Pension and retirement benefits have always been at the mercy of the companies that issue them. Now, it appears that states and municipalities may also have the same legal right to alter – and cut – benefits to retirees, just as easily as corporate America can.
Two researchers at the Center for Retirement Research at Boston College recently surveyed state constitutions for their amendments concerning state workers and the benefits afforded them for their years of service. The researchers, Alicia H. Munnell and Laura Quinby, who discussed their findings at length with the Sacramento Bee, concluded that retirement promises that were thought to be iron-clad may not be as unbending as first thought.
For starters, only Alaska, Illinois and New York have clearly-defined constitutional protection of pension benefits for state workers, past, present and future. Most other states, however, may be able to alter their current pension benefits packages and be able to defend their alterations in court.
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Of particular interest is California, where state pension laws were thought to be set in stone and unchangeable by legislation. Munnell and Quinby feel California may have more options to alter pensions than first thought.
"The protection accorded pension benefits is less embedded in state constitutions and more open to interpretation than commonly perceived," the researchers wrote in their study. If the definition of the employer-employee contract can be narrowed or restricted, either by the legislature or by the courts, then benefits can be altered or reduced, at least for current state workers.
Further, if benefits can be tied to actual service performed, Munnell and Quinby feel the benefits packages can be legally restricted even further.
A key legal point is what is considered to be the "start date" of the employee-employer contract. Often, the contract is thought to start on the first day of employment, but legally, argue the researchers, that may not hold up in court. In fact, since the terms of the employment contract are generally not clearly defined, much less in writing, states may have a lot more flexibility to slash benefits as they see fit.
Most state legislatures and municipalities in the U.S. are facing crushing budget deficits, and across the board, legislators are looking at state pension obligations, current and future, as a place where spending can be cut. Yet even though Munnell and Quinby feel their research may help financially struggling entities, altering or cutting benefits could still be very difficult.
Currently, challenges to changing employee pension plans are under consideration in courts in New Jersey and Rhode Island. If upheld, Munnell said that more states may consider even bolder legislative or legal moves to reduce their pension obligations.
In other states, Arizona protects pensions "past and maybe future," said the researchers to the Sacramento Bee, while Hawaii, Louisiana and Mississippi protect only benefits that have been accrued.
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