City of Frederick v. Quinn

Love, J., delivered the opinion of the Court. The issue decided by the Circuit Court for Montgomery County, from which this appeal arose, was whether The City of Frederick could unilaterally repeal a noncontributory police pension plan, retroactively divesting the interest of the employees who chose not to participate in a substituted contributory plan offered by the City. The court below recognized that the issue turned upon whether Maryland views a public employee pension system as a mere gratuity, representing the graciousness of a sovereign to its servants, or as a part of the earnings of an employee which was offered as an inducement to his employment and for which he has contracted. The court chose the contract theory and held that the appellees, "... by virtue of their service to the City of Frederick prior to the repeal of Article XVI, Section 196 of the City Charter, had vested pension rights as set forth therein which still remain in effect and cannot be modified, repealed or defeated by the City’s unilateral acts.” ⁶²⁸ While we agree in principle, we find that holding far too rigid and a step beyond that which we believe to be the law in this State.

The five appellees brought suit against the City of Frederick, a municipal corporation, asking, for a declaratory judgment to the effect that they are entitled to pension benefits under Article XVI, Section 196 of the Charter of the City of Frederick, and for damages for breach of contract. 1 The parties agreed by stipulation that the appellees were employed as police officers by The City of Frederick at various times dating from September 12, 1942 until the present or the recent past. After 1951, the appellees were covered by a noncontributory retirement and disability benefit plan which provided by Article XVI, Section 196 of the Charter of The City of Frederick, that: “Any policeman, including the Chief of Police, who is in good standing and who has served on the force for a period of 20 consecutive years, including the years of service of any policeman now on the force, provided they are consecutive, and who has been retired from active service as provided in Section 196 shall be paid, for life, a sum of money equal to one-half of a prevailing salary, payable in semi-monthly installments. Any policeman retired as provided in Section 196 who shall not have served on the force for a period of 20 years shall be paid, for life, a sum of money prorated in the proportion that the years he has served as a policeman bears to the whole period of 20 years.” It was further stipulated that Section 196 was repealed on May 18, 1961 by resolution of the Board of Aldermen of The City of Frederick. Thereafter, the officers on the police force were offered a contributory commercial insurance pension plan to take the place of the noncontributory plan.

The appellees neither consented to the change nor enrolled in the new plan. ⁶²⁹ Tracing the evolution of theories in the decisional law of public employee statutory pension rights 2 leaves one with the same sense of disturbing disbelief we feel when we see caricatures of our neanderthal forebears. The unfortunate result revealed by such research is that the majority of the states have not evolved from this prehistoric immaturity. The prevailing view in the majority of the states is that public employee pension “rights” are simply gratuities which a gracious and beneficent governmental employer may confer, withhold, modify or repeal as the whim of an omniscient sovereign dictates. Annot.

Vested right of pensioner to pension, 52 A.L.R.2d 437 ; Dillon, Municipal Corporations § 431 (5th ed. 1911). 3 The minority jurisdictions adopt a basic concept of contractual rights that vest at time of employment, but are divided upon the extent to which the rights vest in the employee. The court below followed the strict contract theory, holding that when the pension rights vested upon employment or adoption of the plan those rights were immune from prospective legislative impairment. The court’s opinion relied heavily upon Yeazell v. Copins, 402 P. 2d 541 , which epitomizes the strict contract concept, i.e., that the “contract” cannot be unilaterally modified. Although we think that holding goes too far, we agree that a pension is more contractual than gratuitous.

Having barely concluded the 200th anniversary of our experiment in a democracy that wrenched itself from monarchical rule, it is absurd to speak of a pension as “a bounty springing from the appreciation and graciousness of the sovereign”. Ballurio v. Castellini, 29 N.J.S. 383 , 102 A. 2d 662 . The medieval or even colonial concepts of a compassionate and generous ⁶³⁰ sovereign rewarding his humble, devoted subjects is completely alien to our modern views of a democratic government’s obligations to its citizens. Only slightly less bemusing, on the other hand, is the picture of a citizen whose contractual strength is so formidable that the government which employs him can neither terminate nor vary the terms of the employment contract which is the essence of the strict constructionists’ views explicated by Yeazell, supra.

Such rigid interpretation is the inevitable pitfall of seeking pigeonholes with labels as substitutes for logic and common sense. See generally Spina v. Consolidated Police, etc., Pension Fund Com., 41 N. J. 391, 197 A. 2d 169 . It is reasonable to assume, as the court below found factually, that appellees were induced, at least in part, to their employment by the pension benefits held out at the time, just as they were induced by the salary then offered. See Lucas v. Seagrave Corporation, 277 F. Supp. 338 .

The future benefits vested as they were proratedly earned, just as the employees’ rights to their salary vested as it was earned. Momentarily assuming for argument that the City could terminate either or both of these benefits at its option, by doing so it would have no more right to withdraw retroactively the pro rata pension benefits that had accrued than it could demand repayment of the salary the employees had earned and had been paid. To that extent at least, especially in view of the proportionate prorating provision of Section 196, the pension rights vested absolutely. The provision acts as an express assurance to the employees that pension benefits they have earned by satisfactory service cannot be divested.

But the analogy of earned salary and vested pension does not withstand prospective comparison. The pension plan is not immutable and the government-employer need not keep its provisions precisely intact. As government grows in size and complexity and as more employees draw from the fund, changes must often be made to assure the soundness of the fund and permit its growth commensurate with its prospective needs. The contractual or vested rights of the ⁶³¹ employee in Maryland are subject to a reserved legislative power to make reasonable modifications in the plan, or indeed to modify benefits if there is a simultaneous offsetting new benefit or liberalized qualifying condition.

Each case where a changed plan is substituted must be analyzed on its record to determine whether the change was reasonably intended to preserve the integrity of the pension system by enhancing its actuarial soundness, as a reasonable change promoting a paramount interest of the State without serious detriment to the employee. In short, the employee must have available substantially the program he bargained for and any diminution thereof must be balanced by other benefits or justified by countervailing equities for the public’s welfare. This seems to be the substance of the majority of cases which have found municipal pension plans contractual in nature and it is the view we expressly adopt here. It was perhaps most succinctly stated in City of Downey v. Board of Admin.

Pub. Emp. Retire. Sys., 47 Cal.

App. 3d 621 : “Such modifications must be reasonable, and it is for the courts to determine upon the facts of each case what constitutes a permissible change. To be sustained as reasonable, alteration of employees’ pension rights must bear some material relation to the theory of a pension system and its successful operation, and changes in a pension plan which result in disadvantage to employees should be accompanied by