Hon. Hall v. eorp/state

IN THE

SUPREME COURT OF THE STATE OF ARIZONA

THE HONORABLE PHILIP HALL ET AL.,
Plaintiffs/Appellees/Cross-Appellants,

v.

ELECTED OFFICIALS’ RETIREMENT PLAN ET AL.,
Defendants/Appellants/Cross-Appellees,

STATE OF ARIZONA,
Intervenor-Defendant/Appellant/Cross-Appellee.

No. CV-15-0180-T/AP

Filed November 10, 2016

Appeal from the Superior Court in Maricopa County
The Honorable Douglas L. Rayes, Judge (retired)
The Honorable Randall H. Warner, Judge
No. CV2011-021234
AFFIRMED IN PART AND REVERSED IN PART

COUNSEL:

Ron Kilgard (argued), Alison E. Chase, Keller Rohrback, L.L.P., Phoenix,
Attorneys for Philip Hall and Jon W. Thompson et al.

Bennett Evan Cooper, Steptoe & Johnson, LLP, Phoenix, Attorney for
Elected Officials’ Retirement Plan and the Members of the Board of
Trustees of the Public Safety Personnel Retirement System
 HON. HALL ET AL V. EORP/STATE
Opinion of the Court

Mark Brnovich, Arizona Attorney General, Charles A. Grube (argued),
Senior Agency Counsel, Phoenix, Attorneys for State of Arizona

Colin F. Campbell, Osborn Maledon, PA, Phoenix; and Robert D.
Klausner, Adam P. Levinson, Klausner Kaufman Jensen & Levinson,
Plantation, FL, Attorneys for Amicus Curiae National Conference on
Public Employee Retirement Systems

JUDGE HOWE * authored the opinion of the Court, in which JUDGE
BUTLER* joined, JUDGE CATTANI* joined and specially concurred, and
JUSTICE BOLICK and JUDGE TREBESCH* dissented in part and
concurred in the judgment in part.

JUDGE HOWE, opinion of the Court:

¶1 In 2011, the Arizona Legislature enacted Senate Bill 1609,
which made certain changes to the Elected Officials’ Retirement Plan. The
Bill changed the formula for calculating future benefit increases for retired
Plan members and increased the amount that employed Plan members
must contribute toward their pensions. Retired members of the Plan
challenged the provision changing the formula for calculating future
benefit increases. They argued that the change violated the Pension
Clause of the Arizona Constitution, article 29, section 1, which provides
that “public system retirement benefits shall not be diminished or
impaired.” 1 We agreed, holding that this provision was unconstitutional

* Chief Justice Scott Bales, Vice Chief Justice John Pelander, and Justices
Robert M. Brutinel and Ann A. Scott Timmer recused themselves;
pursuant to article 6, section 3 of the Arizona Constitution, the Honorable
Randall M. Howe and the Honorable Kent E. Cattani, Judges of the Court
of Appeals, Division One; the Honorable Michael J. Butler, Judge of the
Pima County Superior Court; and the Honorable Patricia A. Trebesch,
Judge of the Yavapai County Superior Court, were designated to sit in this
matter.
1 This provision was subsequently amended by Laws 2016, S.C.R.
1019, § 1, effective May 26, 2016. This amendment pertains only to the
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Opinion of the Court

as applied to the Plan’s retired members. See Fields v. Elected Officials’ Ret.
Plan, 234 Ariz. 214, 320 P.3d 1160 (2014).

¶2 Employed members of the Plan also challenged the Bill.
First, they argued that the unilateral changes to the benefit increases
formula and to the amount they were required to contribute toward their
pensions violated the Pension Clause for the reasons set forth in Fields.
Second, relying on our long-standing decision in Yeazell v. Copins, 98 Ariz.
109, 402 P.2d 541 (1965), they argued that because their pensions were part
of their employment contracts that vested when they began employment,
the Legislature could not unilaterally change the terms of their pensions to
their detriment. The trial court granted the employed members summary
judgment, invalidating the provisions at issue. The court denied the
members’ request for attorneys’ fees and prejudgment interest, however.
The court also denied the members’ request to have the judgment run
against the State, which had intervened in the case. EORP and the State
appealed and the members cross-appealed.

¶3 Upon transfer from the court of appeals, we affirm the
granting of summary judgment to the employed Plan members. As we
held in Fields, the Bill’s change to the benefit increases formula violates the
Pension Clause because it “diminishes and impairs” the employed
members’ pension benefits. The Bill’s changes to the benefit increases
formula and the contribution rate also violate our holding in Yeazell
because the Legislature cannot unilaterally change the terms of the
members’ pension contracts once their rights to those terms have vested at
the beginning of the members’ employment. Contrary to the trial court’s
ruling, however, we find that the employed members are entitled to
attorneys’ fees and prejudgment interest and that the judgment must run
against the State as well as the Plan.

I. FACTS AND PROCEDURAL HISTORY

¶4 In 1985, the Legislature established the Plan to provide
pension benefits for elected officials, including judges. A.R.S. §§ 38–
801(15), –802, –804. The Plan has four funding sources: employer

Public Safety Personnel Retirement System established by Chapter 38,
Article 4.1, and thus does not affect the resolution of this case.
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Opinion of the Court

contributions, employee contributions, court filing fees, and investment
proceeds. A.R.S. § 38–810. The employee contribution rate was set by
statute initially at 6%, with the employer being responsible for
contributing the remaining amount necessary to fund a defined benefit
upon retirement. See A.R.S. § 38–810(A) (1985). In 1987, A.R.S. § 38–
810(A) was amended to increase the employees’ contribution to 7%. See
1987 Ariz. Legis. Serv., ch. 146, § 4, codified at A.R.S. § 38–810(A) (1987).

¶5 During the 1990s, the Plan generated investment returns that
far exceeded the actuarially assumed rate of return. See PSPRS Plan’s
Funding Status Report with Options for Improving Funding and Reducing
Required Contributions, at 2 (2010). During the same period, however, the
Plan’s financial health was being “seriously compromised” because the
Plan was gradually concentrating its investments in securities of high
technology and telecommunications companies. Id. In March 2000, the
prices of technology and telecommunications securities began to “decline
rapidly.” Id. This made the Plan vulnerable to major financial shocks in
2000, 2008, and 2009. By fiscal year 2011, the Plan’s funding ratio—the
actuarial value of the Plan’s assets divided by its actuarial accrued
liabilities—was 62.1%, a drop from 121% in 1998 and 101.9% in 1985.
Accordingly, the State’s contribution level necessarily increased, while the
employee contribution rate remained constant, as set by statute.

¶6 In 2011, attempting to address continued rising costs, the
Legislature enacted the Bill, making several unilateral changes to the Plan
to be applied retroactively from June 30, 2011. See 2011 Ariz. Legis. Serv.,
ch. 357. One change the Bill made was to the statutory formula for
calculating permanent benefit increases under A.R.S. § 38–818. The Bill
amended A.R.S. § 38–818.01 to prohibit the transfer of any investment
earnings that exceed the rate of return to the reserve fund and changed the
formula used to calculate the permanent benefit increases, increasing the
rate of return necessary to trigger a benefit increase. See A.R.S.
§ 38–818.01(B).

¶7 We resolved whether the Bill’s change to the statutory
formula for calculating permanent benefit increases was constitutional
with respect to retired members in Fields, 234 Ariz. at 221 ¶ 34, 320 P.3d at
1167. We held that the formula was a “benefit” for purposes of the
Pension Clause and that the Bill’s change to the formula violated the
clause because it diminished and impaired the retired members’

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Opinion of the Court

retirement benefits. Id. at 220–21 ¶¶ 29, 34, 320 P.3d at 1166–67. Because
the Bill retroactively prevented the transfer of funds to the Plan’s reserve,
the Plan could not fund expected benefit increases, and retired members’
benefit increases consequently were reduced or eliminated in 2011, 2012,
and 2013. Id. at 221 ¶ 35, 320 P.3d at 1167. The Bill also made it less likely
that retired members would receive future benefits increases because of
the raised rate of return required to fund an increase. Id. at ¶ 36, 320 P.3d
at 1167.

¶8 The Bill made another change that was not at issue in Fields,
but is here. The Bill amended the employee contribution rate structure by
increasing the rate to 10% for fiscal year 2011–2012 and to 11.5% for fiscal
year 2012–2013. A.R.S. § 38–810(F)(1)–(3) (2011). It also set the rate for
fiscal year 2013–2014 and each fiscal year thereafter to the lesser of 13% of
the member’s gross salary or 33.3% of the sum of the member’s
contribution rate from the preceding fiscal year and the normal cost plus
the actuarially-determined amount required to amortize the employer’s
unfunded accrued liability. A.R.S. § 38–810(F)(4) (2011).

¶9 In November 2011, Judges Philip Hall—who has since
retired—and Jon W. Thompson, on behalf of themselves and as
representatives of a class of employed Plan members and beneficiaries as
of July 20, 2011, the Bill’s effective date (collectively, “Class Members”),
sued the Plan and the Board of Trustees of the Public Safety Personnel
Retirement System (collectively, “EORP”). The Class Members alleged
that the Bill violated Yeazell, the Pension and Judicial Salary Clauses of the
Arizona Constitution, and the Contract Clauses of the Arizona and United
States Constitutions. The State intervened to defend the Bill. After the
State intervened, the Class Members notified the trial court and the parties
that they would seek relief, including attorneys’ fees, expenses, and
taxable costs, not only from EORP but also from the State.

¶10 After intervening litigation, the parties each moved for
summary judgment. The Class Members maintained—as relevant here—
that the Bill violated Yeazell by unilaterally modifying their interests in
their pensions, which had vested at the outset of their employment with
the State, and violated the Pension Clause by diminishing their entitled
benefits. EORP and the State responded that the Class Members’ rights
had not yet vested and therefore the Legislature could modify the pension
plan as it saw fit. EORP and the State noted that in 2000, the Legislature

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Opinion of the Court

had enacted A.R.S. § 38–810.02 (“the vesting statute”), providing that
EORP benefits vest at the time the employee applies for benefits or retires.
EORP and the State argued that because the statute applies retroactively,
it has become part of the Class Members’ employment contracts with the
State, and accordingly, their rights do not vest until they retire.

¶11 The trial court granted the Class Members’ motion for
summary judgment and denied EORP’s and the State’s cross-motions for
summary judgment. The court held that the Pension Clause protected the
benefit increases formula and the 7% prior contribution rate because they
constituted “benefits” that were always part of the members’ contractual
relationship with the State. The court rejected EORP’s argument that the
vesting statute preempted the members’ contractual rights and their rights
under the Pension Clause. The court concluded that the statute applies
only to “ordinary” vesting, meaning that a member has no right to receive
retirement benefits until the member fulfills specific conditions and
retires. The court thus granted the Class Members the relief they sought.

¶12 The parties then asked for a stay pending our decision in
Fields, which the trial court granted. After considering the effect of Fields,
the court denied the Class Members’ request for attorneys’ fees under
A.R.S. § 12–341.01 because it concluded that the action arose out of
constitutional and statutory—not contractual—obligations. The court also
denied the Class Members’ request for prejudgment interest because it
found that EORP was not unjustly enriched and should not be charged
interest on money it legally could not pay. The court further denied the
Class Members’ request that relief run against the State because it found
that the State had intervened only to defend the Bill’s constitutionality and
the Class Members’ notice seeking relief against EORP and the State was
insufficient to assert claims against the State.

¶13 EORP and the State timely appealed the summary judgment
in the Class Members’ favor, and the Class Members timely
cross-appealed the judgment denying attorneys’ fees, prejudgment
interest, and relief against the State. We granted the parties’ joint petition
to transfer the case under Arizona Rule of Civil Appellate Procedure 19(a).
The funding of public pensions raises issues of statewide importance, and
we have jurisdiction pursuant to article 6, section 5(3) of the Arizona
Constitution.

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Opinion of the Court

II. DISCUSSION
ISSUES ON APPEAL
¶14 EORP and the State argue that the trial court erred by
finding that the Bill violates the Pension Clause and Yeazell. 2 We review
de novo the constitutionality of statutes and, if possible, construe them to
uphold their constitutionality. State v. Glassel, 211 Ariz. 33, 51 ¶ 65, 116
P.3d 1193, 1211 (2005). We presume that a statute is constitutional, and
the “party asserting its unconstitutionality bears the burden of
overcoming the presumption.” 3 Eastin v. Broomfield, 116 Ariz. 576, 580, 570
P.2d 744, 748 (1977). As discussed below, we hold that (1) the Bill’s
change to the benefit increases formula provision violates the Pension
Clause by diminishing and impairing a benefit to which the Class
Members are entitled and (2) its changes to the benefit increases formula
and the contribution rate provisions are unconstitutional under Yeazell
because it unilaterally modified the Class Members’ employment
contracts with the State to the Class Members’ detriment.

A. The Pension Clause
¶15 EORP and the State first argue that the trial court erred
because the benefit increases formula and the prior contribution rate are

2 The Class Members argue that even if the Bill does not violate the
Pension Clause and Yeazell, it is still unconstitutional under the Contract
Clauses of the United States and Arizona Constitutions and the Judicial
Salary Clause of the Arizona Constitution. See Ariz. Const. art. 6, § 33;
Ariz. Const. art. 2, § 25; U.S. Const. art. 1, § 10. We need not reach these
arguments, however, because the Pension Clause and Yeazell resolve the
fundamental issues regarding the Class Members’ rights to the benefit
increases formula and the prior contribution rate.
3 The Class Members argue that because Fields held that the Bill’s
benefit increases formula provision was unconstitutional, the Bill is not
entitled to such a presumption. But Fields decided only the Bill’s
constitutionality with regard to retired judges and their entitlement to the
benefit increases formula. 234 Ariz. at 220–21 ¶¶ 29, 34, 320 P.3d at
1166–67. The issue here is its constitutionality with regard to employed
judges and their entitlement to the benefit increases formula and the prior
contribution rate.
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Opinion of the Court

not “benefits” and therefore not protected by the Pension Clause.
Regarding the benefit increases formula, this Court concluded in Fields
that permanent benefit increases and the benefit increases formula were
“benefits” as used in the Pension Clause. See 234 Ariz. at 219, 220 ¶¶ 23,
26, 320 P.3d at 1165, 1166. The reasoning in Fields applies with equal force
to the Class Members because the Bill’s change to A.R.S. § 38–818’s
formula diminishes and impairs the Class Members’ retirement benefits
just as it does for retired members. See id. at 221–22 ¶¶ 34–36, 320 P.3d at
1167–68. The Bill’s amendment regarding the benefit increases formula
therefore violates article 29, section 1(C), of the Arizona Constitution.
Regarding the prior contribution rate, however, because we hold that the
prior contribution rate is protected under Yeazell, see infra § B, we need not
decide whether it is also protected under the Pension Clause. See Three
Affiliated Tribes of Fort Berthold Reservation v. Wold Eng’g, P.C., 467 U.S. 138,
157 (1984) (“It is a fundamental rule of judicial restraint . . . that this Court
will not reach constitutional questions in advance of the necessity of
deciding them.”).

B. A Binding Contractual Relationship
1. Yeazell v. Copins
¶16 EORP and the State also argue that the trial court erred in
applying Yeazell because “Yeazell enshrined the vesting statute as part of
the [member’s employment] contract, authorizing the Legislature as a
matter of the express contract to make reasonable prospective changes like
adjusting the contribution rate.” Consequently, they argue, Yeazell does
not “apply constitutional protections for pension rights” and also does not
affect whether the Pension Clause protects the benefit increases formula
and the prior contribution rate. The Class Members counter that the Bill
violates Yeazell because it seeks to unilaterally and retroactively modify
their pension terms as provided in their employment contracts when they
began services.

¶17 Yeazell established that the State’s promise to pay retirement
benefits is part of its contract with the employee. See 98 Ariz. at 113–17,
402 P.2d at 544–47. By accepting a job and continuing to work, the
employee has accepted the State’s offer of retirement benefits, and the
State may not impair or abrogate the terms of that contract without
obtaining the employee’s consent. Id. Yeazell involved a Tucson police
officer’s appeal of a local board’s decision setting his pension benefits

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Opinion of the Court

based on a 1952 amendment to the pension statute in effect at the time of
his retirement, rather than on the statute in effect when he was hired in
1937. Id. at 111, 402 P.2d at 542. Yeazell argued that the 1937 statute,
requiring him to contribute 2% of his salary and granting him a monthly
pension equal to one-half of his average monthly compensation for one
year immediately before his retirement date, was the applicable law from
which to determine his retirement benefits—not the 1952 statute. Id. His
benefit under the 1937 statute would have been $7.21 more per month
than his benefit under the 1952 statute. Id.

¶18 The issue in Yeazell was whether the Legislature could
unilaterally change statutorily-created retirement benefits that were part
of the terms of an employee’s employment contract when the employee
began service. See id. at 111–12, 402 P.2d at 542–43. The majority rule in
the United States at the time was that pensions—characterized as
“gratuities” granted at the sovereign’s benevolent will—could be
modified because the employees had no vested right to them. Id. at 112,
402 P.2d at 543. Thus, pension plans could be amended or changed as a
legislature saw fit. Id. Yeazell recognized, however, that treating
retirement benefits as “gratuities” posed a problem in Arizona because of
the state’s Gift Clause, id. at 112, 402 P.2d at 543, which, as relevant here,
prohibits state entities from giving or lending its credit “in the aid of, or
mak[ing] any donation or grant, by subsidy or otherwise” to any
individual, Ariz. Const. art. 9, § 7.

¶19 Yeazell acknowledged that under the Gift Clause, “[t]he state
may not give away public property or funds; it must receive a quid pro quo
which, simply stated, means that it can enter into contracts for goods,
materials, property and services.” 98 Ariz. at 112, 402 P.2d at 543. Thus,
to uphold Arizona retirement plans under the Arizona Constitution, this
Court concluded that pensions were not gratuities, but were, in the nature
of contracts, viewed as deferred compensation for services rendered. Id. at
113–15, 402 P.2d at 543–45. We reasoned that a pension is a gratuity only
when it is granted for services previously rendered, but when the services
are rendered under a pension statute, “the pension provisions become a
part of the contemplated compensation for those services, and so in a
sense a part of the contract of employment itself.” Id. at 113, 402 P.2d at
544; see also Proksa v. Ariz. State Sch. for the Deaf & the Blind, 205 Ariz. 627,
631 ¶ 21, 74 P.3d 939, 943 (2003) (“Put differently, in the retirement
benefits area, given the Gift Clause of our constitution, this court
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effectively found an ‘adequate expression of an actual intent of the State to
bind itself,’ because any finding to the contrary would render the statutes
unconstitutional.”) (citation omitted).

¶20 Based on Yeazell and its Gift Clause underpinnings, the law
in Arizona has been clear since 1965 that public employees are
contractually entitled to the retirement benefits specified in their initial
employment contract. See, e.g., Proksa, 205 Ariz. at 630 ¶ 16, 74 P.3d at 942;
Norton v. Ariz. Dep’t of Pub. Safety Local Ret. Bd., 150 Ariz. 303, 723 P.2d 652
(1986); Thurston v. Judges’ Ret. Plan, 179 Ariz. 49, 876 P.2d 545 (1994). This
protected relationship prevents the Legislature from changing the
employee’s pension terms at will after the terms have vested, see Yeazell,
98 Ariz. at 115–16, 402 P.2d at 545–46, and provides public employees
reasonable expectations that their retirement benefits are protected by the
law of contracts, see id. at 117, 402 P.2d at 546 (holding that a public
employee “ha[s] the right to rely on the terms of the legislative enactment
of the [pension plan] as it existed at the time he entered the service” and
that “subsequent legislation may not be arbitrarily applied retroactively to
impair the contract”). The parties may subsequently agree to modify the
contract, of course, but the State may not unilaterally change the
contractual terms unless the change benefits the employee. See Thurston,
179 Ariz. at 51, 876 P.2d at 547 (recognizing that “when the amendment
[to retirement benefits] is beneficial to the employee or survivors, it
automatically becomes part of the contract by reason of the presumption
of acceptance”). Under that circumstance, the employee is deemed to have
ratified the beneficial change, which becomes part of the employment
contract. Id.

¶21 For Yeazell, we concluded that the Legislature had
unilaterally amended the 1937 statute, which had become a part of his
employment contract—a contract that included the 2% contribution rate
and a pension calculation based on his last year’s earnings. Tucson
therefore could not retroactively vary the pension terms without Yeazell’s
consent. Yeazell, 98 Ariz. at 116, 402 P.2d at 546. We explained that
although an employee may not qualify to receive his pension benefits
until he has performed the necessary condition—completion of the
requisite years of service—this did not mean that from the moment
Yeazell entered service as a Tucson police officer, a firm and binding
contract did not exist between him and the City of Tucson. Id. at 114, 402
P.2d at 544.
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Opinion of the Court

¶22 Although acknowledging that Yeazell established a
contractual relationship between the State and public employees
regarding the employees’ pensions, EORP and the State nonetheless assert
that Yeazell provides only that “the employees’ contractual relationship
vested at the time they began services [and] does not automatically mean
that specific benefits vested at that time, without regard to the
contemporaneous terms of the contract.” But the specific benefits—that is,
the terms of the legislative enactment relating to the employees’ pensions
as they existed when the employees began their services—are exactly the
type of benefits Yeazell protects:

The legislature amended the 1937 statute which was a part
of appellant’s contract of employment with the City of
Tucson. Tucson now attempts to apply the changes
retroactively to vary the terms of its contract with appellant.
We hold the changes, if applied to appellant without his
assent, would constitute an alteration, a modification of his
contract. This Tucson may not do.

Id. at 116, 402 P.2d at 546. Yeazell thus protects the specific terms of a
public pension contract from unilateral retroactive alteration. Even the
dissent in Yeazell recognized this as the Court’s holding. See id. at 118, 402
P.2d at 547 (Udall, J., dissenting) (stating that the majority’s holding was
based on the “erroneous premise that there was created upon
employment an absolute binding ‘contract’ to a specific pension,” which
meant that the majority was holding that “the legislature, by subsequent
enactment, can modify the original pension terms only if the employee
consents”).

¶23 The Bill’s changes to the Class Members’ pension contracts
are consequently invalid under Yeazell. When the Class Members were
elected or appointed as judges, they entered a contractual relationship
with the State regarding the public retirement system of which they
became members. Their retirement benefits were a valuable part of the
consideration the State offered upon which the Class Members relied
when accepting employment. See Fields, 234 Ariz. at 220 ¶ 27, 320 P.3d at
1166 (“As in Yeazell, Fields has a right in the existing formula by which his
benefits are calculated as of the time he began employment and any
beneficial modifications made during the course of his employment.”).
Under their contracts, the Class Members received retirement benefits as

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Opinion of the Court

terms of their contracts for which they agreed to share the cost with their
employers. Thus, an increase in the Class Members’ proportionate share
of the contribution rate above 7% and the change in the statutory formula
granting permanent benefit increases without the Class Members’ consent
are breaches of that contract and infringe upon the Class Members’
contractual relationship with the State. See Thurston, 179 Ariz. at 52, 876
P.2d at 548 (“Where the modification is detrimental to the employee, it
may not be applied absent the employee’s express acceptance of the
modification because it interferes with the employee’s contractual
rights.”). By including in its scope Class Members who were Plan
members at the time of enactment, the Bill retroactively, unilaterally, and
substantially changed the contract terms that the parties previously
agreed to. This violates Yeazell.

¶24 EORP and the dissent both argue that this is not the end of
the analysis. They note that Yeazell commented that if a governmental
entity shows that its pension plan is actuarially unsound, “the law
governing mutual mistakes of fact” applies. See 98 Ariz. at 116, 402 P.2d at
546. They interpret this comment to mean that if EORP and the State
could show that the parties to the Plan made a mistake about the Plan’s
financial viability, the Bill’s retroactive changes would be permissible
modifications of the Plan under Yeazell. But EORP and the dissent over-
read Yeazell’s comment. Although this Court indeed said that the law of
mistakes of fact applied to a pension plan if it was actuarially unsound,
we expressly and carefully declined to address the consequences of such
an application: “We do not, however, mean to imply what rights or
remedies might be available to either party in a situation where it is
established that a retirement plan is actuarially unsound. This is a matter
beyond the issues of the present litigation.” Id. at 117, 402 P.2d at 546.

¶25 This Court’s reticence was appropriate. While the defense of
mutual mistake of fact applies in any contract dispute, EORP and the State
are unable to prove that defense as a matter of law. That defense requires
that the party seeking to void a contract prove that (1) the parties made a
mistake about a basic assumption on which they made the contract, (2) the
mistake had a material effect on the exchange of performances, and (3) the
party seeking avoidance does not bear the risk of the mistake.
Restatement (Second) of Contracts § 152(1) (1981); see also Renner v. Kehl,
150 Ariz. 94, 97, 722 P.2d 262, 265 (1986) (applying § 152 in resolving claim

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of mutual mistake of fact). EORP and the State cannot prove two of these
elements.

¶26 First, EORP and the State cannot show that the parties made
a mistake about a basic assumption of the Plan. They claim (and the
dissent accepts, see infra ¶¶ 73, 104) that the mistake was the parties’
shared assumption that the Plan was actuarially sound, meaning that the
parties mistakenly believed that the Plan’s investment returns would be
sufficient to maintain the Plan’s actuarial soundness without changing the
benefit increases formula or the employee contribution rate. But
disappointment about anticipated investment returns does not qualify as a
mistake. See Restatement (Second) of Contracts § 152 cmt. b (noting that
“market conditions and the financial situation of the parties are ordinarily
not such assumptions” and “mistakes as to market conditions or financial
ability do not justify avoidance under the rules governing mistake”).4
Moreover, the Plan’s actuarial soundness is within the Legislature’s
control. The Legislature is responsible for setting the amounts of the
employer contributions and court filing fees, see A.R.S. § 38–810(B)–(D),
and the Legislature may not “reduce the amount of the contributions to
the fund if thereby the soundness of the fund is jeopardized,” Yeazell, 98
Ariz. at 116, 402 P.2d at 546. If the Plan is underfunded because of
inadequate investment returns, the State may increase employer
contributions and filing fees.

¶27 Second, even if unanticipated reductions in investment
returns could qualify as a mistake, EORP and the State cannot show that
the State did not bear the risk that this mistake might occur. The
Legislature designed the Plan so that the State accepted the risk of variable
investment returns. When investment returns are high, the State’s funding
obligation through employer contributions is reduced or eliminated, as

4 EORP also claims that changes to the Class Members’ pension
contracts may be justified under the defense of “commercial
impracticability.” As with the defense of mutual mistakes of fact,
however, “mere market shifts or financial inability do not usually effect
discharge under the rule” of commercial impracticability. Restatement
(Second) of Contracts § 261 cmt. b; accord id. at § 152 cmt. b (recognizing
that the same analysis applies for mutual mistakes of fact and commercial
impracticability). Any defense of commercial impracticability thus fails.
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happened from 1998 to 2001. But when investment returns are low, the
State’s funding obligation is necessarily increased. In either situation,
however, the Class Members’ contribution rate remains fixed. Thus, the
Class Members are not permitted to obtain any cost savings from higher
investment returns, but they likewise are not required to pay more
because of lower investment returns. The reward and risk of investment
returns falls on the State. This is simply the nature of defined benefit
plans. See Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 439 (1999) (stating
that in a defined benefit plan “the employer typically bears the entire
investment risk” and “must cover any underfunding as the result of a
shortfall that may occur from the plan’s investments”). Because the State
bears the risk of the claimed mistake, the State cannot rely on the defense
of mutual mistake of fact to justify changes to the Plan. 5

5 The dissent contends that in ruling that EORP and the State are
unable to establish the defenses of mutual mistake of fact and commercial
impracticability, we are usurping the trial court’s role by improperly
determining as fact that poor investment returns were the cause of the
Plan’s alleged actuarial unsoundness. See infra ¶¶ 104–106. The dissent
maintains that EORP and the State “presented evidence of a variety of
causes” and did not rely only on the Plan’s poor investment returns. Id.
This misunderstands the record and our ruling.
In the pleadings and arguments before the trial court, EORP and
the State did not present a “variety of causes” for the Plan’s alleged
actuarial unsoundness; they presented two: the Plan’s poor investment
returns and the unsustainability of the former benefit increases formula.
These are actually the same cause, however. The former benefit increases
formula was based on the Plan’s investment returns, see Laws 1998, ch.
264 § 1; Fields, 234 Ariz. at 216 ¶ 4, 320 P.3d at 1162, which is the very
reason that EORP and the State allege it was unsustainable. Thus, the
claimed mutual mistake of fact or commercial impracticability—whether
made forthrightly on poor investment returns or obliquely on the
unsustainability of the benefit increases formula—rests on investments
returns. Because EORP and the State as a matter of law cannot rely on
poor investment returns to support their defenses, see Restatement
(Second) of Contracts § 152 cmt. b; id., § 261 cmt. b, our ruling is not
improperly based on any factual determination, see Scottsdale Jaycees v.
Super. Ct., 17 Ariz. App. 571, 574, 499 P.2d 185, 188 (1972) (holding that
14
 HON. HALL ET AL V. EORP/STATE
Opinion of the Court

¶28 The dissent also maintains that the Bill’s changes to the Plan
may be upheld under the Contract Clauses of the United States and
Arizona Constitutions. U.S. Const. art. 1, § 10; Ariz. Const. art. 2, § 25. See
infra ¶ 107. As we have explained, however, the Bill’s unilateral and
retroactive changes to the vested terms of the Plan violate Yeazell and the
Gift Clause. See supra ¶¶ 19–23. Consequently, analyzing whether the Bill
would pass review under the Contract Clauses were it not for Yeazell and
the Gift Clause is unnecessary and violates the principle of judicial
restraint. See Superintendent, Mass. Corr. Inst. v. Hill, 472 U.S. 445, 453
(1985) (stating that judicial restraint requires “avoid[ing] unnecessary
resolution of constitutional issues”).

¶29 The dissent’s substantive concerns about our holding are,
respectfully, not well taken. The dissent, however, raises one other
concern that merits discussion. The dissent discusses at great length the
perilous state of the Plan and this Court’s need to defer to the
Legislature’s policy choices in making the Plan solvent, see infra ¶¶ 58, 64–
66, 108, effectively asking this Court to get out of the way and let the
Legislature fix the problem. This argument has been raised in other cases
involving judicial pension reform, when state legislatures have run afoul
of state constitutional provisions that preclude retroactive changes to
judicial pensions. See In re Pension Reform Litig., 32 N.E.3d 1, 19–26 (Ill.
2015); De Pascale v. State, 47 A.3d 690, 693, 704–05 (N.J. 2012).

¶30 But this is not a matter of refusing to defer to the Legislature
on an issue of public policy. It is a matter of requiring the Legislature to
follow the Arizona Constitution in setting that policy. We recognize that
the financial soundness of public pension systems is a matter of great
public importance. We acknowledge that devising measures to guarantee
the Plan’s financial stability is difficult and fraught with unpleasant policy
choices. But whatever measures the Legislature enacts to address the
problem still must comport with the Arizona Constitution. See In re
Pension Reform Litig., 32 N.E.3d at 19 (stating that “[n]either the legislature
nor any executive or judicial officer may disregard the provisions of the

when the dispute is not with the facts but with “the legal conclusions to be
drawn from” the facts, the legal conclusions “are properly resolved by the
court sitting in its capacity as judge and not in its capacity as a trier of
fact”).
15
 HON. HALL ET AL V. EORP/STATE
Opinion of the Court

constitution even in case of a great emergency”) (citation omitted); De
Pascale, 47 A.3d at 704 (noting that a legislature has the right to implement
its policy choices in dealing with critical issues but that those choices
“must be made within a constitutional framework”). In examining the
Bill’s constitutionality, we are not meddling in the Legislature’s policy
choices. We are fulfilling our duty to ensure that the Arizona’s
constitutional framework is respected and observed in making those
choices. See Pool v. Superior Court, 139 Ariz. 98, 108, 677 P.2d 261, 271
(1984) (noting that interpreting the state constitution is this Court’s
responsibility). The provisions of the Bill at issue here are contrary to
Arizona’s constitutional framework and consequently invalid.

2. The Vesting Statute
¶31 EORP and the State further assert that although Yeazell
established a contractual relationship between the State and its employees
regarding pensions, the vesting statute, enacted in 2000, is part of the
employment contract for any employee hired after that date and allows
the Legislature to modify the pension terms for members before they
retire. The vesting statute provides:

A. Because the plan as enacted at a particular time is a
unique amalgam of rights and obligations having a critical
impact on the actuarial integrity of the plan, the legislature
intends that the plan as enacted at a particular time be
construed and applied as a coherent whole and without
reference to any other provision of the plan in effect at a
different time.

B. The plan was established in order to provide a
uniform, consistent and equitable statewide program for
those eligible elected officials as defined by the plan. A
member of the plan does not have a vested right to benefits
under the plan until the member files an application for
benefits and is found eligible for those benefits. An eligible
claimant’s right to benefits vests on the date of the member’s
application for those benefits or the member’s last day of
employment under the plan, whichever occurs first.

A.R.S. § 38–810.02. This Court has previously stated that rights legally
vest “when the right to enjoyment, present or prospective, has become the
16
 HON. HALL ET AL V. EORP/STATE
Opinion of the Court

property of some particular person or persons as a present interest.”
Hall v. A.N.R. Freight Sys., Inc., 149 Ariz. 130, 140, 717 P.2d 434, 444 (1986);
Thurston, 179 Ariz. at 50–51, 876 P.2d at 546–47. “A vested property right
is a right which is actually assertable as a legal cause of action or defense
or is so substantially relied upon that retroactive divestiture would be
manifestly unjust.” Aranda v. Indus. Comm’n of Ariz., 198 Ariz. 467, 471
¶ 18, 11 P.3d 1006, 1010 (2000) (internal quotation marks and citation
omitted). Thus, once substantive rights have vested, they cannot be
impaired. Hall, 149 Ariz. at 140, 717 P.2d at 444. And rights that are
legally vested differ from rights that are contingently vested, that is, ones
that only “come into existence on an event or condition which may not
happen or be performed until such other event may prevent their
vesting.” Thurston, 179 Ariz. at 50, 876 P.2d at 546; see also Fund Manager,
Pub. Safety Pers. Ret. Sys. v. Phx. Police Dep’t Pub. Safety Pers. Ret. Sys. Bd.,
151 Ariz. 487, 490, 728 P.2d 1237, 1240 (App. 1986) (listing employment
rights that do not vest until the “condition” of service is satisfied,
including accidental disability pension, unearned annual leave, vacation
credits, and sick leave).

¶32 EORP and the State argue that the term “vesting” as used in
the statute refers to legal vesting and operates to permit a unilateral
change to an employment contract. But if we were to accept their
position, the vesting statute would alter earlier established substantive
rights to particular retirement benefits, violating Yeazell. Thus, the vesting
statute is constitutional only if it refers to contingent vesting. See Jones v.
Sterling, 210 Ariz. 308, 314–15 ¶ 27, 110 P.3d 1271, 1277–78 (2005)
(providing that when we can avoid constitutional doubt by interpreting a
statute in a manner that does no violence to its text, we will adopt that
interpretation); Kotterman v. Killian, 193 Ariz. 273, 284 ¶ 31, 972 P.2d 606,
617 (1999) (“[W]e resolve all uncertainties [regarding a statute] in favor of
constitutionality.”). Our interpretation preserves the statute’s
constitutionality because it does not affect the earlier established
substantive right to particular retirement benefits. See In re Shane B., 198
Ariz. 85, 87 ¶ 8, 7 P.3d 94, 96 (2000) (providing that an exception to the
general prohibition on retroactive application of statutes is that “a statute
does not have impermissible retroactive effect if it is merely procedural
and does not affect an earlier established substantive right”).

¶33 Consequently, under Yeazell and the vesting statute, a public
employee’s interest in a retirement benefit or pension becomes a right or
17
 HON. HALL ET AL V. EORP/STATE
Opinion of the Court

entitlement at the outset of employment, but the right to begin collecting
pension benefits is contingent upon completing the requirements for
retirement eligibility. See Fields, 234 Ariz. at 221 ¶ 31, 320 P.3d at 1167
(providing that although the right to receive a pension “vest[s] upon
acceptance of employment,” the pension is “subject to conditions
precedent, such as completing the term of employment”); Krucker v.
Goddard, 99 Ariz. 227, 230, 408 P.2d 20, 22 (1965) (providing that a plan
member’s right to withdraw contributions vested because he “had
fulfilled every condition precedent to having his contributions returned”);
Cross v. Elected Officials Ret. Plan, 234 Ariz. 595, 600 ¶ 12, 325 P.3d 1001,
1006 (App. 2014) (“When the Plan accepts a member’s application for
retirement, pension rights ‘vest’ in that only then may the member begin
to receive the benefits.”). Consequently, because the Class Members have
a binding contract under Yeazell and because the employees and the State
have not agreed to modify that contract, the vesting statute, by itself, does
not permit the Legislature to unilaterally change the terms of that contract
to the employees’ detriment. Accordingly, the Bill’s changes to the benefit
increases formula and the contribution rate provisions violate Yeazell by
unilaterally modifying the Class Members’ contracts with the State.

ISSUES ON CROSS-APPEAL
A. Attorneys’ Fees
¶34 On cross-appeal, the Class Members first argue that they are
entitled to attorneys’ fees incurred before the trial court under A.R.S.
§ 12–341.01 because the action arose out of contract. EORP counters that
A.R.S. § 12–341.01 is inapplicable because the action arose from
constitutional or statutory obligations, not contractual obligations, even
though the members’ employment contracts were implicated. We review
de novo the applicability of A.R.S. § 12–341.01. See Ahwatukee Custom
Estates Mgmt. Ass’n, Inc. v. Bach, 193 Ariz. 401, 402 ¶ 5, 973 P.2d 106, 107
(1999).

¶35 Section 12–341.01(A) provides that a court may award
reasonable attorneys’ fees to the successful party in “any contested action
arising out of a contract, express or implied.” When questions of contract
are combined with other questions, judicial analysis whether the action is
sufficiently contractual to invoke A.R.S. § 12–341.01(A) “has aptly focused
on the substance of the action and the statutory policy to mitigate the
burden of the expense of litigation to establish a just claim or defense.”

18
 HON. HALL ET AL V. EORP/STATE
Opinion of the Court

A.H. By & Through White v. Ariz. Prop. & Cas. Ins. Guar. Fund, 190 Ariz. 526,
529, 950 P.2d 1147, 1150 (1997) (internal quotation marks and citation
omitted). The mere existence of a contract somewhere in the transaction is
insufficient to support a fee award. Id. That is, “when the cause of action
arises from statutory rather than contractual obligations, the peripheral
involvement of a contract does not require the application of [A.R.S.] § 12–
341.01(A).” Id. (internal quotation marks and citation omitted).

¶36 Although this action might first appear to arise from
constitutional or statutory interpretation, as EORP urges, a closer
examination of the operation of those contractual provisions reveals
otherwise. Sections 38–810 and 38–818 are part of the Plan’s statutory
scheme to provide retirement benefits for elected officials. A.R.S. § 38–
802. The Plan’s fund is used “exclusively for payment of benefits to
retired members or their beneficiaries” and “for payment of the
administration, operation and investment expenses of the plan.” Id.

¶37 As recognized in Yeazell, because the Gift Clause forbids the
Legislature from providing gratuities, the right to receive retirement
benefits necessarily arose as a condition of the employee’s contract of
employment. See 98 Ariz. at 114, 402 P.2d at 544. The Plan is therefore a
creature of statute that assumes the contractual obligations between the
State and public employees and exists to administer the
statutorily-imposed duties of generating assets for benefit payments to
retired members or their beneficiaries. Thus, the Plan’s relationship with
the Class Members is governed by the members’ employment contracts
with the State. Section 12–341.01 is therefore applicable to disputes
between the Plan and Class Members because the Plan’s obligation is
determined by the underlying employment contracts. See Pendergast v.
Ariz. State Ret. Sys., 234 Ariz. 535, 542 ¶ 23, 323 P.3d 1186, 1193 (App. 2014)
(providing that a public employee was entitled to attorneys’ fees on
appeal when the Arizona State Retirement System appealed the trial
court’s finding that application of a statute limiting the employee’s
purchase of credited service violated the Pension Clause, because the
matter arose out of contract). Consequently, because this action arose out
of the contractual relationship between the Class Members and the State,
it arose out of contract and is properly within the scope of the attorneys’
fees statute.

19
 HON. HALL ET AL V. EORP/STATE
Opinion of the Court

B. Prejudgment Interest
¶38 The Class Members next contend that they are entitled to
prejudgment interest on the principal amounts due under the judgment.
EORP counters that the Class Members are not entitled to such an award
because EORP cannot be charged interest on money it was not legally
obligated or able to pay and that the Plan statutes provide the sole remedy
for the Class Members. We review de novo whether a party is entitled to
prejudgment interest. Gemstar Ltd. v. Ernst & Young, 185 Ariz. 493, 508,
917 P.2d 222, 237 (1996).

¶39 Although the trial court found that awarding prejudgment
interest in this case would not serve the purposes of prejudgment interest,
“prejudgment interest on a liquidated claim is a matter of right” in a
contract action. Metzler v. BCI Coca-Cola Bottling Co., 235 Ariz. 141, 144
¶ 11, 329 P.3d 1043, 1046 (2014) (citation and quotation marks omitted). A
claim is liquidated “if the evidence furnishes data which, if believed,
makes it possible to compute the amount with exactness, without reliance
upon opinion or discretion.” Schade v. Diethrich, 158 Ariz. 1, 14, 760 P.2d
1050, 1063 (1988) (citation omitted).

¶40 Here, the principal amounts due are liquidated because they
may be computed with exactness. One principal amount due is the excess
payment contributions made by all Class Members. The other principal
amount due is the delayed payments of permanent benefit increases
under the former benefit increases formula to judges who have retired
before this action has concluded. These amounts are readily determinable.
Consequently, because the principal amounts due can be computed with
exactness, the Class Members are entitled to prejudgment interest on those
amounts at the rate determined pursuant to A.R.S. § 44–1201(F) (setting
the rate for prejudgment interest).

C. Relief Also Against the State
¶41 The Class Members argue finally that judgment should also
run against the State because the State voluntarily intervened and actively
litigated the case. The State counters that the Class Members will obtain
all the relief to which they may be entitled from EORP and that it
intervened for the limited purpose of defending the Bill’s constitutionality.
We hold that under the facts here, relief should also run against the State.

20
 HON. HALL ET AL V. EORP/STATE
Opinion of the Court

¶42 Arizona courts have previously held that intervenors may
seek relief in civil rights actions, have judgments run against them, and be
the prevailing party for purposes of the attorneys’ fees statute. See, e.g.,
Civil Rights Div. of Ariz. Dep’t of Law v. Super. Ct. In & For Pima Cty., 146
Ariz. 419, 426-27, 706 P.2d 745, 752-53 (App. 1985) (providing that
attorneys’ fees which the Legislature intended could be recovered in civil
rights actions are a form of relief that may be sought only by individual
plaintiffs or intervenors); Ariz. Ctr. for Law in Pub. Interest v. Hassell, 172
Ariz. 356, 371–72, 837 P.2d 158, 173–74 (App. 1991) (allowing judgment to
run against intervenor-defendants and awarding plaintiffs attorneys’ fees
against defendants and intervenor-defendants under the private attorney
general doctrine); McKesson Chem. Co., a div. of Foremost-McKesson, Inc. v.
Van Waters & Rogers, 153 Ariz. 557, 739 P.2d 211 (App. 1987) (remanding
for the trial court to determine whether intervenor-defendant was entitled
to attorneys’ fees as prevailing party and awarding intervenor-defendant
attorneys’ fees incurred on appeal).

¶43 Therefore, relief can run against an intervenor-defendant.
Here, the State elected to intervene as a defendant—referring to itself as
“Intervenor Defendant” in several pleadings—and fully participated in
this litigation, as well as in Fields. Although the Class Members did not
amend their complaint to assert a claim against the State, they did notify
the parties that they would seek relief against EORP and the State. “It
would be hypertechnical and unjust to preclude [Class Members] from
recovering [relief] that they have earned, merely for failure to amend their
complaint to expressly include [the State] within their demand for
judgment.” Hassell, 172 Ariz. at 371–72, 837 P.2d at 173–74. Consequently,
under the facts presented, relief should also run against the State.

III. CONCLUSION
¶44 For the foregoing reasons, we affirm the trial court’s
judgment with respect to the unconstitutionality of the two provisions of
the Bill at issue, but reverse with respect to the court’s denial of attorneys’
fees, prejudgment interest, and relief against the State. On appeal, the
Class Members request attorneys’ fees pursuant to A.R.S. § 12–341.01. In
our discretion, we deny their request.

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 HON. HALL ET AL V. EORP/STATE
JUDGE CATTANI, Concurring

CATTANI, J., concurring.

¶45 I concur in the court’s analysis, but I write separately to
express my view that the superior court correctly ruled that Senate Bill
1609’s change to the Class Members’ contribution rate violates the Pension
Clause of the Arizona Constitution. From my perspective, changing the
employees’ pension contribution rate specified by statute—and thereby
decreasing the employer’s funding share—diminished the employee’s
public retirement system benefit. And because the Pension Clause
provides that “public retirement system benefits shall not be diminished
or impaired,” Ariz. Const. art. 29, § 1(C), the Bill is unconstitutional
regardless whether it would survive scrutiny under the Contract Clause,
and the remand urged by the dissent is unnecessary.

¶46 The defined benefit pension system to which Class Members
belong guarantees each Class Member fixed monthly benefit payments
from the time of retirement for the remainder of the retiree’s life. The cost
of funding the post-retirement benefit payments is shared by Class
Members and the State, with Class Members paying a fixed percentage of
their salary at the rate specified in A.R.S. § 38-810, and the State
responsible for the balance necessary (beyond investment earnings) to
ensure the actuarial soundness of the pension system.

¶47 EORP and the State, as well as the dissent, posit that the Bill
did not diminish or impair Class Members’ pension benefits because the
Bill did not change the guaranteed monthly payments to which Class
Members are entitled upon retirement. But under that view, the
Legislature could unilaterally increase the employees’ contribution rate to
the point that Class Members shoulder the entire cost of funding the
public pension system rather than sharing the cost between employee and
employer. And it would be nonsensical to suggest that converting a
public employee’s employer-provided retirement benefit into an entirely
self-funded retirement plan would not diminish the employee’s “public
retirement system benefits.”

¶48 The same logic applies to a partial reduction in the
employer’s share of contributions to a retirement plan. Consider, for
example, an employment agreement in which an employer agreed to
share in the cost of a $1,000,000 retirement annuity (to be purchased on the
date of retirement) that would pay the employee $5,000 per month for the

22
 HON. HALL ET AL V. EORP/STATE
JUDGE CATTANI, Concurring

rest of the employee’s life. If the employer agreed to pay 60 percent
($600,000) of the cost to fund the annuity, with the employee responsible
for the remaining 40 percent ($400,000), the value of the retirement benefit
provided by the employer would be $600,000 as of the date of retirement.
Under that scenario, increasing the employee’s share to 50 percent and
reducing the employer’s contribution to 50 percent would mean that the
value of the retirement benefit provided by the employer would only be
$500,000, which would obviously be a reduction in that benefit. 6

¶49 This example highlights that the benefit to an employee
participating in a pension plan should not be measured—as the dissent
suggests—as simply the sum of the retirement payments received during
a retiree’s lifetime. Rather, the value of the benefit to the employee is the
amount the employer contributes to guarantee the stream of post-
retirement payments. And when the employee’s contribution rate is a
factor in determining the amount of the employer’s contribution, the
employee’s contribution rate is a protected benefit under the Pension
Clause. 7 Cf. Fields v. Elected Officials’ Ret. Plan, 234 Ariz. 214, 219–20, ¶¶
24–29 (2014) (holding that the statutory formula for determining retiree
benefit increases constitutes a pension benefit for purposes of the Pension
Clause). Thus, a unilateral increase in the employee’s contribution rate
violates the Pension Clause.

6 The dissent asserts that a guaranteed annuity as of the date of
retirement is not an accurate way to portray Class Members’ retirement
benefits because “in reality, under EORP, the payments are made and
calculated during employment, based not only on that particular
employee’s circumstances but the pension system as a whole.” But while
calculating the funding needed for the public retirement system
admittedly requires a more complex actuarial model than this illustration,
the shared funding obligations and fixed post-retirement payments of this
guaranteed annuity example are in fact similar to the relevant provisions
of the Class Members’ defined benefit pension.
7 The retirement payment amount is similarly protected under the
Pension Clause. Assuming (as § 38–810 specified) a fixed employee
contribution rate, a reduction in the post-retirement payment obligation
would reduce the employer’s funding share, thus diminishing the
employee’s pension benefit in violation of the Pension Clause.
23
 HON. HALL ET AL V. EORP/STATE
JUDGE CATTANI, Concurring

¶50 The dissent relies on Taylor v. City of Gadsden, 767 F.3d 1124
(11 Cir. 2014), and Borders v. City of Atlanta, 779 S.E.2d 279, 281 (Ga.
th

2015), to suggest that courts in other jurisdictions have concluded that
pension contribution rates are not a “benefit.” But the analysis in those
cases is based on a critical distinction: in both Taylor and Borders, the terms
of the pension plan from the outset expressly allowed modification.
Taylor involved a pension system in which the employee handbook
“explicitly stated that the ‘member contribution rate is determined by
statute and subject to change by the Alabama Legislature.’” 767 F.3d at
1129. The retirement plan at issue in Borders “unambiguously provide[d]
for subsequent modification or amendment.” 779 S.E.2d at 282. The
Pension Clause is only implicated when a promised benefit is “diminished
or impaired,” and modifying the contribution rate in those circumstances
did not take away a promised pension benefit precisely because the
employment contract authorized the modification.

¶51 There is no such modification provision applicable to Class
Members in this case. Section 38-810 specified a fixed 7% employee
contribution rate, and no representations were ever made to Class
Members that their contribution rate could vary in any way. Had Class
Members been advised at the outset of their employment that their
contribution rate was subject to change by the Legislature (effectively
setting a variable formula for employee and employer contribution rates),
Class Members—like the employees in Taylor and Borders—would not
have a claim under the Pension Clause that a promised benefit was taken
away.

¶52 And therein lies the problem underlying the position taken
by EORP and the State, as well as the dissent, because the analysis turns
on the question of what pension benefits employees were promised when
they were hired. At its core, this case is based on the simple premise that
employees who accept employment are entitled to rely on promises made
as part of their employment contract. And when those promises involve
pension benefits for state employees, that guarantee carries constitutional
weight. Here, because Class Members were promised a specified (fixed)
pension contribution rate as part of their initial employment contract, the
Bill’s changes to that rate diminished a promised benefit and thus
contravened the Pension Clause.

24
 HON. HALL ET AL V. EORP/STATE
JUDGE CATTANI, Concurring

¶53 The dissent asserts that the employee contribution rate was
in fact variable, and that the Bill thus did not result in a Pension Clause
violation. Although the constitutional provision regarding public
retirement systems contemplates that total contributions will vary as
necessary to ensure actuarial soundness, see Ariz. Const. art. 29, § 1(A), the
provision says nothing about the employees’ and employer’s relative
share of the total contribution amounts. And nothing in the language of §
38-810 or the terms of employment under which Class Members were
hired suggests a variable rate. 8 Rather, § 38-810 (as it existed when each of
the Class Members was hired) specified an employee contribution rate of
7% of salary, and this became a provision of the employment contract on
which each Class Member was entitled to rely.

¶54 The dissent notes that § 38-810 “has never contained
language indicating an expectation or guarantee.” But the language of the
statute creates precisely that expectation by imposing a fixed contribution
rate for Class Members. And that language is in stark contrast to statutory
language the Legislature has used in establishing other pension plans—
such as ASRS—that impose a variable employee contribution rate. See
A.R.S. § 38-736 (specifying that ASRS “member contributions are a
percentage of a member’s compensation equal to the employer
contribution”). 9

8 The dissent asserts that the employee contribution rate specified by
§ 38-810 “has varied over time,” and that the rate “has changed multiple
times over the years.” In fact, the rate was changed only once: an increase
from 6% to 7% in 1987, shortly after EORP was created. A single statutory
modification almost three decades ago—and over a decade before
adoption of the Pension Clause—does not establish that the rate is
variable at the Legislature’s will, much less that such modification
comports with the strictures of the Pension Clause. Nor does it foreclose
the argument—not at issue here—that an employee hired with the
promise of a 6% contribution rate would be entitled to that rate
notwithstanding the statutory change.
9 This means that for ASRS members, who as the dissent
acknowledges make up the overwhelming majority of state employees
(approximately 535,000 of 582,000), the contribution rate is not fixed as a
specified percentage of the employee’s salary, but—consistent with the
25
 HON. HALL ET AL V. EORP/STATE
JUDGE CATTANI, Concurring

¶55 The Legislature could have similarly designed EORP from
the outset with a variable employee contribution rate. But it is not our
role to rewrite the original statute or adopt language from other statutes.
See Hughes v. Jorgenson, 203 Ariz. 71, 73, ¶ 11 (2002) (noting presumption
that “the legislature has said what it means”); see also Comm. for Pres. of
Established Neighborhoods v. Riffel, 213 Ariz. 247, 249–50, ¶ 8 (App. 2006)
(noting that “when the legislature uses different language within a
statutory scheme, it does so with the intent of ascribing different meanings
and consequences to that language”).

¶56 Finally, the dissent misses the mark by suggesting that this
case “freez[es] employee contribution rates in perpetuity.” Nothing in the
court’s opinion prevents the State from prospectively specifying—as part
of an initial employment contract—that a defined-benefit employee is
subject to a variable contribution rate or, as the State has actually done for
judges appointed after the effective date of the Bill, provide new
employees with a defined contribution pension plan. Moreover, although
the dissent references pension systems involving other types of state
employees while highlighting the economic concerns underlying pension
reform proposals, the court’s decision addresses only a small percentage
of state employees (judges) who are part of an independent branch of
government and whose positions carry added constitutional protections.
See Ariz. Const. art. 6, § 33 (providing that the Legislature cannot remove
judges from office or reduce their salary). And although the State cannot
fire judges or reduce their salaries, nothing prevents the State from
negotiating a change to the contribution rate for judges and incentivizing
such a change by, for example, conditioning future raises on an agreement
to accept a higher contribution rate. Accordingly, the court’s decision
does not “lock in” an unworkable contribution rate in perpetuity, and
instead simply requires that changes to promised pension benefits be
carried out in a manner that comports with constitutional principles.

statutory terms of the employment contract—can increase or decrease
(just as the State’s rate can correspondingly go up or down) depending on
the amount needed to fund the overall ASRS pension fund.
26
 HON. HALL ET AL V. EORP/STATE
JUSTICE BOLICK, joined by JUDGE TREBESCH, Dissenting in Part and
Concurring in the Judgment in Part

BOLICK, J., joined by TREBESCH, J., dissenting in part and concurring in
the judgment in part.

¶57 The majority today holds unconstitutional statutory changes
to the permanent benefit increase (“PBI”) formula and contribution rates
as applied to active members of EORP. We respectfully dissent from the
holding that changes to contribution rates are unconstitutional and
otherwise concur in the result.

¶58 This case involves an anomaly that is largely this Court’s
invention. Most Arizona state employees are at-will employees. EORP’s
active members are either elected officials or judges who serve for fixed
terms. No formal contract exists between the state and those employees.
However, in a work of legal fiction to which the likes of John Grisham
could only aspire, this Court fifty-one years ago implied such a contract
for purposes of pension benefits, whose terms are largely set upon the
employment date and whose benefits extend far beyond retirement until
the employees’ beneficiaries pass on. See Yeazell, 98 Ariz. at 117, 402 P.2d
at 546. The voters subsequently incorporated much of that legal
relationship into our Constitution. Ariz. Const. art. 29, § 1. We are
impelled by that law to agree with the majority that the change in the PBI
formula is impermissible. But by freezing employee contribution rates in
perpetuity, the majority goes far beyond anything contemplated by our
jurisprudence or the Constitution, thereby jeopardizing the Plan’s
financial integrity, imposing an enormous uncontemplated burden on
taxpayers, and preventing the state from reasonably requiring employees
to shoulder part of the increased burden of paying for their own
retirement benefits.

I.

A. Factual Background

¶59 Arizona has four statewide retirement plans for public
employees: the Arizona State Retirement System (“ASRS”), EORP, the
Public Safety Personnel Retirement System (“PSPRS”), and the
Corrections Officers Retirement Plan (“CORP”). See Hayleigh S.
Crawford, Going For Broke: Arizona’s Legal Protection of Public Pension

27
 HON. HALL ET AL V. EORP/STATE
JUSTICE BOLICK, joined by JUDGE TREBESCH, Dissenting in Part and
Concurring in the Judgment in Part

Benefits, 46 Ariz. St. L.J. 635, 655 (2014). EORP is by far the smallest. 10 All
are “defined benefit” systems, which means they are “funded by
employer and employee contributions and guarantee[] the employee a
certain benefit upon retirement.” Id. at 639-40.

¶60 In 1985, the Legislature enacted EORP, which provided to
elected officials, including judges, a pension in the amount of three and
one-third percent of salary for each year worked, up to eighty percent of
average yearly salary after twenty years of employment, which was
increased to four percent in 1988. See 1985 Ariz. Sess. Laws, ch. 309, § 4
(1st Reg. Sess.) (codified at A.R.S. § 38-808(B)(1) (1985)). That promised
benefit, which essentially places elected officials and judges on par with
first responders, has never been changed.

¶61 The EORP Plan has four funding sources: employer
contributions, employee contributions, court filing fees, and investment
proceeds. The employee contribution rate is set by statute and has
changed over time. In 1985, it was set at six percent of the employee’s
gross salary. See id. (codified at A.R.S. § 38-810(A) (1985)). In 1987, it was
increased to seven percent. See 1987 Ariz. Sess. Laws, ch. 146, § 4 (1st Reg.
Sess.) (codified at A.R.S. § 38-810(A) (1987)).

¶62 By contrast, employer contributions are determined by
actuarial calculations of the amount needed to fund the plan in light of
projected payouts and investment income, in order to cover both normal
service costs and the amortized amount of the unfunded actuarial accrued
liability over a period not to exceed thirty years. In recent years, the
employer contribution rate has increased dramatically, from a low of 6.97
percent of each employee’s salary in 2002 to 29.79 percent in 2011, the year
in which the reform at issue was adopted. According to EORP, the rate
has continued to increase every year since then, to 39.62 percent in the
fiscal year ending in 2014. In other words, the employer’s contribution
rate has increased 568 percent in twelve years.

¶63 Also at issue in this case are “permanent increases in base

10 ASRS covers about 535,000 members, EORP has approximately
2,000, and PSPRS and CORP together have about 45,000. Id.

28
 HON. HALL ET AL V. EORP/STATE
JUSTICE BOLICK, joined by JUDGE TREBESCH, Dissenting in Part and
Concurring in the Judgment in Part

benefits” for retired employees. In 1990, the state enacted the first
statutory PBI formula, providing retirement payment increases based on
the Plan’s investment earnings. 1990 Ariz. Sess. Laws, ch. 236, § 4 (2d Reg.
Sess.) (codified at A.R.S. §§ 38-818(B), (E), (F) (1990)). If investments
returned more than nine percent, half of the return would be used to fund
increases up to four percent, with any remainder placed into a reserve for
future benefits increases. Id. After that statute expired in 1994, the
Legislature enacted a new PBI formula the following year. Increases were
based on the Plan’s investment returns, capped at the lesser of three
percent or half of the percentage change in the consumer price index.
1996 Ariz. Sess. Laws, ch. 198, § 1 (2d Reg. Sess.) (codified at A.R.S. § 38-
818(F) (1996)). In 1998, the Legislature raised the maximum possible
increase to four percent and eliminated any reference to the inflation rate.
1998 Ariz. Sess. Laws, ch. 264, § 1 (2d Reg. Sess.) (codified at A.R.S. § 38-
818(F) (1998)). That statutory formula remained in place until S.B. 1609.
According to EORP, since the 1998 change, EORP retirees received a four
percent annual benefit increase each year until the end of fiscal year 2010.

¶64 The statute at issue in this case is part of a nationwide effort
to reform public pensions. As a result of recession and insufficient
contributions, as of 2010, public pensions for state employees nationally
were underfunded by an estimated one trillion dollars. Pew Center on the
States, The Trillion Dollar Gap: Underfunded State Retirement Systems and the
Roads to Reform at 1-3 (2010). Between 2008 and 2013, every state passed
some type of pension reform legislation. See National Conference of State
Legislatures, Pensions and Retirement State Legislation, available at
http://www.ncsl.org/research/fiscal-policy/pension-legislation-
database.aspx (last visited Mar. 7, 2016).

¶65 Arizona’s public pensions were not immune to these
financial challenges. In 2010, Arizona taxpayers were paying at least $1.39
billion annually to fund the state pension systems, a 448 percent increase
from ten years previously and more than the estimated cost for higher
education, corrections, or healthcare for indigent people. Crawford at 637.
Serious reversals in investment returns in 2000, 2008, and 2009, combined
with significant actuarial errors pertaining to the PBI mechanism,
contributed to what EORP characterizes as “dramatic decreases” in the
Plan’s funding ratio—a benchmark of financial soundness calculated by
dividing the plan’s assets by its liabilities. The funding ratio decreased
29
 HON. HALL ET AL V. EORP/STATE
JUSTICE BOLICK, joined by JUDGE TREBESCH, Dissenting in Part and
Concurring in the Judgment in Part

from 141.7 percent in 2001 to 58.4 percent in 2012, a decline EORP
considers “alarming.” See generally Fields, 234 Ariz. at 217 ¶ 8, 320 P.3d at
1163 (recounting declining funding ratio). Based on record evidence,
EORP suggests that an “80% funding ratio is a generally accepted
indicator of a healthy pension plan.” Additionally, EORP’s PBI reserve for
future benefit increases declined from more than $40 million in 2000 to
zero in 2011. In sum, EORP was severely under-funded, rendering
precarious its ability to pay future pension obligations.

¶66 In an effort to place EORP, CORP, and PSPRS on a more
sound financial footing, the Legislature passed S.B. 1609 in 2011. As
relevant here, the statute increased the employee contribution rate from
seven percent to ten percent for fiscal year 2011-12, to 11.5 percent in 2012-
13, and a maximum of thirteen percent thereafter. A.R.S. § 38-810(F)(1)-(4)
(2011), renumbered as A.R.S. § 38-810(G)(1)-(4) (2013). The Legislature also
included a “maintenance of effort” clause, which provides that employee
contributions above seven percent of salary shall not be used to reduce the
employer’s contribution. A.R.S. § 38-810(G) (2011), renumbered as A.R.S.
§ 38-810(H) (2013).

¶67 Senate Bill 1609 also made changes to the PBI formula in
EORP, PSPRS, and CORP. First, it ended future inflows into the PBI
reserve fund. A.R.S. § 38-818.01(E). Second, it increased the investment
return rate upon which future PBIs would be calculated. A.R.S. § 38-
818.01(D). Finally, it maintained a four percent maximum for future
benefit increases, it pegged such increases to the Plan’s funding ratio, with
larger benefit increases as the actuarial soundness of the Plan improved.
A.R.S. § 38-818.01(C). These changes—the increased employee
contribution rate and the changes in the PBI formula—are at issue here.

¶68 In 2013, EORP was closed to new members so that elected
officials and judges taking office thereafter are no longer eligible. 2013
Ariz. Sess. Laws, ch. 216, § 9 (1st Reg. Sess.). Instead, they participate in a
“defined contribution” program. 11

11 A defined contribution plan does not provide a guaranteed benefit
amount at retirement. Rather, employers and employees contribute to a
30
 HON. HALL ET AL V. EORP/STATE
JUSTICE BOLICK, joined by JUDGE TREBESCH, Dissenting in Part and
Concurring in the Judgment in Part

B. Applicable law

¶69 The Contract Clause of our Declaration of Rights, comprised
by Arizona Constitution article 2, section 25, provides that “no . . . law
impairing the obligation of a contract[] shall ever be enacted.”
Historically, Arizona courts have applied the United States Supreme
Court’s test for determining violations of the Contract Clause of the
Federal Constitution. In order to violate the Contract Clause, a law must
substantially impair a contractual relationship. The state may justify the
impairment by demonstrating a significant, legitimate public purpose,
and that the impairment is reasonable and appropriate. See, e.g., Fund
Manager, Pub. Safety Pers. Ret. Sys. v. City of Phoenix Police Dep’t Pub. Safety
Pers. Ret. Sys. Bd., 151 Ariz. 487, 491, 728 P.2d 1237, 1241 (App. 1986)
(citing Energy Reserves Grp., Inc. v. Kansas Power & Light Co., 459 U.S. 400,
411-12 (1983)).

¶70 This Court first held that public pension benefits are
contractual rights in Yeazell. 98 Ariz. at 114-15, 402 P.2d at 544-45.
Because the Arizona Constitution prohibits gifts of public funds to
individuals, 12 the Court reasoned that “state pensions cannot be sustained
as constitutional unless anchored to a firmer basis than that of a gift.” Id.
at 112, 402 P.2d at 543. On that basis, the Court determined that public
pensions are contractual in nature, and that “[c]ontroversies as to those
rights should be settled consistent with the law applicable to contracts.”
Id. at 113-14, 402 P.2d at 544.

¶71 More specifically, the Court held that “the laws of the state
are a part of every contract.” Id. at 113, 402 P.2d at 544. Because
retirement benefits are “a valuable part of the consideration for the
entrance into and continuation in public employment,” the “right to a

plan in which benefits are based on contributions plus or minus
investment returns.
12
The Gift Clause, in article 9, section 7 of the Arizona Constitution
provides, “Neither the state, nor any . . . subdivision of the state shall
ever . . . make any donation or grant, by subsidy or otherwise, to any
individual, association, or corporation . . . .”

31
 HON. HALL ET AL V. EORP/STATE
JUSTICE BOLICK, joined by JUDGE TREBESCH, Dissenting in Part and
Concurring in the Judgment in Part

pension becomes vested upon acceptance of employment.” Id. at 115, 402
P.2d at 545. A “contract cannot be unilaterally modified nor can one party
to a contract alter its terms without the assent of the other party.” Id.
Applying those principles, the Court held that a legislative amendment
“may not be arbitrarily applied retroactively to impair the contract” as it
existed at the time the employment relationship was established. Id. at
117, 402 P.2d at 546.

¶72 The Court in Yeazell and subsequent cases essentially created
a one-way ratchet. Baseline benefits are set on the employment date.
They can be increased but never decreased without members’ consent.
Such un-bargained for, open-ended benefits are hardly compelled by the
Gift Clause, though they might well be forbidden by it. Cf. Turken v.
Gordon, 223 Ariz. 342, 351 ¶ 43, 224 P.3d 158, 167 (2010) (payments of
public funds must be supported by consideration that is not
disproportionate to the value received). In dissent, Justice Udall declared
that the majority opinion “had no support in reason or logic nor the case
law . . . and will create problems far beyond the immediate controversy.”
Yeazell, 98 Ariz. at 124, 402 P.2d at 551 (Udall, J., dissenting). Justice Udall
was prescient.

¶73 However, the Yeazell decision embraced a vitally important
limiting principle to ensure that the supposed pension contract would not
necessarily be a financial suicide pact for the taxpayers. “We do
not . . . mean to imply what rights or remedies might be available to either
party in a situation where it is established that a retirement plan is
actuarially unsound,” the Court declared. Id. at 117, 402 P.2d at 546. In
such circumstances, the Court stated, ordinary contract principles such as
mutual mistake of fact could be applied to modify or rescind a contract in
appropriate circumstances. Id. at 116, 402 P.2d at 546. Specifically, if both
parties “labored under the mistaken assumption that there was a fund
sufficient to afford . . . beneficiaries of the fund the amount provided” by
the original plan, the state could modify the contract if it carried its
burden of proving the mutual mistake. Id. Although the State presented
abundant evidence that EORP was structurally unsound prior to S.B. 1609,
the trial court never addressed the question of mutual mistake, instead
disposing of the case entirely under the Pension Clause of our
Constitution.

32
 HON. HALL ET AL V. EORP/STATE
JUSTICE BOLICK, joined by JUDGE TREBESCH, Dissenting in Part and
Concurring in the Judgment in Part

¶74 In 1998, upon legislative referral, Arizona voters enacted
Proposition 100, which added article 29, section 1 to the Arizona
Constitution. Most relevant to the issues presented here is section C,
which provides, “Membership in a public retirement system is a
contractual relationship that is subject to article II, section 25 [the Contract
Clause], and public retirement system benefits shall not be diminished or
impaired.” 13

¶75 In Fields, this Court struck down under the Pension Clause
S.B. 1609’s change in the permanent benefit increase formula as to retired
EORP members. 234 Ariz. at 221 ¶ 34, 320 P.3d at 1167. The Court
concluded that the statutorily prescribed permanent benefit increase
formula is a Plan “benefit,” and that S.B. 1609’s formula modification
violated article 29, section 1 because it “diminishes and impairs the retired
members’ benefits.” Id. at 216 ¶ 1, 220-22 ¶¶ 30-36, 320 P.3d at 1162, 1166-
68.

¶76 In this action, on cross-motions for summary judgment, the
trial court concluded that the changes to the permanent benefit increase
formula and contribution rates for active Plan members violated the
Pension Clause. Because it so ruled, it did not reach any of the other
constitutional issues. Although we agree with the majority’s outcome on
the PBI formula issue, we believe that the contribution rate is not a
pension “benefit,” and that the trial court improperly granted summary
judgment to the plaintiffs without considering defendants’ defenses under
Yeazell or the Contract Clause.

II.

A. The Pension Clause

¶77 Although the majority reaches the Pension Clause issue only
with regard to the PBI formula and not to contribution rates, we consider

13 This provision is now codified in sections C and D of article 29,
section 1 of the Arizona Constitution. See Laws 2016, S.C.R. 1019, § 1,
Prop. 124, approved election May 17, 2016, eff. May 26, 2016.

33
 HON. HALL ET AL V. EORP/STATE
JUSTICE BOLICK, joined by JUDGE TREBESCH, Dissenting in Part and
Concurring in the Judgment in Part

it in both contexts because it was the sole basis for the trial court’s
contribution rates ruling as embraced by the concurring opinion.

¶78 “In interpreting a constitutional amendment, our primary
purpose is to ‘effectuate the intent . . . of the electorate that adopted it.’”
Id. at 219 ¶ 19, 320 P.3d at 1165 (quoting Jett v. City of Tucson, 180 Ariz. 115,
119, 882 P.2d 426, 430 (1994)). In doing so, we give words “the meaning
most common to the ordinary individual.” Downs v. Sulphur Springs
Valley Elec. Coop., 80 Ariz. 286, 293, 297 P.2d 339 (1956); accord Fields, 234
Ariz. at 219 ¶ 19, 320 P.3d at 1165.

¶79 In addition to the text’s plain language, the ballot pamphlet
can aid in determining the electorate’s intent. See Calik v. Kongable, 195
Ariz. 496, 498 ¶ 10, 990 P.2d 1055, 1057 (1999). The ballot measure’s
proponents (no opponents submitted statements) all address one
overriding purpose: to prevent the legislature from raiding pension
funds, which had occurred in other states. See Ariz. Sec’y of State, 1998
Publicity Pamphlet 6-12 (1998), available at
http://apps.azsos.gov/election/1998/Info/PubPamphlet/Prop100.html.

¶80 That objective reflects in the first two of article 29, section 1’s
three substantive provisions. Subsection A declares, “Public retirement
systems shall be funded with contributions and investment earnings using
actuarial methods and assumptions that are consistent with generally
accepted actuarial standards.” Subsection B provides, “The assets of
public retirement systems, including investment earnings and
contributions, are separate and independent trust funds and shall be
invested, administered and distributed as determined by law solely in the
interests of the members and beneficiaries of the public retirement
systems.”

¶81 On its face, subsection C, at issue here, makes two changes
from prior law regarding pension contracts. 14 First, it establishes that

14 We presume that the legislature (in this instance, the measure’s
drafters and the electorate) knows the prior law, and if it changes that law,
that it intends that those changes have real and substantial effect. See, e.g.,
34
 HON. HALL ET AL V. EORP/STATE
JUSTICE BOLICK, joined by JUDGE TREBESCH, Dissenting in Part and
Concurring in the Judgment in Part

“[m]embership in a public retirement system is a contractual relationship
that is subject to article II, § 25,” the Contract Clause. This language marks
a significant departure from Yeazell and its progeny because instead of
applying ordinary contract principles to pension contract terms, it
establishes that the relationship is subject to Contract Clause rules, which
generally provide greater leeway to contract modifications by
government. See, e.g., Fund Manager, Pub. Safety Pers. Ret. Sys., 151 Ariz. at
491, 728 P.2d at 1241. As a result, this change is extremely consequential
for the present case.

¶82 Second, subsection C states that “public retirement system
benefits shall not be diminished or impaired.” This too marks a departure
from prior law, more favorable to Plan members and beneficiaries in this
instance because it suggests that benefits cannot be diminished or
impaired period, even in light of contract defenses that might previously
have been raised under Yeazell.

¶83 It therefore makes an enormous difference whether a
particular pension contract provision is a “benefit.” If so, it is legally
sacrosanct; if not, it is subject to the Contract Clause’s modification rules.
The Court recognized this crucial distinction in Fields, declaring that the
“Contract Clause applies to the general contract provisions of a public
retirement plan, while the Pension Clause applies only to public
retirement benefits.” 234 Ariz. at 218 ¶ 17, 320 P.3d at 1164. In this case,
the majority correctly applies the changes wrought by the Pension Clause
to invalidate changes to the PBI formula, but improperly ignores them in
order to strike down the change in contribution rates.

B. Permanent benefit increases

¶84 This Court decided in Fields that the PBI formula for retired
Plan members is a benefit. Because S.B. 1609 diminished or impaired that
benefit, it violated the Pension Clause. 234 Ariz. at 220 ¶¶ 26-27, 320 P.3d
at 1166.

Stone v. I.N.S., 514 U.S. 386, 397 (1995); Brousseau v. Fitzgerald, 138 Ariz.
453, 455, 675 P.2d 713, 715 (1984).

35
 HON. HALL ET AL V. EORP/STATE
JUSTICE BOLICK, joined by JUDGE TREBESCH, Dissenting in Part and
Concurring in the Judgment in Part

¶85 The State and EORP argue that the vesting statute, A.R.S.
§ 38-810.02, changed the pension contract for employees hired after its
2000 effective date. Specifically, they urge that for such employees,
benefits do not vest until retirement, hence the state may determine
benefit increases upon retirement.

¶86 As a general proposition, we agree with defendants that the
state is free to change pension terms or benefits or eliminate them
altogether for new employees, as the state did by changing to a defined-
contribution system for judges and elected officials in 2013. But their
interpretation of the vesting statute collides with the contractual nature of
public pensions, under Yeazell and as embraced and modified by article
29, section 1. Prior to the vesting statute in 2000, all seem to agree that
Plan members had a contractual expectation of a particular formula for
permanent benefit increases. The State and EORP posit that after the
vesting statute, that contractual expectation was replaced by a contingent
expectation; that is, the state may determine benefit increases upon
retirement.

¶87 Such a contingent, open-ended possibility fails for two
reasons. First, it does not provide a sufficiently definite term to satisfy the
requirement of contractual consideration. See, e.g., Savoca Masonry Co. v.
Homes & Son Constr. Co., 112 Ariz. 392, 394, 542 P.2d 817, 819 (1975)
(requiring sufficient specification of terms for mutual assent). Second, it
raises the Gift Clause concerns that animated the Yeazell decision because
the state is deciding the amount of compensation after work is performed,
thus giving rise to the prospect of a gift rather than proportionate,
bargained-for consideration. 98 Ariz. at 112-13, 402 P.2d at 543-44.

¶88 Accordingly, we conclude that the vesting statute did not
alter the contractual expectations of EORP Plan members, and thus the
Court’s conclusion in Fields that the PBI formula is protected by the
Pension Clause also controls here. Because S.B. 1609’s modification to the
PBI formula impaired or diminished that benefit for active Plan members,
it violates the Pension Clause.

C. Contribution Rates

¶89 By contrast, contribution rates are not benefits and thus do
not fall within the Pension Clause’s strictures.
36
 HON. HALL ET AL V. EORP/STATE
JUSTICE BOLICK, joined by JUDGE TREBESCH, Dissenting in Part and
Concurring in the Judgment in Part

¶90 By their nature, pension plans fall into one of two categories:
defined benefits or defined contributions. In the former, benefits are fixed
but the contributions may vary; in the latter, contributions are fixed but
the payouts may vary. See, e.g., Crawford at 639-42.

¶91 Article 29, section 1(B) uses the term “contributions” and
makes clear they are Plan “assets,” providing that they are to be held in
trust for the Plan’s beneficiaries. Section 1(A) provides that public
pension systems “shall be funded with contributions and investment
earnings using actuarial methods and assumptions that are consistent
with generally accepted actuarial standards.” That language indicates
contributions are not fixed, but rather may vary over time to ensure the
Plan’s financial integrity. Indeed, at oral argument, plaintiffs’ counsel
could point to nothing in the ballot materials that would have placed
voters on notice that the state could not adjust employee contribution
rates to ensure the Plan’s financial viability.

¶92 Thus, unlike the PBI formula to which an employee is
contractually “entitled” according to statutory provisions in effect on the
hiring date, Fields, 234 Ariz. at 219 ¶ 23, 320 P.3d at 1165, public employees
are not entitled to a fixed contribution rate. Indeed, if they were, the
failure to raise sufficient funds through employee contributions could
jeopardize the Plan’s financial viability required under article 29, sections
1(A)-(B), thus justifying the state’s change to those rates. By contrast, if
the entire burden of providing adequate pension contributions is placed
upon the state, it would create an uncertain, open-ended, and limitless
obligation that could run afoul of the Gift Clause. See Turken, 223 Ariz. at
351 ¶ 43, 224 P.3d at 167.

¶93 The employee contribution rate statute, A.R.S. § 38-810, has
never contained language indicating an expectation or guarantee. In fact,
the employee contribution rate has varied over time, including an increase
from six to seven percent in 1987, shortly after EORP was created. See
1987 Ariz. Sess. Laws., ch. 146, § 4 (1st Reg. Sess.) (codified at A.R.S. § 38-
810(A) (1987)). Arizona tax statutes also treat pension contributions and
benefits differently, with the former generally shielded and the latter
generally exposed to taxation. See A.R.S. §§ 38-810, -810.01, -811, 43-1022.
Arizona contribution rate statutes thus do not exhibit the indicia of

37
 HON. HALL ET AL V. EORP/STATE
JUSTICE BOLICK, joined by JUDGE TREBESCH, Dissenting in Part and
Concurring in the Judgment in Part

contractual entitlement that the Court found with regard to the PBI
formula in Fields. 234 Ariz. at 219 ¶¶ 23-24, 320 P.3d at 1165.

¶94 Other courts that have considered the precise issue of
whether pension contribution rates are a benefit have held they are not. In
Taylor v. City of Gadsden, 767 F.3d 1124 (11th Cir. 2014), plaintiffs argued,
as here, that they had a protected contractual pension right to a particular
contribution rate. Holding the change did not violate the state or federal
Contracts Clauses, the court explained, “Here, the City did not alter
plaintiffs’ pension benefits; instead, it altered their pension obligations.”
Id. at 1135.

¶95 The Georgia Supreme Court likewise recently considered a
challenge to sizable increases in employee contribution rates. The court
observed that the “pension contribution increases were not retroactive
and did not change a member’s benefit formula, calculation of pension
benefit, or actual benefit amount payable at the time of retirement.”
Borders v. City of Atlanta, 779 S.E.2d 279, 281 (Ga. 2015). The court upheld
the contribution rate change because it “did not alter Plaintiffs’ pension
benefits, but rather modified their pension obligations, and in no manner
divested Plaintiffs of their earned pension benefits, so as to implicate
constitutional concerns.” Id. at 287; see also In re Enrolled Sen. Bill 1269, 209
N.W.2d 200, 203 (Mich. 1973), followed in AFT Michigan v. Michigan, 846
N.W.2d 583, 593-94 (Mich. App. 2014).

¶96 Furthermore, if contribution rates were benefits, we have
difficulty perceiving which aspects of the pension contract would be
subject to the Contract Clause rather than to the absolute prohibition
against benefit impairment in article 29, section 1(C). Rather, as the Court
stated in Fields, that special protection is reserved for benefits, which
contribution rates are not. Indeed, we are loath to attribute to voters the
intent to have taxpayers alone shoulder all unanticipated financial
burdens of guaranteed pension payouts, absent clear evidence they were
placed on notice that they were doing so when they adopted article 29,
section 1.

¶97 The majority does not address this issue, finding instead that
the changes to the contribution rate violate Yeazell. But the concurring
opinion by Judge Cattani would affirm the trial court’s holding that

38
 HON. HALL ET AL V. EORP/STATE
JUSTICE BOLICK, joined by JUDGE TREBESCH, Dissenting in Part and
Concurring in the Judgment in Part

employee contribution rates are benefits and thus unchangeable under the
Pension Clause.

¶98 Judge Cattani compares the defined-benefit contribution to
an annuity. Respectfully, it is not. The common definition of annuity is
“[a] fixed sum of money payable periodically.” Black’s Law Dictionary
105 (9th ed. 2009). The defined-benefit pension, by contrast, involves fixed
benefits but requires variable payments. Judge Cattani seems to recognize
that distinction by observing that if this were an annuity, the amount of
payments, or cost, would “be determined upon the employee’s
retirement.” But in reality, under EORP, the payments are made and
calculated during employment, based not only on that particular
employee’s circumstances but the pension system as a whole; indeed,
deferring until retirement the amount of an employee’s compensation
would present Gift Clause problems because it would be indeterminate
and open-ended. Perhaps the legislature could improve the current
system by purchasing annuities for its employees, but that is not the
system before us.

¶99 Judge Cattani also observes that the system has no
“modification provision” to alert employees that contribution rates might
go up. Were this a real rather than fictional contract, perhaps it would
contain such a provision. As with many benefits, such as health
insurance, parking, or public transit passes, employee costs can vary. The
benefit is the outcome, not how much it costs the employer or employee.
That is the nature of a defined-benefit as opposed to a defined-
contribution retirement plan. Moreover, as noted, the statutes governing
employee contributions have never created an expectation or entitlement,
and the rate has changed multiple times over the years. A post hoc
transformation of a defined-benefit pension plan into an annuity whose
cost is determined upon retirement does not alter the legal reality that
employee contribution rates are not benefits.

¶100 For the foregoing reasons, the trial court erred in holding
that S.B. 1609’s employee contribution rate increase violates the Pension
Clause, the sole basis for its ruling on contribution rates.

D. The Contract Clause and Yeazell

39
 HON. HALL ET AL V. EORP/STATE
JUSTICE BOLICK, joined by JUDGE TREBESCH, Dissenting in Part and
Concurring in the Judgment in Part

¶101 The majority bases its decision striking down the
contribution rate changes on its view that Yeazell allows no changes
whatsoever to a pension plan that are to the members’ disadvantage,
absent the members’ consent. As we noted earlier, that conclusion
misreads Yeazell, which expressly recognizes contract defenses such as
mutual mistake regarding the Plan’s actuarial soundness. 98 Ariz. at 116,
402 P.2d at 546. It also ignores the constitutional changes that significantly
alter our jurisprudential landscape.

¶102 The majority says we “over-read” Yeazell because although it
recognizes the mutual mistake defense, the Court stated it did “not,
however, mean to imply what rights or remedies might be available to
either party in a situation where it is established that a retirement plan is
actuarially unsound. This is a matter beyond the issues of the present
litigation.” See ¶ 24 (citing Yeazell, 98 Ariz. at 117, 402 P.2d at 546). But
that is precisely the issue in this litigation; and whatever “rights or
remedies might be available,” it is judicial abdication to preemptively
foreclose them.

¶103 Because this case was decided on cross-motions for
summary judgment, the trial court made no factual findings on contract
defenses. As this Court is not affirming the trial court’s ruling that the
change in employee contribution rates violates the Pension Clause, and as
the parties below fiercely contested the factual issues pertaining to
contract defenses, affirming the summary judgment is manifestly
inappropriate. See Ariz. R. Civ. P. 56(a); see also Peterson v. Valley Nat. Bank
of Phoenix, 90 Ariz. 361, 362, 368 P.2d 317, 318 (1962) (stating summary
judgment inappropriate where there are material contested issues of fact
or where there is the slightest doubt as to the facts).

¶104 Rather than remand the issue for factual determination, the
majority dons trial court robes to determine that EORP and the State are
“unable to prove that defense.” Selectively reviewing the record, the
majority finds that the Plan’s financial worries are attributable solely to
EORP’s investment choices, and states that “disappointment about
anticipated investment returns does not qualify as a [mutual] mistake.”
See ¶ 26. Not only that, but “the Plan’s actuarial soundness is within the
Legislature’s control,” because it can always increase taxes and court fees,
apparently ad infinitum. Id. In reality, EORP presented evidence of a
40
 HON. HALL ET AL V. EORP/STATE
JUSTICE BOLICK, joined by JUDGE TREBESCH, Dissenting in Part and
Concurring in the Judgment in Part

variety of causes, and did not learn until a 2010 audit that the Plan was
severely unfunded. Until then, all parties labored under the assumption
that the Plan was actuarially sound—an assumption that proved to be
mistaken. By finding otherwise, the majority short-circuits the mistake of
fact analysis that Yeazell expressly recognizes.

¶105 The majority errs even more fundamentally by beginning
and ending its analysis with Yeazell. Article 29, section 1 now governs the
contractual relationship regarding public employee pensions. Section 1(C)
very plainly states that although benefits are sacrosanct, other parts of the
pension contract are governed by the Contract Clause. We said as much
in Fields, 234 Ariz. at 218 ¶ 17, 320 P.3d at 1164 (“The Contract Clause
applies to the general contract provisions of a public retirement plan,
while the Pension Clause applies only to public retirement benefits.”). As
noted previously, we cannot assume that the amendment’s drafters were
ignorant of past governing law and the significant change effected by the
ballot language. Our job is to enforce that language, not ignore it.

¶106 But ignore it the majority does, justifying itself with the
proposition, remarkable on multiple levels, that “analyzing whether the
Bill would pass review under the Contract Clauses were it not for Yeazell
and the Gift Clause is unnecessary and violates the principle of judicial
restraint.” See ¶ 28. Article 29, section 1 governs public pensions. It does
so in all, not just some, of its particulars. Declining to apply all of its
provisions is not judicial restraint but pick-and-choose jurisprudence.

¶107 As we decided in Fields, public pension contract terms that
are not benefits are subject to the Contract Clause. Neither this Court nor
the trial court made the requisite determination that the contribution rate
changes violate the Contract Clause; thus, remand is imperative. See State
v. Brita, 158 Ariz. 121, 124, 761 P.2d 1025, 1028 (1988) (“It is highly
undesirable to attempt to resolve issues for the first time on appeal,
particularly when the record below was made with no thought in mind of
the legal issue to be decided.”). But even so, based on available facts and
contrary to the majority’s conclusion, the record is quite clear that the
changes constitute “a significant and legitimate public purpose,” and that
the impairment is reasonable and appropriate. Fund Manager, Pub. Safety
Pers. Ret. Sys., 151 Ariz. at 491, 728 P.2d at 1241. Averting a pension crisis
and protecting the Plan’s actuarial soundness are not only significant and
41
 HON. HALL ET AL V. EORP/STATE
JUSTICE BOLICK, joined by JUDGE TREBESCH, Dissenting in Part and
Concurring in the Judgment in Part

legitimate, they are the very essence of the constitutional guarantees the
voters approved. The Plan members’ contribution rate increases are
dwarfed by the increased taxpayer contributions. Senate Bill 1609 takes
pains to not displace the state’s obligations or to raid pension funds.
Based on the record, we would uphold the contribution rate changes
under the Contract Clause (and therefore under article 29, section 1(C)).
At the very least, we would remand to the trial court to determine this
question in the first instance.

III.

¶108 If ever there were a case in which we should seriously
indulge the presumption of statutory constitutionality, this is it. The
majority winks at that rule, then utterly fails to apply it. It repeatedly
invokes the mantle of judicial restraint while casually invalidating a
statute designed to preserve the financial stability of a public employee
pension plan, a purpose so important that the voters made it part of our
state’s organic law.

¶109 The majority opinion portends a huge financial windfall for
the class members, a burden the taxpayers will shoulder. Under such
circumstances, we should act with great restraint, lest the rule of law be
undermined by a public perception that this decision is of the judges, by
the judges, and for the judges. On this important issue, the majority
exhibits no such restraint, and we therefore respectfully dissent.

42