Association of Pennsylvania State College and University Faculties v. State System of Higher Educ.

• Decision Date: 06 July 1984
• Docket Number: AFL-CIO
• Citation: 479 A.2d 962,505 Pa. 369
• Parties: , 5 Employee Benefits Cas. 1788 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,, 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.
• Court: Pennsylvania Supreme Court

Page 962

479 A.2d 962

505 Pa. 369, 5 Employee Benefits Cas. 1788

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.

Supreme Court of Pennsylvania.

Argued May 15, 1984.

Decided July 6, 1984.

James J. Kutz, Allen C. Warshaw, Deputy Attys. Gen., for appellants.

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.

Anthony C. Busillo, II, Harrisburg, for appellee John T. Long, et al.

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"), 71 Pa.C.S. § 5101 et seq., requiring each member of the State Employees' Retirement System ("System") to contribute an additional one and one-quarter percent (1 1/4%) of his or her wages to the System's Retirement Fund, insofar as it applied to employees who were members of the System prior to that amendment's effective date. We agree with the Commonwealth Court that the enactment unconstitutionally impaired the contract rights of all existing members of the System and, therefore, we affirm.

I.

A.

The Code mandates that all state employees not explicitly exempted participate in the System. 71 Pa.C.S. § 5301(a). Section 5501 of the Code provides that "[r]egular member contributions shall be made to the [State Employees' Retirement F]und on behalf of each active member for current service." 71 Pa.C.S. § 5501. The "regular member contribution" rate is defined as "[t]he product of the basic contribution rate [X] the class of service multiplier if greater than one [X] the compensation of the member." 71 Pa.C.S. § 5102. The "basic contribution rate" is set at five percent (5%) with the proviso that "in no case shall any member's rate, excluding the rate for social security integration credit, be greater than his contribution rate on the effective date of [the Code] so long as he does not elect additional coverage or membership in another class of service." Id. Contributions are deducted from each member's wages and deposited in the Retirement Fund. Active members of the System accrue one "eligibility point" per year of service, 71 Pa.C.S. § 5307, ¹ and become eligible to vest their retirement benefits upon the accumulation of ten such "points." 71 Pa.C.S. § 5309 (Supp.1984-85).

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. 71 Pa.C.S. §§ 5507-5508.

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 accordance 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.

Petitions for review were filed in the Commonwealth Court by appellees, members of the System and their collective bargaining representatives, challenging the constitutionality of section 7 and seeking preliminary and permanent injunctive relief against its implementation. ³ The actions were eventually consolidated, and the parties, after entering into a stipulation of facts, filed cross-motions for summary judgment. Following argument before the Commonwealth Court en banc, appellees' motion was granted. As a result of that ruling, the Commonwealth was permanently enjoined from collecting pension contributions in excess of the five percent (5%) basic contribution rate from employees who were members of the system prior to the enactment of Act 31 and ordered to refund, with interest, any such payments already assessed. American Federation of State, County and Municipal Employees, AFL-CIO v. Com., --- Pa.Cmwlth. ---, 472 A.2d 746 (1984). This direct appeal followed.

II.

A.

The basis of appellees' challenge to section 7 was that it represented a legislative impairment of their contract rights violative of Article I, section 10 of the United States Constitution ⁴ and Article 1, section 17 of the Pennsylvania constitution. ^{5 5} Before addressing the constitutional issues, however, we must determine the precise nature of the impact of section 7 upon the retirement benefits of the members of the System.

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%) 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 members. 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 level 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 Commonwealth 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 employees who were members of the System prior to section 7's effective date in that it decreases the value of their retirement benefits in proportion to their contributions to the Fund.

B.

The instant actions were brought on behalf of both vested and non-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...