Allen v. Board of Administration

Decision Date11 July 1983
Citation34 Cal.3d 114,665 P.2d 534,192 Cal.Rptr. 762
Parties, 665 P.2d 534 Don A. ALLEN, Sr., et al., Plaintiffs and Respondents, v. BOARD OF ADMINISTRATION OF the PUBLIC EMPLOYEES' RETIREMENT SYSTEM, Defendant and Appellant. L.A. 31702.
CourtCalifornia Supreme Court

Gerald R. Adams, Charles I. Gibbs, Donald M. Pach and Bullen, McKone, McKinley, Gay, Keitges & Pach, Sacramento, for defendant and appellant.

Stroock & Stroock & Lavan, William H. Levit, Henry J. Silberberg and Margaret A Nagle, Los Angeles, for plaintiffs and respondents.

William M. Bennett, San Francisco, as amicus curiae on behalf of plaintiffs and respondents.

RICHARDSON, Justice.

The Board of Administration of the Public Employees' Retirement System (the Board) appeals from a judgment of the Los Angeles County Superior Court declaring that the restrictions of article IV, section 4 of the California Constitution and section 9359.11 of the Government Code (all further statutory references are to this code) may not constitutionally be applied in computing the retirement allowances of respondents, who are former state legislators or their surviving spouses. By its peremptory writ of mandate, the trial court ordered the Board to recalculate those retirement benefits in accordance with sections 9359.1, subdivision (a), and 9360.9, without giving effect to article IV, section 4, and section 9359.11. (The relevant portions of these enactments are set forth in an appendix to this opinion.) For reasons hereinafter developed, we conclude that the trial court erred, and accordingly reverse its judgment and vacate the writ.

Respondents are 32 retired former legislators or their surviving spouses. Each of the legislators served in the Legislature during the 1963-1965 terms and retired prior to the legislative term commencing January 1, 1967. Respondents are all current members of the Legislators' Retirement System (LRS). The Board is the statutory administrator of the LRS. (See §§ 9350.2, 9353.)

At least since 1949, the Legislators' Retirement Law (LRL) (§ 9350 et seq.) has provided that the basic retirement benefit of a legislator is an annual sum equal to 5 percent of the compensation payable to incumbent legislators at the time the retirement allowance falls due, multiplied by the number of years served by the legislator, not exceeding 15. (See § 9359.1, subd. (a).) In so defining such allowances, the LRL thus contemplated retirement benefits which would vary with current legislative salaries, presumably in order that retirees, like current legislators, could maintain a fairly constant standard of living despite fluctuations in living costs. Implicit in this scheme was the assumption that legislators' salaries periodically would be adjusted to reflect current costs of living.

When the LRL was adopted, legislators were receiving a salary of $100 per month for what essentially was part time employment. (See Cal. Const., former art. IV, § 2, repealed in 1966.) By constitutional amendments that monthly salary was successively increased to $300 in 1949 and $500 in 1954. (Before 1966 legislative salaries were fixed by the Constitution and could not be modified by the Legislature. (See id., § 23b, repealed in 1966.))

In 1963, during respondents' incumbency, the Legislature adopted section 9360.9. That statute provided for the direct adjustment of retirement allowances to be paid retired legislators commencing in 1964 to reflect increases in the cost of living since 1954, with annual increases each year thereafter based upon any cost-of-living increase during the preceding year. By adoption of this new fluctuating factor in the computation of retirement allowances tied to cost of living rather than to current legislative salaries, the Legislature apparently sought to accomplish in a different way the LRL's objective of maintaining the purchasing power of retirement benefits. The original plan to achieve that objective--connecting retirement allowances to current legislative salaries--had proven ineffective because those salaries were not increased periodically to reflect inflated living costs from 1954 to 1964, when section 9360.9 became effective.

In 1966, as a result of an extensive partial revision of the California Constitution, annual regular legislative sessions were introduced and state legislators were authorized for the first time to set their own salaries. (See Cal. Const., art. IV, §§ 3, 4.) The former provision for a salary of $500 per month (see id., former art. IV, § 2, subd. (b)) was repealed and a 1966 statute establishing a salary of $16,000 per annum commencing January 2, 1967, was ratified. (See id., former art. XXII, § 6, as adopted Nov. 8, 1966; § 8901.) Included in article IV, section 4 was a provision prohibiting the Legislature from utilizing the new, substantially increased legislative salary as a basis for computing the retirement benefits of any legislator who retired before 1967 and therefore had not in fact received the new salary during his or her incumbency. The pensions of legislators whose salaries had not exceeded $500 per month were to continue to be computed on the basis of that salary. Contemporaneously, the Legislature added section 9359.11 to the LRL, operative January 2, 1967. That section expressly provides that notwithstanding any contrary provision of section 9359.1--tying retirement allowances to current legislators' salaries--the retirement benefit of any legislator retiring before 1967 shall be based upon the $500 monthly salary.

Pursuant to these provisions, the Board consistently has computed the retirement allowances of respondents on the basis of the $500 monthly salaries which they had received as legislators, adjusted for the cost-of-living increases provided by section 9360.9. In December 1978, however, apparently in response to our decision in Betts v. Board of Administration (1978) 21 Cal.3d 859, 148 Cal.Rptr. 158, 582 P.2d 614, respondents applied to the Board to recalculate their retirement allowances free of the restrictions imposed by section 9359.11, and article IV, section 4 of our Constitution. The Board rejected the application.

Respondents then sued for mandate to compel the Board to grant the relief requested on the ground that application of the foregoing constitutional and statutory limitations to the computation of their retirement benefits impaired their contractual pension rights in violation of the contract clauses of the United States and California Constitutions. (See U.S. Const., art. I, § 10; Cal. Const., art. I, § 9.) The Board, in cross-complaining for declaratory relief, urged the constitutionality of the challenged provisions and the validity of its computations pursuant thereto. As indicated, the trial court accepted respondents' contentions and issued mandate. The Board appeals.

The United States Constitution prohibits any state from passing a law "impairing the obligation of contracts." (U.S. Const., art. I, § 10.) A parallel proscription is contained in article I, section 9 of the California Constitution. The federal provision has been held to apply to any enactment upon which a state confers the force of law, including its own Constitution. (Lyon v. Flournoy (1969) 271 Cal.App.2d 774, 779, 76 Cal.Rptr. 869, and cases therein cited.) It follows, accordingly, that even though a state may be constitutional amendment supersede its own constitutional protection for contracts, such modification and any law adopted pursuant thereto still must pass federal constitutional muster. (See Olson v. Cory (1982) 134 Cal.App.3d 85, 101, 184 Cal.Rptr. 325.)

Not every change in a retirement law constitutes an impairment of the obligations of contracts, however. (See Stork v. State of California (1976) 62 Cal.App.3d 465, 468, 133 Cal.Rptr. 207.) Nor does every impairment run afoul of the contract clause. The United States Supreme Court has observed, "Although the Contract Clause appears literally to proscribe 'any' impairment, ... 'the prohibition is not an absolute one and is not to be read with literal exactness like a mathematical formula.' [Citation.] Thus, a finding that there has been a technical impairment is merely a preliminary step in resolving the more difficult question whether that impairment is permitted under the Constitution." (United States Trust Co. v. New Jersey (1977) 431 U.S. 1, 21, 97 S.Ct. 1505, 1517, 52 L.Ed.2d 92.) An attempt must be made "to reconcile the strictures of the Contract Clause with the 'essential attributes of sovereign power,' ..." (Ibid.) For example, "[m]inimal alteration of contractual obligations may end the inquiry at its first stage. Severe impairment, on the other hand, will push the inquiry to a careful examination of the nature and purpose of the state legislation." (Allied Structural Steel Co. v. Spannaus (1978) 438 U.S. 234, 245, 98 S.Ct. 2716, 2723, 57 L.Ed.2d 727, fn. omitted; accord Valdes v. Cory (1983) 139 Cal.App.3d 773, 789, 189 Cal.Rptr. 212.)

The high court has also expressed the relevant principles another way: "The constitutional prohibition against contract impairment does not exact a rigidly literal fulfillment; rather, it demands that contracts be enforced according to their 'just and reasonable purport;' not only is the existing law read into contracts in order to fix their obligations, but the reservation of the essential attributes of continuing governmental power is also read into contracts as a postulate of the legal order. (City of El Paso v. Simmons (1965) 379 U.S. 497, 508 [85 S.Ct. 577, 584, 13 L.Ed.2d 446] ...; Home Building & Loan Assn. v. Blaisdell [1934] 290 U.S. [398,] 428-429, 434-435 [54 S.Ct. 231, 236-237, 238-239, 78 L.Ed. 413] ....) The contract clause and the principle of continuing governmental power are construed in harmony; although not permitting a construction which permits contract repudiation or destruction, the impairment provision does...

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