Richard W. Berg v. Hon. Christopher J. Christie
436 N.J. Super. 220
| N.J. Super. Ct. App. Div. | 2014Background
- Plaintiffs (retirees and vested members of PERS, PFRS, TPAF and other state plans) challenged Chapter 78 (L.2011, c.78 §25), which suspended COLAs for current and future retirees, claiming contractual and constitutional violations.
- In 1997 the Legislature enacted N.J.S.A. 43:3C-9.5, establishing a "non-forfeitable right" to receive benefits upon vesting and adding a contractual right for members to the employer's annual required contribution.
- COLAs historically transitioned from pay-as-you-go to prefunded liabilities paid from the pension funds (late 1980s–1990s amendments), making COLAs an integral part of pension benefits funding.
- The State faces large unfunded pension liabilities caused in part by past contribution "holidays" and investment losses; Chapter 78 was enacted as part of a multi-pronged fiscal reform to address underfunding.
- Trial court granted summary judgment for defendants; this appeal (consolidated) affirms DeLucia but reverses and remands Berg for further proceedings limited to state Contract Clause claims after finding a contractual right likely exists covering COLAs.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether N.J.S.A. 43:3C-9.5 created a contractual right that includes COLAs | 9.5 created a non-forfeitable contractual right to all pension "benefits as provided under the laws governing the retirement system," which includes COLAs | COLAs are governed by the separate Pension Adjustment Act and historically could be altered; 9.5 did not include COLAs | Court: 9.5 reasonably read to include COLAs because COLAs were prefunded and integral to pension benefits, so contractual protection plausibly extends to them |
| Whether suspension of COLAs by Chapter 78 violates the Contract Clause (state and federal) | Suspension substantially impairs vested contractual pension rights; Chapter 78 is not sufficiently justified or narrowly tailored | State asserts a significant public purpose (solvency), reasonableness, and that suspension was a moderate remedy as part of a tripartite reform | Court: Threshold finding that contract rights likely exist means Contract Clause claims require factual development; remand for full record on impairment and tailoring (state claim proceeds; federal claims barred by sovereign immunity) |
| Whether Appropriations and Debt Clauses bar courts from ordering COLA payments or affect contract claims | Plaintiffs: COLAs are payable from pension funds and not contingent on legislative appropriation | State: Appropriations/Debt Clauses limit courts from ordering appropriations or otherwise constrain relief | Court: Appropriations and Debt Limitation Clauses do not bar enforcement of vested rights to payments from the pension funds when funds exist; they only limit compelling legislative appropriations |
| Whether DeLucia plaintiffs (disability retirees) have a different legal theory entitling them to relief | DeLucia plaintiffs argued COLAs are deferred compensation and invoked other statutory protections | State contended statutory/constitutional provisions cited were irrelevant to COLA entitlement and sovereign immunity bars some claims | Court: Affirmed dismissal of DeLucia claims on this record; their statutory and constitutional theories did not establish entitlement to COLAs separate from 9.5 analysis |
Key Cases Cited
- Spina v. Consol. Police & Firemen's Pension Fund Comm'n, 41 N.J. 391 (N.J. 1964) (pension benefits and legislative power to modify pension statutes; caution on treating statutes as contracts)
- U.S. Trust Co. v. New Jersey, 431 U.S. 1 (U.S. 1977) (Contract Clause standard — substantial impairment test and requirement that impairment be reasonable and necessary to an important public purpose)
- N.J. Educ. Ass'n v. State, 412 N.J. Super. 192 (App. Div. 2010) (recognition that §9.5 creates enforceable contractual rights to receive pension benefits; distinction between benefits and funding method)
- Teamsters Local 97 v. State, 434 N.J. Super. 393 (App. Div. 2014) (recent discussion of pension system funding and Contract Clause framework applied to state pension reforms)