Smith v. Lasers: The Louisiana Supreme Court Adjusts a Legislative Miscalculation

• Author: Michael A. Cancienne
• Position: J.D./B.C.L. Candidate, May 2006, Paul M. Hebert Law Center, Louisiana State University
• Pages: 881-910

J.D./B.C.L. Candidate, May 2006, Paul M. Hebert Law Center, Louisiana State University; M.B.A. Candidate, Louisiana State University, 2005. The author would like to thank Professor Paul Baier, George M. Armstrong, Jr. Professor at the Paul M. Hebert Law Center, and Celia Cangelosi for help in developing this topic.

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In Smith v. LASERS, the Louisiana Supreme Court adopted an outdated approach to state employees' rights in public retirement systems when it construed the benefits derived from public retirement programs as mere gratuities. Additionally, the Court embraced the incorrect Contract Clause analysis when considering claims involving the State altering its own obligations. The majority of other states now recognize that rights exist in public retirement systems from the moment that employees enter the system. The Louisiana Supreme Court should have embraced this view, especially in light of the wording of Article X, Section 29 of the Louisiana Constitution which specifically recognizes membership in a statewide retirement system as contractually based.Page 882

Introduction

In Smith v. Board of Trustees of Louisiana State Employees' Retirement System (Smith v. LASERS),¹ the Louisiana Supreme Court denied 161 Department of Corrections' workers certain retirement benefits that were statutorily provided for them at the time of their retirement. Primarily at issue in the case was whether such benefits should be considered contractual in nature. In concluding that thePage 883 workers had no rights in the benefits, the Court embraced the outdated idea that public retirement systems are mere gratuities, subject to unconstrained legislative modification. This casenote questions the Louisiana Supreme Court's decision to embrace such an outdated view of retirement benefits. Additionally, this casenote suggest that the Court should have abandoned the classification scheme it embraced and given public retirement benefits greater protection, as outlined in the Louisiana Constitution and followed by the bulk of other states. While suggesting the Court's view of retirement benefits is outdated and fails to give proper deference to the Louisiana Constitution of 1974, this casenote questions the Contract Clause analysis embraced by the Court in Smith v. LASERS and suggests had the Court embraced the proper test, the outcome may have been different.

In Part I, this casenote sets the stage for the debate by outlining the relevant parties and the applicable statutory and constitutional provisions at issue in LASERS. Part II then presents the Court's opinion. This section will establish the rationale the Court adopted when deciding LASERS. Part III highlights the differences between the majority and dissenting opinions regarding the classification of the benefits provided for by the statute in question, establishing that the majority's view of the benefits provided for by the statute in question was misguided and provided inadequate protection to state employees in light of the constitutional provisions protecting such benefits. Part IV examines the differing standards applied by the Court regarding the Contract Clauses of the Louisiana and United States Constitutions. This section will discuss the erroneous Contract Clause standard adopted by the majority, and how the outcome of the case may have differed had the Court applied the correct standard. Finally, Part V looks to other states to provide insight into the determination the Court should have embraced regarding the classification of retirement benefits. From this, this casenote will show the Louisiana Supreme Court erred when deciding Smith v. LASERS, primarily because the majority incorrectly classified the benefits provided for by the statute in question and misapplied the Contract Clauses of the Louisiana and United States Constitutions.

I Retirement Power Struggles: The Factual and Statutory Background of Smith v. LASERS

Because of the nature of public employment,² stable and relatively financially advantageous retirement benefits are typically earned by state workers. Maintaining a productive workforce isPage 884 partially dependent upon these benefits. Smith v. LASERS considered the extent that the legislature can alter a statutorily provided retirement benefit and when the legislature may alter such a benefit.

A The Plaintiffs: One-Hundred-Sixty-One Department of Corrections Workers

With an eye on taking advantage of a law constructed to their benefit, 161 Louisiana Department of Corrections workers retired between January and March of 2002.³ These workers were soon rehired, again entering state service and the state retirement system pursuant to the law at the time. Many of the workers did not miss a single day of work, retiring on Friday and returning to work on the following Monday.⁴ For operations of the Department of Corrections facilities, it was as if the workers had never retired.⁵

While the workers' retirement did not affect the operation of the Department of Corrections, the workers' status as employees of the Department was affected because of their decision to retire. When the workers returned to work, they were treated as new employees and placed on probation for six months in accordance with the applicable Civil Service rules. However, even though the employees were treated as new employees, this was presumable only for administrative purposes, as none of the employees complained about a reduction in responsibility or rank. During this probationary period, the workers were not entitled to the same process with regard to their dismissal as they were before their retirement.⁶

The workers also lost portions of their accumulated sick and annual leave when they retired. Sick or annual leave in excess of 300 hours was counted as service credit, but leave up to 300 hours was lost.⁷ ThePage 885 employees also lost all of their compensatory time.⁸ The 161 workers lost over 11,800 hours of compensatory time.⁹

Lastly, for the workers who retired and did not return to work immediately (even those workers who missed only one day), their "anniversary dates" were changed.¹⁰ Such a change negatively affected when the worker would receive their annual four percent pay raise. Some of the workers had their anniversary dates deferred for more than three months.¹¹

B The Defendant: The Louisiana State Employees' Retirement System

LASERS is an executive branch agency¹² that enjoys the privileges and powers of a corporation,¹³ and was founded by the legislature in 1946.¹⁴ It is designed as a "trust fund created to provide retirement and other benefits for state officers and employees and their beneficiaries" and manages more than $6 billion in assets.¹⁵ LASERS receives its funding from state employees, employers', and interest earnings.¹⁶

C Louisiana Revised Statutes 11:416: Designating Benefits for Retired State Employees who Reenter State Service

The benefits retired state employees receive are outlined in Title II of the Louisiana Revised Statutes.¹⁷ Title II is a consolidation of previous law enacted to "effectively comply with the mandate ofPage 886 Article X, Section 29(E)" of the Louisiana Constitution.¹⁸ The state employees' retirement system (LASERS) is governed pursuant to Louisiana Revised Statutes 11:400-606. Membership in the statewide retirement system is determined by the legislature.¹⁹

1. Pre 2001: Options for Employees Choosing to Reenter State Service

When a state employee enrolled in LASERS reenters state service, their benefits are dictated pursuant to Louisiana Revised Statutes 11:416.²⁰ Prior to June 30, 2001, Louisiana Revised Statutes 11:416 offered three options to retired state employees who chose to return to state employment (reemployed retirees).²¹ Option 1 allowed for the reemployed retiree to continue to receive their pension benefits until the reemployed retiree earned more than fifty percent of his or her annual allowance from LASERS during any fiscal year. A reemployed retiree's benefit would be reduced by any...