Bellomini v. State Employees' Retirement Board

OPINION

O’BRIEN, Chief Justice.

Appellees, Robert E. Bellomini and Henry J. Cianfrani, former employees of the Commonwealth of Pennsylvania, challenged the denial of their retirement benefits by the State Employees’ Retirement Board (hereinafter “Board”) by filing Petitions for Review invoking the original jurisdiction of the Commonwealth Court of Pennsylvania. Appellees attacked the constitutionality of the Public Employee Forfeiture Act, Act 1978-140, 43 P.S. § 1311 et seq. (hereinafter “Act 140”). Appellee Cianfrani had been receiving a monthly retirement allowance, which was terminated pursuant to Act 140. Appellee Bellomini’s retirement benefits were denied, also pursuant to Act 140, when he applied for them. In both cases the Commonwealth Court directed the Board to enforce appellees’ contractual retirement benefits rights. These appeals followed.

I. The Case of Appellee Bellomini

Robert Bellomini was a member of the House of Representatives of the Commonwealth of Pennsylvania for fourteen years, from December 1, 1964, until his resignation on June 14,1978. Ten days before his resignation, appellee was convicted of two counts of unlawfully obstructing, delaying and affecting interstate commerce by extortion, in violation of 18 U.S.C. § 1951.

*207During his tenure as a state representative, Appellee Bellomini, a member of the State Employees’ Retirement System (hereinafter “System”), contributed $20,714.87. On August 1, 1978, he applied for a state retirement allowance. By letter dated August 22, 1978, the Board informed Bellomini that his retirement benefits were denied based upon Act 140. Bellomini’s contributions to the System, excluding interest, were returned by the Board on January 22, 1979. On February 12, 1979, Appellee Bellomini filed his Petition for Review in the Commonwealth Court. That court, on January 27, 1980, entered an order enjoining the Board from withholding Bellomini’s retirement benefits. The Board filed its Notice of Appeal to this Court Nunc Pro Tunc on May 11, 1981.

II. The Case of Appellee Cianfrani

Henry Cianfrani was a Commonwealth employee for approximately eighteen years. He was employed by the Pennsylvania Department of Revenue from May 4, 1959, until November 30, 1962. Subsequently, from December 1, 1962, until November 30, 1966, Cianfrani was a member of the Pennsylvania House of Representatives. Following his tenure in the House, Cianfrani was a member of the Senate of the Commonwealth of Pennsylvania for eleven years, from December 1, 1966, until his resignation on December 15, 1977. Throughout this eighteen-year period, Appellee Cianfrani, as a member of the System, contributed $28,404.48.

Upon his resignation in December, 1977, Cianfrani applied for retirement benefits. He received his personal contributions in a lump sum payment and concurrently began receiving a monthly allowance. On December 30, 1977, Cianfrani entered pleas of guilty to racketeering, in violation of 18 U.S.C. § 1962(c), mail fraud, in violation of 18 U.S.C. § 1341, and obstruction of justice, in violation of 18 U.S.C. § 1503, and a plea of nolo contendere to tax evasion, in violation of 26 U.S.C. § 7201, in the United States District Court for the Eastern District of Pennsylvania.

*208By letter dated August 23, 1978, Appellee Cianfrani was notified that since his retirement benefits had been terminated pursuant to Act 140, health insurance coverage had been cancelled. On April 9,1981, Cianfrani filed his Petition for Review in the Commonwealth Court challenging the constitutionality of Act 140. On February 3, 1982, based upon Burello v. State Employes’ Retirement System, 49 Pa.Commonwealth Ct. 364, 411 A.2d 852 (1980), and Miller and Fineman v. State Employees’ Retirement System, 498 Pa. 103, 445 A.2d 88 (1981), the Commonwealth Court granted Cianfrani’s motion for summary judgment and ordered the Board to restore his retirement benefits. The Board filed its Notice of Appeal to this Court on February 9, 1982. The cases were consolidated for appeal upon Appellee Cianfrani’s petition.

III. The Retroactive Application of Act 140 Effects an Unconstitutional Impairment of the Obligation of Contract

Act 140 provides, in pertinent part,

“Section 3. Disqualification and forfeiture of benefits.
“(a) Notwithstanding any other provision of law, no public official or public employee nor any beneficiary designated by such public official or public employee shall be entitled to receive any retirement or other benefit or payment of any kind except a return of the contribution paid into any pension fund without interest, if such public official or public employee is convicted or pleads guilty or no defense to any crime related to public office or public employment.
“(b) The benefits shall be forfeited upon entry of a plea of guilty or no defense or upon initial conviction and no payment or partial payment shall be made during the pendency of an appeal.. . Such conviction or plea shall be deemed to be a breach of a public officer’s or public employee’s contract with the employer.
“Section 6. Severability.
*209“The provisions of this act shall be severable. If any provision of this act or the application thereof to any person or circumstance is held invalid, the remainder of the statute, and the application of such provision to other persons or circumstances, shall not be affected thereby, unless the court finds that the valid provisions of the act are so essentially and inseparable connected with, and so depend upon, the void provision or application, that it cannot be presumed the General Assembly would have enacted the remaining valid provisions without the void one; or unless the court finds that the remaining valid provisions, standing alone, are incomplete and are incapable of being executed in accordance with the legislative intent.
“Section 7. Retroactively, [sic]
“The provisions of this act shall be retroactive to December 1, 1972.
“Section 8. Effective date.
“This act shall take effect immediately.”

The Board asserts that Act 140 merely makes explicit the implied contractual duty of Commonwealth employees to provide faithful service to the Commonwealth as a condition precedent to the receipt of retirement benefits. It further claims that Act 140 does not create the condition of faithful service, it merely clarifies its scope by defining it to include a list of specified crimes. Other jurisdictions have discussed this implied condition theory. However, it is essential to first examine the essence of the right that is here involved.

It has long been recognized in Pennsylvania that retirement provisions for public employees constitute deferred compensation for service actually rendered in the past, Anderson, Vested Rights in Public Retirement Benefits in Pennsylvania, 34 Temp.L.Q. 255 (1961), although the prevailing view in a majority of the states is that pension benefits are mere gratuities or expectancies which are subject to change at the whim of the munificent governmental employer. Cohn, Public Employee Retirement Plans — The Nature of the Employees’ Rights, 1968 U.Ill.L.F. 32.

*210“Pensions should not be confused with retired pay. A pension is a bounty or a gratuity given for services that were rendered in the past. .. . Retirement pay is defined as ‘adjusted compensation’ presently earned, which, with contributions from employees, is payable in the future.”

Retirement Board of Allegheny County v. McGovern, 316 Pa. 161, 169, 174 A. 400, 404. (1934). The focus of the inquiry must change as the status of the employee’s rights is examined. When the employee’s rights are vested he is unaffected by subsequent changes. The following reference is pertinent.

“An employe who has complied with all conditions necessary to receive a retirement allowance cannot be affected adversely by subsequent legislation which changes the terms of the retirement contract.”

Harvey v. Retirement Board of Allegheny County, 392 Pa. 421, 431, 141 A.2d 197, 203 (1958).

At the time of enactment of Act 140, July 8, 1978, both Bellomini and Cianfrani had complied with all conditions necessary, as set forth in the Retirement Code, to receive their retirement allowances and were thus eligible to receive them. Therefore, they could not be affected adversely by subsequent legislation that changed the terms of the retirement contract. Harvey v. Retirement Board of Allegheny County, supra.

“Until an employee has earned his retirement pay, or until the time arrives when he may retire, his retirement pay is but an inchoate right; but when the conditions are satisfied, at that time retirement pay becomes a vested right of which the person entitled thereto cannot be deprived: it has ripened into a full contractual obligation.”

Retirement Board of Allegheny County v. McGovern, supra 316 Pa. at 169, 174 A. at 404-05 (1934).

Having established the nature of the rights involved presently, we return to the Board’s argument. The Board does not, and could not, assert that the Commonwealth has the power to modify its employees’ pension rights at its will and *211whim. Rather, the Board claims that Bellomini and Cianfrani have not complied with all conditions necessary to receive retirement pay. As stated in Burello v. State Employes’ Retirement System, supra. “[t]he Commonwealth contends that the avoidance of crime related to public employment is an implicit provision of the employment contract of any public servant and thus that retroactive act represents only a confirmation of that implicit contractual condition ...” Id. 49 Pa.Cmwlth. at 370, 411 A.2d at 855.

In support of its position, the Board refers us to cases from other jurisdictions which have held that faithful performance of public office is an implied condition to the receipt of a pension. Van Coppenolle v. City of Detroit, 313 Mich. 580, 21 N.W.2d 903 (1946); Baltimore County Board of Trustees v. Comes, 247 Md. 182, 230 A.2d 458 (1967); Ballurio v. Castellini, 29 N.J.Super. 383, 102 A.2d 662 (1954); State ex rel. Fox v. Board of Trustees, 148 W.Va. 369, 135 S.E.2d 262 (1964). These cases, however, bear no analogy. They reflect merely the interpretation of pension rights in jurisdictions which have historically viewed those rights as gratuities rather than as vested obligations.1

The Board points to no prior matter wherein a public employee in Pennsylvania forfeited his or her retirement pay because of a long-standing, recognized implied contractual duty of faithfulness. Consequently, we are not convinced that the Board’s past practice has been anything but to enforce the contractual retirement benefits rights between the Commonwealth and its public employees, regardless of whether they committed wrongdoings while employed. Furthermore, the arbitrariness of December 1,1972, the date to which the provisions of Act 140 were made retroactive, is further evidence that faithfulness has not been a long-time implied contractual duty in Pennsylvania, violation of which disqualifies a public employee from re*212ceipt of retirement pay. If Act 140 were truly a codification of a long-standing and recognized contractual duty, Appellee Bellomini posits, “wouldn’t the legislature have made the Act retroactive to 1930 or 1940 or 1950?”

The above discussion should not be construed as approval by this Court of appellees’ behavior. Nor do we rule upon the propriety of an express contractual duty of faithfulness or the application of Act 140 to those whose rights had not vested prior to its enactment.

“The question before us is not whether [they] are good or bad men, nor is it whether we would grant them annuities if we had unfettered discretion in the matter. The question is simply whether the Constitution permits Congress to deprive them of their [retirement benefits] by retroactive. .. legislation.”

Hiss v. Hampton, 338 F.Supp. 1141, 1153 (D.C.D.C.1972).

Appellees had obviously met all of the requirements necessary to receive retirement pay. For example, Cianfrani began receiving a monthly retirement allowance prior to its termination pursuant to Act 140. This is a proper and convenient example illustrating the lack of any implied contractual duty of faithfulness, violation of which prevents qualification for retirement pay. Otherwise, the Board would not have initiated payment. If the legislature intended faithful service to be a prerequisite to receipt of retirement benefits, it could have, and should have, used appropriate language to express this intent.

We conclude that appellees have vested retirement rights, and the legislature, by retroactively denying them of their benefits, has attempted to impair its contractual obligations. This it may not constitutionally do, and therefore Act 140 is ineffective as it relates to Appellees Cianfrani and Bellomini, and all others whose retirement benefits rights had vested prior to July 8, 1978.2

The Orders of the Commonwealth Court are affirmed.

*213HUTCHINSON, J., did not participate in the consideration and decision of these cases. NIX, J., files a concurring opinion in which McDERMOTT, J., joins. ROBERTS, J., files a dissenting opinion in which LARSEN, J., joins.

, At least one state has clarified their court’s past holdings on this issue by stating that recent cases reflect “the thinking of an eighth decade-twentieth century court rather than the feudal views of a surrogate beneficent monarch.” City of Frederick v. Quinn, 35 Md.App. 626, 632, 371 A.2d 724, 727 (1977).

. In view of our disposition of this case, we need not consider the Board’s other arguments.