Court Finds La. Pension Change Invalid

In the case of The Retired State Employees Association, et al. v. State of Louisiana, et al., the court agreed with the opinion of the Nineteenth Judicial District Court for the Parish of East Baton Rouge that a state law known as Act No. 483 was enacted in violation of the state’s constitution (see “Court Strikes Down La. Cash Balance Plan”). Act No. 483, which was signed into state law in June 2012, provided for the establishment of a cash balance retirement plan for certain members of the Louisiana State Employees’ Retirement System, the Teachers’ Retirement System of Louisiana and the Louisiana School Employees’ Retirement System hired on or after July 1, 2013.

The plaintiffs allege that the law violates Article X, Section 29(F) of the Louisiana State Constitution because “benefit provisions for members of any public retirement system, plan or fund that is subject to legislative authority shall be altered only legislative enactment. No such benefit provisions having an actuarial cost shall be enacted unless approved by two-thirds of the elected members of each house of the legislature.”

In May 2012, the Louisiana Speaker of the House ruled that a majority vote was sufficient to pass the bill (H.B. 61) into law (Act No. 483) rather than using the prescribed two-thirds “super” majority. The Speaker argued the bill established a new retirement plan for future employees and did not affect the existing benefits of current members of any retirement plan, that two-thirds provision did not apply.

When questioned about this decision during the legislative process, it was revealed that legislative auditor’s actuarial note concluded that the cash balance plan as set forth in the bill would be somewhat more costly to the state than the current defined benefit plan. Because the bill, as then configured, allowed certain current members of the retirement system to opt out into the new, more costly plan, the argument was made that the bill also affected current members’ benefit and that therefore the two-thirds vote provision did indeed apply. However, a vote by the Louisiana House of Representatives dismissed this argument and confirmed that the original ruling by the Speaker was correct.

Upon the enactment of Act No. 483 into law, the Retired State Employees' Association filed suit against the state, citing the official actuarial note prepared by the legislative auditor clearly showed that the new law would have an actuarial cost. That being the case, the two-thirds vote provision should have applied and therefore the law violated the state's constitution.

In January 2013, the district court ruled that the law was indeed passed in violation of the constitutional requirements of the state, believing that "the Speaker probably missed the boat as to the application of this to the proposed legislation. There is no question…that House Bill 61, which became Act No. 483, did not pass by a majority of either house." As such, the district court ruled that the plaintiffs were correct and that the law should be rescinded.

The more recent ruling by the Supreme Court of Louisiana focused on "whether the procedure for enacting that legislation complied with the protective mandates of our state constitution" in three ways. First, with regard to whether the plaintiffs had standing to file the lawsuit, the court ruled that the district court ruling had been correct and the plaintiffs did indeed have standing under a number of precedents including Stewart v. Stanley and Ralph v. City of New Orleans. Second, in terms of applying Article X, Section 29(F) of the state constitution to the law in its bill stage, the court again reaffirmed the previous district court ruling that this standard did apply since "any benefit provision in a state retirement system having an actuarial cost must be enacted by a two-thirds vote of the legislature." Third, concerning the argument by the defendants that the legislative auditor is not the legislature's sole financial adviser, while the court agreed that the legislature is "not precluded from seeking advice and counsel from financial advisors other than the legislative auditor…unless and until the statutorily imposed duty of the legislative auditor to prepare the actuarial note is altered, the note prepared under his direction is determinative of the facts it contains" with regard to the two-thirds vote provision.

A copy of the opinion by the Supreme Court of Louisiana can be found here.