This case, although it did not involve municipal employees, may have important implications in the ongoing case regarding reform of the State retirement plan for public employees. The Court was asked to rule on whether changes to a judicial retirement plan violate the New Hampshire Constitution. The employees in this case were retired judges challenging legislation that altered the pension benefits they would receive. The judges argued these changes violate Part I, Article 23 of the State Constitution, which has been interpreted to prohibit statutes that take away or impair vested rights that were acquired under existing statutes.
The initial question in such a case is whether the statute is itself a contractual obligation on the part of the State. If so, the question is whether the new law “substantially impairs” the existing contractual relationship. If it does, the court balances the police power of the government against the rights protected by the Constitution, and the law may pass constitutional muster only if it is reasonable and necessary to serve an important public purpose. This case presented the Court with its first opportunity to determine whether a retirement statute creates a contract between a public employee and the State. The Court found that it does, and that it “vested when they were appointed to be judges, subject to attaining the age and service requirements” to collect benefits.
The Court then considered whether the legislative change to the plan was a “substantial impairment” of that contract. The prior retirement statutes allowed for the calculation of retirement benefits based upon the most recent adjustments in judicial salaries, and the new statute bases benefits on the amount the specific judge was being paid at the time of retirement. Finding that the judges “had the right to expect that upon retirement their pension would reflect subsequent increases in pay granted to those in active service,” the Court found the new law impaired the contractual relationship.
However, the Court rejected the trial court’s conclusion that the impairment was “substantial,” because the wrong analysis had been used to reach that conclusion. The trial court relied on opinions from cases involving the impairment of employment contracts rather than pension contracts. “[U]nlike an employment contract that guarantees definite hours of work for a definite amount of compensation, there is no absolute certainty from year to year whether any upward modifications to judicial salaries will be legislatively authorized” and so there is no absolute guarantee of a specific dollar benefit. Instead, the Court indicated its agreement with cases from other states involving retirement systems. These other cases stated that “an employee may acquire a vested contractual right to a pension but … this right is not rigidly fixed by the specific terms of the legislation in effect during any particular period in which he serves,” so it is implied that changes to the legislation may be made to alter the amount, terms, and conditions of the benefits. In addition, other courts have reasoned that the employee’s pension rights “may be modified prior to retirement, but only for the purpose of keeping the pension system flexible and maintaining its integrity.” Finally, other states approve the view that, prior to retirement, a plan may be changed only if there is a corresponding change of a beneficial nature to the employee.
The Court sent the issue of “substantial impairment” back to the trial court under this analysis. Stay tuned for future developments in this case.