Opinion ID: 1803409
Heading Depth: 1
Heading Rank: 29

Heading: Funding of FRS

Text: The plaintiffs' second and third constitutional challenges concern amendments to the funding structure of the FRS which plaintiffs claim violate the constitutional mandate in La. Const. art. 10, ง 29(E)(5) that [t]he accrued benefits of members of any state or statewide public retirement system shall not be diminished or impaired. Act 645 of 1991 repealed the state guarantee of benefits in favor of members of the FRS set forth in former La. R.S. 33:2165 and re-designated as La. R.S. 11:2269. Plaintiffs argue that the state guarantee of benefits was an accrued benefit of the statewide retirement system when Section 29(E) was adopted. Thus, they claim that repealing the state guarantee of benefits impairs the accrued benefits of the members, in violation of the state constitution, because the system can no longer require the state to pay the shortfall amounts calculated on an annual basis. Act 397 of 1997 and ง 2 of Act 1160 of 2001 changed the amount of IPTF funds available and the priority of how those IPTF funds are paid out to the FRS and to two other public retirement systems. The plaintiffs argue that the former funding structure prior to amendment was an accrued benefit to the system and that the amendments to the funding structure impairs the accrued benefits of the members, in violation of the state constitution, in that there are less funds from which the annual shortfall amount may be paid. The plaintiffs, and the district court in its judgment, have confused the accrued benefits of its members with the benefit to the employers which existed in the former funding structure of the FRS. [114] The funding of the system and the payment of benefits to the members of the system are not synonymous. A change in the funding structure does not mean a change in accrued benefits; the only thing changed is how the accrued benefits will be funded. The fact that a statewide public retirement system is not guaranteed by the state means that shortfalls in the annual calculation of actuarially required contributions are not paid directly each year by the state treasurer from the state general fund. The legislature still has the ultimate obligation under the constitution to ensure that the system is actuarially sound, and that accrued benefits are paid. The legislature can do so by devising another method of funding the system or by devising another method to deal with the shortfall amount between the actuarially required employer contribution and the employer contributions actually received, such as providing a formula where these shortfalls are amortized over time. [115] Under the former funding structure, the plaintiffs benefitted when the system's shortfall amount was paid by the state general fund or when the contributions of employers at 9% and the funds in the IPTF were sufficient to balance the actuarial formula. The legislative acts at issue affected the funding structure, i.e. by whom the accrued benefits would be paid, and not the accrued benefits themselves. As previously stated, the legislative power of the state is vested in the legislature. La. Const. art. 10, ง 3. In its exercise of the entire legislative power of the state, the legislature may enact any legislation that the state constitution does not prohibit. Louisiana Pub. Facilities Autho., XXXX-XXXX p. 14, 795 So.2d at 298. The Louisiana Constitution mandates in Section 29(E) that the legislature must attain and maintain actuarial soundness of the state and statewide public retirement systems. The Louisiana Constitution does not dictate how that actuarial soundness is to be accomplished, nor does it prescribe how the state and statewide public retirement systems are to be funded. The mechanism by which actuarial soundness is achieved is left to the discretion of the legislature. Moreover, the funding system provided by the legislature for statewide public retirement systems whose benefits are not guaranteed by the state is working as it was designed to with regard to the FRS. The FRS is a defined benefit plan. A defined benefit plan is one where the employee, upon retirement, is entitled to a fixed payment, in this case as provided by statute. In this type of plan, typically, the employer bears the risk of any under-funding as a result of a shortfall which may occur from the system's investments. [116] La. R.S. 11:103 is conducive to a defined benefit plan. The formula established therein provides for the employer to bear the risk of a shortfall that may occur from the system's investments. That risk is assumed by the ability to float the employer rate, which helps the system maintain actuarial soundness. [117] Ultimately, the accrued benefits of the system's members will not be diminished or impaired as long as the funding structure is actuarially sound. It is within the legislature's discretion to determine how that funding structure is to be configured and who is required to contribute into the system. [118] If the plaintiffs' argument were true, there would be no public retirement systems whose benefits were not guaranteed by the state, the legislature would not have the authority to determine how public retirement systems should be funded from the public fisc nor would the legislature be able to change a funding structure once implemented. The converse of all of these situations is true. There are nine public retirement systems whose benefits are not guaranteed by the state. The legislature retains complete authority for determining how the branches and departments of government shall be funded from the public fisc. Louisiana Pub. Facilities Auth., XXXX-XXXX p. 18, 795 So.2d at 301. The legislature has the discretion to change the funding structure of a public retirement system, provided that the constitutional requirements are met. Indeed, the constitution contemplates the legislature's use of its authority to make changes even to the future benefit provisions of public retirement systems, as long as these amendments are properly made through legislation. [119] Based on the foregoing analysis, the district court's judgment, which found Acts 397 and 645 of 1991, and ง 2 of Act 1160 of 2001 to be in violation of La. Const. art. 10, ง 29(E)(5), is reversed. [120]