CALCULATION OF DISABILITY RETIREMENT BENEFITS

AGLO 1974 No. 82 - Sep 30 1974

Attorney General Slade Gorton

RETIREMENT ‑- PENSIONS ‑- MUNICIPAL EMPLOYEES ‑- CALCULATION OF DISABILITY RETIREMENT BENEFITS

When a former member of the state‑wide [[statewide]]city employees' retirement system who transferred to the public employees' retirement system under chapter 75, Laws of 1971, is awarded disability retirement benefits calculated pursuant to chapter 41.44 RCW, those retirement benefits are not to be offset by amounts received from the department of labor and industries on account of the same disability.

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September 30, 1974

Honorable Lloyd G. Baker
Director, Public Employees'
Retirement System
Capitol Plaza Building
Olympia, Washington 98504 Cite as: AGLO 1974 No. 82

Dear Sir:
            By recent letter you have requested the opinion of this office on a question which we paraphrase as follows:

            When a former member of the state‑wide [[statewide)]]city employees' retirement system who transferred to the public employees' retirement system under chapter 75, Laws of 1971, is awarded disability retirement benefits calculated pursuant to chapter 41.44 RCW, are those retirement benefits to be offset by amounts received from the department of labor and industries on account of the same disability?

            We answer your question in the negative for the reasons set forth in our analysis.

                                                                     ANALYSIS

            As you know, it is well established in this state that a pension granted to a public employee is not a gratuity but it is deferred compensation for services rendered ‑ pursuant to contractual principles. Bakenhus v. Seattle, 48 Wn.2d 695, 296 P.2d 536 (1956), and cases cited therein. Accordingly, under our state constitution,1/ the rule in this state (as expressed by the supreme court in the Bakenhus case) [[Orig. Op. Page 2]] is that:

            ". . . the employee who accepts a job to which a pension plan is applicable contracts for a substantial pension and is entitled to receive the same when he has fulfilled the prescribed conditions. His pension rights may be modified prior to retirement, but only for the purpose of keeping the pension system flexible and maintaining its integrity. . . ."2/   (Emphasis supplied.)

            Accord, Dailey v. Seattle, 54 Wn.2d 733, 344 P.2d 718 (1959), wherein our court listed the following governing principles:

            "1. That employees who accept employment to which pension plans are applicable contract thereby for a substantial pension, and are entitled to receive the same when they have fulfilled the prescribed conditions.

            "2. That employees (prospective pensioners) will be presumed to have acquiesced in legislative modifications that do not unreasonably reduce or impair existing pension rights; or, stated positively, if the modifications are reasonable and equitable.

            "3. That an act of the legislature, making a change in pension rights, will be weighed against pre‑existing [[preexisting]]rights in each individual case to determine whether it is reasonable and equitable. If the over-all [[overall]]result is reasonable and equitable, the employees (prospective pensioners) will be presumed to have acquiesced in the modifications; if the over-all [[overall]]result is not reasonable and equitable, there will be no such presumption." (P. 738.)

            Bearing these principles in mind, we now turn to the legislation which has given rise to your question. By its enactment of chapter 75, Laws of 1971, the legislature merged the then existing state‑wide [[statewide]]city employees' retirement system (SCERS) into the public employees' retirement system (PERS), effective January 1, 1972. The city employees who were then members of SCERS were mandatorily transferred to PERS by § 1 [[Orig. Op. Page 3]] of the act (now RCW 41.40.405), but in recognition of their vested constitutional rights (as above described) the legislature, by § 3 (now RCW 41.40.407), provided that:

            "(1) Any person drawing benefits under the state‑wide [[statewide]]city employees' retirement system prior to January 1, 1972, and any employee having vested rights under the state‑wide [[statewide]]city employees' retirement system who has terminated his employment with his employer, defined in chapter 41.44 RCW, before January 1, 1972, shall have his benefits computed under chapter 41.44 RCW. For the purpose of such computations, the employee's creditability of service and eligibility for service or disability retirement and survivor and all other benefits shall continue to be computed in the same manner as provided for in chapter 41.44 RCW except that the benefits will be paid through the Washington public employees' retirement system.

            "(2) Every person employed before January 1, 1972, by a city or town then participating in the state‑wide [[statewide]]city employees' retirement system under the provisions of chapter 41.44 RCW and who is employed by said employer on the date of the transfer to the Washington public employees' retirement system on January 1, 1972, shall, upon retirement for service or for disability, or death, be entitled to the higher of the following computed benefits:

            "(a) The benefits that are the actuarial equivalent of the amount he would have received under the state‑wide [[statewide]]city employees' retirement system under chapter 41.44 RCW had he not been transferred to the Washington public employees' retirement system under section 1 of this 1971 act.

            "(b) The amount of the benefits computed as a member of the Washington public employees' retirement system in chapter 41.40 RCW.

            "(3) The Washington public employees' retirement system shall assume all liabilities of the [[Orig. Op. Page 4]] state‑wide [[statewide]]city employees' retirement system as provided in sections 1, 2, and 3 of this 1971 act on January 1, 1972."

            Unlike chapter 41.40 RCW which governs PERS, chapter 41.44 RCW, the SCERS law thus referred to by the legislature, did not contain any requirement for an offsetting against disability retirement benefits of workmen's compensation benefits received on account of the same disability. That is to say, there was nothing in chapter 41.44 RCW comparable to the following provisions of RCW 41.40.300:

            "Any amounts which may be paid or payable under the provisions of any workmen's compensation, or pension, or similar law on account of any disability shall be offset against and payable in lieu of any benefits payable from funds provided by the employer under the provisions of this chapter on account of the same disability."

            Clearly, an offset requirement such as this becomes a factor in the computation of pension benefits when one exists with respect to a particular pension system. Therefore, since no such offset requirement was contained in chapter 41.44 RCW, and since the former members of that system, now members of PERS, are guaranteed the right to receive a benefit which is actuarially equal to the benefit they would have received under the SCERS system, those individuals who elect to have their disability retirement benefits computed under chapter 41.44 RCW are entitled to receive those benefits without any reduction because of amounts received from the department of labor and industries on account of the same disability; hence, our negative response to your question.

            We trust that we have been of some assistance.

Very truly yours,

SLADE GORTON
Attorney General

WAYNE L. WILLIAMS
Assistant Attorney General

*** FOOTNOTES ***

1/Washington Constitution Article I, § 23, which provides that:

"No bill of attainder, ex post facto law, or law impairing the obligations of contracts shall ever be passed."

2/48 Wn.2d at 701.