UPDATE 2-Florida court rules state workers must pay into pensions

Thu Jan 17, 2013 2:24pm EST

* Top state court reverses union victory

* Threat of $900 million payback eliminated

Jan 17 (Reuters) - Florida's top court on Thursday sided with the state's governor and lawmakers and ruled as constitutional a 2011 law overhauling the state pension system that requires a 3 percent payroll contribution by state workers.

Reversing a lower court decision by a 4 to 3 vote, the Florida Supreme Court in Tallahassee said in a 48-page ruling that the 2011 law did not violate the state constitution as argued by labor unions battling the pension reforms.

The lower court determined that the Florida Retirement System reforms, which passed t wo years ago as policymakers wrestled with a $3.6 billion budget gap, unlawfully broke a contract and violated the rights of government workers to bargain in unions.

The court ruling eliminates the possibility of a massive refund of an estimated $900 million of employee contributions and fees collected since 2011.

The decision eases pressures on state and local budget makers in Florida because of lower pension costs at a time when Florida's finances are improving after a recession aggravated by the state's housing bust.

In addition to requiring the first-ever employee contributions to pensions, the pension reforms covering about 623,000 Florida teachers and other government workers included curbs on inflation increases in retiree benefits.

"The preservation of rights statute was not intended to bind future legislatures from prospectively altering benefits for future service performed by all members of the FRS," Justice Jorge Labara wrote for the majority.

GOVERNOR SEES ECONOMIC BOOST

Republican Governor Rick Scott, who had championed the 2011 reform, applauded Thursday's decision.

"The court's ruling today supports our efforts to lower the cost of living for Florida families," Scott said in a statement. "This means even more businesses will locate and grow in our state."

The cost of funding public pensions is a controversial issue in many U.S. states and cities, which are struggling with lower revenue in the wake of the economic recession and higher costs or public services such as public safety, healthcare and education.

When passed in 2011, the law was immediately challenged by the Florida Education Association (FEA), the state's largest teachers' union, and others. They said the pension benefits represented a contract between the state and employees that could not be altered without negotiations.

"Balancing the state budget on the backs of middle-class working families is the wrong approach for legislative leaders and the governor to take," FEA President Andy Ford said on Thursday in a statement. "We're disappointed that the state's highest court said this approach was legal."

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