Opinion ID: 1115370
Heading Depth: 4
Heading Rank: 1

Heading: Incumbent Legislators

Text: Petitioners' find ample support for their position in California cases confirming that both the federal and state contract clauses protect the vested pension rights of public officers and employees from unreasonable impairment. (See Allen v. Board of Administration (1983) 34 Cal.3d 114, 119-120, 124 [192 Cal. Rptr. 762, 665 P.2d 534] [legislators]; Olson v. Cory (1980) 27 Cal.3d 532, 540-541 [178 Cal. Rptr. 568, 636 P.2d 532] [judges); Betts v. Board of Administration (1978) 21 Cal.3d 859, 863-864 [148 Cal. Rptr. 158, 582 P.2d 614] [state Treasurer]; Miller v. State of California (1977) 18 Cal.3d 808, 814-817 [135 Cal. Rptr. 386, 557 P.2d 970] [public employees]; see also Allen v. City of Long Beach (1955) 45 Cal.2d 128, 131 [287 P.2d 765] [same]; Kern v. City of Long Beach (1947) 29 Cal.2d 848, 852-853 [179 P.2d 799] [same].) Petitioners (joined by respondent PERS) argue that when incumbent legislators first assumed office, they were impliedly promised pension benefits substantially equivalent to those offered by the then-existing provisions of the LRS, and that these benefits included both the primary right to receive any vested pension benefits upon retirement (see City of Long Beach v. Allen (1956) 143 Cal. App.2d 35, 38-39 [300 P.2d 356]), as well as the collateral right to earn future pension benefits through continued service, on terms substantially equivalent to those then offered (see Carman v. Alvord (1982) 31 Cal.3d 318, 325 [182 Cal. Rptr. 506, 644 P.2d 192]). Although Proposition 140 by its terms assures that incumbent legislators' right to receive vested pension benefits will not be lost or diminished, the measure also purports to terminate their collateral right to accrue additional benefits through further contributions and continued service to the state. According to petitioners, the applicable principle is set forth in Miller v. State of California, supra, 18 Cal.3d at page 817: [U]pon acceptance of public employment plaintiff acquired a vested right to a pension based on the system then in effect. That system allowed him to earn successively higher levels of benefits based on his years of service and his highest average salary during three consecutive years. (See also Olson v. Cory, supra, 27 Cal.3d at p. 541; Betts v. Board of Administration, supra, 21 Cal.3d at p. 863; Kern v. City of Long Beach, supra, 29 Cal.2d at pp. 855-856.) Similar increased benefits from continued service were provided legislators under the LRS. (See Gov. Code, § 9350.) In response to petitioners' assertions, respondent Eu and intervener first contend that incumbent legislators do not have a vested right under the LRS to continue to accrue pension benefits through continued service. In this regard, they suggest that article IV, section 4, of the state Constitution precludes legislators from acquiring any vested right to continue to earn pension benefits. We disagree. Article IV, section 4 of the state Constitution, provides in pertinent part that  The Legislature may, prior to their retirement, limit the retirement benefits payable to Members of the Legislature.... (Italics added.) That provision, seemingly empowering the Legislature to exercise some measure of control over the pension rights of its own members prior to their retirement, may create some uncertainty as to the full amount or extent of a legislator's pension rights during his term of office. But the provision neither states nor implies that these rights are thus deemed inchoate and unprotected from impairment by the initiative process. Significantly, we have never suggested that the mere existence of article IV, section 4, precludes legislators from acquiring pension rights protected by the state or federal contract clauses. (Cf. Allen v. Board of Administration, supra, 34 Cal.3d at pp. 119-120.) (16) Petitioners acknowledge that the state as employer is permitted to make reasonable modifications to the pension system during the employment relationship, so long as employees receive comparable new advantages in return for any substantial reduction in benefits. ( Olson v. Cory, supra, 27 Cal.3d at p. 541; Betts v. Board of Administration, supra, 21 Cal.3d at p. 864; Allen v. City of Long Beach, supra, 45 Cal.2d at p. 131.) As we stated in Olson, Although an employee does not obtain any `absolute right to fixed or specific benefits ... there [are] strict limitation[s] on the conditions which may modify the pension system in effect during employment.' [Citation.] Such modifications must be reasonable and any `changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages.' [Citation.] (27 Cal.3d at p. 541.) (15b) Petitioners correctly observe that the pension provisions of Proposition 140 do not merely modify the LRS pension system; rather they terminate that system entirely as to additional benefits accruing for future services. Intervener argues that the transfer or redirection of pension funds to the federal Social Security system operates as a comparable new advantage which justifies the impairment and consequently sustains the measure. Petitioners respond by asserting that every legislator already possessed the right to join the federal Social Security system, that 99 out of 120 legislators were already contributing to that system when Proposition 140 was adopted, and that the anticipated federal benefits will be far less than those provided by the LRS. Neither respondent Eu nor intervener has disputed those allegations. We conclude that incumbent legislators had a vested right to earn additional pension benefits through continued service, despite the potential but unexercised limitations contemplated by article IV, section 4, of the state Constitution. We also conclude that the pension restriction of Proposition 140 must be deemed an impairment, not a mere modification or adjustment, of the vested pension rights of incumbent legislators. Respondent Eu and intervener next argue that, assuming an incumbent legislator may acquire such vested rights, a different rule should apply to incumbent legislators who commenced new terms after Proposition 140 became effective. They rely primarily on our decision in Olson v. Cory, supra, 27 Cal.3d 532, which had upheld a statute limiting certain cost-of-living increases in judges' salaries after they commenced new terms of office. As Olson held, A judge who completes one term during which he was entitled to unlimited cost-of-living increases and elects to enter a new term has impliedly agreed to be bound by salary benefits then offered by the state for the different term. (27 Cal.3d at p. 540.) Similarly, it is argued, incumbent legislators commencing new terms on or after November 6, 1990, have impliedly agreed to serve under the conditions mandated by the new measure. Petitioners and respondent PERS contend, however, that pension rights fall into a different category than salary rights. Although a state officer may have no protectible right to continuation of his former salary from term to term, nonetheless on commencing to serve the state the officer thereupon acquires a vested right to earn, through continued service, additional pension benefits in an amount reasonably comparable to those available when he or she first took office. According to petitioners, that right is not extinguished when one term of office ends and another commences. (See In re Marriage of Alarcon (1983) 149 Cal. App.3d 544, 552-553 [196 Cal. Rptr. 887] [hereafter Alarcon ].) To hold otherwise, petitioners argue, could unduly penalize public officers who serve elective or appointive terms. We agree with petitioners. It would be anomalous to hold that a legislator's supposedly vested right to acquire a reasonable pension is subject to absolute divesting at the conclusion of the period comprising his or her immediate term of office (assuming no right to receive actual benefits has yet accrued). Under such a holding, a legislator could entirely lose future pension benefits on the very eve of entitlement thereto. The state, in adopting the LRS, elected to treat legislators in a manner similar to other state employees, providing them with a plan whereby pension benefits could be acquired through continued service beyond their initial term of office. Having done so, the state cannot thereafter abandon that plan as to incumbent legislators without providing them comparable new benefits. As stated in Alarcon, The state's obligation to pay a specific salary extends to the end of each term of office. There is no promise express or implied the state will continue to pay an existing salary beyond the end of a term. Thus, no contractual rights are impaired if different salary or cost of living differentials are payable during and for a future term. [¶] A pension, however, is different from a salary. A right to pension benefits provided by the state payable upon fulfillment of age, service and other requirements may not be destroyed, once vested, without impairment of the state's contractual obligation. [Citations.] (149 Cal. App.3d at p. 552.) Alarcon is factually distinguishable, for in that case the affected officer (a state judge who later accepted a federal judgeship) had already acquired a vested, though deferred, right under state law to a full pension prior to the enactment of the challenged restriction on pension benefits for persons accepting federal positions. Under such circumstances, the fact the judge served additional terms as a state judge following the adoption of that restriction could not defeat his previously vested pension rights. Nonetheless, the principle of Alarcon seems controlling here. In the present case, incumbent legislators acquired a vested right to earn increased pension benefits in return for continued service. By analogy to Alarcon, their commencement of a new term following adoption of the pension restriction of Proposition 140 would not defeat that vested right. Alarcon further observed that although vested pension rights could be modified before retirement to keep a pension system flexible and permit adjustments to accord with changing conditions, such modifications must be reasonable and may not destroy or impair a vested contractual right to a pension. [Citations.] (149 Cal. App.3d at p. 553.) As we have previously discussed, the pension provisions of Proposition 140, which abruptly terminate an incumbent legislator's right to earn future pension benefits through continued service, must be deemed an impairment, not a mere modification or adjustment, of the vested pension rights of incumbent legislators, whether or not they will enter a new term on or after November 6, 1990. Thus, we hold that, under California law, all incumbent legislators acquired a vested right to earn additional pension benefits through continued service, a right which Proposition 140 clearly impairs. (17a) After granting review in this case, we asked for further briefing on the additional question whether the contract clause of the federal Constitution protects the salary or pension rights of state public officials such as legislators. (See, e.g., Higginbotham v. Baton Rouge (1939) 306 U.S. 535, 538-539 [83 L.Ed. 968, 971-972, 59 S.Ct. 705], rehg. den. 307 U.S. 649 [83 L.Ed. 968, 59 S.Ct. 705] [hereafter Higginbotham ]; Dodge v. Board of Education (1937) 302 U.S. 74, 78-79; Crenshaw v. United States (1890) 134 U.S. 99, 105-106 [33 L.Ed. 825, 827-828, 10 S.Ct. 431]; Butler v. Pennsylvania (1850) 51 U.S. (10 How.) 402, 416-418 [13 L.Ed. 472, 478-479].) In Higginbotham, supra, a public officer (commissioner of public parks) was discharged in the middle of his term and sued to recover the balance of his salary for the stated term, asserting a federal contracts clause claim. The high court, in a brief, unanimous opinion (citing earlier cases), denied relief, holding that the contract clause does not protect the tenure assigned to a state's public officers. (18) The court relied on the familiar principle that `the legislative power of a State, except so far as restrained by its own constitution, is at all times absolute with respect to all offices within its reach. It may at pleasure create or abolish them, or modify their duties. It may also shorten or lengthen the term of service.' [Citations.] (306 U.S. at p. 538 [83 L.Ed at p. 971].) The Higginbotham ( supra, 306 U.S. 535) principle, though stated in terms of tenure, extends to matters of compensation of public officers. As stated in Dodge v. Board of Education, supra, 302 U.S. at pages 78-79 [83 L.Ed at page 62], cited with approval in Higginbotham, state legislation fixing the compensation of public officers creates no contract in their favor and the compensation named may be altered at the will of the legislature. (See also Crenshaw v. United States, supra, 134 U.S. at p. 105 [33 L.Ed at p. 828] [compensation paid to state public officers is not protected by federal contract clause].) The applicable principle to be gleaned from Higginbotham, supra, 306 U.S. 535, appears to be that a state (or its local subdivisions) has the power at any time to create, alter or abolish state or local public offices, and thereby reduce the affected officers' salaries or other compensation, unfettered by federal contract clause restrictions. (17b) Respondent Eu and intervener argue that if, under Higginbotham, a state can terminate a public officer in the midst of his or her term without providing compensation for the remainder thereof, then it would follow that the state likewise can terminate future contributions toward his or her pension, assuming state statutory and constitutional guaranties are satisfied. But as petitioners observe, none of these high court cases involved the special area of vested pension rights, or concerned the rights of persons remaining in office for additional terms. Although the issue is not entirely free of doubt, we conclude that the foregoing federal cases would not withhold federal contract clause protection from incumbent state legislators who have acquired vested pension rights under state law. Higginbotham involved the tenure of public officials and the consequences arising from prematurely terminating that tenure. The case did not concern the quite distinct matter of the pension rights of public officials or employees. As we explained in Miller, although the Legislature may reduce the tenure of a public employee's position, and thereby shorten his or her state service, public employee pension rights involve constitutionally protected obligations. Pension rights, unlike tenure of civil service employment, are deferred compensation earned immediately upon the performance of services for a public employer `[and] cannot be destroyed ... without impairing a contractual obligation....' [Citation.] (18 Cal.3d at p. 814.) Decisions of this court have assumed the federal contract clause protects the vested pension rights of public officers. Olson and Betts, both supra, involved public officers (a state court judge and a state constitutional officer, respectively), and those cases concluded, without discussion of the Higginbotham/Dodge line of decisions, that the federal contract clause would apply to such persons. (See also Allen v. Board of Administration, supra, 34 Cal.3d at p. 119.) In Lyon v. Flournoy (1969) 271 Cal. App.2d 774 [76 Cal. Rptr. 869], appeal dismissed 396 U.S. 274 [24 L.Ed.2d 465, 90 S.Ct. 564], a case likewise involving the rights of a state public official, the Court of Appeal acknowledged the federal rule limiting federal contract clause protection for discharged state public officers (citing Dodge v. Board of Education, supra, 302 U.S. 74), and further observed that the public employee pension decisions of this court (e.g., Kern v. City of Long Beach, supra, 29 Cal.2d 848) plac[ed] earned retirement rights within the shelter of the prohibition against contract impairment, without specific citation of either the federal or state clauses. (271 Cal. App.2d at p. 781.) The Lyon court nonetheless concluded, Certainly the California pension decisions have never rejected the federal clause as a source of protection. It is now too late to do so. California law places earned pension rights of public officers and employees under the protection of the contract clause regardless of any characterization adopted by the federal courts.  ( Ibid., italics added.) We agree with Lyon v. Flournoy, supra, 271 Cal. App.2d 774, that, in light of prior California decisions consistently extending federal contract clause protection to state public officers, it is simply too late to retreat from the clear implication of those holdings. We conclude that the pension restrictions of Proposition 140 are unconstitutional under the federal contract clause as applied to incumbent legislators because they infringe on the vested pension rights of those persons.