Original jurisdiction in case of Francis J. Catania, Charles W. Sweet, Paul R. Becker, Edward J. Bradley, John N. Sawyer, Edmund V. Ludwig, Joseph F. O'Kicki and Livingstone M. Johnson, as individuals, on behalf of themselves and all others similarly situated v. Commonwealth of Pennsylvania, State Employees' Retirement Board and Robert L. Cusma, in his capacity as Secretary of the State Employees' Retirement System, and Robert E. Casey, in his capacity as Treasurer of the Commonwealth of Pennsylvania.
Henry T. Reath, with him Alexis J. Anderson and Robert E. Kelly, Jr., Duane, Morris & Heckscher, for plaintiffs.
Mary Ellen Krober, Deputy Attorney General, with her Allen C. Warshaw, Deputy Attorney General, Chief of Special Litigation, and LeRoy S. Zimmerman, Attorney General, for defendants.
Sidney L. Krawitz, with him Joseph F. Kameen, Krawitz & Ridley, P.C., for Amicus Curiae, Pennsylvania Bar Association.
Judges Blatt, Craig and MacPhail, sitting as a panel of three. President Judge Crumlish, Jr. and Judges Rogers, Williams, Jr. and Doyle did not participate. Opinion by Judge Craig. President Judge Crumlish, and Judges Rogers, Williams and Doyle did not participate in the decision in this case.
[ 71 Pa. Commw. Page 395]
The matter now before this court*fn* began with a complaint, with counts in mandamus and for declaratory judgment, which eight judges of courts of common pleas of various counties filed originally in this court against the State Employees' Retirement Board, its secretary and the Treasurer of the Commonwealth. After the pleadings closed, with no dispute of fact involved, the plaintiffs presented a motion for summary judgment, asking that we order the recalculation of the retirement pension benefits of the plaintiffs, and others similarly situated, under the State Employes' Retirement Code of 1959*fn1 without reference to certain modifications effective June 22, 1972 and March 1, 1974, as discussed below.
The Pennsylvania Supreme Court then accepted plenary jurisdiction of the case. After argument, the Supreme Court granted the requested summary judgment in favor of those three of the plaintiffs*fn2 who had
[ 71 Pa. Commw. Page 396]
completed ten years of judicial service before March 1, 1974, but after June 22, 1972. Catania v. State Employees' Retirement Board, Pa. , 450 A.2d 1342 (1982). Being divided with respect to the issues raised by the remaining plaintiffs, the Supreme Court has returned the case for our consideration as to those five plaintiffs, four of whom*fn3 began their judicial service before June 22, 1972 and completed ten years of service after March 1, 1974, while the remaining plaintiff*fn4 commenced his judicial service between the two stated dates and accordingly will also complete ten years of service after the 1974 date.
The provisions of the 1959 Code for the calculation of judges' pension benefits and contributions, and mathematical illustrations of the effects of the 1972 and 1974 modifications, have appeared in McKenna v. State Employees' Retirement Board, 495 Pa. 324, 433 A.2d 871 (1981) (all of the justices concurring in the result) consistently with the presentation of the same in the opinion of the Chief Justice in this case. In short, the 1959 benefits formula, before those modifications, was
Final Average Salary X 10 years X .04
Final Average Salary X years beyond 10 X .03
As to judges' contributions to the pension fund, the 1959 Code generally required 10% of salary to be contributed during the first ten years and 7.5% in each year thereafter.
The Commonwealth Compensation Commission, in its report of June 22, 1972, while recommending salary increases for members of the executive, judicial and
[ 71 Pa. Commw. Page 397]
legislative branches, froze the "Final Average Salary" compensation for pension purposes at $30,000, a figure below the actual salary level recommended.
Although the legislature, by Concurrent Resolution No. 1, of August 15, 1972, permitted the final average salary freeze to remain, thereafter the new State Employees' Retirement Code of 1974, 71 Pa. C.S. §§ 5101-5956, eliminated the final average salary freeze but established a reduction of 25% in the multipliers for the benefits formula. The multiplier of .04 for the first ten years of service was reduced to .03, and the multiplier of .03 for years beyond ten was reduced to .025. The same 1974 Code also reduced the required contributions by 25%, from 10% to 7.5% of salary for the first ten years, and from 7.5% to 5.625% for years beyond ten.
As illustrated by calculations submitted by affidavit on behalf of the defendant board in this case, as applied to the typical case of the Honorable Edmund V. Ludwig, one of the four-judge group noted above, the effect of the 1974 change is as follows:
Annual full retirement annuity (age 60)
Adjusted for early retirement, the respective figures become (1959) $22,739.11 and (1974) $17,054.33.
Calculations from an affidavit submitted on behalf of the plaintiffs proceed from that point to apply a Cost of Life Annuity factor to arrive at a Present Value of Account of $478,632 under the 1959 Code alone and $358,974 under the 1959 Code as modified by the 1974 Code, for a total difference of $119,658. The same affidavit calculates the difference in contribution totals ($72,500 and $58,125, respectively) to be $14, 375, thus presenting a net dollar detriment of $105,283.
[ 71 Pa. Commw. Page 398]
We consider other impacts of the 1974 Code, both quantifiable and unquantifiable, below. The 1974 Code also repealed the 1972 freeze, retroactively to January 1, 1973.
In focusing upon the precise questions which remain in this case, it is apparent that the Supreme Court, despite dividing in other respects in Catania, unanimously agreed that the 1972 freeze cannot lawfully be applied to any who were members of the retirement plan before the freeze's effective date (four of the five judges now involved here), nor even to the one plaintiff who joined the retirement plan after that date because, even in the view of those justices who would refuse summary judgment in favor of those judges in other respects, the freeze clearly was wholly detrimental. The fact or prospect of salary increases was of no moment, according to the opinion of former Chief Justice O'Brien, because "when deciding if changes detrimental to the employee are offset by accompanying benefits, the benefits, if any, must be contained in the pension plan itself, thus precluding consideration of increases in salary as an offsetting benefit." Catania, Pa. at , 450 A.2d at 1351, n. 7.
Of course, we cannot disagree with the indicated unanimous view of the Supreme Court, that any effect of the 1972 freeze must be excluded from the pension calculations of the plaintiffs. Therefore, the issues of the 1974 Code changes become our sole concern.
A broad statement of the issue now before us is as follows:
With respect to judges who, by assuming office, became members of the retirement plan before the date of a statutory amendment decreasing the dollar amount of benefits and the dollar amount of contributions,
[ 71 Pa. Commw. Page 399]
as well as making other changes, do the constitutional provisions prohibiting legislative impairment of contracts and prohibiting the diminution of judges' compensation during their terms of office, unless applied generally to all salaried officers of the Commonwealth, bar the application of those legislative changes to the calculation of pension benefits?
The pertinent line of judicial decisions is by now familiar. We now must inquire whether the distinction (expressed in some of the precedents) between pension rights acquired upon joining the pension fund, in comparison with those attained upon completion of the prescribed minimum years of service, is a distinction having any real difference in substance.
The Background of Judicial Decisions
As the lexicon to follow in our consideration, we necessarily must note that the term "vesting" has traditionally been used when the employee, having made all required contributions, has completed the minimum number of years of service required for eligibility. Hickey v. Pittsburgh Pension Board, 378 Pa. 300, 106 A.2d 233 (1954). That terminology is in accordance with the Code of 1959; section 102(23.1) of that Code, added by the Act of July 31, 1968, P.L. 695, provided that "vesting" shall mean "the right of a member who separates from service after having completed ten (10) or more years of credited service to leave accumulated deductions . . . credited to his account" entitling him to receive a retirement allowance "upon reaching superannuation retirement age."
We have reviewed all of the major decisions which have considered whether or not statutory changes in pension plan terms can be constitutionally applied to pension plan members, both before such vesting by years of service and after the required number of years have expired; a footnote lists the citations of
[ 71 Pa. Commw. Page 400]
these cases in alphabetical order.*fn5 To present that survey in a compact form, we have tabulated those cases, listing the nature of the statutory changes in condensed form down the left-hand column and classifying the decisions, according to their facts, as to whether the pension contract rights of the respective plaintiffs had become, in the terminology noted above, "vested." We have noted the salient instances in which, beginning with Harvey and Schmidt in 1958, the Supreme Court stressed the actuarial soundness purpose as a basis for allowing statutory pension changes to have effect before "vesting."
[ 71 Pa. Commw. Page 401]
TABULATION -- PENSION DECISIONS
CHANGE BEFORE CHANGE AFTER
STATUTORY SERVICE YEARS SERVICE YEARS
CHANGE -- -- EFFECT ON -- EFFECT ON
EFFECTIVENESS PENSION PENSION
AT ISSUE CONTRACT CONTRACT
further public McBride 1938
2. Prohibition CHANGE ...