to decide whether a Superior Court judge was correct in holding that the formula in statute for calculating future benefit increases is a constitutionally protected “benefit.”
Attorney Thomas Hudson, representing retired judges Kenneth Fields and Jefferson Lankford, told the court to follow the common usage and ordinary language.
“Retirement benefits are the entitlements that a retiree was promised he’d be paid in retirement,” Hudson said. “And when you look at dictionary definitions it talks about payments under a pension or annuity, which necessarily includes the method by which those payments are going to be calculated.”
Charles Grube, an assistant attorney general representing the state, said a benefit under a public pension system is the right to a fixed sum of money to an identified person. Grube said the state Constitution gives the Legislature the power to determine how the money is distributed to retirees, which allows lawmakers to change the formula.
“This case presents the question of whether the Arizona Constitution forbids the Legislature to take reasonable steps to cure a flaw in the funding of the Elected Officials Retirement Plan,” Grube said, in an opening statement before getting peppered with questions from the five justices.
The Elected Officials Retirement Plan, or EORP, which includes retired judges and retired elected officials, operated under a formula devised in 1998 that provided for retirees to receive 4-percent cost-of-living increases even when the pension lost money.
The Legislature passed SB1609, which among other changes to the state’s pension systems, included a less-generous formula for cost-of- living increases. The Legislature passed the bill on the grounds that Arizona’s state retirement systems are significantly underfunded and unsustainable.
EORP is currently $254 million underfunded and the employer contribution rate has increased from 8.94 percent in 2001 to 33 percent in 2012.
Fields and Lankford filed suit alleging that the changes to the plan’s formula for cost-of-living increases were unconstitutional.
Maricopa County Superior Court Judge John Buttrick ruled in favor of Fields and Lankford on May 12, 2012, finding that SB1609 violates the Arizona constitutional provision that states “. . . public retirement benefits shall not be diminished or impaired.”
Grube said the purpose of the language was to protect the pensions from sweeps by the Legislature.
He said the effect of Buttrick’s ruling is the flaw the Legislature was trying to fix with SB1609 will become a permanent part of the plan.
Hudson said the Legislature crossed a bright constitutional line by passing the changes. He said the constitutional language clearly ties the court’s hands.