PENSIONS ‑- RETIREMENT ‑- LEGISLATORS ‑- ELECTED OFFICIALS ‑- CONSTITUTIONALITY OF PENDING LEGISLATION REGARDING RETIREMENT ALLOWANCES OF STATE ELECTED OFFICIALS
Unless deemed by the Court to be merely a legislative clarification of existing law and not a change in the law as it now exists, House Bill No. 986 relating to the formula to be utilized in computing the service retirement allowances of state elected officials, would be unconstitutional as applied to existing members of the Public Employees' Retirement System under the reasoning of Bakenhus v. Seattle, 48 Wn.2d 695, 296 P.2d 536 (1956) and later cases.
- - - - - - - - - - - - -
March 5, 1982
Honorable Alan Thompson
St. Rep., 18th District
406 House Office Building
Olympia, Washington 98504 Cite as: AGLO 1982 No. 5
By recent letter you requested our opinion regarding the constitutionality of House Bill No. 986 in light of the rule established by the Washington Supreme Court inBakenhus v. Seattle, 48 Wn.2d 695, 296 P.2d 536 (1956) and later cases.
We respond in the manner set forth below.
For most members of the Washington Public Employees' Retirement System (PERS), their statutory service retirement allowance is calculated as follows: Two percent of such members' average final compensation1/ for each year of service. See, RCW 41.40.185 and RCW 41.40.620. As a consequence of the passage of certain legislation in the early 1970's,2/ however, state elected [[Orig. Op. Page 2]] officials (including legislators but not judges) who are members of PERS Plan I3/ have been deemed to be entitled, upon retirement from service, to a retirement allowance which consists of an additional one percent (for a total of three percent) of such members' average final compensation for each year of service as a state elective official.4/ To illustrate, we use the following hypothetical example: A person who served as a member of the legislature for twenty-three years, during which his highest two-year salary level was $10,000 per year, and who then moved on to other state employment for an additional two years‑-with an annual average salary level of $40,000. Under the above described formula, his service retirement allowance would be 73 percent (twenty-three times three plus two times two) of $40,000‑-or $29,200.
Let us next turn, for comparative purposes, to the situation as it would exist under House Bill No. 986. Quite simply, that bill would add the following proviso to each of the two subsections of existing law which relate to (and provide for) the "special" three percent multiplier in the case of state elective service:5/
"PROVIDED, That average final compensation under this subsection applies to or includes only compensation earned during the member's period of service in positions established under Article II or III of the state Constitution or RCW 48.02.010."
What this would mean, in essence, is that there would be two separate retirement allowances in the case of a Plan I member of PERS who, at the time of retirement, had earned credit for both state elective service and "other" service. Such a member would [[Orig. Op. Page 3]] receive one allowance for elective service on the basis of three percent times years of such service times average final compensation as determined by that service alone. Then, in addition, the member would receive a second retirement allowance of two percent times years of "other" service times average final compensation as related to that other period of service.6/ To illustrate, let us again consider the same hypothetical case as we used, earlier, in describing the situation as it now exists‑-under current law. Here, for his twenty-three years of legislative service, the member would receive a retirement allowance equal to sixty-nine percent (twenty-three times three) of $10,000 (the amended AFC for that period of service)‑-or $6,900. Then, in addition, the member would receive a second retirement allowance in an amount equal to four percent (two times two) of $40,000 (the "other" AFC)‑-or $1,600. In turn, the combined total of the two retirement allowances would be $8,500 per year rather than $29,200 per year under the present formula as above applied to the same case.7/
Quaere: Would this change in the statutory formula, as applied to the subject individual, violate theBakenhus rule to which you have referred in your letter?
A complete explanation of the Bakenhus case8/ will be found in AGLO 1981 No. 1, copy enclosed, and we will not repeat the full [[Orig. Op. Page 4]] text of that opinion here. However, the essential elements of the rule which was there established (as summarized on page three of that 1981 opinion) are as follows:
"1. That employees who accept employment to which pension plans are applicablecontract thereby for a substantial pension, and are entitled to receive the same when they have fulfilled the prescribed conditions.
"2. That employees (prospective pensioners) will be presumed to have acquiesced in legislative modifications that do not unreasonably reduce or impair existing pension rights; or, stated positively, if the modifications are reasonable and equitable.
"3. That an act of the legislature, making a change in pension rights, will be weighed against pre‑existing rights in each individual case to determine whether it is reasonable and equitable. If the over-all result is reasonable and equitable, the employees (prospective pensioners) will be presumed to have acquiesced in the modifications; if the over-all result is not reasonable and equitable, there will be no such presumption."
The test of "reasonableness" which was set forth in Bakenhus (quoting from Allen v. Long Beach and Alger v. Long Beach, 45 Cal.2d 128, 287 P.2d 765 (1955) is as follows:
". . . To be sustained as reasonable, alterations of employees' pension rights must bear some material relation to the theory of a pension system and its successful operation, and changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages.'"
We also identified, in AGLO 1981 No. 1, the underlying constitutional basis for theBakenhus rule. It is, we said, so much of Article I, § 23 of our state constitution as provides:
"No . . . law impairing the obligations of contracts shall ever be passed."
Thus, in short, a public employee's pension law constitutes a contract. And therefore, a legislative amendment causing a significant reduction in the level of benefits without any [[Orig. Op. Page 5]] corresponding advantage (such as, for example, a correlative reduction in employees' contributions) results in an impairment of the contractual rights of those members who are disadvantageously affected by the amendment. It is, accordingly, unconstitutional as applied to those members.
Our task in responding to your request would thus appear to be fairly simple. In the case of House Bill No. 986,supra, there are no such balancing, or corresponding, advantages which would be offered as a "trade off" to those members of PERS Plan I who (as above illustrated) would be detrimentally affected by the creation (in effect) of a separate AFC for state elective service only.9/ For that reason, the proposed legislation, viewed from the standpoint of those individuals, would seem‑-under the traditional Bakenhus approach‑-quite clearly to be unconstitutional.
There is, however, one basis for nevertheless sustaining the legislation which we should explore, briefly, before closing. It is possible that House Bill No. 986 is not intended to change the law at all‑-but, instead, merely to clarify it;cf., Overton v. Economic Assistance Authority, 96 Wn.2d 552, P.2d (1981). Once again, the critical language of RCW 41.40.185(4) and RCW 41.40.190(5), supra, directing the calculation of the "three percent" formula for state elected officials, reads as follows:
"Said retirement allowance shall be equal to three percent ofthe average final compensation for each year of such service." (Emphasis supplied)
Since its enactment, this provision has been administratively construed by the Department of Retirement Systems, based on informal advice from this office, to mean (as above indicated) three percent times years of elective service times "average final compensation" based on compensation for any creditable service rendered at any time‑-and not (as under the proposed amendment) three percent times years of elective service times "average final compensation" based on compensation for elective service only. And, in line with the oft-repeated principle that ambiguities in pension statutes should be resolved in favor of the beneficiaries of those statutes,10/ that construction is perfectly proper. But, [[Orig. Op. Page 6]] undeniably, the statute is ambiguous. It speaks of "three percent of the average final compensation for each year of such service" whereas different language has been used elsewhere in chapter 41.40 RCW (relating to PERS) in connection with the calculation of other retirement allowances.11/ It is thus conceivable that the legislature, at the outset, truly intended that in this case it would only be the members' average final compensation for his or her years of elective service which would count insofar as the special, three percent, computation rate for such service is concerned. But if that is so, then House Bill No. 986 would not be unconstitutional under theBakenhus rule because is [it] would not, under that scenario, represent a change in the law at all.
Quite candidly, of course, the foregoing is an argument which would have been more persuasive in, say, 1974 than now. In the meantime, the department's administrative construction has ripened and been applied on numerous occasions, many of which have been well publicized by the news media. And, until now, the legislature has not seen fit to "clarify" its arguable "true" intent. Yet it is still possible, particularly if it were to be "instructed" by the legislature to do so,12/ that the Court might‑-even [[Orig. Op. Page 7]] today‑-accept the passage of House Bill No. 986 as a mere clarification and, thereby, sustain its constitutionality.
We trust that the foregoing will be of assistance to you.
Very truly yours,
KENNETH O. EIKENBERRY
PHILIP H. AUSTIN
Deputy Attorney General
*** FOOTNOTES ***
1/Defined by RCW 41.40.010(15) as,
". . . the annual average of the greatest compensation earnable by a member during any consecutive two year period of service for which service credit is allowed; . . ."
2/See, § 5, chapter 271, Laws of 1973, 1st Ex. Sess. and § 8, chapter 190, Laws of 1973, 1st Ex. Sess.
3/Meaning that they were first employed, and thus became members of the system, prior to October 1, 1977. See, RCW 41.40.005.
4/See, RCW 41.40.185(4) and RCW 41.40.190(5) which read, in material part:
. . . Said retirement allowance shall be equal to three percent of the average final compensation for each year of such service. . . ."
5/RCW 41.40.185(4) and RCW 41.40.190(5), supra.
6/Subject, however, to a 60 percent maximum in accordance with RCW 41.40.185(3). This maximum, which also applies under existing law to that portion of a service retirement allowance which is based on "other" (i.e., non-elective) service, only effects PERS Plan I members and not PERS Plan II members. See and compare, RCW 41.40.620.
7/In the alternative it is possible a court might construe the three percent formula of RCW 41.40.185(4) and 41.40.190(5) as permissive rather than mandatory, thereby allowing the affected retiree to utilize RCW 41.40.185(2) instead‑-with the result that, in the above‑stated hypothetical case, the member could count has years of legislative service as regular membership service and thus be eligible for a retirement allowance of 50 percent (46 percent + 4 percent) of $40,000‑-or $20,000. But that still would be substantially less than $29,200 allowance payable under existing law.
8/Bakenhus v. Seattle, 48 Wn.2d 695, 296 P.2d 536 (1956).
9/See, again, the hypothetical example above set forth.
10/See, e.g.,Bowen v. Statewide City Employees Retirement System, 72 Wn.2d 397, 433 P.2d 150 (1967).
11/See, e.g., RCW 41.40.185(2) (two percent ofhis average compensation); RCW 41.40.185(3) (one/seventieth of his average final compensation); RCW 41.40.190(3) (one‑one/hundredth ofhis average final compensation); RCW 41.40.235 (two percent of average final compensation); RCW 41.40.150(2) (one‑hundredth ofhis average final compensation); note also that the definition of "average final compensation" in RCW 41.40.010(15)(a), supra, is prefaced by the general introductory phrase of the section:
"As used in this chapter, unless a different meaning is plainly required by the context: . . ."
12/What we have in mind, here, is something in the nature of an express legislative declaration of purpose within the confines of the bill itself. See,e.g.,Anderson v. Seattle, 78 Wn.2d 201, 202-03, 471 P.2d 87 (1970);Carpenter v. Butler, 32 Wn.2d 371, 377, 201 P.2d 704 (1949);Cowiche Growers, Inc. v. Bates, 10 Wn.2d 585, 604, 117 P.2d 624 (1941); andState ex rel. Oregon Railroad v. Clausen, 63 Wash. 535, 541, 116 Pac. 7 (1911)); but see, Fairley v. Labor and Industries, 29 Wn.App. 477 (1981) indicating that the rule established by these cases is inapplicable where there has been an intervening court interpretation of the statute. Cf.,Biggs which the Court made passing reference to calculation of the "three percent" formula as follows:
"Following his appointment, Biggs filed requests with the director of the retirement system, asking that his retirement benefits be computed under the provisions of RCW 41.40.190(5). That statute grants members of PERS a retirement allowance of 3 percent, rather than the usual 2 percent, of the average final compensation for each year of service, where the "member was elected or appointed pursuant to Articles II or III of the Constitution of the state of Washington or RCW 48.02.010 . . ."