The following summary is based on a decision of the New Hampshire Superior Court. Please note that (a) superior court opinions are not binding on the New Hampshire Supreme Court, and (b) at the time this summary went to print, it was still possible for this decision to be appealed to the New Hampshire Supreme Court.
The New Hampshire Retirement System (NHRS), established under RSA 100-A, is a contributory, defined-benefit pension plan for public employee members. It computes benefits on the basis of a member’s average final compensation and years of creditable service. The benefits are not dependent upon the amount of contributions paid into the NHRS. There are three sources of funding for the NHRS: employee contributions, employer contributions, and investment earnings. Employees’ contributions are set by statute. To ensure proper funding of NHRS, New Hampshire Constitution Part 1, Article 36-a provides that "[t]he employer contributions certified as payable ... to fund the system’s liabilities, as shall be determined by sound actuarial valuation and practice ... shall be appropriated each fiscal year to the same extent as is certified." Nevertheless, NHRS, like many public employee retirement systems across the country, has accrued an excessive unfunded liability over time. To address the problem, the legislature passed many amendments to the retirement system in House Bill 2 (HB 2) of the 2011 session.
A coalition of public employee unions and individual public employees filed suit in superior court to invalidate two provisions of HB 2: (1) increases in the contribution rates for employees and (2) a requirement that NHRS recalculate the 2012 and 2013 employer rates to reflect the new, increased employee rates.
Employer rates. The plaintiffs claimed that the recalculated employer rates mandated by HB 2 would be based on outdated data and would contradict sound actuarial advice, in violation of Pt. 1, Art. 36-a. The court did not find it necessary to address the merits of this claim because the court found that the plaintiffs had no legal standing to raise the claim. A change in employers' rates would not necessarily affect either employees’ contributions or retirees’ benefits. Therefore, they have no economic stake in the implementation in this aspect of HB 2. The claim was dismissed.
Employee contributions. The plaintiffs claimed that the increase in employee contribution rates unconstitutionally impairs employees’ vested contractual rights under Part 1, Article 23 of the New Hampshire Constitution and Article 1, section 10 of the United States Constitution.
The Contract Clauses of the New Hampshire Constitution and the United States Constitution afford equivalent protections where a law impairs a contract, or where a law abrogates an earlier statute that is itself a contractual obligation on the part of the state. Under both Contract Clauses the constitutional analysis has three components: (1) whether there is a contractual relationship, (2) whether a change in law impairs that contractual relationship, and (3) whether the impairment is substantial. The court noted the line of federal cases that recognize a strong presumption against establishing contractual vested rights by statute, known as the "unmistakability doctrine."
The plaintiffs claimed that every public employee has a vested right to enjoy the terms of RSA 100-A that were in place when the employee became a permanent employee, relying on two earlier Supreme Court cases that mentioned vested rights in connection with different issues. Jeannont v. N.H. Personnel Comm’n, 118 N.H. 597, 602 (1978), involved determination of damages for breach of a public employee’s wrongful termination, which included the value of lost NHRS contributions. State Employees’ Ass’n of New Hampshire, Inc. v. Belknap County, 122 N.H. 614, 621 (1982), involved the county’s wrongful failure to pay its employees’ contributions to NHRS. Neither case involved statutory changes to benefits, so the court rejected the plaintiffs’ vested rights claim. The court also disagreed with the State’s argument that rights vest upon retirement. Instead, the court focused on RSA 100-A:10, which provides:
A ... member who has completed 10 years of creditable service and who, for reasons other than retirement or death, ceases to be an employee or teacher shall be deemed in vested status and upon meeting the eligibility equirements of subparagraph (b) may collect a vested deferred retirement allowance.
RSA 100-A:10, I(a); RSA 100-A:1, II(a). The court ruled that this language satisfies the "unmistakability doctrine." The court also ruled that all eligible employees become contractually and constitutionally entitled to pension benefits according to the terms of RSA 100-A in effect when they complete 10 years of creditable service, whether they cease to be employed at that point or continue in public employment. The court observed that "there is no reason to assume that the legislature intended to create a statutory scheme that would provide an incentive to State employees to leave public service after ten years."
The court also rejected the State’s argument that employee contribution rates can be increased without "substantial impairment" of vested rights, reasoning that "an increase in contributions is little different from a diminution of the allowance."
Having addressed the merits of the vested rights issue, the court then pointed out that the plaintiffs had not established standing to assert the claim because none had claimed 10 years of service in the pleadings. The court granted the plaintiffs 30 days to amend their petition to allege facts to establish standing.
It is uncertain at this time whether there will be an appeal to the New Hampshire Supreme Court.