Miller, J., dissenting and concurring:
(See footnote 1)
I cannot understand why the majority fails to follow our
major pension cases that have been unanimously decided over the
past fifteen years. They represent the majority view elsewhere.
To abandon their teaching for the nebulous concepts contained in
the majority opinion does nothing but confuse our pension law and
invite unnecessary litigation.
We recognized the contractual nature of public employee pension rights in our earlier case of Wagoner v. Gainer, 167 W. Va. 139, 279 S.E.2d 636 (1981). There, the Legislature had amended the judicial pension act so as to prevent retired judges from receiving 75% of the salary received by an active judge. This amendment precluded a retired judge from obtaining the pension benefit of a pay raise given to an active judge. We held that the amendment was unconstitutional and set these principles in syllabus points 1 and
1. The West Virginia Retirement System for Judges creates contractually vested property rights for retired and active participating plan members, and these rights are enforceable and cannot be impaired or diminished by the State.
3. While the Legislature has the right to make reasonable alterations to the judicial pension fund, such alterations cannot impair the benefit level where there are extant statutorily-created inequities and special unfunded benefit provisions that affect the equal application of the law or the financial integrity or cost of the pension fund.
We expanded on these pension principles in Dadisman v.
Moore, 181 W. Va. 779, 384 S.E.2d 816 (1988). There, a retired
member of the Public Employees Retirement System (PERS) brought a
writ of mandamus against the Governor and other officials charged
with operating PERS. He claimed that their actions were contrary
to the PERS statutes and were jeopardizing the fiscal integrity of
the fund. In Dadisman, we reemphasized the point that employees in
a public employee pension system have contractual rights, as has
been generally held elsewhere:
In other jurisdictions, the modern trend and majority view is that a public employee's rights under a public pension statute are contract rights. 60A Am.Jur.2d Pensions and Retirement Funds § 1620 (1988); see, e.g., Hanson v. City of Idaho Falls, 92 Idaho 512, 446 P.2d 634 (1968); Halpin v. Nebraska State Patrolmen's Retirement System, 211 Neb. 892, 320 N.W.2d 910 (1982); Singer v. City of Topeka, 227 Kan. 356, 607 P.2d 467 (1980) (and cases cited therein); State Teachers' Retirement Board of Giessel, 12 Wis.2d 5, 106 N.W.2d 301 (1960).
Id. at 790, 384 S.E.2d at 827. This same principle as to the contractual nature of a public pension right has been reaffirmed in later cases from other jurisdictions. For example, the California Supreme Court in Legislature of the State of California v. Eu, 54 Cal.3d 492, 528, 816 P.2d 1309, 1331, 286 Cal.Rptr. 283, 305 (1991), made this statement:
Petitioners find ample support for their position in California cases confirming that both the federal and state contract clauses protect the vested pension rights of public officers and employees from unreasonable impairment. (Citations omitted).
See also, Thurston v. Judges' Retirement Plan, 179 Ariz. 49, 876 P.2d 545 (1994); Davis v. Mayor and Alderman of City of Annapolis, 98 Md.App. 707, 635 A.2d 36 (1994); McDermott v. Regan, 82 N.Y. 2d 354, 624 N.E.2d 985 (1993); Hughes v. State of Oregon, 314 Or.1, 838 P.2d 1018 (1992); Ass'n of Pennsylvania State Colleges v. State System of Higher Education, 505 Pa. 369, 479 A.2d 962 (1984); Bowles v. Washington Dept. of Retirement Systems, 121 Wash.2d 52 847 P.2d 440 (1993).
The basis for Dadisman's contractual holding was that a
pension is a form of property right which is analogous to a
contractual claim, as we summarized in the syllabus:
15. "A 'property interest' includes not only the traditional notions of real and personal property, but also extends to those benefits to which an individual may be deemed to have a legitimate claim of entitlement under existing rules or understandings." Syl Pt. 3, Waite v. Civil Service Commission, 161 W. Va. 154, 241 S.E.2d 164 (1877).
16. Retired and active PERS plan participants have contractually vested property rights created by the pension statute, and such property rights are enforceable and cannot be impaired or diminished by the State.
We did recognize in Dadisman that where the pension was
not vested, i.e., the employee had not reached all the pension
eligibility requirements, the Legislature might amend the system.
In syllabus point 17 of Dadisman v. Moore, supra, we set out a
general standard which allowed an amendment when three conditions
were met: (1) when the public interest requires it; (2) the
amendment must be reasonable; and (3) reasonableness is determined
by whether the amendment keeps the system sound and flexible:
While the law recognizes that states retain some reserve power to modify by statute existing contractual pension relationships w hen the public interest so requires, such modifications must be reasonable and necessary to serve important public purposes. Legislative modifications to a pension plan must be reasonable, and the test for reasonableness is whether the alteration to the pension scheme serves to keep the system sound and flexible.
The Dadisman standard had been discussed earlier in Wagoner v. Gainer, supra, 167 W. Va. 154, 279 S.E.2d at 645:
Legislative modifications to a pension plan must be reasonable, and the test for reasonableness is whether the alteration to the pension scheme serves to keep the system sound and flexible. Brazelton [v. Kansas Public Employees Retirement System, 227 Kan. 443, 607 P.2d 510 (1980)]; [Public Employees' Retirement Board v.] Washoe County, [615 P.2d 972 (Nev. 1980)] Betts [v. Board of Administration of Public Employees' Retirement System, 21 Cal.3d 859, 582 P.2d 614, 148 Cal.Rptr. 158 (1978)].
Much this same standard of reasonableness was drawn into syllabus point 3 of Mullett v. City of Huntington Police Pension Board, 186 W. Va. 488, 413 S.E.2d 143 (1991), where we indicated that, as to those employees whose pensions had not become vested, the "Legislature may amend the plan provided that any amendments survive a test of reasonableness". Vesting was used in the sense that the employees had not met the eligibility standards for retirement. Both Mullett and Gainer recognized, however, that where the pension was actually vested, then legislative amendments could not reduce the pension benefits. Gainer stated "[i]t is also clear that any alterations to the pension system can only affect the rights of active members . . . ." 167 W. Va. at 152, 279 S.E.2d at 644. In Gainer, we summarized this principle, stating that ". . . courts have been willing . . . [to allow] . . . amendments to pension plans affecting non-retired, participating employees if the amendments are reasonable." 167 W. Va. at 151, 279 S.E.2d at 644. In Mullett, we quoted from Campbell v. Michigan Judges Retirement Board, 378 Mich. 169, 143 N.W.2d 755 (1966):
The Campbell court explained in terms of contract law the effect of retirement on the appellant judges: "When they so retired and ceased to be members of the system, their contract was completely executed and their rights thereunder became vested." 143 N.W.2d at 757. Based on the vesting of the judges' contractual rights, those rights "could not, thereafter, be diminished or impaired by legislative change of the judges retirement statute."
186 W. Va. at 493, 413 S.E.2d at 148.
This same distinction exists in other jurisdictions
between legislative alteration which affects a vested pension and
one which is not completely vested because the employee has not met
all of the eligibility requirements of the pension plan. The
California Supreme Court in Allen v. Board of Administration of
Public Employees' Retirement System, 34 Cal.3d 114, 120, 665 P.2d
534, 538, 192 Cal.Rptr. 762, 766 (1993), expressed this matter as
A constitutional bar against the destruction of such vested contractual pension rights, however, does not absolutely prohibit their modification. With respect to active employees, we have held that any modification of vested pension rights must be reasonable, must bear a material relation to the theory and successful operation of a pension system, and, when resulting in disadvantage to employees, must be accompanied by comparable new advantages. As to retired employees, the scope of continuing governmental power may be more restricted, the retiree being entitled to the fulfillment of the contract which he already has performed without detrimental modification. (Citations omitted).
Similarly, the Florida Supreme Court in Florida Sheriffs
Association v. Department of Administration, 408 So.2d 1033, 1036
(Fla. 1981), made this summary of its pension law:
Although, by the foregoing decisions, this Court has stated that the legislature can alter retirement benefits of active employees, the Court has also expressly held that, whether in a voluntary or mandatory plan, once a participating member reaches retirement status, the benefits under the terms of the act in effect at the time of the employee's retirement vest. The contractual relationship may not thereafter be affected or adversely altered by subsequent statutory enactments. (Citations omitted).
See also, Burlington Fire Fighters' Association v. Burlington, 543 A.2d 686 (Vt. 1988).
What emerges from our case law is essentially a two-tier
test for modification of a public employees' pension plan. The
first and most protected tier includes those public employees who
have either retired or have met the eligibility standards for
retirement. As to those individuals, any legislative amendment
which reduces their retirement rights or benefits is
unconstitutional because it violates the impairment of contract
clause of both the federal and our state constitution.
(See footnote 2)
In the second tier are those public employees who are in
a retirement system but have not met the eligibility standards to
actually retire. They still possess a property or contract
interest in their pensions system. However, the Legislature may
make amendments to the retirement system but such amendments must
meet the following standard: It must be shown that a substantial
public interest dictates the need for the amendments. Moreover,
the amendments must be reasonable in the sense that they will promote the flexibility and fiscal soundness of the system and will
not unduly burden the employees' pension rights.
While both Wagner and Gainer referred to the
constitutional impairment of contract principle in discussing the
pension questions, they did not attempt any detailed discussion of
this doctrine. We made a more thorough analysis in Shell v.
Metropolitan Life Insurance Company, 181 W. Va. 16, 380 S.E.2d 183
(1989), where we reiterated this key element of the doctrine of
impairment contracts in syllabus point 4:
In determining whether a Contract Clause violation has occurred, a three-step test is utilized. The initial inquiry is whether the statute has substantially impaired the contractual rights of the parties. If a substantial impairment is shown, the second step of the test is to determine whether there is a significant and legitimate public purpose behind the legislation. Finally, if a legitimate public purpose is demonstrated, the court must determine whether the adjustment of the rights and responsibilities of contracting parties is based upon reasonable conditions and is of a character appropriate to the pubic purpose justifying the legislation' adoption. (See footnote 3)
It is apparent that the fourth syllabus of Shell is analogous to syllabus point 17 of Dadisman, which has been earlier set out. Dadisman established the standard of when legislative amendments to a public pension system may be constitutionally permissible.
In State ex rel. Dadisman v. Caperton, 186 W. Va. 627, 413
S.E.2d 684 (1991), we relied on syllabus point 4 of Shell to
sustain an amendment to PERS (the Public Employees Retirement
System) which eliminated, for most accounting purposes, the
distinction between the State division of PERS and the non-state
(See footnote 4) It was claimed that the removal of this accounting
distinction would impair the liquidity of the state component of
PERS. We found that this accounting change had not changed the
basic structure of PERS and concluded that there had been no
substantial impairment of contract rights.
The majority mentions the impairment of contract clause
of the West Virginia Constitution in its opinion. However, it
neither cites Shell nor makes any attempt to discuss the law
surrounding the doctrine of impairment of contract. As we pointed
out in syllabus point 1 of Shell, our impairment of contract doctrine is patterned after the federal doctrine, which is
contained in Article 1, Section 10 of the United States
(See footnote 5) Moreover, as we pointed out in syllabus point 3 of
Shell, which was based on United States Supreme Court cases, this
doctrine is not an absolute bar to legislative modification of a
(See footnote 6) It forbids a substantial modification. The majority
completely avoids any analysis of this doctrine although it states
this doctrine controls the constitutionality of the legislative
amendments in this case.
The ultimate paradox in the majority's opinion is that,
after endless hortatory discussions of the inviolability of
employee pension rights, the majority then proceeds to find
constitutional two of the three amendments made to the State Police
Pension Fund which reduced the petitioners' benefits. If the
majority had followed our existing pension law and applied our
doctrine of impairment of contract, it would have had a rational
basis to achieve its result. Instead, it has created the illusion of the sanctity of pension rights and in the end found that the
rights could be altered by legislative amendments.
Indeed, under our existing pension law, I believe that the
four petitioners in this case are entitled to greater protection of
their pension rights than the majority extends. The respondents do
not dispute that the four petitioners have at least twenty years of
actual service with the Department, but less than twenty-five
years. We are not informed of their ages. Under W. Va. Code, 15-
2-27(b), a State trooper with twenty years of service, but less
than twenty-five, can retire. The only proviso under this section
is that such individual does not receive a pension check until he
reaches age fifty.
(See footnote 7) However, I believe that under our old pension law, these individuals were sufficiently vested and that they were
protected against any adverse change to their pension. Thus, this
amendment which increased their contribution to the pension fund
from 6% to 7-1/2% on July 1, 1994, and 9% as of July 1, 1995, would
be an unconstitutional impairment of their contract. Even to those
members who were not fully vested, I would deem that a 50% increase
in contribution levels is a substantial change in the contribution
levels. This would violate the standard of reasonableness set out
in syllabus point 17 of Dadisman. The Pennsylvania Supreme Court,
in two cases, has found that much more modest increases in employee
contributions were an unconstitutional impairment of contract. See
Pennsylvania Federation of Teachers v. School District of
Philadelphia, 506 Pa. 196, 484 A.2d 751 (1984), and Association of
Pennsylvania State College and University Faculties v. State System
of Higher Education, 505 Pa. 369, 479 A.2d 962 (1984).
The majority, in apparent defiance of its syllabus point
(See footnote 8) and using what I consider to be a clever ruse, finds that because the Legislature gave all public employees a $1,008.00 pay
increase and made some minor adjustments to the trooper pension
(See footnote 9) it has extended a sufficient gain to render the increase in
contributions constitutionally permissible.
In this same vein, I find the majority's syllabus point
22 to be fraught with the potential for abuse,
(See footnote 10) as it allows the
Legislature to virtually annul every pay raise by diverting it into
the employees pension fund by increasing the employee's percent of
contributions to the fund.
(See footnote 11)
There are other syllabus points which are equally
troublesome to me. For example, syllabus point 20 suggests that
". . . the State may buy out the employee's contract property
(See footnote 12) This can be done on a unilateral basis unless the
employee has reached some level of reliance interest in the
pension. However, the syllabus concludes that this "can be
determined only on a case-by-case basis by the legislature and the
courts." It is obvious to me that such a nebulous right, if
exercised by the State on a unilateral basis, would incur an
immediate constitutional challenge as violating the impairment of
contract clause. The case-by-case determinations would obviously
entangle the courts in endless pension litigation. I do not believe that the scheme proposed in syllabus point 20 does anything
for those "who work for this State as troopers, secretaries and
janitors and whose expertise is not in the law", of whom the
majority is so solicitous. I suggest it would confound and confuse
these people and result in their incurring needless legal expenses.
This same concern exists with regard to the majority's syllabus point 21, where ". . . the employee acquiesces in the change to the pension plan or unless the employee has so few years in the system that he or she has not detrimentally relied on promised pension benefits." (See footnote 13) Who will be the great vizier that will make this decision for employees?
What the majority's opinion has done is to create a vast
Gordian knot in our pension law which will confound our public
officials and our courts. If ever there was a reason for the
doctrine of stare decisis,
(See footnote 14) this case is a shining example for its application. Not only has the majority confounded our existing
pension law, but in the process has enabled the State to obtain
greater flexibility to alter employee pension rights.
For the reasons stated, I dissent in part and concur in part. (See footnote 15)
2. "The clauses of the Constitution of
the United States and the Constitution of West
Virginia which forbid the passage of a law
impairing the obligation of a contract are not
applicable to a statute enacted prior to the
making of a contract." Syllabus Point 1, in
part, Devon Corp. v. Miller, 167 W. Va. 362,
280 S.E.2d 108 (1981), cert. denied 455 U.S.
993, 102 S.Ct. 1622, 71 L.Ed.2d 855 (1982).
3. Although the language of the Contract Clause is facially absolute, its prohibition
must be accommodated to the inherent police power of the State to safeguard the vital interests of its people.
In construing our state constitutional provision prohibiting any "law impairing the obligation of a contract," W. Va. Const. art. III, § 4, we have generally accepted the United States Supreme Court's interpretation of the similar provision contained in Article I, Section 10, Clause 1 of the United States Constitution.
(3) Being under the age of fifty years
has or shall have completed twenty years of
service as a member of the division (excluding
military service credit granted under section
twenty-eight of this article).
When a member has or shall have served
twenty years or longer but less than twenty-
five years as a member of the division and
shall be retired under any of the provisions
of this section before he or she shall have
attained the age of fifty years, payment of monthly installments of the amount of retirement award to such member shall commence on the date he or she attains the age of fifty years.
The pension rights of all current state
pension plan members who have substantially
relied to their detriment cannot be
detrimentally altered at all, and any
alterations to keep the trust fund solvent
must be directed to the infusion of additional money. "Detrimentally alter" means the legislature cannot reduce the existing benefits (including such things as medical coverage) of the pension plan or raise the contribution level without giving the employee sufficient money to pay the higher contribution. Should the legislature seek to reduce certain advantages of a pension plan, it must offer equal benefits in their place as just compensation.
The legislature may increase a public employee's salary contribution to a pension plan if it gives a corresponding raise in salary or other benefits [sic] that offsets the public employee's increased contributions to the system. To be valid under W. Va. Const. Art. III, § 4, the additional salary or other benefits must at least cover the public employee's extra contribution to the system.
Until an employee becomes eligible to draw a pension, his or her benefits can be determined on an actuarial basis, and until such time as the employee's reliance interest is so strong as effectively to preclude all other options, the State may buy out the employee's contract property rights. At some point, however, the worker has chosen to remain in public employment for such a substantial part of his or her life that the State can no longer purchase the employee's pension rights without the acquiescence of the employee. At what point in an employee's career it is no longer equitable for the State to buy back the employee's contract rights on a sound actuarial basis without confounding principles forbidding the impairment of contracts can be determined only on a case-by- case basis by the legislature and the courts.
[W]e are of the opinion that, where property
or other substantial rights have been acquired
on the strength of court decisions, and where
to overrule such decisions would create
confusion and lead to litigation . . . the
doctrine should be applied. (Emphasis added.)
See also, Oakley v. Gainer, 175 W. Va. 115, 123, 331 S.E.2d 846, 854 (1985).