The ASSOCIATION OF PENNSYLVANIA STATE COLLEGE AND UNIVERSITY FACULTIES, et al., Appellees, v. The STATE SYSTEM OF HIGHER EDUCATION, et al., Appellants. AMERICAN FEDERATION OF STATE, COUNTY AND MUNICIPAL EMPLOYEES, AFL-CIO, etc., Appellees, v. COMMONWEALTH of Pennsylvania, et al., Appellants. JOINT BARGAINING COMMITTEE OF the PENNSYLVANIA SOCIAL SERVICES UNION, et al., Appellees, v. COMMONWEALTH of Pennsylvania, et al., Appellants. Dennis J. SOLECKI, et al., Appellees, v. COMMONWEALTH of Pennsylvania, et al., Appellants.
No. unknown
Supreme Court of Pennsylvania
July 6, 1984
479 A.2d 962 | 505 Pa. 369
I dissent.
I would affirm on the opinion of the Superior Court.
479 A.2d 962
Supreme Court of Pennsylvania.
Argued May 15, 1984.
Decided July 6, 1984.
Bruce M. Ludwig, Richard Kirschner, Philadelphia, for appellee Joint Bargaining Committee.
Elliot A. Strokoff, Harrisburg, for appellee Ass‘n of Pa. State College, et al.
Stuart W. Davidson, Philadelphia, for appellee AFSCME.
Before NIX, C.J., and LARSEN, FLAHERTY, McDERMOTT, HUTCHINSON, ZAPPALA and PAPADAKOS, JJ.
OPINION
NIX, Chief Justice.
This is a direct appeal from an order of the Commonwealth Court declaring unconstitutional and permanently enjoining the enforcement of an amendment to the State Employees’ Retirement Code (“Code“),
I.
A.
The Code mandates that all state employees not explicitly exempted participate in the System.
The Commonwealth and other employers whose employees are members of the System are required to make such contributions to the Retirement Fund on behalf of all active members as may be necessary to maintain the actuarial soundness of the Fund.
B.
Act 31 was signed into law on July 22, 1983. Section 7 of that Act, which amended the Code,2 provided as follows:
§ 5505.1. Additional member contributions
In addition to regular or joint coverage member contributions and social security integration contributions, contributions shall be made on behalf of each active member, regardless of class of service, at the rate of 1 1/4% of compensation until such time as the actuary certifies that all accrued liability contributions have been completed in аccordance with the actuarial cost method provided in section 5508(b) (relating to actuarial cost method).
71 Pa.C.S. § 5505.1 .
The one and one-quarter percent (1 1/4%) “additional member contribution” was deducted from members’ pay beginning on or about August 10, 1983.
II.
A.
The basis of appellees’ challenge to section 7 was that it represented a legislative impairment of their contract rights violative of
The parties have entered into several stipulations with regard to the effect of section 7. First, assuming member contributions at the five percent (5%) rate, the Commonwealth would be required to contribute sixteen and seventy-seven hundredths percent (16.77%) of its employee payroll to the Retirement Fund for fiscal 1983-84 to maintain the actuarial soundness of the Fund. The Commonwealth‘s 1983-84 budget reflects that assumption. Section 7‘s requirement of an additional one and one quarter percent (1 1/4%) of each member‘s gross income would lower the Commonwealth‘s required contribution for fiscal 1983-84 by one percent (1%) to fifteen and seventy-seven hundredths percent (15.77%). Second, none of the funds saved as a result of this one percent (1%) reduction would be transferred or applied to or used for the benefit of the System or its mеmbers. Third, with the exception of an amendment to the definition of “total accumulated deductions” permitting a member to withdraw all contributions to the Fund, including the “additional member contribution,” upon termination, Act 31 includes no amendment or addition to the levеl of pension benefits or the calculation of annuities provided to members under the Code.
The foregoing stipulations establish that the only effects of section 7 are to increase the contribution required of members and to save the Commonwеalth one percent (1%) of its budgeted payroll. The dollar amount of retirement benefits remain the same; members are simply required to pay more for each pension dollar they will eventually receive. Thus, section 7 is clearly detrimental to еmployees who were members of the System prior to section 7‘s
B.
The instant actions were brought on behalf of both vested and nоn-vested members of the System. Since this Court has been divided in the past on the issue of whether non-vested state employees are entitled to the same constitutional protections as vested employees, we shall consider the two classes separately.
The constitutional infirmity of section 7 with respect to members whose entitlement to retirement benefits had already vested is clear and need not detain us long.
The question of the permissibility of unilateral legislative changes in the established contractual rights of public employees who are members of a retirement system is not new to this Court. It has long been recognized in Pennsylvania that the nature of retirement provisions for public employees is that of deferred compensation for service actually rendered in the past, Bellomini v. State Emp. Retirement Bd., 498 Pa. 204, 209, 445 A.2d 737, 739 (1982) (plurality opinion). Accord, McKenna v. State Emp. Retirement Bd., 495 Pa. 324, 433 A.2d 871 (1981); Harvey v. Allegheny County Retirement Board, 392 Pa. 421, 141 A.2d 197 (1958); Wright v. Retirement Board of Allegheny Co., 390 Pa. 75, 134 A.2d 231 (1957); Baker v. Retirement Board of Allegheny County, 374 Pa. 165, 97 A.2d 231 (1953); McBride v. Allegheny County Retirement Board, 330 Pa. 402, 199 A. 130 (1938); Retirement Board of Allegheny County v. McGovern, 316 Pa. 161, 174 A. 400 (1934).
And it is the law of this Commonwealth that unilateral modifications in the retirement system, after retirement eligibility requirements have been met, may not be adverse to the member. See, generally, Catania v. Com. State Employee‘s Retirement, 498 Pa. 684, 450 A.2d 1342 (1982) (plurality opinion); McKenna v. State Emp. Retirement Board, supra, Harvey v. Allegheny Co. Retirement Board, supra; McBride v. Allegheny Co. Retirement Board, supra; Retirement Board of Allegheny Co. v. McGovern, supra.
Commonwealth ex rel. Zimmerman v. Officers and Employees Retirement Board, 501 Pa. 293, 297, 461 A.2d 593, 595 (1983) (plurality opinion).
Since section 7 reduces the value of members’ retirement benefits, it is unquestionably a unilateral modification in the System adverse to its members and is void as applied to employees whose contractual rights were vested prior to its enactment.
C.
The conclusion that section 7 is unconstitutional as applied to employees who were members of the System but whose retirement benefits had not yet vested as of the effective date of Act 31 is also unavoidable. In Catania v. Commonwealth, State Employees’ Retirement Board, 498 Pa. 684, 450 A.2d 1342 (1982), this Court was evenly divided on the question of whether unilateral changes in the terms or conditions of the retirement contract which inure to the detriment of employees whose benefits have not vested violates the constitutional prohibition against the state‘s impairment of the obligation of contracts. Three Justices were of the view that such changes were permissible as to non-vested employees provided the detrimental changes enhance the actuarial soundness of the retirement fund and are offset by comparable new advantages. Id., 498 Pa. at 687, 450 A.2d at 1343 (opinion of O‘Brien, C.J., in Support of Denial of Summary Judgment, joined by Roberts and Hutchinson, JJ.). The three other participating Justices would have held that the state‘s unilateral reduction of rеtirement benefits was an unconstitutional impairment of
It is clear that section 7 must fall under either standard advanced in Catania. The record simply does not support the Commonwealth‘s contention that section 7 enhances the soundness of the Fund “by definition.” The stipulations of the parties establish that section 7 merely shifts some of the financial burden of contribution from the employer to the employees. Moreover, Act 31 contains no offsetting advantages to the members of the System. Thus, under the view expressed in the Oрinion in Support of Denial of Summary Judgment filed in Catania, section 7 is an unconstitutional impairment of contract.
Under the reasoning of the Opinions in Support of Grant of Summary Judgment in Catania, which we now adopt as the better view, section 7‘s unilateral devaluation of the retirement benefits of non-vested members would be prohibited absоlutely without regard to the Commonwealth‘s claim of actuarial enhancement:
Accepting the principle that the state‘s duty to maintain the fiscal integrity of the retirement fund through actuarial soundness is a valid basis for some changes in a retirement system, nevertheless, the state‘s unilateral reduction of retirement benefits arising from the employment contracts cannot pass constitutional muster and must fall.
Catania v. Commonwealth, State Employees’ Retirement Board, supra, 498 Pa. at 707-708, 450 A.2d at 1354 (Opinion of Nix, J., in Support of Grant of Summary Judgment, joined by Larsen, J.) (footnote omitted; emphasis in original).
Accordingly, the Order of the Commonwealth Court is affirmed. The supersedeas entered September 15, 1983 is vacated.
HUTCHINSON, J., filed a concurring and dissenting opinion.
HUTCHINSON, Justice, concurring and dissenting.
I continue to adhere to the views expressed by former Chief Justice O‘Brien in his Opinion in Support of Denial of Summary Judgment in Catania v. Commonwealth, State Employees’ Retirement Board, 498 Pa. 684, 450 A.2d 1342 (1982). Moreover, as the majority concedes, the result in this case would be the same under either of the views expressed in Catania. I therefore believe the majority‘s attempt to adopt a so-called contract theory in this case on pensions is an unfortunate dictum.