No. 81-3-480, Plenary Jurisdiction
Henry T. Reath, Alexis J. Anderson, Philadelphia, for appellants.
Mary Ellen Krober, Asst. Atty. Gen., for appellees.
O'Brien, C. J., and Roberts, Nix, Larsen, Flaherty and Hutchinson, JJ. O'Brien, C. J., files an opinion in support of the denial of summary judgment to the remaining plaintiffs, in which Roberts and Hutchinson, JJ., join. Nix, J., files an opinion in support of the grant of summary judgment to the remaining plaintiffs, in which Larsen, J., joins. Larsen, J., files an opinion in support of the grant of summary judgment to the remaining plaintiffs. Flaherty, J., files an opinion in support of the grant of summary judgment to the remaining plaintiffs, in which Larsen, J., joins. McDermott, J., did not participate in the consideration or decision of this case.
Summary judgment granted in favor of plaintiffs Beckert, Catania, and Sweet. The Court being equally divided, summary judgment in favor of the remaining plaintiffs is denied.*fn*
Before coming to this Court, I joined those now seeking review in these proceedings. Therefore, I have recused myself. It is my opinion that Mr. Justice Hutchinson should do likewise. Prescinding from the question of ultimate integrity and addressing only the issue of appearance, Mr. Justice Hutchinson has in this particular case an extra weight on that scale. Not only is he a member of the class directly affected, but while a member of the General Assembly, he voted for the statute in question. I do not believe necessity requires that the litigants in this case should be obliged to appeal to one whose vote created the legislation they contest.
Plaintiffs, Francis J. Catania, Charles W. Sweet, Paul R. Beckert, Edward J. Bradley, John N. Sawyer, Edmund V. Ludwig, Joseph F. O'Kicki and Livingstone M. Johnson are judges of the courts of common pleas of various counties. In January, 1981, the plaintiffs filed a two-count complaint, one in mandamus and the other for declaratory judgment in the Commonwealth Court, naming as defendants the State Employees' Retirement Board, Robert L. Cusma, Secretary of the State Employees' Retirement System and Robert E. Casey, Treasurer of the Commonwealth. In essence, the plaintiffs sought a ruling that modifications of the State Employees Retirement Code of 1959,*fn1 adopted in both 1972 and 1974, did not apply to plaintiffs and others similarly situated. Following completion of the pleadings, plaintiffs filed a motion for summary judgment. Before the Commonwealth Court ruled on the motion, this Court, at the plaintiffs' request, accepted plenary jurisdiction and must now determine whether summary judgment should be granted.
A brief review of the pension laws is necessary. Under the Retirement Code of 1959, a judge's retirement benefits consisted of:
". . . four one-hundredths (4/100) of his final average salary for each year of service during his first ten (10) years as judge, and thereafter equal to three one-hundredths (3/100)
thereof for each such year of service . . . not [to] exceed eighty (80) percent of his final average salary."
§ 401(1)(e). "Final Average Salary" was defined as:
". . . The highest average annual compensation received by a contributor as a state employe during any five (5) nonoverlapping periods of twelve (12) consecutive months of contributory service . . ."
§ 102(19). Judges were eligible to begin collecting retirement benefits after ten years of judicial service, § 102(23.1) and upon reaching sixty years of age § 102(14). Simply put, a judge's annual retirement benefits could be calculated by the following formula:
Benefits = Final Average Salary X 10 years X .04 Final Average Salary X years in excess of ten X .*fn032
In 1972, the Commonwealth Compensation Commission raised the annual salaries of the judges of the courts of common pleas from $30,000 to $40,000. The Commission, however, decided that for the purpose of determining retirement benefits, the "final average salary" component of the equation would be frozen at $30,000 as of June 22, 1972.
The legislature then passed the State Employees' Retirement Code of 1974.*fn3 For purposes relevant to our inquiry, the Retirement Code of 1974 made the following changes.
The 1972 freeze on "final average salaries" was abolished retroactively to January 1, 1973 and is now defined as:
"The highest average compensation received as a member during any three nonoverlapping periods of four consecutive calendar quarters during which the member was a state employee . . ."
71 Pa.C.S. § 5102 (Emphasis Added). While benefits and contributions for Class "A" employees generally remained the same, a judge's contributions were reduced 25% from 10% to 7.5% of annual compensation for the first ten years and from 7.5% to 5.625% for each year thereafter.*fn4 Retirement benefits were also reduced 25% in a similar proportional fashion, so that the multipliers which were .04 and .03 under the Retirement Code of 1959 were now reduced to .03 and .0225 respectively. Retirement benefits may not exceed the highest compensation during any period of twelve consecutive months. 71 Pa.C.S. § 5702(c). Employees are also given a number of options in deciding how retirement benefits will be paid. 71 Pa.C.S. § 5705(a).
Individual plaintiffs fall into one of three separate classes. Plaintiffs Catania, Sweet and Beckert completed ten years of judicial service after June 22, 1972, but before March 1, 1974, the effective date of the Retirement Code of 1974. Plaintiffs Bradley, Sawyer, O'Kicki and Ludwig commenced judicial service before June 22, 1972, and completed ten years of service after March 1, 1974. Plaintiff Johnson commenced judicial service between June 22, 1972, and March 1, 1974, and will complete ten years of service after the latter date.
Plaintiffs now argue that the 1972 and 1974 changes cannot apply to them because members of a public retirement system, at the time of taking office and joining the
system, acquire a contractual right to receive pension benefits undiminished during their term of office. They further argue that the provision of the Pennsylvania Constitution which proscribes a decrease in judicial salaries unless the compensation of all salaried officers is decreased, similarly prohibits application of the changes to them. Plaintiffs thus argue that their motion for summary judgment must be granted.
Pa.R.C.P. 1035(b) provides:
"The judgment sought shall be rendered if . . . there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law."
Further, summary judgment is to be granted only in the clearest of cases where the right in question is clear and free from doubt. Thompson Coal Co. v. Pike Coal Co., 488 Pa. 198, 412 A.2d 466 (1979). I am convinced, however, that a review of the applicable case law and relevant constitutional provisions compels the conclusion that while plaintiffs Catania, Sweet and Beckert are entitled to summary judgment the remaining plaintiffs have failed to establish their clear entitlement to the relief requested.
It is well-settled that in Pennsylvania public retirement benefits are viewed as deferred compensation and not as gratuities. Wright v. Retirement Board of Allegheny Co., 390 Pa. 75, 134 A.2d 231 (1957); Retirement Bd. of Allegheny Co. v. McGovern, 316 Pa. 161, 174 A. 400 (1934). Such a distinction is critical, for in those jurisdictions which view such benefits as gratuities, the benefits are alterable at the will of the grantor. Once the benefits are deemed to be a form of compensation, an employee obtains certain contractual rights. Both the Constitution of the United States and the Constitution of Pennsylvania contain provisions prohibiting the legislative impairment of contracts. U.S. Const. Art. I, § 10, Pa.Const. Art. I, § 17. Nonetheless, I am unconvinced that a pension plan is absolutely unalterable once a public employee has commenced employment and joined the retirement plan.
In Retirement Board of Allegheny Co. v. McGovern, supra, this Court stated:
"Until an employee has earned his retirement pay, or until the time arrives when he may retire, his retirement pay is but an inchoate right, but when the conditions are satisfied, at that time retirement pay becomes a vested right of which the person entitled thereto cannot be deprived: it has ripened into a full contractual obligation."
Id., 316 Pa. at 169, 174 A. at 404-05. (Emphasis Added).*fn5 Implicitly, at least, inchoate rights were not held to come under the protection of Art. I, § 17 of the Pennsylvania Constitution.
In McBride v. Retirement Board of Allegheny Co., 330 Pa. 402, 199 A. 130 (1938), appellant began collecting a pension from Allegheny County, having worked for twenty years and reached age 50 as required by the retirement law then in existence. Immediately thereafter, McBride commenced employment with the Commonwealth. Subsequently, the retirement law was amended to allow the suspension of retirement benefits should the retiree accept employment with another governmental unit. This Court held that the aforementioned amendment did not apply to McBride, explicitly stating:
"We endeavored to specifically hold in the McGovern case that eligibility for retirement pay is complete as soon as an employee or member of a retirement system has satisfied the conditions requisite for retirement . . . . His rights to such pay are fixed as of the time he attained eligibility. Until retirement pay is earned as above described the right is inchoate. During this period retirement pay is being built up. The inchoate right becomes a complete vested right when the conditions connected with
the particular retirement system are complied with. This right cannot be thereafter disturbed by legislation."
Id., 330 Pa. at 405-06, 199 A. at 132 (Emphasis Added).
In Kane v. Policemen's Relief & Pension Fund, 336 Pa. 540, 9 A.2d 739 (1939), appellant had retired from the Police Department of the City of Pittsburgh in 1927 and began collecting a pension from the Police Pension Fund Association of the City of Pittsburgh. Immediately thereafter, Kane accepted employment as the police chief of Mt. Lebanon Township. In 1935, the legislature created the Policemen's Relief & Pension Fund of the City of Pittsburgh. The legislature also provided that members of the old fund could, upon election, become members of the new fund. The new fund had a provision that any pensioner accepting other public employment should have his benefits suspended while so employed. When Kane elected to join the new fund, the managers of the new fund attempted to suspend his pension payments. This Court held that Kane could continue collecting his pension, stating:
"The pension right of a member of the old fund . . . was a contract right, a vested right by reason of contract. It may be that it was inchoate or incomplete until he had been an employee of the Bureau of Police for a period of twenty years and had been granted a pension, but it was just as much a vested right before he was awarded a pension as it was afterwards."
Id., 336 Pa. at 545, 9 A.2d at 742 (Emphasis Added). It is the emphasized language of the above-quoted passage that forms the basis of the position espoused by plaintiffs.
"A contract with its attendant rights and obligations is formed on the date of hire, not some indeterminate future date when certain events relating to eligibility to receive payments may or may not occur. When a judge takes office the pension rights are set; factors like years of service and age affect only the amount of the pension, rather than the right to it."
This Court has recognized the existence of the "contract theory" when dealing with pensions, but application of that theory does not require that all specifics of a pension plan be carved ...