Nash v. Boise City Fire Dept.

• Decision Date: 26 May 1983
• Docket Number: No. 13746,13746
• Citation: 663 P.2d 1105,104 Idaho 803
• Parties: Donald E. NASH, Claimant-Respondent, v. BOISE CITY FIRE DEPARTMENT, Employer, and Fireman's Retirement Fund, Defendant-Appellant.
• Court: Idaho Supreme Court

Page 1105

663 P.2d 1105

104 Idaho 803

Donald E. NASH, Claimant-Respondent, v. BOISE CITY FIRE DEPARTMENT, Employer, and Fireman's Retirement Fund, Defendant-Appellant.

No. 13746.

Supreme Court of Idaho.

May 26, 1983.

Blaine Evans, Paul S. Boyd and Hugh Mossman, Boise, for defendant-appellant.

Gardner W. Skinner and Berry Newal Squyres, Boise, for claimant-respondent.

HUNTLEY, Justice.

In 1978 the legislature amended I.C. § 72-1432B governing retirement benefits to firemen. From 1963 to 1976 the statute had provided that the monthly retirement checks would be adjusted upward or downward by a percentage equal to the percentage the average paid firefighters salary or wages varied each year.

In 1976 the statute was amended to peg the adjustment annually according to the determination of the "cost of living adjustment" as set forth in I.C. § 72-1432B. The 1978 amendment provided that this increase or decrease would not exceed 3%. The issue presented is whether this 3% "cap" applies to firefighters retiring after the July 1, 1978 effective date of the amendment, who earned benefits by virtue of service prior to that date.

Nash was a full time paid firefighter of Boise City from October 11, 1953, through October 17, 1978, a period of twenty-five years and five days. On August 31, 1978, Nash filed his Fireman's Retirement Benefit Fund application, which was approved by the manager of the State Insurance Fund and the Industrial Commission.

Following the approval of the Industrial Commission an "agreement for voluntary retirement" was prepared and submitted to Nash for approval and signature. Nash interposed objection only to the part of the agreement which provided that the benefits received would not increase or decrease by more than 3% per annum.

Nash filed a claim with the Industrial Commission for benefits and requested a hearing seeking an order from the Commission authorizing and requiring benefit payments pending determination of the applicability of the 3% cap. The Fund responded by answer, alleging that the cap applied to Nash; that as of that date Nash had not suffered a diminution in benefits; and that the Commission was without jurisdiction to hear and determine the constitutionality of the statute.

The Commission ordered the Fund to make payments to Nash and reserved for determination the applicability of I.C. § 72-1432B.

Subsequently, Nash filed an application for review and modification of the award contending that with the passage of a year the average annual salary had increased.

The Fund answered, raising the jurisdiction of the Commission to pass on the constitutionality of the section, and denying that the section violates the United States and Idaho Constitutions.

Following hearing the referee entered findings of fact, conclusions of law and order, which were confirmed, approved and adopted by the Commission. The order held that the benefits should be paid without regard to the 3% limitation. The evidence established the cost of living increases for 1979 and 1980 at 6.76% and 6.98% respectively.

Decision of the issue presented requires a determination of whether the level of a public employee's rights in a pension plan which has vested may be unilaterally altered by subsequent legislative act. As stated in Dullea v. Massachusetts Bay Transportation Authority, 421 N.E.2d 1228, 1232 (Mass.App.1981),

"The answer to this question requires a threshold determination whether the benefits embodied in the plaintiff's agreement are to be analyzed under ordinary contract law principles or whether they are better suited for the analysis reserved for modifications of publicly funded pension programs."

In Dullea, supra, in a thoughtful and well-reasoned analysis, the court reviewed the two approaches the courts had historically taken in approaching the issue:

"For many years, the courts used one or the other of two radically different theories to determine the effect of modifications of governmental pension plans. A numerical majority of jurisdictions, including Massachusetts, treated benefits under these plans as mere gratuities which could be changed or revoked to the employee's detriment at any time--even if the promised benefits had been taken in part from an employee's own salary, and sometimes even if the employee had satisfied all the conditions required to qualify for his pension. See, e.g. (outside of Massachusetts), Pennie v. Reis, 132 U.S. 464, 10 S.Ct. 149, 33 L.Ed. 426 (1889); Bergin v. Board of Trustees of Teachers' Retirement Sys., 31 Ill.2d 566, 574, 202 N.E.2d 489 (1964); Patterson v. Baton Rouge, 309 So.2d 306, 311-313 (La.1975); Mollner v. Omaha, 169 Neb. 44, 59-65, 98 N.W.2d 33 (1959); Dallas v. Trammell, 129 Tex. 150, 101 S.W.2d 1009 (1937); and (in this state) Foley v. Springfield, 328 Mass. 59, 102 N.E.2d 89 (1951); Kinney v. Contributory Retirement Appeal Bd., 330 Mass. 302, 113 N.E.2d 59 (1953); Smolinski v. Boston Retirement Bd., 346 Mass. 210, 190 N.E.2d 877 (1963). See also the discussion of the last three cases in Opinion of the Justices, 364 Mass. 847, 856-858, 303 N.E.2d 320 (1973). The remaining jurisdictions considered the promise of a pension, once accepted, as creating an irrevocable contractual commitment to pay the pension which was immune from any modification by the public employer which would effect a reduction in benefits. See, e.g., Yeazell v. Copins, 98 Ariz. 109, 402 P.2d 541 (1965); Bender v. Anglin 207 Ga. 108, 60 S.E.2d 756, cert. denied, 340 U.S. 878, 71 S.Ct. 125, 95 L.Ed. 638 (1950); Wright v. Allegheny County Retirement Bd., 390 Pa. 75, 79-80, 134 A.2d 231 (1957)...." Mass.App., 421 N.E.2d at 1233.

Dullea, supra, next presents a cogent analysis of the reasons why both the gratuity theory and the contract theory suffer from infirmities which undercut their utility in solving problems caused by today's complex public pension systems:

"The chief defect of the gratuity hypothesis is that, in practice, it can be unjust. Public employees are likely to rely on promises of retirement benefits when initially accepting employment, when deciding whether to continue in government service, and when planning their future. They are exposed to severe hardship, if, after a long period of service, the promised pensions are reduced or retracted. See Hickey v. Pittsburgh Pension Bd., 378 Pa. 300, 302, 106 A.2d 233 (1954); Note, Contractual Aspects of Pension Plan Modification, 56 Colum.L.Rev. 251, 254 (1956); Note, Public Employee Pensions in Times of Fiscal Distress, 90 Harv.L.Rev. 992, 997 (1977). Contract analysis is cumbersome and suffers from at least two flaws. First, it distorts reality, because the establishment of a governmental pension plan bears at most only a general resemblance to negotiation and formation of a contract. These programs are almost always instituted unilaterally without prior consultation with prospective beneficiaries. The express consent of the employee, if it is required at all, is usually a formality, and there is no 'bargained-for' consideration in the usual sense of that concept. The second infirmity in the contract analysis is that, by freezing the provisions of the plan without any adjustments, serious harm can occur to the governmental entity that created it. Changes in policies, commitments, and financial conditions can make plans drafted under favorable conditions unrealistic and burdensome on the government employer. See, e.g., Talbott v. Independent Sch. Dist., 230 Iowa 949, 299 N.W. 556 (1941); Newcomb v. Ogden City Pub. Sch. Teachers' Retirement Comm., 121 Utah 503, 243 P.2d 941 (1952)." Mass.App. 421 N.E.2d 1228, n. 9, at 1233-34.

Earlier, in Opinion of the Justices, 364 Mass. 847, 303 N.E.2d 320 (Mass.1973), the Massachusetts court sought to channel the reasoning process away from strict "gratuity" or strict "contract" analysis toward a more meaningful basis for analysis:

" 'The label "gratuity" could never have been taken with sober literalness, and so also for "contract." It is not really feasible--nor would it be desirable--to fit so complex and dynamic a set of arrangements as a statutory retirement scheme into ordinary contract law which posits as its model a joining of the wills of mutually assenting individuals to form a specific bargain. As the commentators show, a retirement plan for public employees does not readily submit itself to analysis according to Professor Williston's canons.... When, therefore, the characterization "contract" is used, it is best understood as meaning that the retirement scheme has generated material expectations on the part of employees and those expectations should in substance be respected. Such is the content of "contract."

It is true that a few cases that adopt the label of "contract" have approached the terms of a retirement plan as they would a bond indenture, but closer to the realities is the view that "contract" protects the member of a retirement plan in the core of his reasonable expectations, but not against subtractions which, although possibly exceeding the trivial, can claim certain practical justifications. Attention should then center on the nature of these justifications in the light of the problems of financing and administering these massive plans under changing conditions.' (citations and footnotes omitted.)" Dullea, supra, quoting Opinion of the Justices, 364 Mass. at 861-862, 303 N.E.2d 320. In Hanson v. City of Idaho Falls, 92 Idaho 512, 514, 446 P.2d 634 (1968), this court placed Idaho squarely in line with Massachusetts and other jurisdictions which reject both the gratuity and the strict contract theory, holding further that reasonable modification can be made to keep the plan flexible:

"The better reasoned rule in most American jurisdictions today is that the rights of the employees in pension plans such as Idaho's Retirement Fund Act are vested, subject only to reasonable modification for the purpose of keeping the pension system flexible and...