USCA1 Opinion
UNITED STATES COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT
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No. 95-2301
EDWARD A. McGRATH,
Plaintiff, Appellant,
v.
THE RHODE ISLAND RETIREMENT BOARD, ETC.,
Defendant, Appellee.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Ronald R. Lagueux, U.S. District Judge]
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Before
Selya, Cyr and Boudin,
Circuit Judges.
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Edward C. Roy, Jr., with whom Roy & Cook was on brief, for
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appellant.
David D. Barricelli, with whom Hinckley, Allen & Snyder was
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on brief, for appellee.
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July 9, 1996
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SELYA, Circuit Judge. This appeal requires us to
SELYA, Circuit Judge.
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determine whether a legislated change to a substantive provision
of a public employees' retirement plan, as applied, transgresses
the Contracts Clause of the United States Constitution. We find
no constitutional infraction: plaintiff-appellant Thomas
McGrath's pension rights had not yet vested when the modification
occurred, and the state had reserved the power to alter or revoke
its promise of retirement benefits to municipal employees at the
time it established the plan in which McGrath later became a
participant. Consequently, we affirm the district court's grant
of summary judgment in favor of defendant-appellee Rhode Island
Retirement Board (the Board).
I. THE STATUTORY SCHEME
I. THE STATUTORY SCHEME
The Rhode Island General Assembly established a state
employees' retirement plan in 1936. See 1936 R.I. Pub. Laws, ch.
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2334 (codified at R.I. Gen. Laws 36-8-1 to 36-10-39 (1990
Reenactment & Supp. 1995)). In 1951, the General Assembly
enabled Rhode Island's cities and town to enroll their employees
in a matching plan. See 1951 R.I. Pub. Laws, ch. 2784 (codified
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at R.I. Gen. Laws 45-21-1 to 45-21-62 (1991 Reenactment &
Supp. 1995)). The legislature patterned the municipal employees'
plan (MEP) after the state employees' plan (SEP), engrafting the
former onto the latter. Together, these plans comprise what is
familiarly known as the state retirement system. The key
provisions of both plans are ordained by statute and both are
administered under the aegis of the Board.
2
The law authorizing the MEP affords each of Rhode
Island's thirty-nine municipalities the option of deciding
whether or not to participate. See R.I. Gen. Laws 45-21-4. If
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a city or town chooses to join, its eligible employees are
required to become members of the plan and must contribute six
percent of salary until they have reached the maximum amount of
service credit attainable. See id. 45-21-41. Municipalities
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may elect to defray some or all of their employees' required
contributions to the MEP. See id. 45-21-41.1.
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A qualified employee is entitled to a life annuity upon
retirement in the amount of two percent of his or her final
salary times the number of years of total creditable service (up
to thirty-seven and one-half years). See id. 45-21-17. A
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person is eligible to retire with such a pension once he or she
attains age fifty-eight and has logged at least ten years of
total creditable service. See id. 45-21-16. Under this
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formulation the only formulation that is germane to this case1
a municipal member's right to a pension vests when he or she
meets both the age and years-in-service minima.
The MEP gives members the opportunity to purchase up to
four years of pension credits for temporally equivalent active
duty military service. See id. 45-21-53. A member also can
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purchase pension credits for any "prior service with the city or
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1Under the MEP, a worker also is eligible to retire with a
similarly calculated pension regardless of age if he or she
accumulates at least thirty years of total creditable service.
See R.I. Gen. Laws 45-21-16.
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3
town of which the employee is now employed." Id. 45-21-9(b).
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Prior to 1991, these purchased credits benefitted a plan
participant in two ways. First, they served to increase the life
annuity payments that would be payable upon the participant's
retirement. Second, they served to accelerate the participant's
vesting date. For example, an individual who had served four
years in the military could purchase four years of creditable
pension time at a relatively modest rate and then retire at age
fifty-eight after only six years of municipal employment. What
is more, the individual would receive an annuity upon retirement
in the amount of two percent of his or her final salary times ten
years (despite having worked for a mere six years).
From its very inception, the statute that paved the way
for municipal employees to enter the state retirement system
included a provision reserving the state's power to amend the
terms of the municipal members' participation. We reproduce this
escape clause in its entirety:
Reserved power to amend or repeal Vested
Reserved power to amend or repeal Vested
rights. The right to amend, alter, or
rights.
repeal this chapter at any time or from time
to time is expressly reserved, and in that
event the liability of the municipal
employees' retirement system of Rhode Island
shall be limited[,] in the case of a member
or a person claiming through the member[,] to
the contributions made by the member, without
interest, and in the case of a municipality,
to contributions made by the municipality[,]
without interest, subject to deductions
prescribed in the case of withdrawal by a
municipality as provided in 45-21-6. All
retirement allowances or other benefits
granted by the retirement of members, and in
force prior to a repeal or amendment, shall
be vested in the beneficiaries thereof and
4
shall be paid in full in accordance with the
terms of this chapter, and the rights of the
retirement board to compel the payment by any
municipality of the sum or sums necessary to
provide the retirement allowances granted to
members formerly employed by the municipality
shall not be affected by the repeal or
amendment.
Id. 45-21-47. Under this provision, the state reserves the
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authority to make changes to the pension plan, up to and
including the termination of municipal participation and the
elimination of the pension rights of all employees (except those
who have already retired). Upon repeal, current employees would
receive back nothing more than the contributions they had made
over the course of their employment, without interest. See id.
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For many years the state retirement system was plagued
with problems. In 1991, with tales of suspected pension abuse
rampant, the General Assembly restructured the system in several
respects. Among other changes, the legislature revised the
method for calculating the minimum years of service (ten)
required before an employee of suitable age could retire with a
pension. The new method focused on actual time in service
without regard to purchased credits. It did so by designating
contributing membership (i.e., the period of time during which an
employee had been working for the public employer and making
contemporaneous contributions to the system) as the virtually
exclusive measure of creditable time for vesting purposes. The
new law stated:
Except as specifically provided in 36-10-
9.1, 36-10-12 through 36-10-15 and 45-
21-19 through 45-21-22 of the general laws,
5
no member shall be eligible for pension
benefits under this chapter unless the member
shall have been a contributing member of the
employees' retirement system for at least ten
(10) years. Provided, however, a person who
has ten (10) years service credit shall be
vested. Any person who becomes a member of
the employees' retirement system pursuant to
45-21-4 shall be considered a contributing
member for the purposes of title 45, chapter
21 and this chapter.
R.I. Gen. Laws 36-10-9(c) (Supp. 1993) (enacted June 16, 1991).
It is readily evident that, under the amendment, an employee may
only count years of actual service for purposes of meeting an
applicable ten-year vesting requirement. Thus, purchased credits
(for, say, time in the military) can no longer be counted toward
vesting (unless the holder comes within the "grandfather clause"
protecting persons who already had logged ten years of total
creditable service, including the purchased credits, at the
effective date of the statutory change).2
In enacting this statute, the General Assembly amended
only Title 36 the law creating the SEP. Nevertheless, as the
last sentence of the excerpted language indicates, the change
seemed to apply to the MEP as well. When the Board exhibited
some confusion about which minimum vesting requirement applied to
municipal members, the legislature moved swiftly to dispel all
doubt by amending Title 45 the law creating the MEP to make
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2The new provision did not affect the use of purchased
credits in regard to the thirty-year vesting alternative, see
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supra note 1, or in regard to pension augmentation. Thus, the
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purchase of military credits still could yield a significant
monetary return when the Board, at retirement, applied the
statutory formula to compute the amount of a participant's yearly
annuity.
6
it pellucid that municipal members, like other participants in
the system, must have been contributing members for at least ten
years in order to meet the minimum years-in-service requirement
for a pension. See R.I. Gen. Laws 45-21-16(b) (enacted July
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21, 1992). The new law ceded substantially the same
grandfathering to members who already had accumulated ten years
of total service (including purchased credits), see id., but it
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did not extend the same unguent to persons who had bought credits
but had not yet, even with the aid of those credits, cleared the
years-in-service hurdle.
II. THE COURSE OF EVENTS
II. THE COURSE OF EVENTS
The relevant facts underlying this litigation are not
in dispute. Thomas McGrath began working for the City of
Cranston as a probationary employee on April 9, 1986. His
probationary status ended six months later. Because Cranston had
elected to participate in the system, he became a contributing
member of the MEP on November 28, 1986. He remained in that
status until April 28, 1994 (although Cranston defrayed some of
the contribution costs).
In February 1991 the appellant began pursuing the
purchase of retirement credits for two and one-half years of
prior military service. Applying the statutory formula (ten
percent of first-year salary for each year of surrogate credit
purchased) the Board informed the appellant that he could buy the
desired credits for $4,316.09, and that for the added sum of
$917.53 he could purchase credits corresponding to his six-month
7
probationary period. The appellant bought the credits on April
15, 1991. At that time he had been a contributing member of the
system for just over four and one-half years.
As the law then read, the appellant's purchase of
surrogate credits worked to his advantage in two ways. First,
the purchase augmented his anticipated pension benefit by
increasing the number of years that would form the basis on which
his yearly retirement annuity would be calculated. Second, the
purchase promised to accelerate vesting and enable him to retire
with a pension after completing a mere seven years of actual
municipal employment. The appellant claims that he planned to
take advantage of both attributes and to retire from municipal
service late in 1993 (at which time he would be beyond the
minimum retirement age).
While the 1991 and 1992 amendments to the law did not
diminish the appellant's prospects of boosting his pension by
reason of the purchased credits, they dashed his hopes of
accelerated vesting.3 Under the new law, only years in which
municipal employees had been contributing members could be
counted toward the vesting requirement. Because the appellant
had only nine years, two months and twenty-two days of total
creditable service (including purchased credits) when the 1992
amendment took effect, he lost the benefit of the accelerated
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3This case does not require us to speculate whether the 1991
amendment in and of itself dictated this result. Even if the MEP
was unaffected until the General Assembly acted in 1992, the
outcome here would be the same.
8
vesting that he had envisioned.
McGrath met with a representative of the state
retirement system in October 1993 to ascertain whether the new
law would be applied to the determination of his pension
eligibility. After receiving an adverse decision, he petitioned
the Board. The Board ruled that under the amended statute he
could use the purchased probationary credits toward vesting, but
that he could not use the purchased military credits for that
purpose. Accordingly, the Board decreed that the appellant would
not vest unless he continued in municipal service through April
9, 1996. Put another way, the appellant would have to work a
full ten years for Cranston before becoming eligible to receive a
pension. Should he reach that milestone, the purchased military
credits would be applied to augment the amount of his yearly
retirement annuity and he would retire with twelve and one-half
years of credited service (rather than ten), thus allowing him to
receive a more munificent pension.
The appellant resigned his municipal office on April
28, 1994. The Board stood fast, taking the position that he was
not entitled to any pension but merely to a return of
contributions (including the payments tendered for the purchased
credits). Pensionless but undaunted, McGrath brought suit
against the Board in the United States District Court for the
District of Rhode Island. He alleged that the amendment to R.I.
Gen. Laws 45-21-16, as applied to him by the Board,
transgressed the Contracts Clause, see U.S. Const. art. I, 10,
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9
the Equal Protection and Due Process Clauses, see U.S. Const.
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amend. XIV, 1, and the Takings Clause, see U.S. Const. amend.
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V.4 In a thoughtful opinion, the district court granted brevis
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disposition in the Board's favor. See McGrath v. Rhode Island
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Ret. Bd., 906 F. Supp. 749 (D.R.I. 1995). This appeal ensued.
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III. ANALYSIS
III. ANALYSIS
In this forum, the appellant challenges only the lower
court's rejection of his Contracts Clause claim. We restrict our
analysis accordingly.
A
A
In terms, the Contracts Clause prohibits states from
passing "any . . . Law impairing the Obligation of Contracts."
U.S. Const. art. 1, 10. Though the Framers apparently had in
mind only purely private contracts (particularly debt
obligations), see Benjamin F. Wright, Jr., The Contract Clause of
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the Constitution 15-16 (1938), the Clause routinely has been
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applied to contracts between states and private parties. See,
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e.g., Fletcher v. Peck, 10 U.S. (6 Cranch) 87, 137-39 (1810).
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Over time, the Supreme Court has devised a tripartite
test for use in analyzing alleged impairments of contracts. See
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General Motors Corp. v. Romein, 503 U.S. 181, 186 (1992). Under
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this paradigm, a court first must inquire whether a contract
exists. If so, the court next must inquire whether the law in
question impairs an obligation under the contract. If so, the
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4This provision is made applicable to the states through the
genius of the Fourteenth Amendment. See Webb's Fabulous
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Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 160 (1980).
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10
court then must inquire whether the discerned impairment can
fairly be characterized as substantial. Affirmative answers to
these three queries compel a court to abrogate the proposed
application of the challenged state law. See id.
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It should be noted that this tripartite test actually
has a fourth component. In an appropriate case the model expands
to include an inquiry as to whether the impairment, albeit
substantial, is reasonable and necessary to fulfill an important
public purpose. See Energy Reserves Group v. Kansas Power &
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Light, 459 U.S. 400, 411-12 (1983). If so, the challenged law
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will not be held to infringe rights secured by the Contracts
Clause. See id. Furthermore, when a state is itself a party to
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a contract, courts must scrutinize the state's asserted purpose
with an extra measure of vigilance. See United States Trust Co.
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v. New Jersey, 431 U.S. 1, 25 (1977). Because this fourth
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component requires careful judicial scrutiny in all events, it is
clear that a state must do more than mouth the vocabulary of the
public weal in order to reach safe harbor; a vaguely worded or
pretextual objective, or one that reasonably may be attained
without substantially impairing the contract rights of private
parties, will not serve to avoid the full impact of the Contracts
Clause.
B
B
In general, retirement plans are within the reach of
the Contracts Clause. To be sure, noncontributory pensions were
viewed a century ago not as contracts but as mere gratuities.
11
See, e.g., Pennie v. Reis, 132 U.S. 464, 471 (1889). But times
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have changed, and evolving legal doctrine recognizes that the
promise of a pension is part of the compensation package that
employers dangle to attract and retain qualified employees. In
line with this evolving doctrine we have held that, in general,
pensions are to be regarded as a species of unilateral contracts.
See Hoefel v. Atlas Tack Corp., 581 F.2d 1, 4-5 (1st Cir. 1978)
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(explaining that "the promise of a pension constitutes an offer
which, upon performance of the required service by the
employee[,] becomes a binding obligation"), cert. denied, 440
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U.S. 913 (1979). Other courts have come to view pension plans in
much the same way. See, e.g., Pratt v. Petroleum Prod. Mgmt.,
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Inc. Employee Sav. Plan & Trust, 920 F.2d 651, 661 (10th Cir.
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1990) (stating that a "pension plan is a unilateral contract
which creates a vested right in those employees who accept the
offer it contains by continuing in employment for the requisite
number of years") (quoting Hurd v. Illinois Bell Tel. Co., 234
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F.2d 942, 946 (7th Cir.), cert. denied, 352 U.S. 918 (1956)); see
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generally Arthur L. Corbin, Corbin on Contracts 2.29, at 256
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(Joseph M. Perillo rev. ed. 1993).
Though the principle that a pension plan represents an
implied-in-fact unilateral contract is fairly well settled and
has been applied repeatedly to state and municipal pension
plans,5 there is significant disagreement about when
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5Our opinion in Hoffman v. City of Warwick, 909 F.2d 608
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(1st Cir. 1990), does not subvert this principle. Hoffman
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involved a Rhode Island law that granted veterans additional
12
contractually enforceable rights accrue under such plans. See,
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e.g., Nevada Employees Ass'n, Inc. v. Keating, 903 F.2d 1223,
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1227 (9th Cir.) (suggesting that nonvested employees have
contractual rights subject only to "reasonable modification"),
cert. denied, 498 U.S. 999 (1990); Betts v. Board of Admin. of
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the Pub. Employees' Ret. Sys., 582 P.2d 614, 617 (Cal. 1978) (en
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banc) (stating that the right to a "substantial" or "reasonable"
pension accrues on first day of employment); Petras v. State Bd.
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of Pension Trustees, 464 A.2d 894, 896 (Del. 1983) (explaining
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that rights accrue when vesting occurs); Singer v. City of
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Topeka, 607 P.2d 467, 475 (Kan. 1980) (similar to Petras, but
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adding that rights remain subject to "reasonable modification");
Sylvestre v. State, 214 N.W.2d 658, 666-67 (Minn. 1973) (taking
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the position that an employee's rights accrue on first day of
employment); Baker v. Oklahoma Firefighters Pension & Ret. Sys.,
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718 P.2d 348, 353 (Okla. 1986) (holding that rights accrue only
when an employee vests); Leonard v. City of Seattle, 503 P.2d
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741, 746 (Wash. 1972) (en banc) (similar to Baker). And,
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moreover, some courts cling to the notion that a state-sponsored
retirement plan for public employees creates no enforceable
contractual rights whatever. See, e.g., Pineman v. Oechslin, 488
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seniority in public employment. The state had never enforced the
law, and there was no indication that employees knew about it,
much less considered it part of their employment arrangement.
See id. at 612. On those idiocratic facts, we concluded that the
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statute did not evince a legislative intent to contract, and that
a fortiori its repeal did not impair contractual obligations owed
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to current employees. See id. at 614. Fairly read, Hoffman does
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not stand for the proposition that statutory employment benefits
can never create contractual rights.
13
A.2d 803, 809-10 (Conn. 1985); Spiller v. State, 627 A.2d 513,
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516 (Me. 1993).
C
C
Rhode Island's municipal employees' pension system
differs from the plans that have been considered by other courts
in at least one material respect: R.I. Gen. Laws 45-21-47
explicitly reserves to the legislature the power to amend or
terminate the plan, including the power to eliminate pension
benefits entirely (except for those employees who have already
retired).6 It is generally the case with supposed unilateral
contracts that if the offeror expressly reserves the power to
revoke the offer until the offeree's performance is complete,
then the offer is illusory and cannot give rise to a unilateral
contract. See Restatement (Second) of Contracts 45, cmt. b
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(1981) ("A reservation of power to revoke after performance has
begun means that as yet there is no promise and no offer."). The
Supreme Court has endorsed this approach in respect to certain
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6Of course, it can be argued that a legislatively-created
pension plan is always subject to amendment by means of further
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legislative enactments, whether or not the plan explicitly
reserves a power to amend. We caution that this may be too
simplistic an argument. The Contracts Clause prohibits a state
legislature from amending any law in a way that works a
substantial impairment of contractual obligations previously
undertaken. An explicit reservation easily can be understood as
a legislative effort to avoid creating a contractual obligation
in the first place, for when the state expressly reserves the
power to withdraw or reconfigure the promise of a pension, a
state employee who thereafter accepts employment will be hard-
pressed to assert a reasonable basis for relying on the original
promise. Viewed in this light, the very existence of the
Contracts Clause seems to give a state's explicit reservation of
authority to amend its own public employee pension law more bite
than an inchoate power to amend can command.
14
federal employee retirement benefits. See United States R.R.
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Ret. Bd. v. Fritz, 449 U.S. 166, 174 (1980) (stating that
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statutory "railroad [retirement] benefits, like social security
benefits, are not contractual and may be altered or even
eliminated at any time"). If this logic holds, the Rhode Island
municipal retirement system seemingly does not produce the kind
of binding offer that courts are likely to enforce.
Yet this logic is not inevitable. In the wide world of
employee pension plans, the principle that reserved power to
revoke means that there is no offer and no contract has not been
applied consistently. In Allied Structural Steel Co. v.
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Spannaus, 438 U.S. 234 (1978), the Court held that a state law
________
impaired the obligations of Allied Steel's preexisting contract
with its employees by requiring that all employer-provided
pension plans must include certain guarantees. See id. at 250.
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En route to this holding the Court recognized the existence of a
contract for Contracts Clause purposes notwithstanding the fact
that the employer-sponsor had explicitly reserved the right to
amend or terminate its pension plan even if doing so meant
depriving employees (including those employees who had already
vested) of their expected benefits.
In the same vein, prior to the enactment of the
Employee Retirement Income Security Act of 1974 (ERISA), 29
U.S.C. 1001-1461 (1994) a statute that now occupies much of
the field in the law of pension benefits, but which has no direct
relevance here significant common-law precedent had developed
15
in support of the view that an express and unqualified
reservation of the power to amend or terminate a pension plan is
only to be given effect up to the point at which an employee's
rights under the plan vest. For instance, we held in a pre-ERISA
case that retired employees were entitled to benefits as provided
in a negotiated pension plan notwithstanding (a) the presence of
a clause in the plan reserving to the employer "the right to
change, suspend or discontinue the Plan at any time," and (b) the
employer's attempted termination of the plan. Hoefel, 581 F.2d
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at 3-4. In so holding, we observed approvingly that a "number of
courts have construed pension plans which reserve to the employer
the right to alter or discontinue . . . as limiting the
employer's reserved right to apply only to employees whose
pension rights had not, at the time of the change, already
vested." Id. at 5. Hoefel relied heavily on Cantor v. Berkshire
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Life Ins. Co., 171 N.E.2d 518 (Ohio 1960), in which the Ohio
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Supreme Court ruled that "even though the employer has reserved
the right to amend or terminate the plan, once an employee, who
accepted employment under such a plan, has complied with all the
conditions entitling him to participate in such plan, his rights
become vested and the employer cannot divest the employee of his
rights thereunder." Id. at 522. Other courts agree. See, e.g.,
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In re Erie Lackawanna Ry. Co., 548 F.2d 621, 625-27 (6th Cir.
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1977); Ehrle v. Bank Bldg. & Equip. Corp., 530 S.W.2d 482, 495
_____ __________________________
(Mo. Ct. App. 1975); Stopford v. Boonton Molding Co., 265 A.2d
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657, 665-66 (N.J. 1970); see generally Annot., 46 A.L.R.3d 464,
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16
468-70 (1972) (collecting cases). Thus, the caselaw evinces an
emergent common-law rule to this effect: once an employee
fulfills the service requirements entitling him or her to
retirement benefits under a pension plan, the employee acquires a
contractual right to those benefits, and the employer cannot
abridge that right despite its aboriginal reservation of a power
to effect unilateral amendments or to terminate the plan
outright.7
We hasten to add a caveat. To our knowledge, all of
the cases that have cabined the effect of an explicitly reserved
power to amend involve private-sector retirement plans. It is
unclear whether the same limitations apply ex proprio vigore to
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public-sector retirement plans. On one hand, principles of
fairness argue for comparability of treatment. On the other
hand, the very nature of a republican form of government and that
government's unique duty to represent the public interest combine
to create a special employment environment. Lawmakers pay homage
to this reality in many ways, see, e.g., R.I. Gen. Laws 36-11-6
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(1990 Reenactment) (denying most public employees the right to
strike), and there are sound policy reasons to recognize this
difference in terms of maximizing the states' flexibility vis- -
vis the retirement benefits that it offers to public employees.
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7Recent legislation buttresses the legitimacy of this rule.
ERISA, for example, specifically provides that pension plan
amendments cannot decrease retirement benefits which have already
accrued. See 29 U.S.C. 1054(g). Similarly, the Internal
___
Revenue Code defines as "qualifying plans" only those pension
plans that provide for the protection of "accrued benefits" upon
plan termination. 26 U.S.C. 411(d)(3).
17
Indeed, such concerns underlie the recognized presumption that
statutory enactments do not create contractual obligations in the
absence of an "unmistakable" intent on the legislature's part to
do so. See United States v. Winstar, No. 95-865, slip op. at 31-
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48 (U.S. July 1, 1996) (discussing the role of the
unmistakability doctrine in "limiting contractual incursions on a
State's sovereign powers" under the auspices of the Contracts
Clause). Be that as it may, the instant case does not require us
to choose between these opposing viewpoints. Even if the common-
law rule applies to public employees' retirement plans and the
MEP therefore creates an enforceable contract linking the state
and the individual MEP members a matter we do not decide it
would not assist McGrath.
D
D
The district court found that the appellant's purchase
of military credits created a contract between him and the state,
separate and apart from the overall agreement to provide a
pension. See McGrath, 906 F. Supp. at 760 n.1. Under this
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separate contract, the state promised to pay McGrath a larger
retirement annuity in return for a stipulated cash payment. See
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id. at 763. Although the purchase yielded a second prospective
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benefit producing an opportunity for earlier retirement, made
possible by the ability to count purchased credits toward the
MEP's minimum years-in-service requirement the court thought
that this feature was merely incidental to the essential purpose
of the separate contract. See id. at 763-64. Partly because
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18
R.I. Gen. Laws 45-21-47 rendered the appellant's reliance on
the state's ancillary promise unreasonable, and partly because
the amendment to R.I. Gen. Laws 45-21-16 did not impair the
"central undertaking" of the contract pension augmentation
the court concluded that the amendment comprised only an
"insubstantial" impairment of the separate contract and therefore
did not transgress the Contracts Clause. See McGrath, 906 F.
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Supp. at 766 (citing City of El Paso v. Simmons, 379 U.S. 497,
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514 (1965)).
Although we uphold the district court's judgment we
arrive at that destination by a somewhat different path. For
purposes of Contracts Clause analysis, as in contract law
generally, it serves no legitimate end to slice and dice unitary
agreements into a series of fragmentary subcontracts. Cf. Smart
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v. Gillette Co. Long-Term Disab. Plan, 70 F.3d 173, 179 (1st Cir.
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1995) (warning that "[a]ccepted canons of construction forbid the
balkanization of contracts for interpretive purposes"). To the
contrary, a singular contract should be treated as such.
Applying this salutary principle, we think it is unrealistic to
view the acquisition of surrogate credits as forming a separate
and distinct contract. In point of fact, the purchase
constitutes no more than a transaction made available under the
auspices of the overall retirement arrangement.8 Hence, the
rights created by the purchase of credits are subsumed within,
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8As the district court recognized, the only rights conferred
by the purchased credits were rights within the MEP itself. See
___
McGrath, 906 F. Supp. at 759.
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19
and indistinguishable from, the rights created under the
retirement plan proper. We must, therefore, train our sights on
the MEP as a whole.
Based on the authorities canvassed above, we believe
that the architecture of the MEP at most extends an offer of a
unilateral contract to employees of participating municipalities,
subject, however, to the reserved powers contained in R.I. Gen.
Laws 45-21-47. Assuming, for argument's sake, that such a
contract has significance for purposes of the Contracts Clause
a matter on which we take no view it nonetheless is clear that,
under the contract terms, a member's rights to a retirement
annuity are not secure until he or she has met the age and
service requirements established in the plan (and, therefore, has
become vested).9 Until such time, section 45-21-47 permits the
state to make modifications to, or even terminate, members'
rights under the plan without offending the Contracts Clause.
And, moreover, since rights gained by service and rights gained
by purchase are "equal in stature" within the system, McGrath,
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906 F. Supp. at 759, it follows that both are equally subject to
the state's reserved power to amend or terminate whatever
presumptive entitlements an unvested member may from time to time
look forward to enjoying.
In terms of this case, then, the appellant's purchase
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9It is unclear whether the legislature can pass and lawfully
enforce an amendment that adversely affects an individual who has
satisfied the age and years-in-service requirement, but has not
yet retired. This case does not present an appropriate occasion
for us to explore this terra incognito.
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20
of surrogate credits may have conferred certain rights on him,
but it did so only against the backdrop of the state's reserved
authority to modify those rights up to the point of vesting (if
not beyond). And since McGrath was not vested when the Rhode
Island General Assembly revised the MEP, his claim founders.
To say more would be supererogatory. We conclude that
the amendment to R.I. Gen. Laws 45-21-16, as applied, passes
constitutional muster under the Contracts Clause. See City of
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Charleston v. Public Serv. Comm'n, 57 F.3d 385, 393-95 (4th Cir.)
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(holding that a state law did not impair a public contract when
the contract expressly stated that its terms were subject to
legislative regulation), cert. denied, 116 S. Ct. 474 (1995);
_____ ______
National Ass'n of Gov't Employees v. Commonwealth, 646 N.E.2d
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106, 110 (Mass.) (holding that a statutorily mandated increase in
state employees' health insurance premiums did not impair a
public contract because the legislature had expressly reserved
the power to change the contract's terms), cert. denied, 115 S.
_____ ______
Ct. 2615 (1995).
IV. CONCLUSION
IV. CONCLUSION
We need go no further. As between Rhode Island and the
appellant, the 1992 amendment to R.I. Gen. Laws 45-21-16 did
not impair any obligation protected by the Contracts Clause.
Consequently, the district court appropriately entered judgment
for the Board.
Affirmed.
Affirmed.
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