Many state laws provide that an individual who commits a felony related to his or her official duties will forfeit benefits under the state retirement system. It is clear that such provisions in a pension plan are permissible if they were included in a pension plan on its adoption, or if they apply only to employees hired after the provision was adopted. However, two states (New York and California) have recently struggled with the issue of whether such a provision can be effective with respect to employees hired before the adoption of the provision.
In California, state law before 2013 provided for the forfeiture of pension benefits in the case of certain officials elected or reelected after 2006. The Public Employees’ Pension Reform Act of 2013 (PEPRA) and related Public Employees’ Retirement Law (PERL) expanded the felonies covered, and also provided that the law would apply to all current and future employees, regardless of the date of hire. A preliminary analysis of the law by the California Public Employees’ Retirement System (“CalPERS“) raised the issue of whether PEPRA and PERL would violate Article I, section 9 of the California Constitution, which provides: “A…law impairing the obligation of contracts may not be passed.” A preliminary analysis by CalPERS found as follows:
Although the Legislature has the authority to apply these provisions to newly hired public employees, application to current employees may not be constitutional in all cases. Therefore, this provision could be subject to legal challenge based on the argument that it impairs the vested rights of current members of the pension system.
PEPPRA and PERL passed in California, so the ultimate determination as to their constitutionality will no doubt ultimately be made by the courts.
In New York, similar questions were raised about a proposal to apply the existing pension forfeiture law retroactively. However, in that case the legislature made the decision that the provision could not be made retroactive without an amendment to the state constitution. Such an amendment was introduced, but has stalled in the state legislature based on union concerns that it might undermine the general state constitutional prohibition on reducing pension benefit formulas for existing employees.
Denying pension benefits to an individual who commits a felony while performing the duties which gave rise to the pension might seem like a common sense approach. But in the context of a governmental plan, attempting to apply such a provision retroactively has the potential to create constitutional issues.