Poggi v. City of New York

109 A.D.2d 265, 491 N.Y.S.2d 331, 1985 N.Y. App. Div. LEXIS 49750

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: July 2, 1985
• Status: Published

Opinions

OPINION OF THE COURT

Sullivan, J. P.

Plaintiffs, eight retired superior officers of the Police Department of the City of New York, all of whom were members of the Police Pension Fund, Article 2 (Pension Fund) during their active service, seek to enjoin enforcement of section B18-27.1 (d) (1) of the Administrative Code of the City of New York which establishes a formula by which certain investment earnings of the Pension Fund are to be transferred to and allocated between the Police Superior Officers’ Variable Supplements Fund (SOVSF) and the Patrolmen’s Variable Supplements Fund (PVSF), as well as a declaration that the section is unconstitutional. The SOVSF provides variable supplemental payments to service retirees of the Pension Fund who retired as superior officers (Administrative Code § B18-80.0 et seq.), while the PVSF provides similar payments to service retired patrolmen (Administrative Code § B18-60.0 et seq.). Superior officers are defined as those members of the uniformed force who hold positions of the rank of sergeant or higher, or are detectives. (Administrative Code § B18-27.1 [a] [16].) Named as party defendants are the City of New York, the chairman of the board of trustees of the Pension Fund and the PVSF’s trustees.

The Pension Fund is funded by contributions from its members and the City of New York. A member’s contribution rate is calculated actuarily pursuant to statutory formula (Administrative Code §§ B18-22.0, B18-23.0) as of the time he joins the force so as to remain constant throughout his active service, and is unaffected by the Pension Fund’s investment earnings. (Administrative Code § B18-22.0 [a] [1]; § B18-23.0 [d].) The method of calculating the city’s contributions to the Pension Fund is defined by section B18-24.0. Subject to certain limited exceptions, not here relevant, the city contributes lump-sum payments based upon an actuarial determination of the amounts necessary to cover the Pension Fund’s present and anticipated liabilities for the payment of retirement and death benefits. (See, Administrative Code §§ B18-3.0 [10], B18-24.0.)

The methods of calculating the benefits payable by the Pension Fund for service retirement, disability and death are based, without regard to rank, upon fixed statutory factors, such as member contributions, salary and length of service. (See, Administrative Code §§ B18-38.0, B18-39.0, B18-45.0, B18-46.0, B18-47.0.) None of the benefits fluctuates with the Pension Fund’s investment earnings. (Administrative Code §§ B18-38.0, B18-39.0, B18-45.0, B18-46.0, B18-47.0.) Moreover, the city is required to guarantee the payment of Pension Fund benefits without regard to whether its investments produce any earnings. (Administrative Code § B18-27.0 [a].)

At the time of joining the Pension Fund a member may elect service retirement eligibility upon the completion of a minimum period of either 20 or 25 years of service, or upon reaching 55 years of age. (Administrative Code §§ B18-41.0, B18-41.1.) Upon retirement, a member receives an allowance consisting of both, an annuity and a pension portion which, taken together, equals the sum of one half of the member’s annual earnable compensation at the time of retirement. (Administrative Code § B18-45.0 [1].) A member is also entitled to an additional retirement allowance equal to one sixtieth of the average amount earned per year between the date he became eligible to retire and the actual date of retirement for each year that he serves beyond the minimum period for service retirement eligibility. (Administrative Code § B18-45.0 [2] [a].)

In 1970 the State Legislature created two variable supplements funds, the SOVSF and the PVSF (L1970, ch 876), as legal entities separate and distinct from the Pension Fund with the powers and privileges of a corporation (Administrative Code §§ B18-61.0, B18-64.0, B18-81.0, B18-84.0), for the purpose of receiving certain investment earnings of the Pension Fund. (Administrative Code §§ B18-27.1, B18-61.0, B18-81.0.) When, in a given fiscal year, as provided in Administrative Code § B1827.1, that portion of the Pension Fund’s earnings from assets invested in equities exceeds the hypothetical earnings which would have been generated by the investment of the same amount of assets in fixed income securities, the difference between these two amounts is transferred to the two variable supplements funds.¹ These “transferable earnings” are apportioned in accordance with a formula set forth in section B18-27.1 (d) (1), which divides the earnings between the SOVSF and the PVSF in the same ratio that the active superior officers’ total contributions to the Pension Fund bears to the active patrolmen’s total contributions in the year the transferable earnings were generated. The trustees of the variable supplements funds are authorized to grant supplemental payments from the funds’ assets to Pension Fund retirees in such form and amount as the trustees may in their discretion determine, subject to the standards of equity, fairness and prudent management. (Administrative Code §§ B18-63.0, B18-83.0.)

On or about April 24, 1975, the board of trustees of the Pension Fund passed a resolution authorizing the payment of transferable earnings to the variable supplements funds for the 1970-1971 and 1971-1972 fiscal years. Since active patrolmen made 74.169% and active superior officers 25.831% of the total contributions to the Pension Fund in 1970-1971, the $8,319,832 in transferable earnings for that fiscal year was divided between the SOVSF and the PVSF in the same percentages. Thus, the PVSF received $6,170,736 and the SOVSF received $2,149,096. In 1971-1972, $15,156,911 in transferable earnings was divided so that the PVSF received $10,998,612 (72.565%) and the SOVSF received $4,145,299 (27.435%). The Pension Fund’s investments failed to yield transferable earnings for the fiscal years 1972-1973 through 1980-1981.

The PVSF’s trustees authorized payments to eligible retirees in the amount of $40 per month commencing January 1, 1976 through December 31, 1981; the SOVSF’s trustees authorized annual lump-sum payments to eligible retirees in the amount of $400 per year for the same time period. It is undisputed that these supplemental payments have been made to all eligible service retired patrolmen and superior officers.

In seeking declaratory and injunctive relief, plaintiffs claim that the SOVSF is entitled to a larger proportionate share of transferable earnings than is allocated to that fund pursuant to section B18-27.1 (d) (1) and that the PVSF is entitled to a correspondingly smaller proportionate share. Specifically, plaintiffs contend that the allocation formula of section B18-27.1 (d) (1) impairs their pension benefits in violation of NY Constitution, article V, § 7, and discriminates against them in violation of the equal protection clauses of the State and Federal Constitutions. After joinder of issue they moved for summary judgment. Defendants and the intervenor-defendants, officers of the Patrolmen’s Benevolent Association of the City of New York, individually and in their representative capacity, cross-moved for summary judgment in their favor. Special Term, finding material issues of fact as to the manner in which the variable supplements funds are funded and administered, the extent to which member and employer contributions are allocated or credited to the funds, and the underlying nature of the supplements payable by the funds, denied both the motion and cross motions. The parties cross-appealed. Since all of Special Term’s concerns are fully answered by reference to the statute which established the variable supplements funds, we conclude that there are no material triable issues of fact. Moreover, we find that Administrative Code § B18-27.1 (d) (1) is constitutional. Accordingly, we modify and grant summary judgment in favor of defendants and the intervenor-defendants.

New York Constitution, article V, § 7² preserves the benefits of the pension contract relationship rather than “naked pension rights qua rights” (Mutterperi v Levitt, 89 Misc 2d 428, 431, affd 41 NY2d 956). Thus, in order to prevail on their claim that the allocation formula of section B18-27.1 (d) (1) violates this provision of the State Constitution, plaintiffs must show that some benefit set forth in the pension contract of the Administrative Code is diminished or impaired. (See, Hoar v City of Yonkers, 295 NY 274; Brown v New York State Teachers Retirement Sys., 25 AD2d 344, affd 19 NY2d 779; Michael v Bellamy, 80 AD2d 147, appeal dismissed sub nom. Michael v Majority of Bd. of Trustees, 55 NY2d 1036, Iv denied 57 NY2d 603.) Plaintiffs are unable to make such a showing.

It is undisputed that plaintiffs, 6 of whom are service-retired and 2 of whom are retired for disability, have always received the full amounts of their retirement allowances pursuant to the service retirement or disability provisions of the Administrative Code. As already noted, these benefits, as well as the other benefits of the Pension Fund contract, are calculated according to a formula of fixed statutory criteria, such as salary and length of service. (Administrative Code §§ B18-38.0, B18-39.0, B18-45.0, B18-46.0, B18-47.0.) None of the benefits payable by the Pension Fund fluctuates with or depends in any way upon its investment earnings. (Administrative Code §§ B18-38.0, B18-39.0, B18-45.0, B18-46.0, B18-47.0.) Thus, section B18-27.1 (d) (1), which apportions investment earnings to the respective variable supplements funds, in no way diminishes or impairs any benefit set forth in the statutory Pension Fund contract.

The variable supplements law merely established a new non-pension supplement for Pension Fund retirees in addition to and independent of the retirement allowances provided in the pension contract. Indeed, the Legislature described the nature and purpose of the variable supplements funds “as a means whereby payments, not constituting a pension or retirement allowance, may be made at the discretion of the board * * * to eligible pension fund beneficiaries as a supplement to benefits received by them under article one or two of this title.” (Administrative Code § B18-61.0 [b]; § B18-81.0 [b].)

In creating the variable supplements funds the Legislature expressly provided that they “shall not be, and shall not be construed to constitute, a pension or retirement system or fund” (§ B18-61.0 [b]; § B18-81.0 [b]), and that the payments from these funds “shall not constitute a pension or retirement allowance or benefit under [the Pension Fund] or otherwise.” (Administrative Code § B18-63.0 [b] [2] [ii]; § B18-83.0 [b] [2] [ii]; see also, § B18-61.0 [b]; § B18-81.0 [b].) The Legislature further declared that the variable supplements payments “shall not create or constitute membership in a pension or retirement system and shall not create or constitute a contract with any pension fund beneficiary or with any member of [the Pension Fund]”. (Administrative Code § B18-63.0 [b] [2] [i]; § B18-83.0 [b] [2] [i].) Thus, the controlling statutory language clearly shows that the variable supplements payments are independent of, and were not intended to diminish or impair, any benefit under the Pension Fund contract. In Matter of Maye (Bluestein) (40 NY2d 113, 115-116), the Court of Appeals recognized the nonpension nature of variable supplements payments when, in analyzing similar variable supplements provisions in the New York City Fire Department Pension Fund Law,³ it noted, “The funds function as a means whereby payments, not constituting a pension or retirement allowance, may be made to eligible pension fund beneficiaries as a supplement to benefits received by them under article 1 or 1-B of title B of the Administrative Code”.

Plaintiffs argue that while the section B18-27.1 (d) (1) formula allocating transferable earnings from the Pension Fund to the SOVSF and the PVSF in proportion to the contributions made to that Fund by active superior officers and patrolmen is based upon the salary of active members, it fails to take into account their over-all length of service. Plaintiffs assume, of course, that superior officers serve longer and, therefore, contribute over a greater span of years than patrolmen. They also claim that because length of service is a factor in computing their Pension Fund service retirement allowances, it should likewise be a factor in computing their variable supplements. Accordingly, plaintiffs argue, superior officers should be entitled to a greater share of the transferable earnings than that provided in section B18-27.1 (d) (1).

Even assuming, arguendo, that superior officers do contribute more over a career to the Pension Fund than patrolmen, plaintiffs’ argument still fails because the statutory pension contract does not contain any benefit provision which requires future supplement payments to be calculated on the basis of length of service. As already noted, unless plaintiffs can identify a benefit in the pension contract which is impaired by section B 18-27.1 (d) (1), NY Constitution, article V, § 7 is not, as a matter of law, violated. (See, Hoar v City of Yonkers, 295 NY 274, supra; Brown v New York State Teachers Retirement Sys., 25 AD2d 344, supra; Michael v Bellamy, 80 AD2d 147, supra.)

Moreover, except to the extent that it is required to pay interest on members’ accumulated contributions (Administrative Code § B 18-29.0),⁴ the Pension Fund is not required by any provision of the statutory pension contract to pay investment earnings to its members. In fact, Administrative Code § B1827.0 requires that all Pension Fund investment income, except for transferable earnings which, as already noted, are otherwise provided for under section B18-27.1, be used first, to pay into the funds of the Pension Fund the amounts of regular interest required to be paid; second, to pay off losses on the Pension Fund’s stock investments; and third, to reduce the city’s normal contributions to the Pension Fund. Thus, investment earnings are not a statutory component of Pension Fund benefits. Members have a contractual right only to the benefits defined in the Administrative Code, none of „rhich is diminished or impaired by the allocation formula of section B18-27.1 (d) (1). Furthermore, since it neither directs the Pension Fund’s board of trustees to invest any of the Fund’s assets in a particular market, nor deprives the board of the freedom to exercise its own independent judgment in investing the Fund’s assets, section B18-27.1 (d) (1) does not impair the security of the Pension Fund’s assets from which these benefits are paid. (Cf. Sgaglione v Levitt, 37 NY2d 507, 514.) Thus, section B18-27.1 (d) (1) does not contravene NY Constitution, article V, § 7.⁵

Plaintiffs allege that section B18-27.1 (d) (1) denies superior officers equal protection of the laws by providing a formula for the allocation of transferable earnings to the variable supplements funds which results in the payment by the PVSF of larger nonpension supplemental benefits to eligible retired patrolmen than the SOVSF is able to pay to eligible retired superior officers. From 1976 through 1981 retired patrolmen received $80 per year more in nonpension supplement payments than retired superior officers.

In support of their argument plaintiffs also rely upon an independent actuarial calculation made in 1975 showing that the amounts previously transferred to the variable supplements funds would permit the PVSF to make larger supplemental payments to retired patrolmen over their lifetimes than the SOVSF would be able to make to retired superior officers over the same period. For instance, the amounts transferred to the PVSF for 1970-1971 and 1971-1972 would permit it to make annuity payments to eligible retired patrolmen in the amount of $48 per month for life,⁶ while the amounts transferred to the SOVSF for the same years would permit annuity payments of only $23 per month for life to eligible retired superior officers. The allocation formula, which is based upon contributions by active members, necessarily yields such a result because, for example, the ratio of active patrolmen (24,539 or 78.2%) to active superior officers (6,841 or 21.8%) for the fiscal year 1971-1972 is greater than the ratio of retired patrolmen (2,220 or 56.1%) to retired superior officers (1,734 or 43.9%).⁷

It is well settled that a statute is entitled to a strong presumption of constitutionality, especially where that statute confers monetary benefits. (Schweiker v Wilson, 450 US 221, 238; Mathews v De Castro, 429 US 181, 185.) Where, as here, the statute being challenged confers an economic benefit, its constitutionality under the equal protection clause is determined by application of the rational basis test. (See, e.g., Schweiker v Wilson, 450 US, at p 230; Mathews v De Castro, 429 US, at p 185; Dandridge v Williams, 397 US 471, 485.)⁸ Since the statute is presumed to be constitutional, “[o]ne who assails the classification in such a law must carry the burden of showing that it does not rest upon any reasonable basis, but is essentially arbitrary.” (Lindsley v Natural Carbonic Gas Co., 220 US 61, 78-79; Lighthouse Shores v Town of Islip, 41 NY2d 7, 12; Matter of Malpica-Orsini, 36 NY2d 568, 570-571, appeal dismissed sub nom. Orsini v Blasi, 423 US 1042.)

Under the rational basis test a statutory classification is constitutionally permissible if it is rationally related to any legitimate State objective. (Western & S. Life Ins. Co. v Board of Equalization, 451 US 648, 668; Schweiker v Wilson, 450 US, at p 230; Dandridge v Williams, 397 US 471, 485, supra; Matter of Tolub v Evans, 58 NY2d 1, 8, appeal dismissed 460 US 1076; Lighthouse Shores v Town of Islip, 41 NY2d, at p 12; Montgomery v Daniels, 38 NY2d 41, 61.) A statute violates the equal protection clause only when “the classification rests on grounds wholly irrelevant to the achievement of the State’s objective.” (McGowan v Maryland, 366 US 420, 425.)

Plaintiffs’ denial of equal protection claims are without merit since the allocation formula of section B18-27.1 (d) (1) classifies benefits not merely on the basis of rank, but, also, on need. The Legislature, which is presumed to have “investigated and found facts necessary to support the legislation” (Matter of Malpica-Orsini, 36 NY2d, at p 571; see also, Lighthouse Shores v Town of lslip, 41 NY2d, at p 11; I.L.F.Y. Co. v Temporary State Hous. Rent Commn., 10 NY2d 263, 269, appeal dismissed 369 US 795), could rationally and reasonably find that retired patrolmen, who, on the average, receive smaller service retirement allowances than retired superior officers, have a greater need for the larger supplemental payments than retired superior officers. Superior officers earn a significantly higher average salary than patrolmen,⁹ and the retirement allowances of both groups are directly proportional to their earnable annual compensation at the time of retirement (Administrative Code § B 18-45.0).

A statute which allocates larger monetary benefits to those with greater need does not violate the equal protection clause because such a classification is rationally related to a legitimate State interest. (See, Schweiker v Wilson, 450 US, at pp 238-239; Califano v Boles, 443 US 282, 296; Jefferson v Hackney, 406 US 535, 546-547.)¹⁰ Legislative bodies have discretion in deciding how to allocate limited monetary benefits. (Schweiker v Wilson, 450 US, at p 238.) That some retired superior officers may have a greater need for supplemental benefits than some retired patrolmen does not render the variable supplements law unconstitutional. As the Supreme Court stated in Dandridge v Williams (397 US 471, 485, supra): “In the area of economics and social welfare, a State does not violate the Equal Protection Clause merely because the classifications made by its laws are imperfect. If the classification has some ‘reasonable basis’ it does not offend the Constitution simply because the classification ‘is not made with mathematical nicety or because in practice it results in some inequality.’ Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61, 78. ‘The problems of government are practical ones and may justify, if they do not require, rough accommodations — illogical, it may be, and unscientific.’ Metropolis Theatre Co. v. City of Chicago, 228 U.S. 61, 69-70. ‘A statutory discrimination will not be set aside if any state of facts reasonably may be conceived to justify it.’ McGowan v. Maryland, 366 U.S. 420, 426.”

Since a finding that retired patrolmen require larger nonpension supplements than retired superior officers is reasonably based, section B18-27.1 (d) (1) accomplishes the legitimate objective of providing larger supplements to the group with the greater need and, therefore, does not deny superior officers equal protection of the laws.

Accordingly, the order of the Supreme Court, New York County (Israel Rubin, J.), entered August 11, 1982, which denied plaintiffs’ motion and defendants’ and the intervenor-defendants’ cross motions for summary judgment, should be modified, on the law, without costs or disbursements, the cross motions granted, Administrative Code § B18-27.1 (d) (1) declared constitutional and, except as thus modified, affirmed.

1 . The additional equity investment earnings produced in a given year are transferred to the SOVSF and the PVSF only to the extent that these earnings exceed any cumulative losses from previous years in which the equity investment earnings were less than the hypothetical earnings that would have been produced by investment in fixed income securities.

2 . Article V, § 7 provides, “After July first, nineteen hundred forty, membership in any pension or retirement system of the state or of a civil division thereof shall be a contractual relationship, the benefits of which shall not be diminished or impaired.”

3 . Administrative Code §§ B19-40.0 et seq., B19-60.0 et seq.

4 . The city is required to pay the statutory rate of interest on member contributions irrespective of whether the Pension Fund produces any investment earnings. (Administrative Code § B18-27.0 [a].)

5 . The alarm sounded by the dissent that the pensions of all public servants will henceforth be at risk since excess investment earnings may be subjected to legislative incursions as a source of revenue for general purposes ignores the distinction between a distribution of such earnings to the class for whose benefit the pension system was created, and an invasion of the funds for unrelated purposes. While the former may give rise to a claim, as here, of denial of equal protection, it does not logically compel acceptance of the latter.

6 . Administrative Code § B18-63.0 (b) (1); § B18-83.0 (b) (1), which establish the variable supplements funds, however, expressly provide that “[n]o pension fund beneficiary shall have a right to receive variable supplements except to the extent, in the manner and for the period authorized by the board in the exercise of its discretion pursuant to this article and any such supplements granted may at any time be discontinued by the board in the exercise of such discretion.”

7 . The number of retired patrolmen and superior officers used in these calculations represent those officers who retired from service on or after October 1, 1968 and were on the retirement rolls as of June 30, 1975.

8 . “Strict scrutiny” has no application because Administrative Code § B1827.1 (d) (1) does not interfere with the exercise of a fundamental right and pension beneficiaries are not a suspect class. (See, Tron v Condello, 427 F Supp 1175, 1192.) Fundamental rights include, inter alia, 1st Amendment rights, the right to vote, the right of interstate travel, the right to privacy and the right of procreation. (See, Massachusetts Bd. of Retirement v Murgia, 427 US 307, 312, n 3, and cases cited therein.) Suspect classes include, inter alia, classifications based upon race, alienage and ancestry. (See, Massachusetts Bd. of Retirement v Murgia, 427 US, at 312, n 4, and cases cited therein.)

9 . As of June 30, 1977, the average annual salary of superior officers was $23,244, while the average annual salary of patrolmen was $17,033.

10 . In any event, since the variable supplements payments do not constitute a pension benefit, and since the Pension Fund is not even required to distribute excess investment earnings, an allocation of such payments pursuant to a formula which correlates the ratio of collective contributions by active patrolmen to those of active superior officers in the year the excess earnings were generated with the ratio of distribution of such earnings is not, as the dissent argues, arbitrary.