Pension forfeiture: a problematic sanction for public corruption.

• Author: Jacobs, James B.

1. INTRODUCTION II. DESCRIPTION AND COMPARISON OF PENSION FORFEITURE STATUTES.

   1. Who Imposes the Sanction and When

   2. To Whom the Statutes Apply

   3. Offenses Which Trigger Pension Forfeiture

   4. Full vs. Partial Forfeiture

   5. Mandatory vs. Discretionary Forfeiture III. THE NATURE AND LEGAL STATUS OF PUBLIC SECTOR RETIREMENT

      PENSIONS

   1. The Gratuity Theory of Public Pensions

   2. The Contractual Theory of Public Pensions

   3. Vesting under the Contractual Approach

   4. Limited Constitutional Protection of Public Pensions

   5. Other Theories of Public Pensions IV. CRITIQUE OF PENSION FORFEITURE

   1. Rationales Offered for Pension Forfeiture

      1. Public pensions are a reward for faithful service

      2. Pension forfeiture is "just deserts" for breach of the public

         trust

      3. Pension forfeiture deters public corruption

      4. Pension forfeiture has symbolic importance

   2. Criticisms of Pension Forfeiture

      1. Pension forfeiture impinges on contractual rights

      2. Pension forfeiture provides a disincentive for persons to enter

         and remain in public service

      3. Pension forfeiture does not recognize the employee's and

         dependents' reliance on pension benefits .

      4. Private pensions are protected from forfeiture in cases of

         employee misconduct.

      5. Pension forfeiture statutes are not sufficiently calibrated to

         the wrongdoing. V. RECOMMENDATIONS.

   1. Corruption Controllers Should Rely on Criminal Fines as a

      Financial Penalty.

   2. Congress Should Consider Extending ERISA to Public Pensions.

   3. New Jersey's Approach to Pension Forfeiture Provides a Model

      for State Legislatures VI. CONCLUSION.

1. INTRODUCTION

   Since the Watergate scandal, corruption controllers have launched far-reaching efforts to punish and deter public corruption.(1) Among various policy initiatives and structural reforms, pension forfeiture is becoming increasingly popular. Although pension forfeiture statutes differ in detail, they basically provide that upon conviction of certain criminal offenses, some public servants forfeit their right to receive pension benefits or a portion thereof.(2)

   At first blush, pension forfeiture does justice, even poetic justice. Bribery and other forms of corruption are serious offenses; why should an official who has enriched himself through violation of the public trust draw payments from the public treasury for the rest of his life? However, when we consider the nature and purpose of public pensions, and the purposes and administration of pension forfeiture, pension forfeiture is a more problematic sanction. Moreover, since the Employee Retirement Income Security Act (ERISA)(3) prohibits pension forfeiture in the private sector, we must ask whether the differences between the public and private employment contexts are great enough to justify diametrically opposed policies on pension forfeiture.(4)

   Private employee pensions that have vested (i.e., the employee has satisfied the statutory age and/or years-of-service requirements) are protected from forfeiture for misconduct under the anti-alienation and anti-forfeiture provisions of ERISA, sections 203(a) and 206(d)(1), as interpreted by the United States Supreme Court in Guidry v. Sheet Metal Workers Nat'l Pension Fund et al.(5) Similarly, ERISA bars "bad boy clauses," i.e., provisions permitting cancellation of the pension rights of a private employee who engages in conduct injurious to his company.(6) Ironically, the trend in the public employment realm is to expand the government's authority to forfeit pension benefits.

   There are compelling reasons to examine pension forfeiture closely. Pension forfeiture is an anti-corruption strategy that state legislatures increasingly find attractive; some proposals even extend pension forfeiture to sex offenses and other crimes unrelated to abuse of official duties. Despite something of a pension forfeiture "movement," there has been little, if any, scholarly debate over this sanction's efficacy and fairness.

   What exactly do we mean by pension forfeiture? How does it work? When is it applicable? Part II examines enacted and pending state and federal pension forfeiture statutes. Before we can determine whether pension forfeiture is an appropriate sanction for public corruption, we must in Part III pause to consider the nature and legal status of public retirement pensions. Part IV critiques the rationales that have been offered in support of using pension forfeiture as an anti-corruption tool and offers criticisms of the sanction. Part V recommends that: (1) states should reject pension forfeiture as a sanction and instead rely on imprisonment and criminal fines as punishment for corruption offenses; (2) Congress should consider enacting a statute to protect public pensions as a counterpart to ERISA; and, (3) if legislators remain committed to pension forfeiture, they should look to New Jersey's approach as a model.

2. DESCRIPTION AND COMPARISON OF PENSION FORFEITURE STATUTES

   In the aftermath of the Alger Hiss trial for perjury, Congress enacted a statute in 1954, commonly referred to as the "Hiss Act," which mandates pension forfeiture upon a federal employee's conviction of treason or other enumerated offenses.(7) At the time of this writing, nine states have similar laws mandating or permitting pension forfeiture for public employees. convicted of certain corruption-related offenses.(8) Although pensions are not usually forfeitable without statutory authorization, the New Jersey and New York courts have held that pension boards may cancel the pension benefits of an employee who is removed or dismissed from public employment "with cause."(9)

   Although pension forfeiture statutes have many features in common, they differ in significant ways. This section explains and compares five salient features of pension forfeiture statutes: (1) the body charged with imposing the sanction; (2) the public officials and employees covered by the statute; (3) the offenses which trigger forfeiture; (4) the extent of forfeiture provided for; and (5) whether the forfeiture is automatic or discretionary.

   1. Who Imposes the Sanction and When

      Many states with a pension forfeiture statute authorize a pension board to make a forfeiture determination upon notification that the plan participant has been convicted of a corruption offense. Florida's pension forfeiture procedure is typical. The clerk of a criminal court where charges have been brought against a public employee for a felony involving a breach of public trust must furnish notice of the proceeding to the state Commission on Ethics. If there is a guilty verdict or a plea of either guilty or nolo contendere, the clerk must furnish a copy of the verdict or plea to the Commission, which, in turn, forwards the notice and accompanying documents to the governing body of the retirement system of which the public employee is a member.(10) The governing pension board then determines whether the employee will forfeit his pension benefits. As provided in the statute, "[w]henever the official or board responsible for paying benefits under a public retirement system receives notice ... such official or board shall give notice and hold a hearing ... for the purpose of determining whether such rights and privileges are required to be forfeited."(11) According to this scheme, the board makes a forfeiture determination regardless of whether the convicted employee applied for pension benefits. The determination is appealable.(12) However, most states require the board or agency charged with imposing the pension forfeiture sanction to notify the employee before denying pension rights and to afford him the opportunity to be heard before a forfeiture order is issued.(13)

      For federal employees, the Hiss Act provides for pension forfeiture "if the Attorney General of the United States certifies to the agency administering the annuity or retired pay concerned[,] that an individual subject to this chapter has been convicted by an impartial court . . . [and] that such conviction was obtained in accordance with procedures that provided the defendant due process rights."(14) The agency administering the pension benefits orders the forfeiture upon receipt of this certification.(15) The agency must order the forfeiture if an employee is convicted of an enumerated offense, unless a presidential pardon is issued.(16)

      Some pension forfeiture statutes "kick in" when the employee applies to the pension board or agency for his benefits.(17) For example, under the Missouri pension forfeiture statute, it is the duty of the pension board to determine at the time a police officer files his application whether he has forfeited his right to a pension through misconduct; the board's decision is final.(18) Typically, an employee may file a claim for retirement benefits with the pension board upon attaining the statutory retirement age, or having served in the public system for a requisite number of years. All states have established statutory age and/or years of service criteria which a public employee must satisfy before he is eligible to receive pension benefits. In Delaware, for example, an employee becomes eligible in one of three ways: five years of service and age sixty-five; fifteen years of service and age sixty; or, twenty-five years of service regardless of age.(19) However, an employee's pension rights may vest prior to the eligibility date.(20)

   2. To Whom the Statutes Apply

      Most states' pension forfeiture statutes apply to all members of the retirement system.(21) For example, Florida's pension forfeiture statute applies to "[any] officer or employee of any public body, political subdivision, or public instrumentality within the state."(22) Pennsylvania's pension forfeiture statute extends to all public officials and public employees, including "justices, judges and justices of the peace and members of the General Assembly."(23) By contrast, several states make only certain classes of employees, such as police officers or judges, vulnerable to pension forfeiture.

      The...