Uh, Oh – Could Jindal’s Pension Reform Package Be Unconstitutional?

It appears a report commissioned by the state’s Legislative Auditor says so.

Daryl Purpera commissioned the report by an outside counsel, law firm Strasburger and Price of Dallas, in an effort to properly assess the cost of the pension reform package. We wanted an independent analysis of what legal hurdles we have so the actuaries can determine the potential cost of the legal issues,” he told the Baton Rouge Business Report.

The report came back with less-than-encouraging results. From its executive summary…

The proposed legislation poses issues under both the United States and Louisiana  Constitutions. Litigation would likely ensue in state as opposed to federal court due to  Eleventh Amendment restrictions upon suing states in federal courts. But exceptions to  the Eleventh Amendment restrictions could allow plaintiffs to bring suit in federal court under certain circumstances.

The challenges would most likely allege violations under: (1) Article X, § 29 of the Louisiana Constitution, which protects public pension benefits, (2) the Contract Clause within both the Louisiana and U.S. Constitutions^ (claiming contract impairment due to diminished benefits); (3) the Takings Clause of both the Louisiana and U.S. Constitutions^ (for divesting public employee benefits without just compensation); (4) the Due Process Clauses of both the Louisiana Constitution’* and the Fifth Amendment to the U.S. Constitution (for depriving employees’ of property rights without due process); and (5) 42 U.S.C. § 1983 against public officials for enforcing unconstitutional laws.

The pending public pension bills are most vulnerable to both U.S. and Louisiana constitutional Contract Clause scrutiny, though the other potential challenges have significant merit as well. As currently drafted, each bill, except the one merging two pension systems, retroactively impairs or diminishes accrued pension benefits contrary to the guarantees in Article X, § 29. Courts must determine whether the proposed changes affect plan members and retirees retroactively or only impact future benefits. Case law from other jurisdictions demonstrates that changes to members’ retirement age, contribution rate, and final average compensation formula retroactively affect members who have accrued and vested benefits based on their past service. Consequently, a reasonable likelihood exists that these bills as currently drafted will not survive constitutional scrutiny.

The bills proposing to merge two differently funded pension systems^ at this point seek only a merger of administrative functions and thus do not in our opinion pose any immediate constitutional risks. These bills do, however, contain a directive to study a future merger of plan assets, suggesting the legislature’s intent to merge the funding aspects of the two systems in the not too distant future. Any such merger attempt could, in contrast, raise the likelihood of being challenged as unconstitutional. This would have a negative effect on the actuarial soundness of the disparately funded system, which is guaranteed by Article X, § 29.

Therefore, we conclude that House Bills 53, 55, 56, and Senate Bills 51, 52, 42, and 47, in their current form, face a likelihood of being challenged in the courts. If such challenges occur, we think it more likely than not that a court will rule such then-adopted bills as unconstitutional to the degree such bills affect the accrued benefits of current members and retirees.

The pension reform package is expected to take center stage after the education reform plan passes, and Senate President John Alario is its primary shepherd. Alario told the Business Report that the report won’t change anything while complaining that Purpera commissioned it in the first place.

Popcorn might be in order on this one.

Naturally, this report – the conclusions of which aren’t a colossal surprise, as pension reform is a tremendously complicated and precarious endeavor which forces its protagonists into some very high weeds and a thankless existence – will provide lots of ammunition to Jindal’s detractors. Pension reform is already being written up as languishing in the legislature in the state’s legacy media; the Strasburger and Price report probably makes for an even slower process with more amendments.

And naturally, the comparisons will be made between Obamacare and Jindal’s pension reforms. That you can bank on.

Look for pension reform to go on ice for now, as it was going to be in the shadows for the first half of the session anyway. But its opponents will gleefully fire away at the package with this report in hand in advance of it making a debut.



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