Louisiana Municipal Association v. State

• Decision Date: 19 January 2005
• Docket Number: No. 2004-CA-0227.,2004-CA-0227.
• Citation: Louisiana Municipal Ass'n v. State, 893 So.2d 809 (La. 2005)
• Parties: LOUISIANA MUNICIPAL ASSOCIATION, the Parish of Jefferson, Louisiana, et al. v. The STATE of Louisiana and the Firefighters' Retirement System.
• Court: Louisiana Supreme Court

893 So.2d 809

LOUISIANA MUNICIPAL ASSOCIATION, the Parish of Jefferson, Louisiana, et al. v. The STATE of Louisiana and the Firefighters' Retirement System.

No. 2004-CA-0227.

Supreme Court of Louisiana.

January 19, 2005.

Rehearing Denied February 25, 2005.

Charles C. Foti, Jr., Attorney General, Tina Vicari Grant, Roy Achille Mongrue, Jr., Assistant Attorneys General, Steven Scott Stockstill, Baton Rouge, Counsel for Applicant.

Kean, Miller, Hawthorne, D'Armond, McCowan & Jarman, L.L.P., Charles S. McCowan, Jr., Charles Leonard Patin, Jr., Shannan Sweeney Rieger, Baton Rouge, Simoneaux, Carleton, Dunlap & Olinde, LLC, Henry Dupont Heck Olinde, Jr., Barbara Irwin Messina, Baton Rouge, Jay Jones Harris, Counsel for Respondent.

TRAYLOR, Justice.¹

The issue in this case is whether the statutory funding structure of the Firefighters' Retirement System ("FRS") violates the requirements of the Louisiana Constitution. Plaintiffs² are local government employers whose firefighter employees are members of the FRS. Plaintiffs filed suit against the State of Louisiana ("State") and the FRS seeking: (1) a declaration that the employers' contribution rate to the retirement system was statutorily fixed at 9% and (2) an injunction preventing the State and the FRS from obtaining or demanding from the employers more than 9% as the rate of their contribution to the retirement system.

This case is before the court as a direct appeal, pursuant to La. Const. art. 5, § 5(D), based on the fact that the district court declared La. R.S. 11:103 and La. R.S. 11:104 unconstitutional as applied to the FRS in its judgment, along with several legislative acts which have effected changes in the statutory funding structure of the FRS.³ The district court's judgment also permanently enjoined the FRS from collecting more than a contribution rate of 9% from an employer whose employees are members of the FRS. After a thorough review of the record, and the statutory and constitutional provisions at issue, we affirm in part, reverse in part and order that the permanent injunction issued against the FRS be lifted.

HISTORICAL BACKGROUND

Before the legal analysis of the various acts and constitutional provisions of this complex subject matter is presented, it is necessary to provide a history of the creation of the FRS, the state's response to a subsequent fiscal crisis, and the effect of certain statutory amendments affecting the FRS, in order to understand the legal analysis in context.

Creation of the FRS

The FRS was created by the legislature pursuant to Acts 1979, No. 434, § 1, consisting of La. R.S. 33:2151 through La. R.S. 33:2165, effective January 1, 1980. The FRS was established to provide retirement allowances and other benefits to firefighters employed by any municipality, parish or fire protection district in the state.⁴

The FRS is administered through a board of trustees whose members are designated by the legislature.⁵ The board members are authorized by the legislature to designate an actuary who serves as the technical advisor to the board of trustees regarding the operation of the FRS.⁶ The legislature placed the FRS and its board of trustees in the Department of the Treasury.⁷

The FRS is a defined benefit plan.⁸ In other words, the benefits to which an employee is entitled upon retirement are defined, in this case by statute, and the participant can depend upon that value upon retirement.⁹ The FRS is not a defined contribution plan. In a defined contribution plan, the contributing parties, typically the employer and employee, contribute fixed amounts to the plan, and at the time of retirement, the participant in the plan receives the accumulated balance in the account.¹⁰

The FRS has three main sources of funding: (1) employee contributions, (2) employer contributions and (3) dedicated tax revenues from the state.¹¹ These FRS assets are credited to one of five sub-funds which comprise the retirement system.¹² Only two of the five sub-funds are important to this analysis.¹³

Employee Contributions

The legislature provided that the employees' contributions are to be accumulated in the Annuity savings fund.¹⁴ For all but a brief period since its inception, the FRS rate of contribution for employees has been statutorily set at 8% of salary excluding overtime.¹⁵ These contributions are accumulated by the firefighters' employers through payroll deductions and provided to the FRS.¹⁶

Employer Contributions

The legislature provided that the firefighters' employers' contributions are to be accumulated in the Pension accumulation fund.¹⁷ As originally conceived, employers were to pay into this sub-fund the amount of 9% of payroll, excluding overtime but including state supplemental pay, and to remit this amount monthly to the FRS. In addition, employers were also responsible for contributing to the FRS an amount known as the "normal contribution rate," which was to be determined by the actuary after calculation of the liabilities of the system, mortality rates, interest and other variables.¹⁸

Dedicated Tax Revenues

The legislature provided the third main source of funding for the FRS by dedicating to the FRS tax revenues collected through assessments against insurers conducting business in the state. Prior to the creation of the FRS, the legislature created the Louisiana Insurance Rating Commission ("Commission") in La. R.S. 22:1401 et seq. Section 2 of Acts 1979, No. 434 amended La. R.S. 22:1419 to provide for a specific dedication of tax revenue for the benefit of the FRS derived from assessments against insurers conducting business in the state which were collected in the Insurance Premium Tax Fund ("IPTF").¹⁹ The legislature dedicated to the FRS funds from the IPTF calculated as "an amount equal to two-tenths of one percent of the gross direct premiums received in this state, in the preceding year, by insurers doing business in this state and subject to this Part, less returned premiums...."²⁰ In the same legislation, the legislature dedicated four-tenths of one percent of the IPTF to the Municipal Police Employees' Retirement System and one-tenth of one percent of the IPTF to the Sheriffs' Pension and Relief Fund.²¹

IPTF funds are placed into the Pension accumulation sub-fund of the FRS.²² Thus, the gross or total "employers' contribution" in the Pension accumulation sub-fund is made up of the contribution directly obtained from the employers and the dedicated tax revenue from the IPTF.

State Guarantee

In addition to providing for the structure and funding of the FRS, Acts 1979, No. 434 provided that the state would guarantee the payment of retirement benefits to members of the FRS. La. R.S. 33:2165 (1980) provided: "[t]he state of Louisiana hereby guarantees benefits payable to a member of this system or a retiree or to his lawful beneficiary upon his death."

The State Fiscal Crisis

Constitutional Changes

In the late 1980's, Louisiana faced a cash flow crisis brought on, in part, by the worldwide collapse of oil prices and an inability of the state to borrow funds. See Strickland v. State Through Off. Of Gov., 534 So.2d 956 (La.1988). In order to ensure the financial soundness of the state and statewide public retirement systems, the legislature proposed amending the state's constitution regarding retirement and retirement benefits.

Pursuant to Acts 1987, No. 947, § 2, the proposal to add paragraph (E) to La. Const. art. 10, § 29 was submitted to the electors of the State of Louisiana and was ratified by them on November 21, 1987. See La. Const. art. 10, § 29, "Historical Notes." This section of the state constitution became effective on December 24, 1987. Id.

La. Const. art. 10, § 29(E)(1) requires that the state and statewide retirement systems²³ attain and maintain actuarial soundness and that the legislature establish the particular method of actuarial valuation to be employed by each state and statewide retirement system for doing so. Subsection (E)(2) provides constitutional requirements for public retirement systems whose benefits are guaranteed by the state.²⁴ Subsection (E)(3) requires that, for all statewide public retirement systems whose benefits are not guaranteed by the state, the legislature must determine all required contributions to be made by members, employers and dedicated taxes for the sound actuarial maintenance of the systems. In addition, this subpart requires the elimination of unfunded accrued liability in these retirement systems by the year 2029, commencing with Fiscal Year 1989-1990. Subsection (E)(4) prohibits the state and the governing authorities of the state and statewide public retirement systems from taking any action that would cause the actuarial present value of expected future expenditures of the retirement system to exceed or further exceed the sum of the current actuarial value of assets and the actuarial present value of expected future contributions to the retirement system, except with respect to normal business operating expenses, capital outlay expenditures, management of investments, and cost of living increases as provided by law. Subsection (E)(5) mandates that all funds of the state and statewide public retirement systems are used for the purposes of the retirement systems and cannot be encumbered or diverted to any other purpose. This subpart prohibits the diminishment or impairment of the accrued benefits of the members of the state and statewide public retirement systems and provides that future benefit provisions shall only be altered by legislative enactment.²⁵

At the time that Section (E) became effective, the FRS was a state guaranteed retirement system pursuant to La. R.S. 33:2165 (1980).

Statutory Changes: Acts 1988, No. 81

Title 11: Chapter 1

In the year following the adoption of La. Const. art. 10, § 29(E), the legislature enacted Title 11, to be comprised of La. R.S. 11:1 through La. R.S. 11:127, and known as the "Louisiana Public ...