Spina v. Consolidated Police and Firemen's Pension Fund Commission

• Decision Date: 20 January 1964
• Docket Number: No. A--20,A--20
• Parties: Dominick A. SPINA, Joseph Hensel, Jr., Edward Carr, Frank Adubato, Joseph Mulhearn, Thomas E. Kelly, Andrew Kirkpatrick, Joseph Fruchter, Albert A. Weller, Lawrence W. Sheridan, 'Restoration of the 1920 Pension Acts Rights Committee,' an unincorporated organization or association consisting of seven or more persons, individually and on behalf of a class consisting of others similarly situate too numerous to be named, Plaintiffs-Appellants, v. CONSOLIDATED POLICE AND FIREMEN'S PENSION FUND COMMISSION, a commission of the State of New Jersey established in the Division of Investments in the Department of the Treasury, the City of Jersey City, a municipal corporation and the City of Newark, a municipal corporation, Defendants-Respondents.
• Court: New Jersey Supreme Court

Page 391

41 N.J. 391

197 A.2d 169

Dominick A. SPINA, Joseph Hensel, Jr., Edward Carr, Frank Adubato, Joseph Mulhearn, Thomas E. Kelly, Andrew Kirkpatrick, Joseph Fruchter, Albert A. Weller, Lawrence W Sheridan, 'Restoration of the 1920 Pension Acts Rights Committee,' an unincorporated organization or association consisting of seven or more persons, individually and on behalf of a class consisting of others similarly situate too numerous to be named, Plaintiffs-Appellants, v. CONSOLIDATED POLICE AND FIREMEN'S PENSION FUND COMMISSION, a commission of the State of New Jersey established in the Division of Investments in the Department of the Treasury the City of Jersey City, a municipal corporation and the City of Newark, a municipal corporation, Defendants-Respondents.

No. A--20.

Supreme Court of New Jersey.

Argued Oct. 21, 1963.

Decided Jan. 20, 1964.

Maurice C. Brigadier, Jersey City, for appellants (Seymour Margulies, Jersey City, associate counsel and on the brief).

Steven S. Radin, Deputy Atty. Gen., for respondent Consolidated Police and Firemen's Pension Fund (Arthur J. Sills, Atty. Gen., attorney).

Meyer Pesin, Jersey City, for respondent City of Jersey City (Joseph S. E. Verga, Jersey City, of counsel), and Norman N. Schiff, Newark, for respondent City of Newark (Joseph A. Ward, Newark, of counsel), submitted a brief on behalf of respondents City of Jersey City and City of Newark.

The opinion of the Court was delivered by

WEINTRAUB, C.J.

Plaintiffs seek a judgment that they and other members of certain police and firemen's pension plans are entitled to retire at age 50 after 20 years of service under the terms of Chapter 160 of the Laws of 1920. That statute had originally so provided, but amendatory legislation now requires 25 years of service and a minimum age of 51. N.J.S.A. 43:16--1.

Plaintiffs were appointed policemen or firemen between 1940 and 1944. As we understand the situation, membership in their pension funds was closed by Chapter 255 of Laws of 1944, N.J.S.A. 43:16A--1 et seq., which required policemen and firemen thereafter appointed to participate in a new retirement plan created by that chapter.

The complaint is that the amendatory legislation enlarging the requirements for retirement under the 1920 statute is constitutionally void as an impairment of a contract or a taking of property without due process. On cross motions for summary judgment the trial judge found that precedents in our State firmly rejected the assault and hence ordered judgment for defendants. We certified the appeal before it was heard in the Appellate Division.

I.

The legal issues must be viewed realistically against the story of these pension plans. The story appears in the Report of the New Jersey Advisory Commission on Local Police and Firemen's Pension Funds dated February 1, 1952, and much of it was recounted in City of Passaic v. Consolidated Police & Firemen's Pension Fund Comm'n, 18 N.J. 137, 113 A.2d 22 (1955).

Between 1887 and 1917, 26 laws were passed relating to retirement of policemen and firemen. By 1918 there were 55 funds covering 3,000 of a total of 3,700 policemen and 2,150 of 2,300 paid firemen. The plans varied, with service requirements ranging from 20 to 25 years and retirement age from 50 to 60. Benefits too were not uniform. The members contributed to some funds but not to others. Member contributions, where required, were from 1% To 2% Of salary, while municipalities contributed from 1% To 4% Of salaries. In addition there were miscellaneous revenues from certain tax sources and even from social events sponsored by the funds.

All of these funds had in common the promise of inevitable doom. The reason was that the annual revenues were not related to the ultimate cost of pension benefits, so that while current income might suffice for the earlier pensioners, the day had to come when little or nothing would remain for others, even of their own contributions to the fund. Accordingly there were periodic crises, in connection with which long-range solutions were offered, only to be rejected in favor of something more palatable for the moment.

In fact the 1920 act to which plaintiffs would recur was itself a 'solution' that merely delayed a true one. On January 31, 1918 the Pension and Retirement Fund Commission submitted its report to the Legislature. It estimated that to be solvent, a typical police pension fund should start with an annual contribution of 17.13% Of salary which would gradually decrease to a normal contribution of 8.34% In the course of 60 years, where as in fact nearly three-fourths of those funds started with total annual revenues of less than 5% And in nearly half the funds the revenues were 2% Or less. The report noted that legislation had already been sought and obtained to permit municipalities to appropriate additional moneys to meet deficits, and that as to a number of the larger funds the annual outlay, already at 10% Of payroll, eventually would reach 20% To 25% Because of the absence of reserves.

The Commission recommended stern measures, but instead Chapter 160 of the Laws of 1920 was enacted. It constituted a uniform retirement law to which existing and subsequent funds had to conform. It provided benefits more liberal than under a majority of the existing local funds whereas the Commission had recommended raising age and service requirements. The statute made little change in the contributions required of members and municipalities whereas the Commission proposed the rates be increased to provide for the benefits on an actuarial reserve basis. Chapter 160 also contained in section 4 the following provision upon which plaintiffs lay great emphasis and to which we will later refer:

'* * * In case there shall not be sufficient money in said pension fund created as aforesaid, the common council or other governing body shall include in any tax levy a sum sufficient to meet the requirements of said fund for the time being.'

In 1930 the Legislature constituted a Pension Survey Commission. In its report (1932) the Commission found that in 1931 there were 108 local funds operatng under the 1920 law and covering 11,153 out of 15,417 active paid police and fire personnel. At that time there were 2,116 pensioners, with an annual pension roll already in excess of the total annual contributions to the funds. The Commission found that the contributions to the funds averaged 7.17% Of the members' salary of which the members supplied 2.17% Of salary, whereas the annual contributions needed to support the benefits for a new employee were an average of 15.67% Of salary. In dollars, the funds had assets of but $3,269,000 and a deficit of $99,500,000, the latter being the amount which, if added at once and invested at 5% Interest, would permit liquidation of future pension obligations. The Commission's remedial recommendations were not enacted.

The 1952 report refers to a study in 1940 by the State Chamber of Commerce. That study showed that by 1940 the municipal deficiency appropriations already exceeded the fixed municipal contributions required by law, and the two represented a total municipal contribution of 9.6% Of payroll. The study estimated 'conservatively' that in the ensuing 35 years the 190 municipalities having these funds would pay $250,000,000 in deficiency appropriations alone.

Such was the situation when these plaintiffs became members of the funds. In 1940 annual deficiency appropriations to seven of the larger funds reached $1,167,000, and by 1944 the figure climbed to $1,729,000, with more than one million of that sum contributed in Newark and Jersey City, the two municipalities joined as defendants in this action. The situation was so grave that in 1944 representatives of employee groups, taxpayer groups, municipal officials, and State officials joined in search of an answer, There emerged a compromise (L.1944, c. 254), a major step toward improvement but still short of a solution. The highlights were these. Active (uniformed) personnel could retire at age 53 (other personnel at age 60) after 25 years of service. The pension was based on average salary of the member during his last five years of service. The members and the municipality were each required to contribute 5% Of salary. The State agreed to contribute $1,000,000 annually. No new pension funds could be established under Chapter 160, Laws of 1920; instead a state-wide actuarially sound Police and Firemen's Retirement System was created by L.1944, c. 255, covering all new employees.

As thus revised, these funds were still fiscally unsound. Further, some of the gains of the 1944 compromise were lost when amendments were made in 1947 (c. 234) and 1948 (c. 449), lowering the retirement age of uniformed members to 51 and increasing certain benefits.

In 1950 the State Department of Banking and Insurance issued a report on the 1920 funds. It was found that as of July 1, 1949 the funds, numbering some 200, had a combined deficit of $209,110,636, being the sum which, if immediately added, would, with earnings at 3%, permit fulfillment of the funds' obligations. As to Newark and Jersey City, the report revealed their funds respectively had assets of $95,089 and $137,283 with deficits of $40,383,290 and $31,487,523.

This brings us to Chapter 358 of the Laws of 1952 which was a response to the 1952 report. The statement annexed to the bill referred to the 'combined unfunded deficit of over $209,000,000.00,' noted the 'very serious concern to municipal officials and taxpayers, as well as the police and firemen,' and stated the purpose to fund the deficits through a 30-year annual amortization program. To that end the statute consolidated all of the 1920 pension funds. It continued the 5% Rate of contribution on the part of both members and municipalities, and required municipalities to contribute annually for the ensuing 30 years sums equal to two-thirds of the amount needed to achieve...