Opinion ID: 2065544
Heading Depth: 1
Heading Rank: 10

Heading: Reduction of Retirees' COLA Benefits by Ordinance After Their Date of Retirement

Text: By the conclusion of the hearing on the merits, both parties had agreed that Ordinance 1991-5 governed plaintiffs' COLA benefits at the time of their retirement. We agree. Ordinance 1991-5 was properly enacted and the 5 percent compounded COLA included therein continued in full force from 1992 to 1995, the period during which all plaintiffs retired under an unratified CBA. However, the parties differ in their characterization of the COLA benefit included therein; plaintiffs characterize it as a vested pension benefit that cannot be decreased by future ordinance, while defendants believe it is a gratuitous benefit, separate from the pension itself, susceptible to reduction by future ordinance. For the following reasons, we agree with plaintiffs and hold that they have a vested interest in the COLA provided in Ordinance 1991-5. To determine whether plaintiffs have a vested right to receive the COLA provided in Ordinance 1991-5, we first scrutinize the nature of the COLA benefit itself. The purpose behind fire and police pension acts is to attract superior personnel to service by adequately compensating them for arduous and hazardous duties. 16A Eugene McQuillin, The Law of Municipal Corporations § 45.13.05 at 95-96 (3d rev. ed.2002). Jurisdictions called upon to define these pension benefits typically classify them as either contractual or gratuitous in nature. Jurisdictions that classify pension benefits as contractual generally view them as part of the employment contract itself, providing deferred compensation for services rendered during the employment period. See, e.g., Betts v. Board of Administration of the Public Employees' System, 21 Cal.3d 859, 148 Cal.Rptr. 158, 582 P.2d 614, 617 (1978); Dorsey v. State ex rel. Mulrine, 283 A.2d 834, 836 (Del.1971); Board of Trustees of the Police Pension and Retirement System of Oklahoma City v. Weed, 719 P.2d 1276, 1277 (Okla.1986); Leonard v. City of Seattle, 81 Wash.2d 479, 503 P.2d 741, 746 (1972). Purely contractual pension rights, such as employee contributions, vest immediately once the employment contract is signed and employment begins. In re Almeida, 611 A.2d 1375, 1385 (R.I.1992). Alternatively, benefits that are deemed deferred compensation vest when the employee completes his or her years of eligibility. See Miller v. State, 18 Cal.3d 808, 135 Cal.Rptr. 386, 557 P.2d 970, 973-74 (1977); Wright v. Allegheny County Retirement Board, 390 Pa. 75, 134 A.2d 231, 233 (1957). Other jurisdictions view pension rights as merely gratuitous, springing from the appreciation and graciousness of the state. Haverstock v. State Public Employees Retirement Fund, 490 N.E.2d 357, 361 (Ind.Ct.App.1986); see also Keegan v. Board of Trustees of Illinois Municipal Retirement Fund, 412 Ill. 430, 107 N.E.2d 702, 705 (1952); City of Dallas v. Trammell, 129 Tex. 150, 101 S.W.2d 1009, 1013 (1937). Thus, some courts have held that reduction or elimination of such benefits can occur at will, leaving the employee without legal recourse. See Haverstock, 490 N.E.2d at 361. This Court, in In re Almeida, 611 A.2d at 1386, chose to adopt a middle-ground position composed of elements of both the contractual and deferred compensation theories, holding that [t]he right to deferred compensation vests upon meeting the terms of employment, but that vesting is subject to divestment because it is conditioned on continued honorable and faithful service. Therefore, in Rhode Island, pension benefits vest once an employee honorably and faithfully meets the applicable pension statute's requirements. Thus, to determine plaintiffs' pension rights and whether the COLA benefits included therein are vested or gratuitous, we must look to the applicable pension ordinance. The parties agree that Ordinance 1991-5 was the controlling authority in effect at the time all plaintiffs retired. At that time, however, Ordinance 1991-5 lacked a specific classification of the COLA benefit, unlike its subsequent revisions that include the following language: All cost-of-living retirement adjustments granted to retirees under this section shall be considered voluntary gratuities. The payment of such voluntary gratuities may be reduced or suspended by Ordinance at any time upon a finding by the City Council that due to the existence of a depressed economy affecting the fiscal condition of the City it becomes expedient to reduce expenses in order to avoid or minimize a tax increase. City of Providence Ordinance, ch.1995-17 section 9 (Ordinance 1995-17) (emphases added); see also City of Providence Ordinance, ch. 1996-4 (Ordinance 1996-4). We acknowledge that the city has broad discretion to prospectively change the pension benefit plan for firefighters and police officers who have not yet retired by enacting a new ordinance. Nevertheless, the issue confronting us is whether the council has authority to retroactively redefine a pension term. Consequently, because [u]nder the guise of construction, the court will not rewrite the law, add to it what has been omitted, omit from it what has been inserted, or give it an effect beyond that gathered from the plain and direct import of the terms used, 16A McQuillin, § 45.13.05 at 102, we will not extend the definition provided in Ordinances 1995-17 and 1996-4 to Ordinance 1991-5. Rather, we look to Ordinance 1991-5 as a whole and its origins to determine the nature of the COLA benefit. Section 9(13) of Ordinance 1991-5 states: eligibility for a retirement allowance and the amount of such allowance shall be determined in accordance with the provisions of the ordinance to provide for the retirement of employees of the City of Providence as in effect on the last day of a member's employment.  (Emphasis added.) Section 9(2)(a)(c) defines Class B employees' retirement allowance as an annuity, which is the actuarial equivalent of their accumulated employee contribution at retirement plus a pension. Ordinance 1991-5 further defines a pension as annual payments for life derived from appropriations provided by the City of Providence under the provisions of this ordinance. Section 1(13). Ordinance 1991-5 also contains many of the provisions included in the 1923 Public Law, P.L.1923, ch. 489the state retirement act in existence before the city created its own retirement system pursuant to its home rule charter. Section 17 of Ordinance 1991-5, which mirrors the language in the 1923 Public Law, provides Class B employees with a 3 percent non-compounded COLA due for the lifetime of the retiree or beneficiary. Ordinance 1991-5 also includes separate COLA provisions that reflect the gradual COLA and employee contribution increases specifically for firefighters and police officers negotiated by plaintiffs' unions, which are applied in lieu of the COLA provided in Section 17. Sections 9(17) and (18). Despite defendants' urging, we refuse to add language to Ordinance 1991-5 to classify it as a gratuitous benefit simply because such classifications were added to subsequent revisions of the pension ordinance. It is a municipality's duty to carefully craft an ordinance granting a pension benefit so that it is clear whether the benefit is gratuitous or vested and may not look to the courts to add language to an ordinance that the municipality omitted. Goldman v. Forcier, 68 R.I. 291, 297, 27 A.2d 340, 343 (1942). Looking solely at Ordinance 1991-5's terms, as we are required to do, we conclude quite the opposite; Ordinance 1991-5's terms and conditions clearly establish plaintiffs' vested interest in a lifetime 5 percent compounded COLA. In addition to the plain language of Ordinance 1991-5, we are further persuaded that this is the correct interpretation because the COLA provisions in question were negotiated during the collective bargaining process [12] and because federal caselaw dealing with labor disputes supports such a conclusion. See Westerly Lodge No. 10, 659 A.2d at 1105 (recognizing `the persuasive force of federal cases in this field in view of the parallels between our system of labor regulations and the federal system'). Both Shaw v. International Association of Machinists and Aerospace Workers Pension Plan, 750 F.2d 1458, 1466 (9th Cir.1985), and Howell v. Anne Arundel County, 14 F.Supp.2d 752, 754 (D.Md.1998), support the principle that a COLA is a vested pension benefit when a jurisdiction has adopted a mixed contract/deferred compensation theory of pension benefits. In Shaw, the United States Court of Appeals for the Ninth Circuit examined a retirement plan that set out a formula for computing a retiree's monthly retirement benefit. Shaw, 750 F.2d at 1460. The formula included a living pension feature that acted much like a COLA benefit in that it served to maintain the real value of an employee's pension in light of changes in the cost of living. Id. The Ninth Circuit was asked to determine whether the living pension was an accrued benefit or an ancillary benefit under the Employee Retirement Income Security Act of 1974 (ERISA). Id. After reviewing the pension plan as a whole and distinguishing the living pension from decidedly ancillary benefits such as medical coverage or early retirement, the court held that it was a promised, anticipated and accrued benefit, the reduction of which violated the plaintiffs' right to receive a vested benefit. Id. at 1466. In Howell, five active police officers, one retired police officer, and their union sought injunctive and declaratory relief based on a county ordinance that amended the police retirement plan. Howell, 14 F.Supp.2d at 753. Most significantly, the ordinance changed the formula used to calculate the annual COLA payable under the plan, resulting in a reduction in the COLA benefit for retirees. Id. The court held that the purely prospective changes to the pension law exclusively applied to current employees upon retirement were well within the county's authority. Id. at 754. However, the court dismissed the plaintiff retiree's claim for lack of standing because he was wholly unaffected by the change in the COLA formula. Id. This was because, upon retirement, his right to have his pension calculated with the original formula vested and could not be altered by future ordinance. Id. The plaintiffs' situation in the instant case is akin to that of the retired police officer in Howell, further supporting a conclusion that plaintiffs' interest in a 5 percent compounded COLA vested upon their retirement and cannot be altered by future ordinances. We also agree with the trial justice that Board of Trustees of the Sheet Metal Workers' National Pension Fund v. Commissioner of Internal Revenue, 318 F.3d 599 (4th Cir.2003) ( Sheet Metal Workers ), supports the principle that a court must look to a retirement plan's provisions at the time an employee retires to ascertain whether he or she is entitled to a benefit. In Sheet Metal Workers, the United States Court of Appeals for the Fourth Circuit was faced with the task of interpreting ERISA's anti-cutback rule as it applied to the elimination of a COLA benefit granted to retirees after their date of retirement. Id. at 601. In determining that the COLA benefit was not a vested benefit for the plaintiffs, the court focused on the fact that the plaintiffs did not have reason to expect that their pension would provide a COLA during retirement because the terms of their retirement plan in effect at the time of their retirement did not include the disputed COLA benefit. Id. at 604. The issue presented to the Fourth Circuit in Sheet Metal Workers is analogous to the COLA issue presented here. As in that case, the question before us is whether a COLA is a vested or gratuitous benefit for the specific retirees affected by a subsequent reduction in the benefit. The reasoning in Sheet Metal Workers persuades us to look to the terms of plaintiffs' pension plan at the time they retired to determine whether plaintiffs had reason to expect that their pension would provide the COLA they are seeking. Sheet Metal Workers, 318 F.3d at 604-05. It is indisputable that plaintiffs, through their unions, negotiated for a 5 percent compounded COLA, worked the requisite number of years to receive such a benefit, and expected to have that COLA calculated for the entirety of their pension. Thus, plaintiffs' expectation is distinguishable from that of the retirees in Sheet Metal Workers because, rather than receiving a gratuitous benefit after retirement, plaintiffs had a reasonable expectation at the time they retired that they would receive a 5 percent compounded COLA that would vest upon their retirement. Accordingly, after analyzing the plain language of Ordinance 1991-5, the collective-bargaining origins of the 5 percent compounded COLA contained therein, and federal caselaw dealing with similar labor disputes, we hold that the council did not have the authority to reduce plaintiffs' COLA benefit by subsequent ordinance because their right to receive the COLA provided by Ordinance 1991-5, which constitutes a vital part of their retirement allowance, vested upon their retirement.