Could Kentucky retroactively stop retirees from collecting a pension while working again?

Plain-English summary

A legislator asked whether Kentucky could retroactively prohibit “double dipping,” the practice in which a retired member of the Kentucky Retirement Systems returned to a covered job while continuing to receive retirement payments and beginning a new retirement account. The Attorney General concluded that the General Assembly could not withdraw that treatment retroactively from members whose rights had vested upon reemployment. The opinion read KRS 61.637(7)(a) together with KRS 61.692, which characterized the relevant retirement benefits as an inviolable contract of the Commonwealth.

The opinion did not say the legislature could never change the rule. It concluded that a prohibition could operate prospectively. Its contract analysis rested on the benefits that the 1998 amendment had made part of the retirement arrangement for members who reentered covered employment. Without the proposed bill's precise language or purpose, the AG said assessing the extent of impairment was premature. It said a presumably fiscal motivation would probably not justify the retrospective impairment it discussed.

Currency note

This opinion was issued in 2004. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: Could Kentucky cancel the pension arrangement of a retiree who had already returned to covered work? A: The Attorney General concluded that a retroactive change would impair vested contractual benefits under the retirement laws it analyzed.

Q: Could the legislature change the arrangement for future reemployment? A: The opinion said it could prohibit the practice on a prospective basis.

Q: Why did the opinion treat the pension rule as a contract issue? A: KRS 61.692 declared the covered retirement benefits an inviolable Commonwealth contract. The opinion treated the reemployment benefit in KRS 61.637(7)(a) as part of that protection for members whose rights had vested.

Background and statutory framework

The opinion described a 1998 amendment allowing certain retired members to return to work in the same retirement system without suspending monthly payments, while beginning a new account. It applied federal and Kentucky constitutional bans on laws impairing contracts to the benefit protected by KRS 61.692. The analysis distinguished changing future rules from reducing benefits already part of the protected retirement arrangement.

Citations and references

Statutes: KRS 61.637(7)(a); KRS 61.692.

Constitution: U.S. Const. art. I, sec. 10, cl. 1; Kentucky Constitution, Section 19.

Source

• Landing page: https://kdla.access.preservica.com/uncategorized/IO_b6d4a5dd-805c-473d-8082-f76cad09a69d/
• Original PDF: https://kdla.access.preservica.com/download/file/IO_b6d4a5dd-805c-473d-8082-f76cad09a69d

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.

Subject:

Requested by:

Written by:

Syllabus:

OAG 04-001
January 21, 2004

Constitutionality of a retroactive amendment to KRS 61.637(7)(a), commonly referred to as the “double dipping” provision

Brian Crall
State Representative for the 13" District

Michelle D. Harrison
Assistant Attorney General

Legislation retrospectively prohibiting the practice of “double dipping” would necessarily “impair the obli- gations” of the “inviolable contract” of the Common- wealth created by KRS 61.510 to 61.705 in violation of the Contract Clause of the United States Constitu- tion and Section 19 of the Kentucky Constitution. Thus, the General Assembly can only prohibit the practice of “double dipping” on a prospective basis.

Statutes construed: KRS 61.637(7)(a), KRS 61.692, KRS 446.110

OAGs cited:

Constitutional
provisions
construed:

OAG 78-4, OAG 81-318, OAG 81-416, OAG 82-195,
OAG 84-1, OAG 90-6, OAG 94-28

Ky. Const. sec. 19; U.S. Const., art. |, sec. 10, cl. 1.

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Opinion of the Attorney General

Representative Crall has asked us to determine whether the Gen- eral Assembly can retrospectively prohibit the practice known as “dou- ble dipping.” It is our opinion that a retroactive amendment to KRS 61.637(7)(a) would “impair the obligations” of the “inviolable contract” of the Commonwealth created by KRS 61.510 to 61.705 thereby inter- fering with the vested rights of current members of the Kentucky Re- tirement Systems in violation of both the Contract Clause? of the United States Constitution and its state counterpart, Section 19? of the Kentucky Constitution. Because any attempt by the General Assembly to suspend or reduce the benefits of those members whose rights have vested upon their reemployment would be unconstitutional, we con- clude that the General Assembly can only prohibit “double dipping” on a prospective basis, if at all.

Resolution of the question presented necessarily begins with a review of KRS 61.692, pursuant to which KRS 61.510 to 61.705 “consti- tutes an inviolable contract of the Commonwealth” for the benefits pro- vided therein. KRS 61.692, Benefits not to be reduced or impaired; ex- ception, provides:

It is hereby declared that in consideration of the contribu- tions by the members and in further consideration of bene- fits received by the state from the member's employment, KRS 61.510 to 61.705 shall,? except as provided in KRS 6.696% effective September 16, 1993, constitute an invio-

1 U.S. Const. art. I, sec. 10, cl. 1. In relevant part, this provision declares that no state shall “pass any Bill of Attainder, ex post facto Law, or Law impairing the Obliga- tion of Contracts.”

2 According to this provision: “No ex post facto law, nor any law impairing the obligation of contracts, shall be enacted.”

3 Pursuant to KRS 446.010 (29): “Shall” is mandatory.

4 Under KRS 6.696, Effect of felony conviction on state retirement benefits:

(1) A legislator or former legislator convicted of a felony relating to his duties as a legislator, in any state or federal court of competent jurisdiction, shall forfeit rights and benefits earned after September 16, 1993, under the

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lable contract of the Commonwealth, and the benefits pro- vided therein shall, except as provided in KRS 6.696, not be subject to reduction or impairment by alteration, amend- ment, or repeal.

Prior to 1998, KRS 61.637(1), in relevant part, provided that “[a] retired member who is receiving monthly retirement payments under any of the provisions of KRS 61.515 to 61.705 and 78.520 and 78.852 and who is reemployed as an employee by a participating agency shall have his retirement payments suspended for the duration of reemploy- ment.”> During its 1998 session, however, the General Assembly amended KRS 61.637 to allow retired members to be reemployed by a participating agency® without suspension of their retirement payments. Pursuant to the subject amendment, those members were also allowed to begin a second retirement account to which they could make contri- butions while continuing to receive retirement payments from their ini- tial retirement account, the practice commonly known as “double dip- ping.” See 1998 Ky. Acts ch. 105, sec. 28. In the current version of KRS 61.637, the amendment is codified as subsection (7)(a) which pro- vides:

state administered plan to which contributions have been made as a result of his service in the General Assembly, except for the return of his accu- mulated contributions and interest credited on those contributions.

(2) The payment of retirement benefits ordered forfeited shall be stayed pend- ing any appeal of the conviction. If the conviction is reversed on final judgment, no retirement benefits shall be forfeited.

As amended, this provision applies to retired members who are reemployed

by a participating agency “prior to August 1, 1998.”

6 Kentucky Retirement Systems encompasses the Kentucky Employees Retire-

ment System, the County Employees Retirement System, and the State Police Retire-

ment System. As explained by the Personnel Cabinet, the 1998 amendment “put the retirees of all three systems administered by KRS on equal footing” as members of both the CERS and the SPRS were previously permitted to become employed by the

Executive Branch of state government without forfeiting any retirement benefits al-

ready earned. Both the exception relating to the CERS (KRS 78.852) and the excep-

tion relating to the SPRS (KRS 16.652) parallel KRS 61.692 (KERS) with respect to the critical language.

5

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Effective August 1, 1998, the provisions of subsections (1) to (4) of this section no longer apply to a retired member who is reemployed in a position covered by the same re- tirement system from which the member retired. Reem- ployed retired members shall be treated as new members upon reemployment. Any retired member whose reem- ployment date preceded August 1, 1998, who does not elect, within sixty (60) days of notification by the retire- ment systems, to remain under the provisions of subsec- tions (1) to (4) of this section shall be deemed to have elected to participate under this subsection.

When viewed in conjunction with KRS 61.692, this provision gives retired members of the Kentucky Retirement Systems a contractual right to be “reemployed in a position covered by the same retirement system from which the member retired” without forfeiting their monthly retirement payments, the result envisioned by the General As- sembly as evidenced by the language employed.’ “It is a familiar prin- ciple of constitutional law that constitutional and statutory provisions in effect at the time a contract is made become a part of the contract.” City of Florence v. Owen Electric Cooperative, Inc., Ky., 832 S.W.2d 876, 882 (1992). Although our research has revealed no authority that is di- rectly on point, we are not without guidance in determining whether the General Assembly can now prohibit this practice retrospectively.

In Jones v. Bd. Of Trustees of Kentucky Retirement Systems, Ky., 910 S.W.2d 710, 713 (1995), the Kentucky Supreme Court conclusively resolved any question regarding the impact of the inviolability excep- tion, recognizing “that the retirement savings system has created an inviolable contract between KERS members and the Commonwealth.”

7 The fundamental rule in construing statutes is to “ascertain and give effect to the intention of the Legislature.” Adams v. Greene, 182 Ky. 504, 206 S.W. 759, 760 (1918). In determining legislative intent, we must refer to “’the words used in enact- ing the statute rather than surmising what may have been intended but was not ex- pressed.’” Stogner v. Commonwealth, Ky. App., 35 S.W.3d 831, 835 (2000)(citation omitted).

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Early on, the Attorney General recognized the effect of this provision, concluding that the Commonwealth has a contractual obligation to the members of the various retirement systems “as a consequence of which the General Assembly cannot limit retirement benefits to certain maximum percentages of final annual salary.” OAG 78-4., p. 2.8 Reit- erating this view, this office later observed that the “employee’s retire- ment plan is part and parcel of his employment contract and consti- tutes an inviolable contract of the Commonwealth between the em- ployee and his employer, the State.” OAG 90-6, p. 3;° See also OAG 81-416. Further, this inviolable contract “includes the retirement pro- gram as a whole.” OAG 90-6, p. 5.

As observed by the Court in Jones, the General Assembly “can take no action to reduce the benefits promised to participants, . . .”?° “Any reduction or demonstrable threat” to the benefits promised to members upon retirement “might well run afoul of Section 19 of the Kentucky Constitution.” Jones, supra, at 713. Because there had been “no showing that the retirement benefits promised to KERS members ha[d] been or [would] be infringed” by the actions of the General As-

8 Particularly relevant for present purposes, we found that such a limitation could only apply prospectively as to present, non-retired members and future mem- bers and could not be applied retroactively to any member, retired or otherwise, “but could only effect their retirement accounts and eligibility benefits insofar as such rights and benefits accrued after” the effective date of the enactment. OAG 78-4, p. 3.

° In that opinion, we found that the General Assembly’s transfer of funds from the Kentucky Employees Retirement System’s Retirement Allowance Account to the general fund “constituted an unlawful impairment of the state’s obligation to its em- ployees under the KERS retirement statutes to ensure that the contribution rates are sufficient to maintain the pension fund on an actuarial[ly] sound basis.”

10 “It is not within the constitutional power of the legislature to take away or im- pair a right which ha[s] been previously asserted by appropriate action in a court of justice having jurisdiction of such cause of action.” Hedger v. Rennaker, 60 Ky. 229, 232, 3 Met. 255, 258 (1860).

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sembly in Jones,!? however, the Court left that issue for another day.’? Id. \n contrast, legislation retroactively prohibiting the practice of “double dipping” would, by design, infringe upon the retirement bene- fits promised to current members, so the question necessarily becomes whether such an infringement constitutes a violation of the Contract Clause and Section 19.

A prerequisite to application of the Contract Clause in the current context, i.e., asserted impairment of a contract by state legislative ac- tion, “is that the challenged law operate with retrospective, not prospective effect.” Maryland State Teachers Ass’n, Inc. v. Hughes, 594 F. Supp. 1353, 1360 (D. Md. 1984). Said another way, “statutory retroactivity is a necessary predicate for the applicability of the Con- tract Clause.” /d., citing United States Trust Co. of New York v. New Jer- sey, 431 U.S. 1, 18, 97 S.Ct. 1505, 1516, 431 L.Ed.2d 92 (1977). Like the United States District Court, our research did not reveal a single United States Supreme Court decision invalidating a non-retroactive statute on the basis of the Contract Clause. /d.

As the Maryland District Court observed in Hughes, the United States Supreme Court “revitalized Contract Clause jurisprudence” by striking down state legislation in two cases, United States Trust Co., supra, and Allied Structural Steel Co. v. Spannaus, 438 U. S. 234, 98 S. Ct. 2716, 57 L.Ed.2d 727 (1978). Id. at 1358. In the former case, the U.S. Supreme Court set forth the analysis applicable for judicial review of cases involving alleged violations of the Contract Clause. First, the court must ascertain whether a contractual obligation’? was created by

un At issue was whether the General Assembly could suspend KRS 61.565 which allows the Board of Trustees of the KERS to set the contribution rate. Jones, supra, at

713. Since the Board failed to show that any impairment in the contractual rights of
     KERS members resulted from the suspension, the Court determined that the Board had no power to mandate rates of contribution and require their adoption. /d.

v In so doing, the Court rejected the argument that the retirement statutes for- ever removed legislative power to amend those statutes as that “runs afoul” of its holding in Legislative Research Commission v. Brown, Ky., 664 S.W.2d 907 (1984).

B The “obligation” of a contract is defined as the “’law which binds the parties thereto to the performance of their agreement.’” City of Covington v. Sanitation Dis-

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a statute. /d. at 1359, citing United States Trust Co., supra, 431 U.S. at 17, 97 S.Ct. at 1515. Second, the court must determine whether the State’s actions, i.e., the amendment or repeal, impaired the contrac- tual obligation assumed by the state. /d., citing United States Trust Co., supra, 431 U.S. at 19-21, 97 S.Ct. at 1516-1517. Given the intent of the General Assembly as expressed by the unambiguous language of KRS 61.692 and KRS 61.637(7)(a), it is our opinion that both of those questions would be answered in the affirmative. However, the analysis does not end there.

Not every impairment by a state of its own contractual obliga- tions is prohibited by the Contract Clause. A constitutional prohibition against impairing the obligation of contracts “is not an absolute one to be read with literal exactness.” City of Florence, supra, at 881; Morgan v. Natural Resources and Environmental Protection Cabinet, Ky., 6 S.W.3d 833 (1999). Upon determining that an existing contract has been substantially impaired by subsequent legislative action, the third question that a reviewing court must answer is whether the challenged legislation is “reasonable and necessary to serve a legitimate or impor- tant public purpose.” Hughes, supra, at 1360, citing United States Trust Co., supra, 431 U.S. at 26, 97 S.Ct. at 1519. In exercising its po- lice power, a state may constitutionally impair the contractual obliga- tions and rights imposed by its own contract subject to this qualifica- tion. Id., citing United States Trust Co., supra, 431 U.S. at 21-26, 97 S.Ct. at 1517-1520. “Legislation enacted under police power is not in- valid merely because of its incidental effect.” City of Florence, supra, at 881; Morgan, supra. In this instance, “the broad term police power is concerned with the public health and the general welfare of the com- munity.” City of Covington, supra, at 888; Morgan, supra. Only upon a determination that the contract between KERS members and the state would be substantially impaired, then, would a court need to decide whether the proposed legislation could properly be characterized as

trict No. 1 of Campbell & Kenton Counties, Ky., 301 S.W.2d 885, 887 (1957); OAG 82- 195, p. 3 (citation omitted).

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“reasonable and necessary” in the relevant sense.* Jones, supra, at 716.

Where a state’s own contract is involved, as is the case here, complete deference to the legislative assessment of reasonableness and necessity [by a reviewing court] is not appropriate because the State’s self-interest is at stake.” Hughes, supra, at 1361, citing United States Trust Co., supra, 431 U.S. at 26, 97 S.Ct. at 1519. In making this determination, the level of scrutiny to which the legislation will be sub- jected is directly proportional to the severity of the impairment which must be “substantial” to involve the Contract Clause. /d., citing Energy Group v. Kansas Power & Light, 459 U.S. 400, 103 S.Ct. 697, 74 L.Ed.2d 569 (1983). The legitimate expectations of the contracting parties must be examined in order to determine whether the impairment is “substantial” and assess the level of severity. /d., citing United States Trust Co., supra, 431 U.S. at 19-20, 97 S.Ct. at 1516-1517. Total de- struction of contractual expectations is not required for a finding of substantial impairment. /d., citing United States Trust Co., supra, 431 U.S. at 411, 97 S.Ct. at 1519-1520.

Because neither the precise language nor the specific purpose of the proposed retrospective legislation has been articulated, assessing the substantiality of the impairment would be premature at this junc-

u At page 6 of OAG 90-6, supra, we adopted the following excerpt from Valdes v. Cory, 139 Cal.App.3d 773, 790, 189 Cal. Rptr. 212, 226 (1983): Both the California and United States Supreme Courts have identified factors which may warrant legislative impairment of vested contract rights on the grounds of necessity: ‘(1) the enactment serves to protect basic interests of society, (2) there is an emergency justification for the enactment, (3) the enact- ment is appropriate for the emergency, and (4) the enactment is de- signed as a temporary measure, during which time the vested contract rights are not lost but merely deferred for a brief period, interest run- ning during the temporary deferment.’(Citations omitted).

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ture. However, we can offer the following insight regarding the factors that a court must consider in making such an assessment. While “no hard and fast rule exists” requiring strict scrutiny of all legislative ac- tions said to constitute an impairment of a state’s own contract, Jones seems to require reviewing courts to engage in a “more strict examina- tion than usual” of the facts underlying legislative assessments of rea- sonableness and necessity due to the inherent possibility of bias. /d., citing United States Trust Co., supra, 431 U.S. at 26, 97 S.Ct. at 1519. Reasonableness is to be judged in light of whether the existing contrac- tual obligations of the state “’had effects that were unforeseen and un- intended by the legislature’” at the time the contract creating those obligations and rights was created. /d. at 1362, citing United States Trust Co., supra, 431 U.S. at 31, 97 S.Ct. at 1522.45 Necessity, on the other hand, is to be judged on two levels: 1) whether a less drastic modification could have been implemented; and 2) whether the state could have achieved its goals without modification. /d., citing United States Trust Co., supra, 431 U.S. at 29-30, 97 S.Ct. at 1521-1522.

In assessing the constitutionality of retrospective legislation, a court is guided by the following general principles. A retrospective law s “one which takes away or impairs vested rights?® acquired under ex-

5 It is an accepted principle that any contract incorporates the law existing as of the time of its formation. United Firefighters of Los Angeles City v. City of Los Ange- les, 210 Cal.App.3d 1095, 1107, 259 Cal.Rptr. 65, 70 (1989); OAG 82-195, supra, p. 3. However, the “Contract Clause protects only those rights which are embraced in the contract at the time it is entered into.” Ward v. Harding, 860 S.W.2d 280, 288 (1993), cert. denied, Harding v. Ward, 510 U.S. 1177, 114 S. Ct. 1218, 127 L.Ed.2d 564 (1994).

16 As this office observed in OAG 84-1: “Generally, a pension granted by a public authority is not a contractual obligation but a gratuitous allowance in the continuance of which the pensioner has no vested right. However, most jurisdictions concede that where any particular payment under a pension system has become due the pen- sioner has a vested right therein.” /d., p. 2; See OAG 81-318. Citing Arnold v. Browning, 294 Ky. 164, 171 S.W.2d 239, 240 (1943), we explained that “it is only when by terms of the act providing for the pension fund, the claimant is shown to have become entitled to the benefits that the right to such benefits becomes a vested right.” OAG 84-1, supra, p. 2. Kentucky courts have traditionally held that

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isting laws, or which creates a new obligation or imposes a new duty, or attaches a new disability, in respect to transactions or considera- tions already past.” Benson’s Inc. v. Fields, Ky., 941 S.W.2d 473, 475 (1997). According to Kentucky’s highest Court, “retrospective statutes have ever been regarded as impolitic and unwise, as they are, in gen- eral, unjust and oppressive.” Hedger, supra, at 232. Despite often be- ing impolitic and unjust, however, retrospective legislation is “not, merely as such, unconstitutional” and the judiciary is bound by it ab- sent an “effect forbidden by the fundamental law.” Thornton v. Mc- Grath, 62 Ky. 344, 348, 1 Duv. 350, 354 (1864). The Contract Clause “does not prohibit the States from repealing?” or amending statutes

statutes providing for public employee pensions “were subject to repeal or modifica- tion as to non-retired employees, such employees being accorded no vested rights.” OAG 78-4, supra, p. 1. In that opinion, we observed that “the new concepts dealing with public pensions” were predicated upon the theory that such pensions constitute deferred compensation “to which the public employee is entitled for services ren- dered, and in which he has certain rights” that cannot “be abrogated at the will of government.” /d., p. 2. In light of KRS 61.692, KRS 78.852, KRS 16.652 and KRS 21.480, we concluded that a limitation on the benefits of members of those systems, both retired and non-retired, would be a direct violation of Section 19 and the Con- tract Clause, observing that “this comports with current trends in public pension law throughout the country.” /d. v In City of Owensboro v. Board of Trustees, City of Owensboro Employees Pen- sion Fund, 301 Ky. 113, 190 S.W.2d 1005, 1008 (1945), the Court indicated that the term repeal is “synonymous with abolish, rescind, and annul.” With respect to re- pealing a statute, the Kentucky Court of Appeals has adopted the view that:

... the unqualified repeal of a statute conferring civil rights or powers

operates to deprive the citizen of all such rights or powers which are at

the time of the repeal inchoate, incomplete, and unperfected, or which

have not become vested.

Jacober v. Board of commissioners of City of Covington, Ky. App., 607 S.W.2d 126, 127 (1980), citing 73 Am.Jur.2d, Statutes, sec. 385. As observed by the Court of Appeals, Kentucky adheres to this principle “so long as the repeal does not destroy vested rights,” a principle which is codified at KRS 446.110. Id. Accordingly, a repeal of the “double dipping” provision “could not affect the vested rights and inviolable contract” of those retired members who qualified under its terms during its operative life be-

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generally, or from enacting legislation with retroactive effects.” United States Trust Co., supra, 431 U.S. at 17, 97 S.Ct. 1515. Although such statutes have been deemed constitutionally valid, “they have always been subjected to such a construction as would circumscribe their op- eration within the narrowest possible limits consistent with the mani- fest intention of the legislature, to be drawn from the language used.” Hedger, supra, at 232.

Statutes impairing the obligation of contracts are expressly for- bidden by the constitution; a retroactive statute may also be “construc- tively unconstitutional” if it interferes with vested rights. /d. In other words, retrospective legislation that impairs or invalidates the obliga- tions of a contract or interferes with vested rights, “effects forbidden by the fundamental law,” is unconstitutional. /Id.; Kentucky Utilities Co. v. Carlisle Ice Co., 279 Ky. 585, 131 S.W.2d 499, 504 (1939). “A legisla- tive act will not be permitted, even if an attempt to do so is disclosed, to operate retrospectively” where either of these unconstitutional con- sequences will follow. Kentucky Utilities Co., supra, at 504.

For constitutional purposes, “change” and “impairment” are equivalent terms. Adam, supra, at 762. Elaborating upon the con- cept of impairment, the Court has said:

Any law which changes the intention and legal effect of the original parties, giving to one greater or the other a less in- terest or benefit in the contract, impairs its obligation. The extent of the change is immaterial. Any deviation from its terms *** imposing conditions not included in the contract, or dispensing with the performance of those that are in- cluded, however small and unimportant they may appear to be in their effect, impairs the obligation of a contract.

• The Legislature may regulate the remedy and the
  methods of procedure under a past as well as a future con- tract, but it cannot impose new restrictions upon the en-

cause any statute “passed in contravention of the Constitution is without force or ef- fect.” City of Owensboro, supra, at 1008-1009.

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forcement of a past contract, so as to materially lessen its value and benefit to either party.

Kentucky Utilities Co., supra, at 504 (citation omitted). Contractual obligations are impaired by a law which “renders them invalid, or re- leases or extinguishes them” and impairment has been predicated upon laws which, without destroying contracts, “derogate from sub- stantial contractual rights.” City of Covington, supra, at 888 (citation omitted).

While it is well-established that a state cannot “by either consti- tutional provision or legislative enactment impair the obligations of a contract,” Commonwealth v. German Insurance Co., 141 Ky. 606, 133 S.W. 793, 795 (1911), an exception to this general rule is that “the state cannot contract away its police power or its right to abrogate or annul contracts it has made in contravention of this power.” /d. As in Hughes, the contract in question deals with the level of compensation to be paid to state employees in exchange for the services performed in the course of their employment. “Such a contract is not one as to which one legislature can bind subsequent legislatures for work and services to be performed” by state employees in the future. Hughes, supra, at 1362. While a state may change the salary or the mode of compensation pursuant to its police power, the employee “must have available substantially the program he bargained for and any diminu- tion thereof must be balanced by other benefits or justified by counter- vailing equities for the public’s welfare.” /d. (Citation omitted); OAG 90-6, p. 7, citing 60 Am. Jur.2d Pension and Retirement Funds, sec. 1623.

Much like KRS 61.692, the 1984 Pension Reform Act being chal- lenged in Hughes specifically indicated that pension benefits which had already vested and were being paid on the effective date of the legisla- tion would not be modified or changed. /d. at 1363. In contrast with the invalid statute involved in United States Trust Co., the 1984 Act did not retroactively deprive the plaintiff class of benefits or rights for which they had bargained. Id. Because the impairment was not dras- tic and a more moderate course of action did not clearly evidence it-

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self, the District Court deferred to the judgment of the legislature with the implication being that a “total repeal” might not pass constitutional muster. /d. at 1371. Of particular significance here, the Court empha- sized that the state was not empowered to withdraw retroactively the pro rata pension benefits that had accrued,?® but could prospectively modify the amount of benefits. /d. at 1364 (citation omitted).*°

In United Firefighters of Los Angeles City,?° supra, the Court of Appeals was confronted with the question of whether a city charter amendment that placed a 3% cap on police and firefighter pension benefit cost of living adjustments was unconstitutional as applied to police and firefighters hired prior to enactment of the amendment. Holding that the amendment unconstitutionally impaired the vested contractual rights of the plaintiffs, the Court observed that “’[i]t is ad- vantage or disadvantage to the particular employees whose own con- tractual pension rights, already earned, are involved which are the cri-

18 Citing City of Louisville v. Board of Education of Louisville, 291 Ky. 7, 163 S.W.2d 23, 25 (1942), we have acknowledged that in Kentucky, “in no pension is there a vested right until the participant has become an actual beneficiary.” OAG 78-4, supra, p. 1. Although Kentucky law differs from that of Maryland in this crucial re- spect, the common thread among these cases is that retrospective legislation is dis- favored. As observed by the Supreme Court in Board of Education of Louisville v. City of Louisville: “The strength of every contract lies in the right of the promise to rely upon the constitutional security against impairment of its obligations by legisla- tion...” 288 Ky. 656, 157 S.W.2d 337, 343 (1941).

19 In dispensing with the claim that the 1984 Act violated the Due Process Clause of the U.S. Constitution, the District Court observed that the Clause does not gener- ally prohibit retrospective civil legislation unless the consequences are particularly “harsh and oppressive.’” Hughes, supra, at 1372, citing United States Trust Co., supra, 431 U.S. at 17, 97 S.Ct. at 1515. Further, economic legislation comes with a presumption of constitutionality and the burden is on the party complaining of a due process violation to establish that the legislature has acted arbitrarily. /d. In short, economic legislation is subject to less exacting standards by the Due Process Clause than those imposed on the states by the Contract Clause. /d.

20 Although this case is persuasive rather than mandatory authority, the analysis contained therein follows that of U.S. Supreme Court decisions which, in relation to the Contract Clause, is binding precedent.

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teria by which modifications to pension plans must be measured.’” Id. at 1103 (citation omitted). Under California law, public employees ac- quire “’a vested right to a pension based on the system then in effect’” upon accepting public employment. /d. (Citation omitted). Public em- ployees also acquire a vested right to additional pension benefits thereafter conferred during their employment. /d. Said another way, public employees have a vested right “not only to benefits substan- tially similar to those in effect when they accepted public employ- ment,” but also to benefits subsequently offered by the public em- ployer during their term of service. Id. 1107 (citations omitted). While the terms of public employment which ripen into obligations protected by the Contract Clause only upon an employee’s actual performance are otherwise a matter of statute,” deferred compensation” in the form of pension rights has the status of a contractual obligation “from the moment one accepts public employment.” /d. at 1105. As the contractual relationship at issue had previously been modified, the Court determined that the reasonable expectations of the plaintiffs had to be measured as of that date. Likewise, the reasonable expectations of members whose rights would be affected by the proposed legislation would be measured as of the date that the “double dipping” provision was enacted.

As previously acknowledged, “total destruction of contractual ex- pectations” is not required for a finding of substantial impairment. /d. at 1109 (Citation omitted). Further, a “state regulation [or statute] that restricts a party to gains it reasonably expected from the contract does not necessarily constitute a substantial impairment.” /d., citing United States Trust Co., supra, 431 U.S. at 31, 97 S.Ct. at 1522. If the regulation [or statute] constitutes a substantial impairment, the state must have a “significant and legitimate [or reasonable and necessary] public purpose” such as the “remedying of a broad and general social or economic problem” to justify its action. /d. (Citations omitted). Such a requirement ensures that the state is exercising its police

ar Only upon an employee’s actual performance do these aspects of public em- ployment become obligations protected by the Contract Clause and its state counter- parts such as Section 19. United Firefighters, supra, at 1105.

22 See OAG 90-6 and OAG 78-4.

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power, “rather than providing a benefit to special interests. “ Id. at 1110. However, the U.S. Supreme Court has clarified that the public purpose “need not be addressed to an emergency or temporary situa- tion.” Id. at 1109, citing United States Trust Co., supra, 431 U.S. at 22, 97 S.Ct. at 1518. “Unless the State itself is a contracting party,” as is customarily true in cases involving economic and social regulation, courts properly defer to legislative judgment as to the necessity and reasonableness of a specific measure. /Id. (Original emphasis).

Because the Contract Clause would be rendered meaningless if a state could “reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose,” such a purpose, standing alone, is not necessarily enough to justify a substantial contractual impairment. /d., citing United States Trust Co., supra, 431 U.S. at 26, 97 S.Ct. at 1519. To avoid this inherent potential for misuse, the measure must also be “necessary” which, in turn, re- quires an evaluation of whether a less drastic modification of the con- tractual obligation or measures involving no modification would have permitted the governmental entity to meet its goals. Id. A state is not completely free to consider impairing the obligations of its own con- tracts “’on a par with other policy alternatives,’” nor is a state permit- ted to impose a drastic impairment when “’an evident and more mod- erate course’” would be equally effective in accomplishing the cited objective. /d. at 1111, citing United States Trust Co., supra, 431 U.S. at 30-31, 97 S.Ct. at 1522. Further, a change in circumstances does not justify a substantial impairment unless it was “unforeseen and unfore- seeable.” /d. “Only the minimal impairment necessary to attain the governmental entity’s proposed legitimate end may be visited upon parties to contracts.” Id.

If a change in the law works a “severe, permanent and immedi- ate change” in contractual rights as retrospective legislation of the type proposed would, an assessment of its constitutionality requires careful scrutiny of its nature and purpose. /d. (Citation omitted). In such an instance, the impairment requires a “compelling state inter- est” as well as necessity. /d. By definition, neither a retroactive amendment nor a repeal, if applied to current members of Kentucky

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Retirement Systems, could properly be characterized as the least dras- tic alternative available nor could the resulting impairment be accu- rately described as “minimal.” Accordingly, it is our opinion that the ends would probably not justify the means in this context as the pre- sumably fiscal motivation for the proposed legislation does not satisfy this intentionally high standard. It is an established principle that a de- sire to reduce costs or limit public spending “does not justify the abro- gation or impairment of a public entity’s contractual obligations not- withstanding the legitimacy of such a public purpose.” /d. at 1112, cit- ing Lynch v. United States, 292 U.S. 571, 580, 54 S.Ct. 840, 844, 78 L.Ed. 1434 (1934). A public entity “cannot justify the impairment of its contractual obligations on the basis of the existence of a fiscal crisis created by its own voluntary conduct.”?? /d. (Citation omitted). Where an enactment appears to be somewhat narrowly tailored to modify a particular contractual obligation as opposed to being part of a broad public program which incidentally has the effect of impairing a specific contract, it fails the test. /d. at 1115. Such is the case here.

Our opinion today is consistent with OAG 94-28, in which we ad- dressed the question presented, albeit in a slightly different context. At issue in OAG 94-28 was whether a newly enacted statutory provision mandating forfeiture of benefits acquired under the Legislative Retire- ment Plan upon the occurrence of specified events could be applied to a current legislator or former legislator who joined the plan on or after the effective date of the enactment. More specifically, OAG 94-28 was prompted by a request for an opinion regarding “whether KRS 6.696 is applicable to a legislator who was a member of the [LRP] on or prior to September 16, 1993.” /d., p. 2. Observing that KRS 6.525 expressly adopts KRS 21.480*4 (a provision of the Judicial Retirement Plan), we

23 Because the “practice sought to be eliminated does not cost the state a dime,” the Finance and Administration Cabinet opposes legislation of the type being proposed in its letter of August 25, 2003. A logical extension of this reasoning is that the General Assembly could not successfully argue that retroactive legislation is justi- fied as a reasonable response to the perceived financial dilemma resulting from legis- lation it enacted, especially in the absence of a crisis.

24 As adopted in the LRP, KRS 21.480, KRS 21.350 to KRS 21.510 creates vested interest—Exception, prior to enactment of KRS 6.696, provided as follows:

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observed that the LRP is, “from a legal perspective, a contract.” /d. Because KRS 6.696 “obviously involves a ‘reduction or impairment by alteration, amendment or repeal’ as that phrase is used in KRS 21.480,” by adding to the circumstances under which a legislator’s re- tirement benefits may be forfeited, we concluded that such a change would violate both the Contract Clause and Section 19 if applied to a legislator who was a member of the LRP prior to the effective date of KRS 6.696. Id.

“Obviously, provisions (e.g., KRS 6.696) attempting to ensure the integrity of state legislators involve an important public interest.” /d., p. 3. As the sanctions provided for in KRS 6.696 were in addition to previously existing ones,?> however, we did not believe that the inter- est served by retrospective application of KRS 6.696 was sufficient to justify overriding the prohibition against impairment of contracts found in both the state and federal constitutions. Accordingly, we deter- mined that KRS 6.696 could only be applied to a legislator who became a member of the LRP on or after the effective date of its enactment, “so that the provision would be considered part of the retirement plan of a legislator in keeping with KRS 21.480 as adopted by KRS 6.525.”2° We believe this reasoning is equally applicable in the present context.

It is hereby declared that in consideration of the contributions by the mem- bers, and in further consideration of benefits received by the state through the inducement of qualified and experienced judges and commissioners to continue in service, KRS 21.350 to 21.510 shall constitute an inviolable con- tract of the Commonwealth, and the rights and benefits provided therein shall not be subject to reduction or impairment by alteration, amendment or repeal. For example, the disqualification from holding office found in the Kentucky

constitution and the punishments provided for by the “general criminal laws.” 26

25

Likewise, KRS 61.637(7)(a) was incorporated into the retirement plan of cur- rent members of Kentucky Retirement Systems upon its enactment.

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A review of KRS 21.580(1)(b),?” KRS 6.521(2), KRS 21.405(4), and KRS 61.702(8) further substantiates our position. In contrast to KRS 61.692, each of the aforementioned provisions specify that the benefits provided therein “shall not be considered as benefits protected by the
[relevant] inviolable contract provisions.” (Emphasis added). Notice- ably absent from KRS 61.692 is this exclusionary language. With the exception of KRS 21.580, the General Assembly also explicitly reserved the right to suspend or reduce the benefits conferred in each subsec- tion if in its judgment “the welfare of the Commonwealth so demands.” An intention will not be imputed to the General Assembly “in the ab- sence of language clearly designed to have that effect.” City of Louisville v. Louisville Seed Co., Ky., 433 S.W.2d 638, 642 (1968), over- ruled on other grounds by Gas Service Co., Inc. v. City of London, Ky., 687 S.W.2d 144 (1985). If the General Assembly had intended for ben- efits earned pursuant to KRS 61.637(7)(a) not to be considered as ben- efits protected by KRS 61.692, it would have included language to the effect. Likewise, if the General Assembly had intended to reserve the right to suspend or reduce the benefits conferred by KRS 61.637(7)(a), it would have expressed that intention just as it did in KRS 21.580(1) (b). In determining legislative intent, we are not “’at liberty to add or subtract from the legislative enactment nor discover meaning not rea- sonably ascertainable from the language used [in the statute].’” Stogner, supra, at 834. (Citation omitted).

Because legislation designed to prohibit the practice of “double dipping” would necessarily involve a “reduction or impairment by alter- ation, amendment or repeal,” of the benefits provided for by the “invio- lable contract“ of the Commonwealth created by KRS 16.510 to 16.645, retrospective application of such legislation would constitute a violation of both the Contract Clause and Section 19. In our view, this result is dictated by both logic and precedent. “It is fair, conscionable and constitutional to afford prospective application to [the subject leg- islation] rather than retroactive application.” City of Florence, supra, at

a7 According to KRS 21.580(1)(b): “The inviolable contract provisions of Ken- tucky law, KRS 21.480, shall apply during the period of time that KRS 21.580 is effec- tive; however, no other provisions of 2000 Ky. Acts ch. 305 shall be considered sub- ject to an inviolable contract of the Commonwealth.”

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883. Based on the foregoing, it is our opinion that the General Assem-
     bly can only prohibit the practice of “double dipping” on a prospective basis.

Gregory D. Stumbo
Attorney General

Michelle D. Harrison
Assistant Attorney General