ALLEN v. CITY OF LONG BEACH

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District Court of Appeal, Second District, Division 1, California.

Manning T. ALLEN et al., Plaintiffs, Appellants and Respondents, v. CITY OF LONG BEACH, a municipal corporation, et al., Defendants, Respondents and Appellants.*

Elwin L. ALGER et al., Plaintiffs, Appellants, and Respondents, v. CITY OF LONG BEACH, a municipal corporation, et al., Defendants, Respondents, and Appellants.

Civ. 19866, 19867.

Decided: January 03, 1955

Albert D. White and Nowland M. Reid, Long Beach, for plaintiffs, appellants and respondents Allen et al. Kenneth Sperry, Long Beach, for plaintiffs, appellants and respondents Alger et al. Walhfred Jacobson, City Atty., Irving M. Smith, City Atty., and Clifford E. Hayes, Deputy City Atty., Long Beach, for defendants, respondents, and appellants City of Long Beach et al.

The same legal issues are presented by the two above-entitled actions for declaratory relief. By stipulation they were consolidated for trial in the Superior Court, and were briefed and argued together on appeal. So but one opinion has been prepared, which is, of course, applicable to each case.

The plaintiffs in one case are all members of the police force of the City of Long Beach; the plaintiffs in the other case are all members of the fire department of the said city. Each of them has a vested right to a pension under the provisions of Section 187 of the freeholders' charter of the city. See Kern v. City of Long Beach, 29 Cal.2d 848, 179 P.2d 799; Palaske v. City of Long Beach, 93 Cal.App.2d 120, 208 P.2d 764; and Allen v. City of Long Beach, 101 Cal.App.2d 15, 224 P.2d 792.

Section 187 was enacted in 1925. It was held that pension rights under the section were an obligation of the city, whether or not funds were available in the pension fund. England v. City of Long Beach, 27 Cal.2d 343, 163 P.2d 865.

In 1944 Section 187.1 was enacted, effective March 29, 1945. This section repealed Section 187, and all pension rights thereunder, with a saving clause applicable only to those who had served twenty years prior to the effective date of the amendment.

This section was held unconstitutional and void as to city employees who commenced work after the adoption of Section 187. Kern v. City of Long Beach, supra. In that case our Supreme Court said, 29 Cal.2d at page 856, 179 P.2d at page 803, that the employees of the City of Long Beach had ‘a vested pension right and that respondent city, by completely repealing all pension provisions, has attempted to impair its contractual obligations. This it may not constitutionally do * * *’.

Now the courts of California are again called upon to construe the rights of the City of Long Beach and these same employees in another amendment to the city charter, effective June 5, 1951, Section 187.2.

The parts of this new section pertinent to this inquiry are as follows:

(a) That the amount to be paid to each person receiving a pension after the effective date of the section shall be computed upon the average salary earned by him during five years immediately preceding his retirement.

Before the amendment this amount was computed upon the employee's salary for the last year only of his service.

(b) Establishing a pension fund, out of which all city pensions will be paid, into which the city will pay by appropriation money to keep the fund solvent, and into which also each employee shall pay ten per cent of his salary, deducted semimonthly.

Originally no contributions were required. Later on two per cent was deducted from salaries for the pension fund.

(c) That upon the termination of service of any employee before the effective date of his retirement, he shall be paid back all of the deductions from his salary, together with interest thereon at the rate of two and one-half per cent compounded annually.

(d) That any employee absent from his employment by reason of military service shall pay to the city upon his return the amount of money that would have been deducted from his salary had he not been so absent.

Section 187.2 contains substantially the same provisions as in the state retirement system.

Thus it appears that these plaintiffs are beneficiaries of what might be termed a bob-tailed pension system. For they were all employed after Section 187 went into effect in 1925, and before it was repealed in 1945. Members of the police and fire departments employed after 1945 are given pension rights under the state retirement system, the city having contracted with that system, as permitted by law.

Plaintiffs attack the new charter section because they assert that all of their pension rights as set forth in Section 187 were finally adjudicated in Allen v. City of Long Beach, supra, 101 Cal.App.2d 15, 224 P.2d 792, and in Palaske v. City of Long Beach, supra, 93 Cal.App.2d 120, 208 P.2d 764; that the city does not have the power to modify any of said rights by amendment to its charter; that these rights are part and parcel of a contract between each plaintiff and the city, continuing, and protected under constitutional law.

In support of these assertions plaintiffs rely upon Sections 11 and 21 of Article I, and Section 15 of Article XI of the Constitution of the State of California, and Section 10 of Article I of the Constitution of the United States, and the cases stated.

Certain of the plaintiffs also attack that part of the new charter amendment, with respect to payments required to be made by employees returning from military service.

Plaintiffs contend that Section 187.2 substantially alters the city's existing contractual obligation to them, in that the provision for deducting ten percent of their salaries in effect reduced by more than forty percent retirement, death, and disability benefits that would otherwise have been payable to them. They say that, according to the testimony of an actuary called by the city, the practical effect of the ten percent deduction is to compel each of them to pay approximately one-half of the ultimate cost to the city of their pension plan. They say also: ‘subdivision (2) of Section 187.2 would change the basis of the retirement pension from an amount which fluctuates in accordance with the salary currently attached to the rank held at the time of retirement to a fixed pension based upon ‘the applicable percentage of the average monthly salary during the five years immediately preceding the retirement or death of the person whose service formed the basis of such right to a pension’'. And that: ‘It cannot be gainsaid that the right to receive a pension which fluctuates with the salary currently attached to the rank held at the time of death or retirement is a valuable right, because this formula tends to adjust the pension benefits to the current value of the dollar.’

So plaintiffs argue that the amendment is unconstitutional as impairing the obligation of the city's existing contract with them; furthermore, that it provides for an arbitrary assessment or tax, contrary to the due-process and equal-protection clauses of our state and federal constitutions, as well as Article XI, Section 15 of the California Constitution, which prohibits taking private property to pay municipal obligations.

The Superior Court found that Section 187.2 is constitutional and valid; that the provisions of the section set forth a reasonable and substantial pension plan, excepting only the one provision relative to employees returning from military service. The Court found that that provision was unreasonable and invalid.

Plaintiffs appeal from that portion of the judgment that followed, adverse to them; and the city appeals from that portion of the judgment adverse to it.

In an able and well considered memorandum of opinion the trial judge points out that the cases relied upon by plaintiffs are not solely determinative of the issues here; that the pension rights of these employees must be construed in the light of all the decisions of the Supreme Court and of the District Court of Appeal affecting their rights under Sections 187 of the city charter, and affecting rights of others under like provisions in other laws.

The trial judge says in his opinion:

‘In the cases of Kern v. City of Long Beach, 29 Cal.2d 848 [179 P.2d 799], and Packer v. Board of Retirement, 35 Cal.2d 212 [217 P.2d 660], the Supreme Court has unequivocally held that while the right to a pension is a contractual one which vests upon employment and cannot be destroyed, it is nevertheless not a right to a pension in any certain amount or any certain terms but only a right to a ‘substantial or reasonable pension’ and that this right, that is, the right to a ‘substantial or reasonable pension’, is subject to the implied qualifications that the governing body (in this case, the electorate of Long Beach) may make reasonable modifications and changes in the system and that ‘the amount, terms and conditions of the benefits may be altered.’'

This Court agrees with this reasoning, and with the trial court's finding that the changes in the pension right of plaintiffs made by the new section left them with a substantial and reasonable pension plan. The City of Long Beach was empowered to make the changes, and with the one exception, none of the changes trenched upon any constitutional right of plaintiffs.

Reasonable modifications may be made by governmental agencies when necessary to keep pension system adjusted to changing conditions, to maintain the integrity of such systems, and to carry out their benefit policy. Terry v. City of Berkeley, 41 Cal.2d 698, 263 P.2d 833; Packer v. Board of Retirement, 35 Cal.2d 212, 217 P.2d 660; Kern v. City of Long Beach, supra, 29 Cal.2d 848, 179 P.2d 799; Rustad v. City of Long Beach, 122 Cal.App.2d 106, 264 P.2d 955; Allstot v. City of Long Beach, 104 Cal.App.2d 441, 231 P.2d 498.

The permissible scope of such changes should be to safeguard pension systems, adjust them to changing conditions, and to carry out their policy. Wallace v. City of Fresno, 42 Cal.2d 180, 265 P.2d 884.

So we come to grips with the principal questions in this case: Does the requirement that plaintiffs pay ten percent of their salaries into the pension fund come within the permissible scope of the power to change or modify pension systems by governmental agencies? And does the method of computing these pensions on the average salaries for the last five years, instead of the last year, come within the same scope?

Applying the principles stated in the cases compels the conclusion that the changes in plaintiffs' pension system made by section 187.2 (with the one exception stated) are within the permissible scope of such changes as defined by the courts of this state.

It is unfortunate that the plaintiffs in these two cases have had so much litigation with their employer. It is unfortunate too that when the city set up its pension system in the beginning it failed to require reasonable contributions from the beneficiaries of the system, and then attempted to deprive them of their pension rights altogether.

Whether plaintiffs or the city are responsible for the litigation is beside the point. The duty of our courts is to determine whether or not the charter amendment goes beyond the bounds of reasonable modification of the pension system. In this analysis it becomes apparent that to require pension systems to be supported in too great amount from taxes of municipalities, or other governmental agencies, will in the long run destroy the systems themselves. For in the long run the tax burden upon succeeding generations may well become so onerous that the people will find a way to discontinue such overweighted pension systems entirely. And it is but fair and right that all the beneficiaries of pension systems should pay some fair share of the cost of the benefits of which they are assured. Now the city pays in excess of $650,000 a year to pensioners under plaintiffs' system, and under the challenged amendment those not yet pensioned pay approximately $110,000 a year.

Plaintiffs' argument that if this judgment is affirmed they can be saddled next year with a twenty or thirty per cent deduction, and so on, increasing until all their rights are wiped out lacks substance. For any increase in deductions must stand or fall with the test of reasonableness as used in the cases.

The method of computation of plaintiffs' pensions on the five-year average is also within the power of the municipality. Whether they will lose or gain will depend upon economic conditions when they retire. Salaries follow our national economy, and no one can look into the future and say whether they will go up or go down. This part of the amendment is as much an adjustment to changing conditions as was the old system, fluctuating year by year.

Upon the same reasoning, and applying the same legal principles, this Court has concluded that there was no error in finding that the issues in this case were not res adjudicata, or in rejecting evidence that plaintiffs had refrained from accepting other higher paying employment in the belief that they were earning the right to receive the specific retirement benefits provided before the adoption of Section 187.2. The right of the electorate of the City of Long Beach to make reasonable modifications in its pension system was not, and could not have been an issue in the cases upon which plaintiffs ground their claims of res adjudicata.

Finally this Court agrees with the exception made by the trial court relative to employees in military service. This question is determined by Section 395.1 of the Military and Veterans Code. This section provides that an employee returning to his employment in any governmental agency after military service ‘shall be entitled to participate in insurance * * * pursuant to established rules and practices * * * in effect at the time such officer or employee left his office or position to join the armed forces of the United States.’

This exception is unreasonable, as the word is used in California cases having to do with this subject, when the disparity in the compensation ordinarily paid in the armed forces with that paid in civil service is considered. One discharged after some time in the armed forces could lose all of his pension rights as a civil servant, due to conditions beyond his control. It is doubtful whether men returning from any extended military service would be financially able to make up arrears of unpaid deductions required for reinstatement in a civil pension system.

The judgments are, and each of them is, affirmed. All of the parties shall pay their own costs.

DRAPEAU, Justice.

DORAN, Acting P. J., and MOSK, J. pro tem., concur.

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