15.10 - 1. State Constitutional Protection

• Jurisdiction: New York

1. State Constitutional Protection

Pursuant to the line of cases originating with Birnbaum v. New York State Teachers’ Retirement System,⁶⁸²⁶ the courts have consistently held that the terms and benefits of membership in a public pension system are contractual rights that adhere to the date on which the employee becomes a member and cannot subsequently be altered to that member’s detriment.⁶⁸²⁷

In Birnbaum, the Court of Appeals prohibited the New York State Teachers’ Retirement System from using new actuarial tables to calculate the benefits of then-enrolled plan members because those new tables would have produced a 5% decrease in benefits. The Court declared that a reduction in benefits would breach the contractual rights of enrolled plan members and was thus prohibited by the state constitution. It held that article V, § 7, of the state constitution “prohibits official action during a public employment membership in a retirement system which adversely affects the amount of the retirement benefits payable to the members on retirement under laws and conditions existing at the time of his entrance into retirement system membership.”⁶⁸²⁸

New York courts have declared the following to be unconstitutional impairments insofar as they reduce the expected benefits of plan members: changes in actuarial tables;⁶⁸²⁹ changes in the mandatory retirement age;⁶⁸³⁰ changes in the formulas used to calculate benefits;⁶⁸³¹ a refusal to process an accidental disability retirement application received before the member’s termination from employment;⁶⁸³² a refusal to allow a member to rejoin the system upon specific terms of reentry in effect at the date of original entry;⁶⁸³³ a refusal to include longevity adjustments in a final average salary for pension computation purposes;⁶⁸³⁴ a statutory mandate requiring the state comptroller, the independent trustee of certain of the public retirement funds, to invest in specified securities;⁶⁸³⁵ and a statutory prohibition on calculating pension benefits based on a negotiated wage increase that the statute ordered suspended.⁶⁸³⁶ The constitutional provision also prevents the reduction of a death benefit or the entitlement to withdraw funds as those rights existed when the member first joined the system.⁶⁸³⁷ The courts have also found to be an unconstitutional impairment a statutory scheme reducing employer contributions by granting employers a credit equal to additional pension contributions otherwise payable pursuant to the state comptroller’s plan to restore funding to the common retirement fund.⁶⁸³⁸

The constitution also protects the terms of a temporary retirement plan enacted for a limited period. In 1976, the legislature enacted a temporary plan for all employees entering a public retirement system on or after July 1, 1976 (tier III employees). This initial plan was set forth in article 14 of the Retirement & Social Security Law. A new plan, contained in article 15 of the Retirement & Social Security Law, was enacted in 1983 that, on its face, supplanted article 14 for all members entering service on or after July 1, 1976. Some of its terms, including those regarding death benefits and the return of contributions to nonvested employees who terminated service, were less favorable than those of their predecessors.⁶⁸³⁹ The Court of Appeals, in finding that these changes constituted an unconstitutional impairment, said, “The Legislature does not have to grant pension benefits, but once it does, for however short a period of time, they may not be impaired by a limitation as to time in the statute creating them.”⁶⁸⁴⁰

Constitutional protections have been held not to extend to the following: changes by a retirement system that correct errors in calculating a pension,⁶⁸⁴¹ modification of a benefit in consideration of another benefit,⁶⁸⁴² statutory changes in terms and conditions of employment that have a minor and incidental influence on retirement benefits,⁶⁸⁴³ a diminution in the proportion of teacher representatives on the New York State Teachers’ Retirement Board,⁶⁸⁴⁴ elimination of the contractual right to negotiate a retirement benefit⁶⁸⁴⁵ and denials of late applications for enrollment in an early retirement program.⁶⁸⁴⁶

The contractual right to retirement benefits protected by the New York State Constitution is not absolute. Pursuant to the supremacy clause of the United States Constitution, federal laws override any state constitutional provisions or laws with which they conflict.⁶⁸⁴⁷ Furthermore, the state constitutional right was intended to preclude only employer or legislative action reducing or eliminating these benefits. The right can be waived by a member’s collective bargaining representative⁶⁸⁴⁸ or a member⁶⁸⁴⁹ in exchange for another benefit.

The state constitutional provision does have its drawbacks. Increases in benefits awarded to those who join a system at a later date may be denied to those who were in that system before the increases were enacted.⁶⁸⁵⁰ Members may be asked to choose between greater benefits and those to which they were previously entitled. Conditions having the effect of modifying a member’s rights may be attached to the choice; therefore, the legislature does have an indirect power to avoid the constitutional protection simply by offering the member certain rights and conditioning the acceptance of those rights on the member’s agreeing to forfeit other rights or benefits. Moreover, contributions made to a private retirement plan may be modified without violating the constitutional provision.⁶⁸⁵¹ Finally, the constitutional protection does not give the member any right to object to changes in the administration of the pension system.⁶⁸⁵²

The legislature established the tier II class of pension membership in 1973 for a three-year period only. It was scheduled to lapse on June 30, 1976.⁶⁸⁵³ As legislation for a replacement system had not been enacted by that date, the legislature extended tier II.⁶⁸⁵⁴

On July 27, 1976, the governor signed a pension reform bill that set forth the provisions constituting tier III (article 14).⁶⁸⁵⁵ The law mandated that tier III status be afforded to all employees hired after July 1, 1976;⁶⁸⁵⁶ retroactively directed permanent closure to tier II as of July 1, 1976;⁶⁸⁵⁷ and established July 1, 1977, as the effective date of tier III.⁶⁸⁵⁸ Members who joined a pension system between July 1, 1976, and January 1, 1977, were temporarily afforded the benefits of tier II and then shifted to tier III.

In Civil Service Employees Association, Local 1000 v. Regan,⁶⁸⁵⁹ the Court of Appeals upheld a constitutional challenge to the legislature’s imposition of tier III benefit rules to pension system members who had joined retirement systems prior to the enactment of the tier III statute. The Court ruled that the legislature’s attempt to impose the tier III classification on persons whose membership began between July 1, 1976, and July 27, 1976, violated the state constitution’s mandate that pension benefits not be diminished or impaired.⁶⁸⁶⁰

The Court did, however, reject arguments that persons whose membership commenced between July 27, 1976, and January 1, 1977 (the period during which tier II benefits were temporarily continued prior to the statute’s effective date), were entitled to permanent tier II status. The Court held that

simultaneously prescribing Tier III status to public employees who are preliminarily afforded Tier II rights and benefits does not constitute an unconstitutional impairment or diminution of a fixed public retirement contractual right as to those entering between July 27,

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