February 10, 2004
CONSTITUTIONAL ISSUES IN REVOKING OR REDUCING OF PENSION BENEFITS OF CONVICTED STATE EMPLOYEES
By: Kevin E. McCarthy, Principal Analyst
Sandra Norman-Eady, Chief Analyst
You asked for a discussion of potential constitutional issues if a proposed bill (LCO No. 82) allowing courts to reduce or revoke state pension benefits for individuals convicted of crimes related to state office or employment is adopted. This memo focuses on issues arising under the U.S. Constitution, reflecting most of the relevant case law. Several of the constitutional provisions discussed below have parallels in the state constitution. The Office of Legislative Research is not authorized to issue legal opinions, and this memo should not be considered one.
The proposed bill authorizes courts to revoke or reduce any retirement or other benefit or payment due to state officials or employees when sentencing them for crimes related to their employment. If the sentencing court does not make a determination on this issue, the bill requires the State Employees Retirement Commission to initiate a civil action to reduce or revoke them.
At least four states have adopted similar laws, all of which are broader than the proposed bill. All of these laws apply to municipal, as well as state, employees and officials. Laws in three of these states (Florida,
Massachusetts, and Rhode Island) have withstood challenges on a wide variety of constitutional grounds. These include alleged violations of the Contracts, Double Jeopardy, Excessive Fines, Due Process, and Ex Post Facto clauses of the U.S. Constitution.
The same arguments could be raised here if Connecticut adopted the proposed bill, and Connecticut courts are not bound by the decisions of other states' courts. Whether adopting the proposed bill would violate the Contracts Clause might also depend on the officials' or employees' retirement system membership, as most Connecticut state employees derive their pension rights under collective bargaining contracts. The constitutionality of the bill might also depend on the facts of a particular case. For example, the law might be held to violate the Ex Post Facto Clause if the bill passed and the pension of a state employee convicted of embezzlement before its passage was revoked.
In addition to these constitutional issues, the proposed bill might be subject to challenge as violating the state's collective bargaining laws or as a breach of contract.
“An Act Concerning Corrupt Officials” (LCO No. 82) authorizes courts to revoke or reduce any retirement or other benefit or payment due to state officials or employees when sentencing them for crimes related to their employment. These include embezzzlement, felonius theft from the state or a quasi-public agency, bribery, and felonies in which the person willfully and with intent to defraud obtains or attempts to obtain advantage for himself of others through use of his office.
The bill specifies the factors the court must consider in making its decision. These include the severity of the crime, the amount of money the state lost, the degree of public trust reposed in the person by virtue of his position, and other factors the court considers necessary. If the court determines that a pension should be revoked or reduced, it may consider the needs of an innocent spouse or beneficiary, and order that part of the benefit be paid to the spouse or beneficiary.
If a court does not reduce or revoke these payments or benefits, the bill requires the State Employees Retirement Commission to file a civil action to reduce or revoke them. The court in the civil action must order the employee or official to appear and show cause why his benefits should not be reduced or revoked. It requires the court to determine (1) whether the person had been convicted of the specified crimes and (2) whether his pension should be revoked or reduced, and if so by how much. It requires the court to consider the same factors as a court imposing the penalty as part of a criminal proceeding and allows it to consider the needs of an innocent spouse or beneficiary.
If the person's pension is revoked, the bill entitles him to the return of his contribution, without interest. If the pension is reduced, the person is entitled to a pro rata return of his contribution, again without interest. But, the repayment cannot be made until the court determines that the person has made any restitution ordered by the courts. If the court determines that full resitution has not been made, it may deduct the unpaid amount from the person's contributions.
State Retirement Systems
There are several different state pension systems. The State Employees Retirement System (SERS) is by far the largest and the only one under which wages, hours, and conditions of employment must be collectively bargained. The State Board of Labor Relations has determined that pension benefits are conditions of employment. The current SERS retirement plan was established in 1997 under a 20-year agreement between the state and the State Employee Bargaining Coalition, which represents all of the state employee unions. SERS also includes a substantial number of non-unionized state employees.
Pensions under the other retirement systems (State's Attorneys; Judges, Family Support Magistrates, and Compensation Commissioners; Public Defenders; Teachers; and Connecticut Probate Judges and Employees) are provided under the statutes rather than collective bargaining contracts. Additionally, there is a separate statutory pension plan for the governor. The other state constitutional officers and their appointees can elect to join SERS.
Similar Laws in Other States
Florida. Florida's law (Fla. Rev. Stat. Sec. 112.3173) applies to local, as well as state, employees and officials. It requires pension forfeiture if the person is convicted, prior to retirement, of a broad range of crimes or his employment or office is terminated by reason of his admitted commission, aid, or abetment of these crimes. It also applies if the state Senate convicts an official of an impeachable offense.
The law does not allow the courts to reduce or revoke the employee or official's pension. Instead, the court must inform the Commission on Ethics of a conviction or plea of guilty or nolo contender (no contest). Similarly, the employer of the employee or officer or the Senate must inform the commission if the employee or official is terminated or impeached.
The commission must notify the relevant retirement board, which must hold a hearing to determine whether the pension benefits must be revoked. It can also hold a hearing on its own motion if it believes that a person's pension benefits must be forfeited under the law. If the pension is revoked and the person has already received more benefits than his contributions, he must pay back the excess. If the person appeals his felony conviction, the payment of his pension must be stayed, and if he prevails he is entitled to his benefits.
The statute, adopted in 1984, parallels a provision in the state constitution.
Massachusetts. Massachusetts' law (Mass. Gen. Laws 32 Sec. 15) requires a member of the state's public sector retirement systems to forfeit his pension benefits if he is convicted of a criminal offense involving violation of the laws applicable to his office. The employee or his beneficiary is entitled to his contributions to his pension, but is not entitled to interest on the contributions. This provision was adopted in 1987. Previously adopted provisions require forfeiture of a pension for (1) a conviction related to the employee's police or licensing duties or (2) a conviction of misappropriation of his current or former employer's funds, unless and until he makes full restitution. All of these provisions apply to members of Massachusetts' equivalent of SERS, its Teachers Retirement System, and several other public sector retirement systems.
New Jersey. New Jersey expressly conditions receipt of a pension on the rendering of honorable service. It provides that state and local pension boards may order an employee or officer to forfeit all or part of his pension for misconduct that occurred during his public service that renders the service dishonorable. It specifies the factors that the retirement board must consider in making its decision, which include the nature of the misconduct and the member's length of service (N.J. Rev. Stat. 43:1-3). We found no cases challenging this law on constitutional grounds.
Before New Jersey adopted this law, its Supreme Court had approved reductions in pension benefits for state and municipal employees who had engaged in criminal activities on the job, since pensions were by law granted for “honorable” service (Uricoli v. Board of Trustees, Police and Firemen's Retirement System, 449 A 2d. 1267 (N.J. 1982)).
Rhode Island. Rhode Island's law (R.I. Gen. Stat. Sec. 11-41-31 and Sec. 36-10.1, et seq.) applies to the same offenses as LCO No. 82. Unlike the proposed bill, the law applies to municipal, as well as state, employees and officials and former, as well as current, officials and employees.
Like the proposed bill, the Rhode Island law allows the court to revoke or reduce pension benefits for a public official or employee who is convicted of the specified offenses or pleads guilty or nolo contendre to the charge. It specifies the factors the court must consider in making its judgment, which include the factors contained in the proposed bill plus the fact that, under Rhode Island law, public service must be “honorably rendered” in order for the official or employee to be entitled to a pension.
Under the law, as under the proposed bill, if the court does not order a pension reduction or revocation, the relevant retirement board must initiate a civil action to reduce or revoke the pension. In this action, the court must consider the same factors as described above.
The criminal proceedings provisions were adopted in 1992 and the civil proceedings provisions were adopted in 1996.
CONSTITUTIONAL ISSUES RAISED IN OTHER STATES
Federal Law. The Contract Clause of the U.S. Constitution bars states from passing any law that impairs the obligation of contracts. The clause generally applies to state contracts relating to public employee pensions (McGrath v. Rhode Island Retirement Bd., 88 F. 3d 12 (1st Cir. 1996); Andrews v. Anne Arundel County, Md., 931 F. Supp. 1255 (D. Md.) 1996), aff'd. 114 F. 3d 1175 (4th Cir. 1997), cert. denied 118 S.Ct. 600 (U.S. 1997)).
The U.S. Supreme Court has held that claims of a Contract Clause violation must first undergo a three-step analysis. Courts must determine whether (1) there is a contractual relationship, (2) a change in a law has impaired that relationship, and (3) the impairment is substantial (General Motors Corp. v. Romein, 503 U.S. 181 (1992)). If the court determines that the contract has been substantially impaired, it must then determine whether the law at issue has a legitimate and important public purpose and whether the adjustment of the rights of the parties to the contractual relationship was reasonable and appropriate in light of that purpose. A challenged law will not be held to impair the Contract Clause if the impairment, although substantial, is reasonable and necessary to fulfill an important public purpose (Energy Reserves Group v. Kansas Power & Light, 459 U.S. 400, 411-412 (1983)). But courts do not have to completely defer to the legislature's determination of what is reasonable and necessary, since the state's self-interest is at stake (U.S. Trust Co. of New York v. New Jersey, 431 U.S. 1 (1977), reh'g denied 431 U.S. 975 (1977)).
Massachusetts Case. In MacLean v. State Bd. of Retirement, 733 N.E. 2d 1053 (Mass. 2000), a former legislator claimed that the state's pension forfeiture provision violated the Contract Clause and several other constitutional provisions. The Massachusetts Supreme Court's decision with regard to Contract Clause claim centered on the legislator's reasonable expectations, formed by the pension law in effect when he began his service in the legislature. It found that when MacLean took office there were a number of pension forfeiture provisions already in effect. These provisions put MacLean on notice when he entered government service that his pension could be revoked if he engaged in certain criminal activities. The court held that the application of the later provisions did not constitute a “substantial impairment” of the MacLean's contract.
Connecticut Cases. We found no Connecticut cases that speak to the types of changes to state employee pensions that would violate the Contract Clause. Municipal employees raised a Contract Clause claim in Waterbury v. Poole, 266 Conn. 68 (2003), but the case was decided on other grounds.
On the other hand, a series of state and federal cases suggest that Connecticut state employees and officials who are not SERS members do not have contractual rights to their pensions. In Pineman v. Oechslin (195 Conn. 405 (1985)), the state Supreme Court held that the law creating state employee pensions prior to collective bargaining did not create contractual rights, and that any grant of contractual rights in legislation establishing pension systems would have to be explicit on this point. As a result, it held that a 1975 act that raised the retirement age for female employees from 50 to 55 (the age previously required for males) did not violate the Contract Clause. The federal court reached the same conclusion in Pineman v. Fallon, 842 F. 2d 598 (2d Cir. 1988).
As discussed in OLR memo 2002-R-0961, these decisions no longer apply to SERS members whose pension benefits are established by collective bargaining contracts. But they suggest that state employees and officials whose pensions are based on statute do not have contractual rights to their pensions. It is not clear whether non-unionized members of SERS (e.g., legislative employees and managers in the executive branch) have contractual rights to their pensions.
Federal Law. The Double Jeopardy Clause of the U.S. Constitution bars the imposition of multiple criminal punishments in successive proceedings for the same offense. A central issue in determining whether this clause has been violated is whether the sanction imposed in the second proceeding is criminal or civil in nature. The U.S. Supreme Court identified criteria for determining whether the sanction is criminal in nature, including whether it (1) imposes a restraint on the affected person, (2) historically had been regarded as a criminal punishment, and (3) promotes aims other than retribution and deterrence (Hudson v. U.S., 522 U.S. 93 (1997)).
Massachusetts Cases. In MacLean, the Massachusetts Supreme Court held that the revocation of the pension under Massachusetts' law did not violate this clause. The court noted that the State Board of Retirement revokes the pension benefits in a civil proceeding. It held that the law served non-punitive purposes, such as protecting public funds and preserving respect for government service, and the pension forfeiture was not a criminal punishment.
In Doherty v. Retirement Board of Medford, 680 N.E. 2d 45 (Mass. 1997), the Massachusetts Supreme Court held that the Double Jeopardy Clause did not bar the city's retirement board from seeking to revoke the retirement benefits in a civil proceeding of a city employee who had been acquitted on criminal charges in connection the theft of a police entrance examination. It also held that the provision that barred a person convicted of misappropriation from collecting his pension until he had made restitution was not punitive.
Rhode Island Case. In Retirement Board of Employee's Retirement System v. Azar, 721 A. 2d 872 (R.I. 1998), the Rhode Island Supreme Court upheld that state's law against a Double Jeopardy claim. It noted that the pension reduction or revocation took place in a civil, rather than criminal, proceeding. It also found that the reduction or revocation did not meet the criteria of a criminal penalty established in Hudson.
Federal Law. The Eighth Amendment prohibits the imposition of excessive fines. Federal courts have articulated several factors to determine whether a forfeiture is grossly disproportional to an offense, and thus constitutes an excessive fine. These include the gravity of the offense, the maximum penalties, whether the violation was related to any other illegal activities, and the harm resulting from the crime (U.S. v. Bajakajian, 524 U.S. 321, 328 (1998)).
Massachusetts Case. The Massachusetts law was challenged as imposing an excessive fine in MacLean, where the forfeited pension was worth $625,000. The Supreme Court held that this was not an excessive fine as (1) the employee had improperly gained $512,000 by violating the conflict of interest law, (2) there were multiple illegal activities triggering forfeiture, and (3) and the violations implicated the public trust and involved public harm.
Federal Law. The Fifth Amendment of the U.S. Constitution provides that no person can be deprived of life, liberty, or property without due process of law. This provision has both procedural (e.g., requirements for notice and an opportunity for a hearing) and substantive components.
Massachusetts Case. In Doherty, the Supreme Court held that Massachusetts' law did not violate the Due Process Clause since the employee was granted a hearing, permitted to present evidence and conduct cross-examination, and allowed to seek judicial review.
Connecticut Cases. In Pineman v. Oechslin, the state Supreme Court held that statutory pension provisions established a property interest on behalf of the affected state employees. As a result, those (non-SERS) employees are protected from arbitrary forfeiture of their pension benefits. It would appear that this decision would also apply to pensions of SERS employees. A question for the court, in reviewing the proposed bill if passed in its current form, is whether the forfeiture is arbitrary.
In Pineman v. Fallon, the court held that the issue in determining whether a law affecting pension rights meets the substantive due process standard is whether it is rationally related to legitimate state interests. The court noted, citing Ferguson v. Skrupa, 372 U.S. 726 (1963), that there is a strong presumption of the constitutionality of legislation in the economic field.
Ex Post Facto
Federal Law. The U.S. Constitution bars states from enacting laws that make an action that was lawfully taken before the law's passage, a crime. For a law to violate this clause, it must be retrospective and disadvantage the offender affected by it (Johnson v. U.S. 529 U.S. 694 (2000)).
Florida Case. The Florida Supreme Court held that its law did not violate the Ex Post Facto Clause in a case involving an employee who was convicted of theft of city funds before it was adopted, because the state constitution provides for forfeiture of pension rights of a public official or employee convicted of a felony or a crime involving breach of trust (Pilkey v. City of Tampa, General Employees Pension Fund, 505 So. 2d 100 (Fla. 1987)).
Massachusetts Case. The Massachusetts Supreme Court held, in Gaffney v. Contributory Retirement Appeal Bd., 665 N.E. 2d 998 (Mass. 1996), that the law did not violate the Ex Post Facto clause since at least two of the employee's criminal offenses that prompted the revocation of his pension occurred after the passage of the law.