Kleinfeldt v. New York City Employees’ Retirement System, 36 N.Y.2d 96 (1975)

A statutory limitation on the amount of increased compensation considered in determining final average salary for retirement purposes constitutes an unconstitutional impairment of benefits for civil service employees who became members of a public retirement system before the statute’s enactment.

Summary

Robert Kleinfeldt, a New York City transit employee, challenged the constitutionality of a state law that limited the amount of increased compensation that could be used to calculate his retirement benefits. Kleinfeldt, who had been a member of the retirement system since 1952, argued that the law, enacted in 1971, retroactively diminished his benefits in violation of the New York State Constitution. The New York Court of Appeals held that applying the statutory limitation to employees who became members of the retirement system before the statute’s effective date (June 17, 1971, the date of enactment) was unconstitutional, as it impaired their contractual right to retirement benefits.

Facts

Robert Kleinfeldt was employed by the New York City transit system from February 25, 1952, until his retirement on May 6, 1972. He elected a retirement plan that allowed him to retire after 20 years of service. A collective bargaining agreement increased Kleinfeldt’s salary as of October 11, 1971. This increase, coupled with other increments, exceeded the 20% limitation imposed by Subdivision 4 of Section 431 of the Retirement and Social Security Law. As a result, the Retirement System reduced his final average salary for retirement purposes, thereby lowering his annual retirement allowance.

Procedural History

Kleinfeldt initiated a class action suit challenging the constitutionality of the statute. The Supreme Court granted summary judgment to Kleinfeldt, declaring the statute unconstitutional as applied to him and others similarly situated. The Appellate Division unanimously affirmed. The New York Court of Appeals then reviewed the case.

Issue(s)

Whether Subdivision 4 of Section 431 of the Retirement and Social Security Law, as applied to civil service employees who became members of a public retirement system before the statute’s enactment, violates Section 7 of Article V of the New York State Constitution by diminishing or impairing their retirement benefits.

Holding

Yes, because applying the statutory limitation to those who became members of the retirement system before June 17, 1971 (the statute’s enactment date) constitutes an unconstitutional impairment of their membership benefits.

Court’s Reasoning

The Court of Appeals relied on Section 7 of Article V of the New York Constitution, which establishes that membership in a public retirement system is a contractual relationship, the benefits of which shall not be diminished or impaired. The court reasoned that attempts to retroactively limit retirement benefits of prior members are invalid. The court emphasized the significance of an employee’s rate of compensation in determining retirement allowances, calling it the most significant part of the formula. Quoting from a prior case, the court stated that the constitutional amendment “prohibits official action during a public employment membership in a retirement system which adversely affects the amount of the retirement benefits payable to the members on retirement under laws and conditions existing at the time of his entrance into retirement system membership.” The court acknowledged the fiscal pressures driving the legislation, but stated that an unconstitutional method of addressing those pressures cannot be allowed. The court determined that the effective date of the statute, for purposes of determining retroactivity, was June 17, 1971, the date the law was enacted, not April 1, 1972, the date from which excess compensation would no longer be included in final average salary.