827 F.3d 530
5th Cir.2016Background
- Fort Worth operated a defined-benefit pension plan using a "High 3" salary formula and an ad hoc, variable COLA (0–4%) option which plaintiffs had irrevocably elected and were vested in.
- The City, facing underfunding, adopted ordinances changing the formula prospectively to a bifurcated High 3/High 5 (High 5 + lower multiplier for post-amendment service) and converting ad hoc COLAs for current employees to a 2% simple COLA (reopening elections).
- Police and firefighter vested members sued, claiming the reforms violated Texas Constitution art. XVI, § 66(d) (prohibiting reduction of "benefits accrued by a person") and raised federal takings/contracts-clause challenges.
- District courts granted summary judgment for the City; plaintiffs appealed and the appeals were consolidated in the Fifth Circuit.
- The Fifth Circuit reviewed de novo, considered (but gave persuasive, not controlling, weight to) a Texas Attorney General opinion, and affirmed the district courts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Tex. Const. art. XVI § 66(d) forbids prospectively reducing pension formulas or only protects "benefits accrued" (monetary payments) | §66 protects the right to the benefit formula once vested; "accrued" is redundant to vesting | "Benefits accrued" means payments already earned; §66 protects only accrued monetary benefits, so prospective formula changes are allowed | The court held §66 protects only accrued benefits (payments earned to date); prospective changes affecting future accruals are permitted |
| Whether the bifurcated High3/High5 formula violated §66 | Plaintiffs argued the new formula impairs vested rights | City argued the bifurcated method preserves accrued benefits and only alters future accruals | Court held bifurcated formula constitutional because it preserves accrued benefits |
| Whether converting ad hoc COLA to 2% fixed (and reopening elections) impermissibly impairs accrued benefits | Plaintiffs contended reopening elections and switching options would reduce the present value of their ad hoc COLA (from expected ~1% to 0%) and thus impair accrued benefits | City argued ad hoc COLA was variable and not guaranteed; changes affect only future expectations, not accrued payments | Court held COLA reform did not violate §66 because variable ad hoc COLA had no assured upward-only value and the changes affect future accruals, not accrued payments |
| Whether federal contracts or takings clauses provide protection beyond state law | Plaintiffs argued federal clauses protect vested pension rights | City argued federal protection depends on state-law-created property rights, which in Texas are subject to legislative/reserved power to amend (Trammell/Klumb) | Court held federal claims fail because Texas law treats public pension rights as subject to amendment/reservation of power, so no additional federal protection attaches |
Key Cases Cited
- Time Warner Cable, Inc. v. Hudson, 667 F.3d 630 (5th Cir. 2012) (summary judgment reviewed de novo)
- Nat’l Fed’n of the Blind of Tex., Inc. v. Abbott, 647 F.3d 202 (5th Cir. 2011) (constitutional questions reviewed de novo)
- McCaig v. Wells Fargo Bank (Tex.), N.A., 788 F.3d 463 (5th Cir. 2015) (predicting state supreme court law under Erie)
- Cerda v. 2004-EQR1 L.L.C., 612 F.3d 781 (5th Cir. 2010) (state-law interpretation principles)
- Shanks v. Treadway, 110 S.W.3d 444 (Tex. 2003) (distinguishing accrual and vesting in pension law)
- City of Dallas v. Trammell, 101 S.W.2d 1009 (Tex. 1937) (state may amend/modify pension laws; historical baseline)
- Klumb v. Houston Mun. Emps. Pension Sys., 458 S.W.3d 1 (Tex. 2015) (no vested property right where governing authority can amend pension)
- Phillips v. Washington Legal Found., 524 U.S. 156 (U.S. 1998) (property interests for federal protections are defined by state law)
- Bd. of Regents v. Roth, 408 U.S. 564 (U.S. 1972) (existence of property interests determined by state law)
- Patel v. Texas Dep’t of Licensing & Regulation, 469 S.W.3d 69 (Tex. 2015) (state-constitution interpretation should rely on Texas authorities rather than other states)