McGrath v. Rhode Island Retirement Board

UNITED STATES COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT

No. 95-2301

EDWARD A. McGRATH,

Plaintiff, Appellant,

v.

THE RHODE ISLAND RETIREMENT BOARD, ETC.,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF RHODE ISLAND

[Hon. Ronald R. Lagueux, U.S. District Judge]

Before

Selya, Cyr and Boudin,

Circuit Judges.

Edward C. Roy, Jr., with whom Roy & Cook was on brief, for

appellant.
David D. Barricelli, with whom Hinckley, Allen & Snyder was

on brief, for appellee.

July 9, 1996

SELYA, Circuit Judge. This appeal requires us to
SELYA, Circuit Judge.

determine whether a legislated change to a substantive provision

of a public employees' retirement plan, as applied, transgresses

the Contracts Clause of the United States Constitution. We find

no constitutional infraction: plaintiff-appellant Thomas

McGrath's pension rights had not yet vested when the modification

occurred, and the state had reserved the power to alter or revoke

its promise of retirement benefits to municipal employees at the

time it established the plan in which McGrath later became a

participant. Consequently, we affirm the district court's grant

of summary judgment in favor of defendant-appellee Rhode Island

Retirement Board (the Board).

I. THE STATUTORY SCHEME
I. THE STATUTORY SCHEME

The Rhode Island General Assembly established a state

employees' retirement plan in 1936. See 1936 R.I. Pub. Laws, ch.

2334 (codified at R.I. Gen. Laws 36-8-1 to 36-10-39 (1990

Reenactment & Supp. 1995)). In 1951, the General Assembly

enabled Rhode Island's cities and town to enroll their employees

in a matching plan. See 1951 R.I. Pub. Laws, ch. 2784 (codified

at R.I. Gen. Laws 45-21-1 to 45-21-62 (1991 Reenactment &

Supp. 1995)). The legislature patterned the municipal employees'

plan (MEP) after the state employees' plan (SEP), engrafting the

former onto the latter. Together, these plans comprise what is

familiarly known as the state retirement system. The key

provisions of both plans are ordained by statute and both are

administered under the aegis of the Board.

2

The law authorizing the MEP affords each of Rhode

Island's thirty-nine municipalities the option of deciding

whether or not to participate. See R.I. Gen. Laws 45-21-4. If

a city or town chooses to join, its eligible employees are

required to become members of the plan and must contribute six

percent of salary until they have reached the maximum amount of

service credit attainable. See id. 45-21-41. Municipalities

may elect to defray some or all of their employees' required

contributions to the MEP. See id. 45-21-41.1.

A qualified employee is entitled to a life annuity upon

retirement in the amount of two percent of his or her final

salary times the number of years of total creditable service (up

to thirty-seven and one-half years). See id. 45-21-17. A

person is eligible to retire with such a pension once he or she

attains age fifty-eight and has logged at least ten years of

total creditable service. See id. 45-21-16. Under this

formulation the only formulation that is germane to this case1

a municipal member's right to a pension vests when he or she

meets both the age and years-in-service minima.

The MEP gives members the opportunity to purchase up to

four years of pension credits for temporally equivalent active

duty military service. See id. 45-21-53. A member also can

purchase pension credits for any "prior service with the city or

1Under the MEP, a worker also is eligible to retire with a
similarly calculated pension regardless of age if he or she
accumulates at least thirty years of total creditable service.
See R.I. Gen. Laws 45-21-16.

3

town of which the employee is now employed." Id. 45-21-9(b).

Prior to 1991, these purchased credits benefitted a plan

participant in two ways. First, they served to increase the life

annuity payments that would be payable upon the participant's

retirement. Second, they served to accelerate the participant's

vesting date. For example, an individual who had served four

years in the military could purchase four years of creditable

pension time at a relatively modest rate and then retire at age

fifty-eight after only six years of municipal employment. What

is more, the individual would receive an annuity upon retirement

in the amount of two percent of his or her final salary times ten

years (despite having worked for a mere six years).

From its very inception, the statute that paved the way

for municipal employees to enter the state retirement system

included a provision reserving the state's power to amend the

terms of the municipal members' participation. We reproduce this

escape clause in its entirety:

Reserved power to amend or repeal Vested
Reserved power to amend or repeal Vested
rights. The right to amend, alter, or
rights.
repeal this chapter at any time or from time
to time is expressly reserved, and in that
event the liability of the municipal
employees' retirement system of Rhode Island
shall be limited[,] in the case of a member
or a person claiming through the member[,] to
the contributions made by the member, without
interest, and in the case of a municipality,
to contributions made by the municipality[,]
without interest, subject to deductions
prescribed in the case of withdrawal by a
municipality as provided in 45-21-6. All
retirement allowances or other benefits
granted by the retirement of members, and in
force prior to a repeal or amendment, shall
be vested in the beneficiaries thereof and

4

shall be paid in full in accordance with the
terms of this chapter, and the rights of the
retirement board to compel the payment by any
municipality of the sum or sums necessary to
provide the retirement allowances granted to
members formerly employed by the municipality
shall not be affected by the repeal or
amendment.

Id. 45-21-47. Under this provision, the state reserves the

authority to make changes to the pension plan, up to and

including the termination of municipal participation and the

elimination of the pension rights of all employees (except those

who have already retired). Upon repeal, current employees would

receive back nothing more than the contributions they had made

over the course of their employment, without interest. See id.

For many years the state retirement system was plagued

with problems. In 1991, with tales of suspected pension abuse

rampant, the General Assembly restructured the system in several

respects. Among other changes, the legislature revised the

method for calculating the minimum years of service (ten)

required before an employee of suitable age could retire with a

pension. The new method focused on actual time in service

without regard to purchased credits. It did so by designating

contributing membership (i.e., the period of time during which an

employee had been working for the public employer and making

contemporaneous contributions to the system) as the virtually

exclusive measure of creditable time for vesting purposes. The

new law stated:

Except as specifically provided in 36-10-
9.1, 36-10-12 through 36-10-15 and 45-
21-19 through 45-21-22 of the general laws,

5

no member shall be eligible for pension
benefits under this chapter unless the member
shall have been a contributing member of the
employees' retirement system for at least ten
(10) years. Provided, however, a person who
has ten (10) years service credit shall be
vested. Any person who becomes a member of
the employees' retirement system pursuant to
45-21-4 shall be considered a contributing
member for the purposes of title 45, chapter
21 and this chapter.

R.I. Gen. Laws 36-10-9(c) (Supp. 1993) (enacted June 16, 1991).

It is readily evident that, under the amendment, an employee may

only count years of actual service for purposes of meeting an

applicable ten-year vesting requirement. Thus, purchased credits

(for, say, time in the military) can no longer be counted toward

vesting (unless the holder comes within the "grandfather clause"

protecting persons who already had logged ten years of total

creditable service, including the purchased credits, at the

effective date of the statutory change).2

In enacting this statute, the General Assembly amended

only Title 36 the law creating the SEP. Nevertheless, as the

last sentence of the excerpted language indicates, the change

seemed to apply to the MEP as well. When the Board exhibited

some confusion about which minimum vesting requirement applied to

municipal members, the legislature moved swiftly to dispel all

doubt by amending Title 45 the law creating the MEP to make

2The new provision did not affect the use of purchased
credits in regard to the thirty-year vesting alternative, see

supra note 1, or in regard to pension augmentation. Thus, the

purchase of military credits still could yield a significant
monetary return when the Board, at retirement, applied the
statutory formula to compute the amount of a participant's yearly
annuity.

6

it pellucid that municipal members, like other participants in

the system, must have been contributing members for at least ten

years in order to meet the minimum years-in-service requirement

for a pension. See R.I. Gen. Laws 45-21-16(b) (enacted July

21, 1992). The new law ceded substantially the same

grandfathering to members who already had accumulated ten years

of total service (including purchased credits), see id., but it

did not extend the same unguent to persons who had bought credits

but had not yet, even with the aid of those credits, cleared the

years-in-service hurdle.

II. THE COURSE OF EVENTS
II. THE COURSE OF EVENTS

The relevant facts underlying this litigation are not

in dispute. Thomas McGrath began working for the City of

Cranston as a probationary employee on April 9, 1986. His

probationary status ended six months later. Because Cranston had

elected to participate in the system, he became a contributing

member of the MEP on November 28, 1986. He remained in that

status until April 28, 1994 (although Cranston defrayed some of

the contribution costs).

In February 1991 the appellant began pursuing the

purchase of retirement credits for two and one-half years of

prior military service. Applying the statutory formula (ten

percent of first-year salary for each year of surrogate credit

purchased) the Board informed the appellant that he could buy the

desired credits for $4,316.09, and that for the added sum of

$917.53 he could purchase credits corresponding to his six-month

7

probationary period. The appellant bought the credits on April

15, 1991. At that time he had been a contributing member of the

system for just over four and one-half years.

As the law then read, the appellant's purchase of

surrogate credits worked to his advantage in two ways. First,

the purchase augmented his anticipated pension benefit by

increasing the number of years that would form the basis on which

his yearly retirement annuity would be calculated. Second, the

purchase promised to accelerate vesting and enable him to retire

with a pension after completing a mere seven years of actual

municipal employment. The appellant claims that he planned to

take advantage of both attributes and to retire from municipal

service late in 1993 (at which time he would be beyond the

minimum retirement age).

While the 1991 and 1992 amendments to the law did not

diminish the appellant's prospects of boosting his pension by

reason of the purchased credits, they dashed his hopes of

accelerated vesting.3 Under the new law, only years in which

municipal employees had been contributing members could be

counted toward the vesting requirement. Because the appellant

had only nine years, two months and twenty-two days of total

creditable service (including purchased credits) when the 1992

amendment took effect, he lost the benefit of the accelerated

3This case does not require us to speculate whether the 1991
amendment in and of itself dictated this result. Even if the MEP
was unaffected until the General Assembly acted in 1992, the
outcome here would be the same.

8

vesting that he had envisioned.

McGrath met with a representative of the state

retirement system in October 1993 to ascertain whether the new

law would be applied to the determination of his pension

eligibility. After receiving an adverse decision, he petitioned

the Board. The Board ruled that under the amended statute he

could use the purchased probationary credits toward vesting, but

that he could not use the purchased military credits for that

purpose. Accordingly, the Board decreed that the appellant would

not vest unless he continued in municipal service through April

9, 1996. Put another way, the appellant would have to work a

full ten years for Cranston before becoming eligible to receive a

pension. Should he reach that milestone, the purchased military

credits would be applied to augment the amount of his yearly

retirement annuity and he would retire with twelve and one-half

years of credited service (rather than ten), thus allowing him to

receive a more munificent pension.

The appellant resigned his municipal office on April

28, 1994. The Board stood fast, taking the position that he was

not entitled to any pension but merely to a return of

contributions (including the payments tendered for the purchased

credits). Pensionless but undaunted, McGrath brought suit

against the Board in the United States District Court for the

District of Rhode Island. He alleged that the amendment to R.I.

Gen. Laws 45-21-16, as applied to him by the Board,

transgressed the Contracts Clause, see U.S. Const. art. I, 10,

9

the Equal Protection and Due Process Clauses, see U.S. Const.

amend. XIV, 1, and the Takings Clause, see U.S. Const. amend.

V.4 In a thoughtful opinion, the district court granted brevis

disposition in the Board's favor. See McGrath v. Rhode Island

Ret. Bd., 906 F. Supp. 749 (D.R.I. 1995). This appeal ensued.

III. ANALYSIS
III. ANALYSIS

In this forum, the appellant challenges only the lower

court's rejection of his Contracts Clause claim. We restrict our

analysis accordingly.

A
A

In terms, the Contracts Clause prohibits states from

passing "any . . . Law impairing the Obligation of Contracts."

U.S. Const. art. 1, 10. Though the Framers apparently had in

mind only purely private contracts (particularly debt

obligations), see Benjamin F. Wright, Jr., The Contract Clause of

the Constitution 15-16 (1938), the Clause routinely has been

applied to contracts between states and private parties. See,

e.g., Fletcher v. Peck, 10 U.S. (6 Cranch) 87, 137-39 (1810).

Over time, the Supreme Court has devised a tripartite

test for use in analyzing alleged impairments of contracts. See

General Motors Corp. v. Romein, 503 U.S. 181, 186 (1992). Under

this paradigm, a court first must inquire whether a contract

exists. If so, the court next must inquire whether the law in

question impairs an obligation under the contract. If so, the

4This provision is made applicable to the states through the
genius of the Fourteenth Amendment. See Webb's Fabulous

Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 160 (1980).

10

court then must inquire whether the discerned impairment can

fairly be characterized as substantial. Affirmative answers to

these three queries compel a court to abrogate the proposed

application of the challenged state law. See id.

It should be noted that this tripartite test actually

has a fourth component. In an appropriate case the model expands

to include an inquiry as to whether the impairment, albeit

substantial, is reasonable and necessary to fulfill an important

public purpose. See Energy Reserves Group v. Kansas Power &

Light, 459 U.S. 400, 411-12 (1983). If so, the challenged law

will not be held to infringe rights secured by the Contracts

Clause. See id. Furthermore, when a state is itself a party to

a contract, courts must scrutinize the state's asserted purpose

with an extra measure of vigilance. See United States Trust Co.

v. New Jersey, 431 U.S. 1, 25 (1977). Because this fourth

component requires careful judicial scrutiny in all events, it is

clear that a state must do more than mouth the vocabulary of the

public weal in order to reach safe harbor; a vaguely worded or

pretextual objective, or one that reasonably may be attained

without substantially impairing the contract rights of private

parties, will not serve to avoid the full impact of the Contracts

Clause.

B
B

In general, retirement plans are within the reach of

the Contracts Clause. To be sure, noncontributory pensions were

viewed a century ago not as contracts but as mere gratuities.

11

See, e.g., Pennie v. Reis, 132 U.S. 464, 471 (1889). But times

have changed, and evolving legal doctrine recognizes that the

promise of a pension is part of the compensation package that

employers dangle to attract and retain qualified employees. In

line with this evolving doctrine we have held that, in general,

pensions are to be regarded as a species of unilateral contracts.

See Hoefel v. Atlas Tack Corp., 581 F.2d 1, 4-5 (1st Cir. 1978)

(explaining that "the promise of a pension constitutes an offer

which, upon performance of the required service by the

employee[,] becomes a binding obligation"), cert. denied, 440

U.S. 913 (1979). Other courts have come to view pension plans in

much the same way. See, e.g., Pratt v. Petroleum Prod. Mgmt.,

Inc. Employee Sav. Plan & Trust, 920 F.2d 651, 661 (10th Cir.

1990) (stating that a "pension plan is a unilateral contract

which creates a vested right in those employees who accept the

offer it contains by continuing in employment for the requisite

number of years") (quoting Hurd v. Illinois Bell Tel. Co., 234

F.2d 942, 946 (7th Cir.), cert. denied, 352 U.S. 918 (1956)); see

generally Arthur L. Corbin, Corbin on Contracts 2.29, at 256

(Joseph M. Perillo rev. ed. 1993).

Though the principle that a pension plan represents an

implied-in-fact unilateral contract is fairly well settled and

has been applied repeatedly to state and municipal pension

plans,5 there is significant disagreement about when

5Our opinion in Hoffman v. City of Warwick, 909 F.2d 608

(1st Cir. 1990), does not subvert this principle. Hoffman

involved a Rhode Island law that granted veterans additional

12

contractually enforceable rights accrue under such plans. See,

e.g., Nevada Employees Ass'n, Inc. v. Keating, 903 F.2d 1223,

1227 (9th Cir.) (suggesting that nonvested employees have

contractual rights subject only to "reasonable modification"),

cert. denied, 498 U.S. 999 (1990); Betts v. Board of Admin. of

the Pub. Employees' Ret. Sys., 582 P.2d 614, 617 (Cal. 1978) (en

banc) (stating that the right to a "substantial" or "reasonable"

pension accrues on first day of employment); Petras v. State Bd.

of Pension Trustees, 464 A.2d 894, 896 (Del. 1983) (explaining

that rights accrue when vesting occurs); Singer v. City of

Topeka, 607 P.2d 467, 475 (Kan. 1980) (similar to Petras, but

adding that rights remain subject to "reasonable modification");

Sylvestre v. State, 214 N.W.2d 658, 666-67 (Minn. 1973) (taking

the position that an employee's rights accrue on first day of

employment); Baker v. Oklahoma Firefighters Pension & Ret. Sys.,

718 P.2d 348, 353 (Okla. 1986) (holding that rights accrue only

when an employee vests); Leonard v. City of Seattle, 503 P.2d

741, 746 (Wash. 1972) (en banc) (similar to Baker). And,

moreover, some courts cling to the notion that a state-sponsored

retirement plan for public employees creates no enforceable

contractual rights whatever. See, e.g., Pineman v. Oechslin, 488

seniority in public employment. The state had never enforced the
law, and there was no indication that employees knew about it,
much less considered it part of their employment arrangement.
See id. at 612. On those idiocratic facts, we concluded that the

statute did not evince a legislative intent to contract, and that
a fortiori its repeal did not impair contractual obligations owed

to current employees. See id. at 614. Fairly read, Hoffman does

not stand for the proposition that statutory employment benefits
can never create contractual rights.

13

A.2d 803, 809-10 (Conn. 1985); Spiller v. State, 627 A.2d 513,

516 (Me. 1993).

C
C

Rhode Island's municipal employees' pension system

differs from the plans that have been considered by other courts

in at least one material respect: R.I. Gen. Laws 45-21-47

explicitly reserves to the legislature the power to amend or

terminate the plan, including the power to eliminate pension

benefits entirely (except for those employees who have already

retired).6 It is generally the case with supposed unilateral

contracts that if the offeror expressly reserves the power to

revoke the offer until the offeree's performance is complete,

then the offer is illusory and cannot give rise to a unilateral

contract. See Restatement (Second) of Contracts 45, cmt. b

(1981) ("A reservation of power to revoke after performance has

begun means that as yet there is no promise and no offer."). The

Supreme Court has endorsed this approach in respect to certain

6Of course, it can be argued that a legislatively-created
pension plan is always subject to amendment by means of further

legislative enactments, whether or not the plan explicitly
reserves a power to amend. We caution that this may be too
simplistic an argument. The Contracts Clause prohibits a state
legislature from amending any law in a way that works a
substantial impairment of contractual obligations previously
undertaken. An explicit reservation easily can be understood as
a legislative effort to avoid creating a contractual obligation
in the first place, for when the state expressly reserves the
power to withdraw or reconfigure the promise of a pension, a
state employee who thereafter accepts employment will be hard-
pressed to assert a reasonable basis for relying on the original
promise. Viewed in this light, the very existence of the
Contracts Clause seems to give a state's explicit reservation of
authority to amend its own public employee pension law more bite
than an inchoate power to amend can command.

14

federal employee retirement benefits. See United States R.R.

Ret. Bd. v. Fritz, 449 U.S. 166, 174 (1980) (stating that

statutory "railroad [retirement] benefits, like social security

benefits, are not contractual and may be altered or even

eliminated at any time"). If this logic holds, the Rhode Island

municipal retirement system seemingly does not produce the kind

of binding offer that courts are likely to enforce.

Yet this logic is not inevitable. In the wide world of

employee pension plans, the principle that reserved power to

revoke means that there is no offer and no contract has not been

applied consistently. In Allied Structural Steel Co. v.

Spannaus, 438 U.S. 234 (1978), the Court held that a state law

impaired the obligations of Allied Steel's preexisting contract

with its employees by requiring that all employer-provided

pension plans must include certain guarantees. See id. at 250.

En route to this holding the Court recognized the existence of a

contract for Contracts Clause purposes notwithstanding the fact

that the employer-sponsor had explicitly reserved the right to

amend or terminate its pension plan even if doing so meant

depriving employees (including those employees who had already

vested) of their expected benefits.

In the same vein, prior to the enactment of the

Employee Retirement Income Security Act of 1974 (ERISA), 29

U.S.C. 1001-1461 (1994) a statute that now occupies much of

the field in the law of pension benefits, but which has no direct

relevance here significant common-law precedent had developed

15

in support of the view that an express and unqualified

reservation of the power to amend or terminate a pension plan is

only to be given effect up to the point at which an employee's

rights under the plan vest. For instance, we held in a pre-ERISA

case that retired employees were entitled to benefits as provided

in a negotiated pension plan notwithstanding (a) the presence of

a clause in the plan reserving to the employer "the right to

change, suspend or discontinue the Plan at any time," and (b) the

employer's attempted termination of the plan. Hoefel, 581 F.2d

at 3-4. In so holding, we observed approvingly that a "number of

courts have construed pension plans which reserve to the employer

the right to alter or discontinue . . . as limiting the

employer's reserved right to apply only to employees whose

pension rights had not, at the time of the change, already

vested." Id. at 5. Hoefel relied heavily on Cantor v. Berkshire

Life Ins. Co., 171 N.E.2d 518 (Ohio 1960), in which the Ohio

Supreme Court ruled that "even though the employer has reserved

the right to amend or terminate the plan, once an employee, who

accepted employment under such a plan, has complied with all the

conditions entitling him to participate in such plan, his rights

become vested and the employer cannot divest the employee of his

rights thereunder." Id. at 522. Other courts agree. See, e.g.,

In re Erie Lackawanna Ry. Co., 548 F.2d 621, 625-27 (6th Cir.

1977); Ehrle v. Bank Bldg. & Equip. Corp., 530 S.W.2d 482, 495

(Mo. Ct. App. 1975); Stopford v. Boonton Molding Co., 265 A.2d

657, 665-66 (N.J. 1970); see generally Annot., 46 A.L.R.3d 464,

16

468-70 (1972) (collecting cases). Thus, the caselaw evinces an

emergent common-law rule to this effect: once an employee

fulfills the service requirements entitling him or her to

retirement benefits under a pension plan, the employee acquires a

contractual right to those benefits, and the employer cannot

abridge that right despite its aboriginal reservation of a power

to effect unilateral amendments or to terminate the plan

outright.7

We hasten to add a caveat. To our knowledge, all of

the cases that have cabined the effect of an explicitly reserved

power to amend involve private-sector retirement plans. It is

unclear whether the same limitations apply ex proprio vigore to

public-sector retirement plans. On one hand, principles of

fairness argue for comparability of treatment. On the other

hand, the very nature of a republican form of government and that

government's unique duty to represent the public interest combine

to create a special employment environment. Lawmakers pay homage

to this reality in many ways, see, e.g., R.I. Gen. Laws 36-11-6

(1990 Reenactment) (denying most public employees the right to

strike), and there are sound policy reasons to recognize this

difference in terms of maximizing the states' flexibility vis- -

vis the retirement benefits that it offers to public employees.

7Recent legislation buttresses the legitimacy of this rule.
ERISA, for example, specifically provides that pension plan
amendments cannot decrease retirement benefits which have already
accrued. See 29 U.S.C. 1054(g). Similarly, the Internal

Revenue Code defines as "qualifying plans" only those pension
plans that provide for the protection of "accrued benefits" upon
plan termination. 26 U.S.C. 411(d)(3).

17

Indeed, such concerns underlie the recognized presumption that

statutory enactments do not create contractual obligations in the

absence of an "unmistakable" intent on the legislature's part to

do so. See United States v. Winstar, No. 95-865, slip op. at 31-

48 (U.S. July 1, 1996) (discussing the role of the

unmistakability doctrine in "limiting contractual incursions on a

State's sovereign powers" under the auspices of the Contracts

Clause). Be that as it may, the instant case does not require us

to choose between these opposing viewpoints. Even if the common-

law rule applies to public employees' retirement plans and the

MEP therefore creates an enforceable contract linking the state

and the individual MEP members a matter we do not decide it

would not assist McGrath.

D
D

The district court found that the appellant's purchase

of military credits created a contract between him and the state,

separate and apart from the overall agreement to provide a

pension. See McGrath, 906 F. Supp. at 760 n.1. Under this

separate contract, the state promised to pay McGrath a larger

retirement annuity in return for a stipulated cash payment. See

id. at 763. Although the purchase yielded a second prospective

benefit producing an opportunity for earlier retirement, made

possible by the ability to count purchased credits toward the

MEP's minimum years-in-service requirement the court thought

that this feature was merely incidental to the essential purpose

of the separate contract. See id. at 763-64. Partly because

18

R.I. Gen. Laws 45-21-47 rendered the appellant's reliance on

the state's ancillary promise unreasonable, and partly because

the amendment to R.I. Gen. Laws 45-21-16 did not impair the

"central undertaking" of the contract pension augmentation

the court concluded that the amendment comprised only an

"insubstantial" impairment of the separate contract and therefore

did not transgress the Contracts Clause. See McGrath, 906 F.

Supp. at 766 (citing City of El Paso v. Simmons, 379 U.S. 497,

514 (1965)).

Although we uphold the district court's judgment we

arrive at that destination by a somewhat different path. For

purposes of Contracts Clause analysis, as in contract law

generally, it serves no legitimate end to slice and dice unitary

agreements into a series of fragmentary subcontracts. Cf. Smart

v. Gillette Co. Long-Term Disab. Plan, 70 F.3d 173, 179 (1st Cir.

1995) (warning that "[a]ccepted canons of construction forbid the

balkanization of contracts for interpretive purposes"). To the

contrary, a singular contract should be treated as such.

Applying this salutary principle, we think it is unrealistic to

view the acquisition of surrogate credits as forming a separate

and distinct contract. In point of fact, the purchase

constitutes no more than a transaction made available under the

auspices of the overall retirement arrangement.8 Hence, the

rights created by the purchase of credits are subsumed within,

8As the district court recognized, the only rights conferred
by the purchased credits were rights within the MEP itself. See

McGrath, 906 F. Supp. at 759.

19

and indistinguishable from, the rights created under the

retirement plan proper. We must, therefore, train our sights on

the MEP as a whole.

Based on the authorities canvassed above, we believe

that the architecture of the MEP at most extends an offer of a

unilateral contract to employees of participating municipalities,

subject, however, to the reserved powers contained in R.I. Gen.

Laws 45-21-47. Assuming, for argument's sake, that such a

contract has significance for purposes of the Contracts Clause

a matter on which we take no view it nonetheless is clear that,

under the contract terms, a member's rights to a retirement

annuity are not secure until he or she has met the age and

service requirements established in the plan (and, therefore, has

become vested).9 Until such time, section 45-21-47 permits the

state to make modifications to, or even terminate, members'

rights under the plan without offending the Contracts Clause.

And, moreover, since rights gained by service and rights gained

by purchase are "equal in stature" within the system, McGrath,

906 F. Supp. at 759, it follows that both are equally subject to

the state's reserved power to amend or terminate whatever

presumptive entitlements an unvested member may from time to time

look forward to enjoying.

In terms of this case, then, the appellant's purchase

9It is unclear whether the legislature can pass and lawfully
enforce an amendment that adversely affects an individual who has
satisfied the age and years-in-service requirement, but has not
yet retired. This case does not present an appropriate occasion
for us to explore this terra incognito.

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of surrogate credits may have conferred certain rights on him,

but it did so only against the backdrop of the state's reserved

authority to modify those rights up to the point of vesting (if

not beyond). And since McGrath was not vested when the Rhode

Island General Assembly revised the MEP, his claim founders.

To say more would be supererogatory. We conclude that

the amendment to R.I. Gen. Laws 45-21-16, as applied, passes

constitutional muster under the Contracts Clause. See City of

Charleston v. Public Serv. Comm'n, 57 F.3d 385, 393-95 (4th Cir.)

(holding that a state law did not impair a public contract when

the contract expressly stated that its terms were subject to

legislative regulation), cert. denied, 116 S. Ct. 474 (1995);

National Ass'n of Gov't Employees v. Commonwealth, 646 N.E.2d

106, 110 (Mass.) (holding that a statutorily mandated increase in

state employees' health insurance premiums did not impair a

public contract because the legislature had expressly reserved

the power to change the contract's terms), cert. denied, 115 S.

Ct. 2615 (1995).

IV. CONCLUSION
IV. CONCLUSION

We need go no further. As between Rhode Island and the

appellant, the 1992 amendment to R.I. Gen. Laws 45-21-16 did

not impair any obligation protected by the Contracts Clause.

Consequently, the district court appropriately entered judgment

for the Board.

Affirmed.
Affirmed.

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