Simpson v. North Carolina Local Government Employees' Retirement System, 8710SC400

• Decision Date: 22 December 1987
• Docket Number: No. 8710SC400,8710SC400
• Citation: 363 S.E.2d 90,88 N.C.App. 218
• Parties: Jesse R. SIMPSON, Richard D. Moore, on behalf of themselves and all others similarly situated v. NORTH CAROLINA LOCAL GOVERNMENT EMPLOYEES' RETIREMENT SYSTEM, a corporation; Board of Trustees of the North Carolina Local Government Employees' Retirement System, a body politic and corporate; E.T. Barnes, Director of the Retirement System Divisions and Deputy Treasurer for the State of North Carolina (in his official capacity); Harlan E. Boyles, Treasurer of the State of North Carolina and Chairman of the Board of Trustees of the North Carolina Local Government Employees' Retirement System (in his official capacity); and the State of North Carolina.
• Court: North Carolina Court of Appeals

Page 90

363 S.E.2d 90

88 N.C.App. 218

Jesse R. SIMPSON, Richard D. Moore, on behalf of themselves and all others similarly situated v. NORTH CAROLINA LOCAL GOVERNMENT EMPLOYEES' RETIREMENT SYSTEM, a corporation; Board of Trustees of the North Carolina Local Government Employees' Retirement System, a body politic and corporate; E.T. Barnes, Director of the Retirement System Divisions and Deputy Treasurer for the State of North Carolina (in his official capacity); Harlan E. Boyles, Treasurer of the State of North Carolina and Chairman of the Board of Trustees of the North Carolina Local Government Employees' Retirement System (in his official capacity); and the State of North Carolina.

No. 8710SC400.

Court of Appeals of North Carolina.

Dec. 22, 1987.

Daniels & Daniels, P.A. by Marvin Schiller, Research Triangle Park, for plaintiffs-appellants.

Atty. Gen. Lacy H. Thornburg by Norma S. Harrell, Asst. Atty. Gen., Raleigh, for defendants-appellees.

WELLS, Judge.

The question presented is whether the pension rights of vested members of the North Carolina Local Governmental Employees' Retirement System (Retirement System) may be made subject to adverse legislative modification without violation of U.S. Const. art. 1, § 10, cl. 1, prohibiting states from enacting any law "impairing the Obligation of Contracts." This is a case of first impression in North Carolina. ¹

The facts are not in dispute. Both plaintiffs are former firemen for the City of Greensboro who have qualified for disability benefits under the Retirement System. Mr. Simpson became a vested member ² of the Retirement System by 6 August 1969 and qualified for disability benefits on 1 March 1983. Mr. Moore became a vested member of the Retirement System by 16 July 1978 and qualified for disability benefits on 1 January 1984. Under N.C.Gen. Stat. § 128-27(d3), which was in force from 1 July 1971 through 30 June 1982, a member of the Retirement System retiring on disability received a benefit calculated as if he had worked to the age of 65 years. Further, members whose creditable service began prior to 1 July 1971, like plaintiffs in the present case, received no less than the allowance provided by prior law, G.S. § 128-27(d2).

On 9 October 1981, the General Assembly modified, effective 1 July 1982, Chapter 128 by adding G.S. § 128-27(d4), which provides as follows:

(d4) Allowance on Disability Retirement of Persons Retiring on or after July 1, 1982.--Upon retirement for disability, in accordance with subsection (c) of this section on or after July 1, 1982, a member shall receive a service retirement allowance if he has qualified for an unreduced service retirement allowance; otherwise the allowance shall be equal to a service retirement allowance calculated on the member's average final compensation prior to his disability retirement and the creditable service he would have had had he continued in service until the earliest date on which he would have qualified for an unreduced service retirement allowance.

Thus, under the amended statute a member of the Retirement System retiring on or after 1 July 1982 receives either an unreduced service retirement allowance or an allowance calculated as if he had worked to the earliest date on which he would have been eligible for an unreduced benefit, basically either 30 years or age 65. This means that a member beginning creditable service at, for example, age 20, can no longer, upon disablement after vesting, receive a benefit calculated as if he had worked 45 years. Instead, he may claim no more service credit years than a person retiring on service retirement after a full career of 30 years. Obviously, members such as plaintiffs herein who began work prior to age 35, and/or members who can claim additional service credits such as military service, stand to receive, upon disablement after vesting, a smaller retirement allowance under the modified statute than under prior law. Mr. Moore presently receives $564.88 per month as his retirement benefit, whereas he would have received $717.08 under the prior statute. Mr. Simpson now receives $801.91 monthly, whereas under the antecedent statute his allowance would have been $1,182.82. The gravamen of plaintiffs' complaint is that they are entitled to have their disability retirement benefits calculated according to the more favorable formula in effect at the time they became vested members of the Retirement System.

Plaintiffs contend that an adverse change in the benefit structure after vesting constitutes an impairment of contractual rights. In response, defendants contend, first, that North Carolina case law either does not support plaintiffs' position, or controverts it, as in Griffin v. Bd. of Com'rs. of Law Officers' Retirement Fund, 84 N.C.App. 443, 352 S.E.2d 882, disc. rev. denied, 319 N.C. 672, 356 S.E.2d 776 (1987). Defendants claim Griffin stands for the proposition that the General Assembly can make changes in the disability retirement structure and apply those changes to members with vested rights who have not yet retired on disability retirement at the time the changes came into force.

Defendants further point out that the General Assembly has expressly retained, per G.S. § 128-38, "the right at any time and from time to time ... to modify or amend in whole or in part any or all of the provisions of the North Carolina Local Governmental Employees' Retirement System." Finally, defendants contend that even if the relationship between the Retirement System and plaintiffs is one of contract, and even assuming an impairment by virtue of the 1981 amendment, the impairment is nevertheless lawful because it is reasonable and necessary to serve an important public purpose.

We have looked to the case law of other jurisdictions to find guidance in deciding this difficult case and have encountered a kaleidoscope of multifarious and conflicting views. See, e.g., Annot., 52 A.L.R.2d 437 (1957). In a few states, the issue has been removed from the courts' province by constitutional amendment or by statutory enactment expressly providing that public employee pension plans give rise to contractual rights. Most of those courts which have confronted the question presented by this case, or questions similar to the one presented here, have adopted one of five approaches, which we review briefly below.

First, a few jurisdictions still follow the traditional common law in holding that public employee pensions are gratuities creating no contractual rights until the member satisfies all his retirement requirements. According to this view, such pension benefits are mere expectancies, modifiable or revocable at the whim of the legislature. For examples of such cases see, e.g., Etherton v. Wyatt, 155 Ind.App. 440, 293 N.E.2d 43 (1973) and Creps v. Bd. of Firemen's Relief & Retirement Fund Trustees, 456 S.W.2d 434 (Tex.1970).

Apparently, a majority of courts have in recent years abandoned the common law gratuity theory in favor of an approach which accords more protection to such pension rights. The Minnesota case Christensen v. Mpls. Mun. Emp. Retire. Bd., 331 N.W.2d 740 (Minn.1983) represents the second approach reviewed here. In this case, the Supreme Court of Minnesota declared that "a public employee's interest in a pension is best characterized in terms of promissory estoppel." The court went on to imply in law a contract to enforce the state's promise of pension benefits that had been reasonably relied upon.

Third, a large number of states have construed public pension plans as giving rise to contractual rights--even in the absence of a clear statement of legislative intent to contract. See Pineman v. Oechslin, 494 F.Supp. 525 (D.Conn.1980), for cases cited therein. Some of these states have held that such pension rights vest unconditionally at the moment of employment. See, e.g., Yeazell v. Copins, 98 Ariz. 109, 402 P.2d 541 (1965). Other states follow the so-called California rule according to which such pension rights, though contractual, may be modified by the legislature where necessary and reasonable, provided that any disadvantages to employees are offset by comparable new advantages. See, e.g. Allen v. Bd. of Admin., 34 Cal.3d 114, 192 Cal.Rptr. 762, 665 P.2d 534 (1983). Courts have generally been more likely to find vested contractual rights arising out of voluntary plans than out of mandatory ones and, further, have generally shown themselves more solicitous of employees who have already retired than of those who have not. See Annot., 52 A.L.R.2d, supra, at 441-43.

Fourth, at least two jurisdictions, however, have stubbornly rejected the contractual approach. In Spina v. Consol. Police & Firemen's Pension Fund Comm'n, 41 N.J. 391, 197 A.2d 169 (1964), the Supreme Court of New Jersey held, in an opinion authored by Chief Justice Weintraub, that the provisions of a pension plan, like other terms and conditions of public service employment, "rest in legislative policy rather than contractual obligation, and hence may be changed except of course insofar as the State Constitution specifically provides otherwise." The court stated that legislative acts do not give rise to contractual rights abridging the power of succeeding legislatures to make revisions for the good of all unless the statute "expressly calls for the execution of a written contract or confirms a settlement of a dispute." The Supreme Court of Connecticut has recently embraced the Spina approach in Pineman v. Oechslin, 195 Conn. 405, 488 A.2d 803 (1985). The Connecticut court...