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IN THE SUPREME COURT OF THE STATE OF WASHINGTON

WASHINGTONEDUCATION ) ASSOCIATION; KATHIE AXTELL; STACIA ) BILSLAND; LISA BRACKIN-JOHNSON; ) RANDY JENSON; JARED KINK; SUSAN ) LEAVEL; SHEILANOKES; CINDYROAF; ) DEBBIE ROSE; and all others similarly ) situated, ) ) Respondents/Cross-Appellants, )


### v. WASHINGTONDEPARTMENT OF RETIREMENT SYSTEMS; STATE OF WASHINGTON, ) ) ) ) ) ) ) Appellants/Cross-Respondents. )



# ________________) CHERYL COSTELLO; STEPHEN GORE; RICHARD MORVAN; JERALD NEWELL; DAVID RENO; and FINN LIVINGSTON on behalfofthemselves and a class ofpersons similarly situated, ) ) ) ) ) ) Respondents/Cross-Appellants, )
v. WASHINGTON DEPARTMENT OF RETIREMENT SYSTEMS; STATE OF WASHINGTON, ) ) ) ) ) ) ) Appellants/Cross-Respondents. )



### _______________________ _j No. 87424-7

En Bane

Filed 

## AUG 1.4. 2014No. 87424-7
WASHINGTON PUBLIC EMPLOYEES ) ASSOCIATION, UFCWLOCAL 365, on ) behalfofthe individual employees it ) represents, ) ) Plaintiffs, ) ) v. ) ) DEPARTMENT OF RETIREMENT ) SYSTEMS; STATE OF WASHINGTON, ) ) Defendants. ) WASHINGTON FEDERATION OF STATE ) EMPLOYEES; PAULETTE THOMPSON; ) DANAHUFFORD; andDONHEWITT, ) ) Respondents/Cross-Appellants, ) ) v. ) ) DEPARTMENT OF RETIREMENT ) SYSTEMS; STATE OF WASHINGTON, ) ) Appellants/Cross-Respondents. )

MADSEN, C.J.-Thelegal issue presentedhere is whether the legislature's 2007 repeal ofgain sharing-apension enhancementprovidedin years ofextraordinary investmentreturn-unconstitutionallyimpairs the contractbetweenthe State and its employees. The companion case, Washington EducationAss 'n v. Department of RetirementSystems, No. 88546-0 (Wash. Aug. 14, 2014) (WEA 1), presents the same issue, and we reach the same conclusion. As inthe companion case, we hold that the legislature reserved its right to repeal a benefitinthe original enactment ofthatbenefit
2No. 87424-7
and the enactment did not impair any preexisting contractual right. As to the employees' alternative argument, which is raised only in this case, we hold that the explanatory materials provided by the Department ofRetirement Systems (DRS) do not rise to the level ofmaking apromise or creating an inconsistent statement and thus reject the employees' contention that the state is estopped from repealing the gain-sharing benefit at issue in this case. Accordingly, we reverse the trial court's award ofsummaryjudgment to the employees. FACTS AND PROCEDURAL HISTORY Washington offers a comprehensive system ofpension benefits for qualifying state employees. Most regularly compensated state employees and elected officials qualify for the Public Employees' Retirement System (PERS). Certifiedpublic school teachers qualify for the Teachers' Retirement System (TRS), while "classified" (noncertified) school district staffreceive benefits under the School Employees' Retirement System (SERS). There are three differentpensionplans, and benefits offered by Plans 1, 2, and 3
are consistent across the three systems.' Plan 1is a defined benefitplan where members receive a fixed monthly pension amount regardless ofthe amountthey actually contribute during employment. Employee contributionrates are fixed by statute, and employers contribute the amount needed to make up the difference between employee contribution, investment gains or losses, and the monthly payments promised to employees. Plan 3, alternately, is a hybrid pensionplan with defined benefit and contribution components.
1Employees in PERS and TRS fall into either Plan 1, Plan 2, or Plan 3. Because SERS was not created until 1998 (after Plan 1was eliminated for new employees), SERS employees are divided between Plan 2 and Plan 3. 3No. 87424-7
The defined benefitportion is funded exclusively through employer contributions and the investment returns thereon. Forthe defined contributionportion, the employee chooses the contribution rate uponjoining and controls the investment ofthe funds. The gainsharing program at issue here applied to members ofPlan 1 and Plan 3 ofFERS and TRS and Plan 3 ofSERS. 2 The economic boom ofthe 1990s sparked many years ofextraordinary investment gains. State employers benefited significantly from this spike because their contribution rates for Plans 1 and 3 automatically adjusted downward to reflect the extra cash flow. Butbecause employee contribution rates were fixed, the employees did not receive the
same benefit. The legislature decided to share some ofthe upside with employees and passed the gain-sharing program in 1998. LAws OF 1998, chs. 340 (PERS 1 and TRS 1 ), 341 (TRS 3 and SERS 3); LAWS OF 2000, ch. 247 (PERS 3). Under gain sharing, when investment returns exceeded 10 percent over the course offour consecutive years, a portion ofthe excess was distributed to member employees. FormerRCW 41.31.020 (2006) (Plan 1 ); former RCW 41.31A.020 (2006) (Plan 3). Plan 1members received their gain-sharing benefit as an increase to their postretirement annual cost ofliving adjustments (COLAs). FormerRCW 41.31.010 (2006). Plan 3 members received gain sharing as a lump sum creditto theirpension accounts. Former41.31A.020. 3

2 Gain sharing did not apply to Plan 2because Plan 2members' contribution rates adjusted downward in times ofextraordinary investment gain. Thus, they reaped the benefits ofthe surplus automatically. 3 With afew exceptions, only Plan 3members who had accumulated at least $1,000 in their member accounts could qualify for gain-sharing disbursements. Former RCW 41.41A.020(2). 4No. 87424-7
Because the Office ofthe State Actuary was uncertain ofgain sharing's long-term impact on the pension system and believed the program may need to be revised over time, the legislature expressly reserved its right to amend or repeal gain sharing. The Plan 1provision stated, "The legislature reserves the right to amend or repeal this chapter in the future Etnd no member or beneficiary has a contractual right to receive this postretirement adjustment not granted priorto that amendment orrepeal." Former RCW 41.31.030 (2006). The Plan 3 provision contained a substantially similar reservation clause. Former RCW41.31A.020(4). Since passage ofthe gain-sharing provision in 1998, gain-sharing events have occurred twice, once in 1998 and once in 2000. In 1998, gain sharing increasedPlan 1 members' COLAs by 10 cents. Former RCW 41.31.020(2). In 2000, gain sharing boosted Plan 1COLAs by 28 cents. In sum, these two gain-sharing events augmented Plan 1members' COLAs by $924 million. Plan 3 members received $134.43 per year of service from the 1998 gain-sharing event, generating a $28 million expenditure. The 2000 gain-sharing eventpaid $254.23 per year ofservice to Plan 3 members for a total disbursement of$73 million. The average Plan 3 member received $709.49 in 1998 and $2,051.52 in 2000 from these gain-sharing events.4 Afterthe boom ofthe 1990s, the economy slowed and the legislature began to reexamine its gain-sharing policy. Because employee contribution rates in Plans 1and 3

4 Because SERS 3 and PERS 3 were not created until after the 2000 gain-sharing distribution, the Plan 3 members included in these sums were all TRS 3 members. The legislature extendeda supplemental gain-sharing distribution equivalent to the 2000 payment for all PERS 2 members who transferred to PERS 3. LAws OF 2000, ch. 247. 5No. 87424-7

were fixed, it became necessary to increase employer contribution rates after gain-sharing events to accommodate years ofpoor investmentreturns. In2002, the legislature appointed a new state actuary. This new actuary quantified the monetary impact ofgainsharing and recommended that employer contribution rates be increased in anticipation of future gain-sharing liabilities. The legislature directed a study ofits options and ultimately decided to repeal gain sharing in 2007. LAws OF 2007, ch. 491. The 2007 act eliminated gain sharing for employees hired after July 1, 2007 and discontinued gain sharing for existing employees as ofJanuary 2, 2008. This structure allowed existing employees to collect a gain-sharingbenefit scheduled for January 1, 2008. Additionally, benefits already paid under the 1998 and 2000 gain-sharing events were notreclaimed. The 2007 act also enacted "replacementbenefits" for members ofeach class. Plan 1 members received an increase in their COLAs, some Plan 2 and 3 members were allowed early retirement, and newly hired TRS and SERS members were allowed to choose between Plans 2 and 3, instead ofbeing forced into Plan 3. The Washington Education Association, the Washington Federation ofState Employees, the Washington Public Employees Association, and an unaffiliated group of employees (the Costello group) filed lawsuits against the State in King County Superior Court. 5 Theplaintiffs challengedthe 2007 repeal ofgain sharing, contendingthe repeal unconstitutionally impaired their employment contracts withthe State in violation of article I, section 23 ofthe Washington Constitution and article I, section 10 oftheUnited States Constitution. Alternatively, the plaintiffs alleged that the repeal violated the due
5The Washington Public Employees Association eventually withdrew their suit. 6No. 87424-7
process clause, that the legislature was estopped from repealing gain sharing, and that the repeal breached a unilateral contract. The trial court consolidated the actions and bifurcated the issues. Phase one considered the legality ofthe repeal; the trial court granted summaryjudgmentto the plaintiffs and held the repeal violated the contracts clause ofthe state and federal constitutions. Phase two considered whether, given the unconstitutionality ofthe repeal, the State was required to maintain the replacementbenefits provided by the repeal legislation. Here the trial court granted summaryjudgmentto the State and canceled the replacement benefits. This court granted direct review after receiving petitions from both parties. DISCUSSION As an issue oflaw, summaryjudgmentis reviewed de novo. RetiredPub. Emps. Council ofWash. v. Charles, 148 Wn.2d 602,612,62 P.3d 470 (2003). This court presumes that statutes are constitutional as enacted. Forthe employees to prevail,, therefore, they must establish that "there is no reasonable doubt that the statute violates the constitution." Larson v. Seattle PopularMonorailAuth., 156 Wn.2d 752, 757, 131 P.3d 892 (2006). 1. Impairment ofContract The employees argue that they have a constitutionally protected right to continued gain sharing under this court's decision in Bakenhus v. City of Seattle, 48 Wn.2d 695, 296 P.2d 536 (1956). They contend this court cannot give effectto that part ofthe statute

7No. 87424-7 reserving the right to amend or repeal gain sharing. Finally, they argue that under Bakenhus, the 2007 act substantially impaired the retirementbenefits ofemployees because the repeal was not necessary to maintain the flexibility or integrity ofthe system and the replacement benefits provided were not comparable to the gain-sharing benefits thatwere repealed. Resp'ts' Br. and Cross Appellants' Br. at 20-45. This court addresses an identical legal issue in WEA I. That case concerns the legislature's 2011 repeal ofthe uniform cost ofliving adjustment (UCOLA) program. Enacted by the legislature in 1995, UCOLA replaced a prior system ofad hoc COLAs with an automatic grant ofannual COLAs based on a statutorily calculated increase amount per year ofservice. LAWS OF 1995, ch. 345. As with gain sharing, the legislature expressly reserved its right to modify or repeal UCOLA in the future. In fact, the reservation language is almost indistinguishable: "The legislature reserves the rightto amend or repeal this section in the future and no member or beneficiary has a contractual right to receive this postretirement adjustment not granted priorto thattime." Former RCW41.32.489(6) (2010); former RCW41.40.197(5) (2010). Facedwith declining economic conditions similarto those that motivated the repeal ofgain sharing, the legislature decided to exercise its reserved right and repealed UCOLA in 2011. LAws OF 20 11, ch. 362, § 1. A class ofpublic employee unions and unaffiliated employees challenged the 2011 repeal ofthe UCOLAprogram as an unconstitutional impairment of contract.

8No. 87424-7
Because the facts and legal issues between the companion cases are so similar, our decision here follows the analysis we outline in WEA I. WEA I holds that the three-prong test adopted in Carlstrom v. State, 103 Wn.2d 391, 694 P.2d 1 (1985), applies to public pension cases as well as otherpublic contract impairment cases butthat the pension-specific principles outlined in Bakenhus inform its application in the pension context. WEA I, slip op. at 10-11. These three prongs consider (1) whether a contractual relationship exists, (2) whether legislation has substantially impaired that contractual relationship, and (3) ifso, whether the impairment is reasonable and necessary to serve a legitimate public purpose. 

### !d. at 10. Just like the parties in this case, the respondents in WEA I claimed that the 2011 repeal ofthe UCOLA program impaired their contract rights with the State. But as we explain, the 1995 creation ofthe UCOLA program also provided for its repeal. The repeal ofUCOLA could never substantially impair existing contractual rights because a repeal ofthe program was expressly anticipated by the language ofthe contract. We therefore reasonthat the respondents' contract rights were impaired, ifat all, by the creation ofthe UCOLA program in 1995 and the legislature's inclusion ofa reservation clause in that statute. 

### !d. at 11-12. When addressing whether the creation ofthe 1995 UCOLA impaired any existing contract rights, this courtfocuses on the second prong ofCar/strom--substantial impairment. 

### !d. at 17-19. In WEA I, we hold that the Bakenhus requirements ofimplied consent and comparable new advantages define whether legislation substantially impairs

9No. 87424-7 existing contractrights in the public pension context. 

### !d. at 17. In this way, Bakenhus remains the driving force ofour analysis, though we properly confine it within the threeprong backbone ofCarlstrom. We also hold that the reservation clause is enforceable because it is "an express provision ofthe statute that created the claimed pension right,'' and enforcement is consistent with this court's case law and rules ofstatutory construction. 

### !d. at 12-15. As in WEA I, the parties here frame the issue as a challenge to the constitutionality ofthe 2007 repeal ofthe gain-sharing program. However, the repeal ofgain-sharing cannot impair any existing contractual right because the express language ofthe gainsharing statute provided for its repeal. The parties are in fact arguing over the enforceability ofthe reservation clause contained in the original gain-sharing legislation. The employees' contract rights were impaired, ifat all, by the legislature's 1998 enactment ofthe gain-sharingprogram and its reservation ofthe right to amend or repeal the program in the future. Properly framed, it is obvious that gain sharing did not impairthe employees' preexisting contract rights. The firstprong ofthe Carlstrom analysis asks whether gain sharing became part ofthe parties' employment contract, which it clearly did. Whether the gain-sharing provision, in particular the reservation clause, substantially impaired any existing contractual rights is addressed under Carlstrom's second prong. As explained in WEA I, the reservation clause contained in the gain-sharing statute is enforceable. WEA

10No. 87424-7 I, slip op. at 12-15. The legislature is allowed to condition its grant ofpension enhancements using express language in the statutory provisionthat creates the right. In pension cases, whether legislation substantially impairs a public contract depends on whether new legislation created comparable new advantages and whether the employees impliedly consented to the modifications. WEA I, slip op. at 17-19. Here, the employees impliedly consented to the gain-sharing program, including its reservation clause, because gain sharing was a favorable addition to their employment contract. When the legislature instituted gain sharing in 1998, it did not replace any similar preexisting rights. Rather, gain sharing was a gratuitous addition to employees' retirement packages. In this way, gain sharing, even more so than UCOLA and in spite ofits reservation clause, represented a favorable modification to the employees' contract with the State. Thus, the employees impliedly consented to the modification and gain sharing, as defined by the statute that created it, which then became part oftheir employment contract. In other words, gain sharing provided new advantages to employees compared to their prior benefits because gain sharing was all advantage. In sum, although gain sharing did become part ofthe employees' contract with the State, the institution ofgain sharing did not substantially impair those contractrights because the employees impliedly consented to the favorable addition, including the enforceable reservation clause. Because we resolve this issue on the secondprong of Carlstrom, we need not considerthe third prong ofwhether the impairment was reasonable and necessary to achieve a legitimate publicpurpose.

11No. 87424-7
2. Estoppel Alternately, the employees contend thatprinciples ofestoppel preclude repeal of gain sharing. They argue that employees reasonably relied on DRS handbooks and other DRS communications, which made no mention ofthe legislature's reserved right to repeal, and thus bothpromissory and equitable estoppel apply. Promissory estoppel requires satisfaction offive elements: "(1) [a] promise which (2) the promisor should reasonably expectto cause the promisee to change his position arid (3) which does cause the promisee to change his position (4)justifiably relying upon the promise, in such a manner that (5) injustice can be avoided only by enforcement ofthe promise." Havens v. C&D Plastics, Inc., 124 Wn.2d 158, 171-72, 876 P.2d 435 (1994) (alteration in original) (internal quotation marks omitted) (quoting Klinke v. Famous Recipe Fried Chicken, Inc., 94 Wn.2d 255,259 n.2, 616 P.2d 644 (1980)). Importantly, "[p]romissory estoppel requires the existence ofa promise" that is "clear and definite." 

### !d. at 172. This courthas adopted theRestatement definition ofpromise: "Apromise is a manifestation ofintention to act or refrain from acting in a specified way, so made as tojustify a promisee in understanding that a commitment has been made." RESTATEMENT (SECOND) OF CONTRACTS§ 2(1) (1981). The DRS communications did notpromise a perpetual rightto gain sharing. The employees pointto language in the DRS handbooks issued regularly to employees that explainedthat gain sharing "'willbepassed on"' ifthere are extraordinary investment returns. Resp'ts' Br. and Cross Appellants' Br. at 11-12 (emphasis omitted).

12No. 87424-7 Additionally, the employees highlight DRS booklets designed to help employees choose between Plan 2 and Plan 3. They contend that DRS used the promise ofgain sharing to incentivize employees to choose Plan 3. 

### !d. at 10-11. DRS stipulates that none ofits communications with employees warned ofthe legislature's reserved rightto arnend or repeal gain sharing. Butthe absence ofa warning and the equivocaldescription that gain sharing will be paid does not create a clear and definite promise ofeverlasting gainsharing rights. Furthermore, all ofthe DRS handbooks contained qualifying statements advising employees to consultthe statute for a fuller description ofrights. For example, the PERS 3 handbook states: The actual rules governing your benefits are contained in state retirement laws. This handbook is a summary, written in less legalistic terms. Itis not a complete description ofthe law. Ifthere are any conflicts between what is written in this handbook and what is contained in the law, the applicable law will govern. Clerk's Papers (CP) at 1129; see also CP at 1083 (TRS 1), 2782 (SERS 3). The materials provided to aid employees' decision between Plan 2 and Plan 3 contained a similar qualification on the first page. Taken as a whole, these DRS communications did not promise that gain sharing would continue, they merely described how gain sharingwould operate. This is not enough to estop the legislature from executing its explicitly reserved right to cancel the program. See, e.g., Havens, 124 Wn.2d at 171-75 (holding that there
was no clear and definite promise ofunending employment simply because an employer failed to inform his employee that employment was terminable at will).

13No. 87424-7
In contrastto promissory estoppel, which is forward-looking, "[e]quitable estoppel prevents a party from taking a position inconsistent with a previous one where

. . inequitable consequences would result to a party who hasjustifiably and in good faith relied." Silverstreak, Inc. v. Dep't of Labor & Indus., 159 Wn.2d 868, 887, 154 P.3d 891 (2007). Equitable estoppel has five elements: (1) a statement, admission, or act by the party to be estopped, which is inconsistent with its later claims, (2) the assertingparty acted in reliance upon the statement or action, (3) injury wouldresult to the asserting party if the otherparty were allowedto repudiate its prior statement or action, (4) estoppel is "necessary to prevent a manifest injustice," and (5) estoppel will not impair governmental functions. 

### !d. (quotingKramarevcky v. Dep 't of Soc. & Health Servs., 122 Wn.2d 738, 743, 863 P.2d 535 (1993)). Because equitable estoppel is asserted against the government, the employees must establish each ofthese elements by "clear, cogent, and convincing evidence." 

### !d. The employees fail to prove equitable estoppel because the legislature's repeal of gain-sharing was not "inconsistent with" the highlighted DRS communications. DRS cautioned employees thatthe statutes, nottheir handbooks, controlled, and the gainsharing statute explicitly stated that gain sharing may berepealed in the future. Inconsistency requires a conflict, and the qualifications in the DRS materials prevented such a conflict from occurring. Equitable estoppel does not apply. 3. Unilateral Contract Finally, the employees contend that even ifthe legislature was not estopped from repealing gain sharing, its decision to do so breached a unilateral contractthatpromised 14No. 87424-7 gain sharing as compensation for continued employment. The employees point to the
same DRS communications discussed above as forming the basis for this unilateral contract. Resp'ts' Br. and Cross Appellants' Br. at 30-33. Our case law does not supportthe recognition ofaunilateral contract on these facts. The employees are correct that this courthas enforced unilateral contracts. formed by promises made in employee handbooks. E.g., Thompson v. St. RegisPaper Co., 102 Wn.2d 219, 228-29, 685 P.2d 1081 (1984). But, as with promissory estoppel, a unilateral contractrequires apromise-termed an offer-evidencing an intent to be bound by its terms, and here the DRS communications were too qualified. Storti v. Univ. ofWash., No. 88323-8, slip op. at 7-8 (Wash. July 24, 2014). Moreover, handbooks that have created enforceable unilateral contracts always outlined employer-specific policies, rather than statutory rights, and were distributed by the direct employer, rather than a state bureaucratic entity like DRS. E.g., Swanson v. LiquidAir Corp., 118 Wn.2d 512, 826 P.2d 664 (1992); Gaglidari v. Denny'sRests., Inc., 117 Wn.2d 426, 815 P.2d 1362 (1991). The cases cited by the employees do not support their position. CONCLUSION The repeal ofgain sharing did not impair any contract rights ofemployees because the statute enacting gain sharing made provision for its eventual repeal. Further, the original gain-sharing statute did not impair any preexisting rights because the reservation clause is enforceable and employees impliedly consented to the qualified benefit. Finally, doctrines ofestoppel and unilateral contract do notprovide the reliefemployees

15No. 87424-7



### are looking for. The legislature's repeal ofgain sharing must stand. We reverse the trial court.

16No. 87424-7

WE CONCUR:



# /

17WEA v. DRS, No. 87424-7 (Gonzalez, J. concurring inresult)

GONZALEZ, 

### J. 

### (concurring inresult)-! agree with the majority inresult. The Washington Legislature specificallyreservedthe powerto repeal gain sharing inthe statutes that created the benefit. When the legislature exercised thatreservedpowerinthe waythat it did, it did not violate the contract clause. I write separately, however,because I do not agree that "gain sharing was a gratuitous addition to employees' retirementpackages" or that "the employees impliedly consented" to having it repealed. Majority at 11. First, we held long ago that pensionbenefits, including public employee pensionbenefits, are compensation for work done, 

### notgratuities. 

### Ayers v. City of Tacoma, 6 Wn.2d 545, 550-51, 108 P.2d 348 (1940) (citing

### Bowler v. Nagel, 228 Mich. 434, 440-41,200N.W. 258 (1924)). In

### Ayers, a city comptroller refused to paypublic pensions in part on the theory that they were a gift of public funds and unconstitutional under article VIII, section 7 ofour constitution. 1 

### !d. at 548, 550. We disagreed and found that therightto a

1Thatprovision says: No county, city, town or othermunicipal corporation shall hereafter give any money, orproperty, orloan its money, or credit to or in aid ofany individual, association, company or corporation, except for the necessary support ofthe poor and infirm, orbecome directly or indirectlythe owner ofany stock in orbonds of any association, company or corporation. WASH. CONST. art. VIII,§ 7. 1WEA v. DRS, No. 87424-7 (Gonzalez, J. concurringinresult) 

### pensionwas not a gratuitybut was "'inthe nature ofcompensation for services theretofore rendered."' I

### d. at 551 (internal quotation marks omitted) (quoting Bowler, 

### 228 Mich. at 440). The contractual nature ofpensionrights is woven through ourpublicpensionjurispn1dence. E.g.,Navletv. Port of Seattle, 

### 164 Wn.2d 818, 835, 194 P.3d 221 (2008);Bakenhus v. City of Seattle, 

### 48 Wn.2d 695,698,296 P.2d 536 (1956) (citingLuellen v. City of Aberdeen, 

### 20 Wn.2d 594, 148 P.2d 849 (1944), overruledon othergrounds byStenberg v. Pac. Power & 

### Light 

### Co., 104 Wn.2d 710, 709 P.2d 793 (1985)). The fact that gain sharing was part ofthe contract for only a set period oftime does not change the fact that it was contractual for that time. Second, inBakenhus

### itselfwe flatly rejected the notion that employees impliedly consent to having theirpensionbenefits reducedbycontinuing to work for an employer after pensionreductions are announced. H.D. Bakenhus had beenhired as apolice officerbythe city ofSeattle in 1925. Bakenhus, 

### 48 Wn.2d at 696. Atthe time, state law made police officers who met certain requirements eligible for apension equal to one halftheir salarythe yearbefore theirretirement. Id. 

### (citing LAWS OF 

### 1909, ch. 39, at 59). In 1937, the legislature cappedpolice officerpensions at $125 permonth. Id. 

### at 697 (quoting LAWS OF 

### 1937, ch. 24, at 62). Bakenhusretired in 1950, and, based
on the 1937 statute, the citypaidhim only $125 permonth. The city ofSeattle argued that employees had either impliedly consented to having their pensions

2WEA v. DRS, No. 87424-7 (Gonzalez, J. concurring inresult) 

### reducedbycontinuing to work for the city after the change was announced or
were barred from challenging the reduction under a waiver or estoppel theory. 

### Id. at 700-01. 2 

### In a careful opinion, we rejected the city's many theories. 

### Id. Instead ofreaching outside ofthe argumentspresentedbythe parties in this case to characterize gain sharing in ways they did not, I would simply follow precedent. Wehave developed a three parttest to analyze contract clause challenges to legislation, asking "(1) does a contractual relationship exist, (2) does the legislation substantially impairthe contractualrelationship, and (3) ifthere is a substantial impairment, is it reasonable and necessary to
serve a legitimate public purpose." 

### Tyrpak v. Daniels, 124 Wn.2d 146, 152, 874 P.2d 1374 (1994) (citing 

### Caritas Servs., Inc. v. Dep'tofSoc. &Health Servs., 123 Wn.2d 391, 403, 869 P.2d 28 (1994)). A separate line ofcases establish that any modification ofa public pensionright (1) mustbe done to keep the relevant retirement system flexible, (2) mustbe done to maintain its integrity, and (3) must include counterbalancingbenefits for anypotential impairment ofmembers' rights. 

### Bakenhus, 48 Wn.2d at 701-02. This court beganharmonizing the

### Bakenhus line ofcases with our traditional contract clause analysis in

### RetiredPublicEmployees Council ofWashington v. Charles, 148 Wn.2d 602, 62 P.3d470 (2003). 

### Charles was a challenge to the

2 Counsel suggested at oral argument thatBakenhus, properlyunderstood, was a contract clause casebecause, he contended, it was argued that wayto the trial court. While this mighthavebeenthe complexion ofthe casebeforethe trial court, it was not analyzed as a contract clause casebefore this court. 3WEA v. DRS, No. 87424-7 (Gonzalez, J. concuninginresult) 

### legislature's decision to lower the employer contributionrate in Public Employees' Retirement SystemPlan 1 and Teachers' Retirement SystemPlan 

### 1. Id. at 609-10. Plaintiffs challengedthe reduction as a violation ofthe contract clause, among many other things. We considered

### Bakenhus (among many other things) in determining the existence and scope ofthe contract itself. 

### Id. at 624 (citing

### Bakenhus, 48 Wn.2d at 701). We did notrest our contract clause analysis solely on

### Bakenhus. Id. at 623-28. Whatwe did impliedly in 

### Charles, I would do explicitly today. I would hold thatthe traditional contract clause analysis applies to contract clause challenges to statutes affecting public employee pensionrights. As it was in 

### Charles, Bakenhus is relevant to our contract clause analysis but does not replace it. 

### Id. at 624 (citing

### Bakenhus, 48 Wn.2d at 698-99, 701); 

### see also Wash. Educ. Ass'n v. Dep'tofRet. Sys., No. 88546-0, at 17 (Wash. Aug. 14, 2014).I wouldresolve this case simply on step two ofthe contract clause analysis: whetherthe repeal ofgain sharing substantially impaired the contractual relationship. Like the majority, I would hold that it did not. The original legislation stated that gain sharing couldbe adjusted or repealed at any time. 

### E.g., LAWS OF 

### 1998, ch. 340, § 3 ("The legislaturereserves the right to amend orrepeal this chapter inthe future and no member orbeneficiaryhas a contractual right to receive this postretirement adjustment not grantedprior to

4WEA v. DRS, No. 87424-7 (Gonzalez, J. concurring inresult) 

### that amendment orrepeal."), ch. 341, 

### §312(4). A contractualright is potentially impairedby a statute that alters its terms, imposes new conditions,
or lessens its value. Charles, 

### 148 Wn.2d at 625 (citing Wash. Fed'n of State Emps. v. State, 

### 127 Wn.2d 544, 563, 901 P.2d 1028 (1995)). In this case, the language ofthe original gain-sharing statutes does not '"evince a legislative intentto createprivaterights ofa contractual nature"' in ongoing gain sharing. Haberman v. Wash. Pub. PowerSupply Sys., 

### 109 Wn.2d 107, 145, 744 P.2d 1032, 750 P.2d 254 (1987) (quoting UnitedStates Trust Co. v. NewJersey, 

### 431 U.S. 1, 17 n.l4, 97 S. Ct. 1505, 52 L. 

### Ed. 2d 92 (1977)). Given this reservation, the legislature reserved the power to repeal gain sharing, and its exercise ofthat power did not substantially impair the contractual relationship. AccordStrunkv. Pub. Emps. Ret. Bd., 

### 338 Or. 145, 177-78, 108 P.3d 1058 (2005). Bakenhus 

### is in accord. Thethreshold issueunderBakenhus 

### is whether there is apensionright thathas been changedby subsequent legislation. E.g., 

### 48 Wn.2d at 700. Ifthere is apensionright that has been changed, then Bakenhus 

### mustbe satisfied or the contract clause is violated. See, e.g., Wash. Fed'n of StateEmps., AFL-CIO, Council28 v. State, 

### 98 Wn.2d 677,678-79, 658 P.2d 634 (1983). Here, the pension right at issue was the right to gain sharing for as long as the legislature allowed gain sharing. Fromits inception, the right was subject to the legislature's explicitlyreservedpowerto repeal or

5WEA v. DRS, No. 87424-7 (Gonzalez, J. concurringinresult) 

### revoke it inthe future. 

### See LAWS 

### of 1998, ch. 340, § 3, ch. 341, § 312(4); LAWS OF 

### 2000, ch. 247. Given the legislature's statutoryreservation, the legislature's subsequent action did not modify anyright. Based on aplainreading ofthe statutes, there was no promiseto gain sharing inperpetuity. Thus, repealing it was not a substantial impairment of the contractunder 

### Tyrpak or a modification ofapensionrightunder

### Bakenhus. See Tyrpak, 124 Wn.2d at 152 (citing 

### Caritas, 123 Wn.2d at 403); 

### Bakenhus, 48 Wn.2d at 700-01. With those observations, I respectfully concur in result.

6WEA v. DRS, No. 87424-7 (Gonzalez, J. concurring in result)

7