CONSTITUTIONALITY OF PROPOSED DISABILITY RETIREMENT AMENDMENTS

PENSIONS ‑- RETIREMENT ‑- LAW ENFORCEMENT OFFICERS AND FIRE FIGHTERS ‑- CONSTITUTIONALITY OF PROPOSED DISABILITY RETIREMENT AMENDMENTS 

Analysis and determination, under the Bakehus [Bakenhus] rule, of the constitutionality of three proposed bills relating to disability retirement for certain municipal law enforcement officers and fire fighters, distinguishing between substantive and procedural changes in the law. 

                                                              - - - - - - - - - - - - - 

                                                                  January 2, 1981                              

 Honorable Joe Taller
State Rep., 36th District
2852 ‑ 42nd Avenue West
Seattle, Washington 98199                                                                                                                 Cite as:  AGLO 1981 No. 1 

Dear Sir: 

            By letter previously acknowledged, you transmitted copies of three proposed bills relating to disability retirement for certain municipal fire fighters and law enforcement officers and requested our opinion regarding the constitutionality of those bills.  We will describe the material portions of the bills and state our conclusions within the body of our analysis below. 

                                                                     ANALYSIS 

            Introduction: 

            As we explained to you in our letter of acknowledgement, the basic issue raised by any public employees' pension law changes such as those which you are here proposing does not truly involve their constitutionality, per se. Rather, the question is one of the constitutional applicability, under what has commonly become known as theBakenhus rule, of given changes in the laws governing a particular pension system to those persons who are current members of that system and/or retirees thereunder.  That rule, and hence its name, stems  [[Orig. Op. Page 2]] from the landmark case of Bakenhus v. Seattle, 48 Wn.2d 695, 296 P.2d 536 (1956) in which it was first enunciated.  In addition, later cases applying the same analysis include Eagan v. Spellman, 90 Wn.2d 248, 581 P.2d 1038 (1978);Mulholland v. Tacoma, 83 Wn.2d 782, 522 P.2d 1157 (1974); Weaver v. Evans, 80 Wn.2d 461, 495 P.2d 639 (1972);Vallet v. Seattle, 77 Wn.2d 12, 459 P.2d 407 (1969);State ex rel. Wittler v. Yelle, 65 Wn.2d 660, 399 P.2d 319 (1965);Martin v. Spokane, 55 Wn.2d 52, 345 P.2d 1113 (1959);Dailey v. Seattle, 54 Wn.2d 733, 344 P.2d 718 (1959); King County Employees' Ass'n, et al. v. State Employees' Retirement Board, 54 Wn.2d 1, 336 P.2d 387 (1959); Letterman v. Tacoma, 53 Wn.2d 294, 333 P.2d 650 (1958); andEisenbacher v. Tacoma, 53 Wn.2d 280, 333 P.2d 642 (1958). 

            In theBakenhus case, the Washington Supreme Court‑-starting from the premise that a pension granted to a public employee in this state is not a gratuity but is deferred compensation for services rendered on a contractual basis‑-accordingly held 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. . . ." (page 701) 

            And, in so ruling, the Washington Court relied heavily upon a decision by the California Supreme Court of a year earlier in the consolidated cases ofAllen v. Long Beach andAlger v. Long Beach, 45 Cal.2d 128, 287 P.2d 765 (1955), from which it quoted with approval as follows: 

            "An employee's vested contractual pension rights may be modified prior to retirement for the purpose of keeping a pension system flexible to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system.  [Citing cases].  Such modifications must be reasonable, and it is for the courts to determine upon the facts of each case what  [[Orig. Op. Page 3]] constitutes a permissible change.  To be sustained as reasonable, alterations of employees' pension rights must bear some material relation to the theory of a pension system and its successful operation, and changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages.  [Citing cases.]" 

            Although, as above indicated, this rule has subsequently been applied in a number of other cases as well, what is perhaps the most succinct follow-up summarization of the elements of the Bakenhus holding appears in Dailey v. Seattle, supra, at page 738 where the Court set forth ". . . the substance of our holdings . . ." as follows: 

            "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 rights in each individual case to determine whether it is reasonable and equitable.  If the over-all result is reasonable and equitable, the employees (prospective pensioners) will be presumed to have acquiesced in the modifications; if the over-all result is not reasonable and equitable, there will be no such presumption." 

            Constitutional Basis for Bakenhus Rule: 

            In addition to thus identifying those elements of the Bakenhus rule, it is also necessary, before proceeding further, to establish its constitutional basis.  In previous  [[Orig. Op. Page 4]] opinions of this office regarding other pension law amendments, we have surmised that, having found the existence of a contractual relationship, the Court in Bakenhus then held, in essence, that the resulting vested rights of members and/or retirees, 

            ". . . cannot be impaired without violating Article I, section 23 of the state constitution which provides that: 

            "`No bill of attainder, ex post facto law, or law impairing the obligations of contracts shall ever be passed.'"1/ 

             Interestingly, however, theBakenhus case itself does not, in so many words, say that.  Rather, the only references to the constitution in the Court's opinion therein relate only to the threshold issue of whether a public employee's pension in this state is a gratuity or a contractual obligation.  In holding, as above indicated, that it is the latter, the Court explained, at page 698: 

            "In this state, a pension granted to a public employee is not a gratuity but is deferred compensation for services rendered.  The contractual nature of the obligation to pay a pension when the employee has fulfilled all of the prescribed conditions was recognized in Luellen v. Aberdeen, 20 Wn. (2d) 594, 148 P. (2d) 849 (1944), inBenedict v. Board of Police Pension Fund Com'rs, 35 Wn. (2d) 465, 214 P. (2d) 171, 27 A.L.R. (2d) 992 (1950), and in Ayers v. Tacoma, 6 Wn. (2d) 545, 108 P. (2d) 348 (1940).  Had we held in those cases, or were we to hold now, that the pension statutes provide for the payment of gratuities, we would be bound to  [[Orig. Op. Page 5]] hold further that such statutes are contrary to the provisions of Art. II, section 25, and Art. VIII, section 7, of the Washington constitution and are therefore void."2/ 

             Nevertheless, in the first of the line of further cases decided thereafter, Eisenbacher v. Tacoma, supra, the Court summarily labelled the resulting "rule" ofBakenhus as also being constitutional in nature, saying, at page 282: 

            "We held inBakenhus that contractual pension rights of the claimant (a policeman who had retired after having been employed for the requisite statutory period of service) could not, constitutionally, be modified in such a manner as to greatly reduce the value of those pension rights.  We decided that the 1937 amendment to the police relief and pension act could not,constitutionally, be applied to Mr. Bakenhus as a limitation on his pension rights."  (Emphasis theirs) 

            Likewise, inLetterman v. Tacoma, supra, the Court characterized the Bakenhus case as specifically dealing with ". . . the constitutionality of the 1937 police pension act as applied to Mr. Bakenhus . . ."  (54 Wn.2d at p. 738).  And, more recently, inWeaver v. Evans, supra, the Court‑-in holding the Bakenhus rule to be applicable to a curtailment of certain appropriations to the State Teachers' Retirement System (TRS)‑-expressed itself as follows at page 478: 

            "We conclude, therefore, that where, as here, the legislature has over a span of years indicated a deep concern with the actuarial soundness of the retirement system, and that concern has culminated in the express adoption of a systematic  [[Orig. Op. Page 6]] method of funding to ultimately attain the desired soundness, then the principle of systematic funding so adopted becomes one of the vested contractual pension rights flowing to members of the system.  This being so, it follows underBakenhus that such a vested contractual right cannot be unilaterally modified except for the purpose of keeping the retirement system flexible and maintaining its integrity, which modification in turn must be reasonable and bear some material relation to the theory of a pension system and its successful operation,else the vested contractual right becomes unconstitutionally impaired."  (Emphasis supplied) 

            We also note that inAllen v. Long Beach and Alger v. Long Beach, supra, there likewise was no mention of the specific constitutional prohibition which the Court deemed to have been violated.  Instead, the Court merely cited a line of previous decisions‑-the first of which, in point of time, wasKern v. Long Beach, 29 Cal.2d 848, 179 P.2d 799 (1947) wherein the California Court had initially applied a "vested rights" theory in holding that certain pension amendments could not constitutionally be applied to existing members of a public employees' retirement system.  But in turn, the opinion in that case was similarly void of any express reference to the constitutional prohibition involved.  Rather, the Court in theKern case supported its ruling by citing,inter alia, a United States Supreme Court holding in the case of Indiana ex rel. Anderson v. Brand, 303 U.S. 95, 58 S.Ct. 443, 82 L.Ed. 685 (1938).  And there, finally, one may find an express citation to a specific constitutional prohibition; namely, the impairment of contract clause of U.S. Const., Art. I, section 10,3/ which was held by the Court to have been violated by the passage of a state statute authorizing the discharge of public school teachers in derogation of their rights under previously authorized contracts of employment. 

             [[Orig. Op. Page 7]]

            In the light of all of this indication of judicial reasoning, it therefore appears valid to us to continue, in this opinion, to characterize the rule first stated in Washington by our court in Bakenhus v. Seattle, supra, as a rule of constitutional law involving application of the same basic prohibition which is also contained in our own Article I, section 23, supra. 

            Application of Rule to Amendments Proposed: 

            With the foregoing in mind, we may now look to the three draft bills which you have asked us to review.  We will identify those bills by their code reviser's number and will take them up in the following order: 

            Code Reviser's Number            Purpose 

            H-154/81                                             Disability Allowance‑-Earnings Offset

            H-118/81                                             Definition of Disability

            H-117/81                                             Department of Retirement Systems Rules and Administration 

            Before examining each of these proposals, however, we should briefly make two further points.  First, it is, of course, conceivable that all three bills may be enacted and, in that case, it is possible that disadvantageous provisions in one of the bills might be matched against advantageous provisions in one of the others so as to sustain the constitutionality of the entire package under what we will hereinafter refer to, for the sake of brevity, as theBakenhus rule.  But we cannot here properly make such an assumption.  Instead, for purposes of this opinion we will take up each proposal separately, analyze its provisions as if it was the only bill involved, and then express our opinion on the question of whether or not the proposed changes contained in that bill may constitutionally be applied to present members and/or retirees under the particular pension system involved. 

            Second, as we also explained in our previous letter of acknowledgment, in dealing with each bill we will of necessity here assume the continuing viability of theBakenhus principles until and unless the Court, in some future case involving (perhaps) amendatory legislation such as is here specifically proposed, departs from them for some reason or another.  What that  [[Orig. Op. Page 8]] means, in turn, is that our basic task will be to isolate and identify those changes in the law which would be detrimental or disadvantageous to the members or retirees affected and would be unaccompanied by any correlative beneficial or advantageous changes affecting those same members or retirees. 

            H-154/81: 

            We will take up this proposal first because it represents perhaps the clearest instance of legislation which would violate the Bakenhus rule and, thereby, be constitutionally unenforceable with respect to those current members or retirees purportedly affected;i.e., (1) such municipal law enforcement officers or fire fighters as are now covered by LEOFF Plan I or are now retired thereunder;4/ (2) municipal firemen covered by or retired under chapter 41.18 RCW; and (3) first-class city police officers covered by or retired under chapter 41.20 RCW. 

            All three of those classes of uniformed personnel5/ are currently eligible to receive (or, in many cases, are already receiving) disability retirement allowances pursuant to RCW 41.26.120‑-41.26.140; RCW 41.18.050‑-41.18.090 and/or RCW 41.20.060‑-41.20.070.  And, while all of those statutes require that a person be unable to perform the functions required of a firefighter or law enforcement officer in order to qualify for (and retain) disability retirement coverage, none of them preclude a retiree from engaging in some other gainful employment for which he is physically and mentally qualified.  Nor do any of the above‑cited statutes now provide for any reduction of retirement benefits because of such other employment. 

             [[Orig. Op. Page 9]]

            That, however, is precisely what H-154/81 would purport to do.  First, section 1 of that bill would add the following new section to chapter 41.26 RCW in the case of LEOFF Plan I members:6/ 

            "(1) If a member receiving a disability retirement allowance under this chapter engages in gainful employment prior to the attainment of age fifty-five, the disability retirement allowance may be reduced by a portion of the member's earnings from employment.  The disability retirement allowance shall not be so reduced prior to the end of the first full calender year in which the allowance is payable.  As of July 1 of each subsequent year, the allowance shall be reduced during the twelve‑month period commencing on that date if (a) one‑twelfth of the earnings from employment during the prior calendar year exceed (b) the average disability retirement allowance under this chapter for the month of December of the prior calendar year." 

            Then, in turn, section 3 of this bill would add the same language to chapter 41.18 RCW and section 4 would add an identical provision to chapter 41.20 RCW. 

            Analysis: 

            Clearly, there amendments would be disadvantageous to all persons thereby affected.  And, since these are the only provisions which H-154/81 contains, it is equally clear that there would be no correlative benefits or advantageous changes that would be granted in exchange.  Therefore, in our opinion, the provisions of this proposed bill could not constitutionally be applied to any of the current members and/or retirees covered by the pension systems involved‑-assuming, as aforesaid, the continuing viability ofBakenhus v. Seattle,supra.

                         [[Orig. Op. Page 10]]

            H-118/81: 

            This bill, likewise, would modify the existing disability retirement rights of municipal law enforcement officers or fire fighters currently covered by chapters 41.18, 41.20 and 41.26 RCW; i.e., the same three pension systems as would be affected by H-154/81, supra.  Unlike that bill, however, this one would not apply to persons already retired.  Also, again in contrast to that proposal, this bill would additionally contain a purported "trade‑off" in the form of certain liberalized service retirement rights for current members of LEOFF Plan I who hereafter retire under RCW 41.26.090. 

            (a)Disability Retirement Modifications: 

            With respect to disability retirement, H-118/81 would unquestionably establish a more stringent (and thus less advantageous to the members) standard for determining the presence of a qualifying disability than is contained in any of the existing pension laws affected.  Under the existing provisions of LEOFF Plan I, for example, a person may qualify for disability retirement on the basis of any condition which (a)renders him unable to continue functioning as a fire fighter or law enforcement officer7/ and (b) is continuous for a period of at least six months in duration. See, RCW 41.26.120.  Likewise, essentially the same criteria apply in determining eligibility for disability retirement in accordance with chapters 41.18 and 41.20 RCW.  See, in the case of the former, RCW 41.18.060 ‑-41.18.080 and, with respect to the latter, RCW 41.20.060.  Under sections 2 through 4 of this proposed bill, however, the term "disability" would be expressly defined (or redefined8/)  to read‑-in each instance‑-as follows:

 

            ". . .
 

            "'Disability' shall mean ((and include injuries or sickness sustained by a fireman))a physical or mental condition, acquired while a member of the retirement system, which: 

             [[Orig. Op. Page 11]]

"(a) During the period of thirty months after the member acquired the condition, prevents the member from performing the duties of the member's current position; or 

            "(b) After the period in subparagraph (a) of this subsection, is reasonably expected to be permanent and which prevents the member from engaging in any occupation or employment for which the member is qualified by reason of education, training or experience.
 

            ". . ." 

            That definition, however, would only apply to ". . . those members who retire for disability on or after the effective date . . ." of this proposed legislation, if enacted. 

            (b)Service Retirement Changes: 

            The service retirement changes proposed by H-118/81, on the other hand, would generally be more advantageous to the affected members as a class than are the existing statutory provisions.  At the present time a LEOFF Plan I law enforcement officer or fire fighter must have completed five or more years of service and have attained the age of fifty years in order to be eligible for a service retirement allowance.  See, RCW 41.26.090.  In turn, the amount of that service retirement allowance is computed, under the current provisions of RCW 41.26.100 as follows: 

            "A member upon retirement for service shall receive a monthly retirement allowance computed according to his completed creditable service as follows: Five years but under ten years, one‑twelfth of one percent of his final average salary for each month of service; ten years but under twenty years, one‑twelfth of one and one‑half percent of his final average salary for each month of service; and twenty years and over one‑twelfth of two percent of his final average salary for each month of service: . . ." 

             [[Orig. Op. Page 12]]

            Furthermore, if that retired law enforcement officer or fire fighter then later returns to service in either of those two capacities, his retirement benefits are cancelled and he again becomes an active member of the retirement system.  RCW 41.26.140(3).  Conversely, if the retiree later goes to work in some other public employment, his service retirement allowance is not thus affected but, if his new employment is covered by some other public employees' pension system in this state, he is prohibited by law ". . . from becoming a member of or accruing any contractual rights whatsoever in . . . that other public retirement system . . ."‑-assuming it is one of those listed in RCW 41.50.030.9/   See, RCW 41.04.230. 

            Under H-118/81, on the other hand, these aspects of service retirement for members of LEOFF Plan I would be changed in the following two basic respects: 

            (1) First, by an amendment to RCW 41.26.090, the bill would allow a LEOFF Plan I member to retire for serviceat any age after five or more years of service.  However, under a further amendment to RCW 41.26.100, supra, members who elect to receive such an early service retirement benefit would have their pensions actuarially reduced to reflect the difference between their own age at retirement and age 50. 

            (2) Second, the bill would permit a LEOFF Plan I service retiree who was later employed in a new position covered by another state retirement system to join that system.  Specifically, RCW 41.04.270, supra, would be amended so as to  [[Orig. Op. Page 13]] provide that the ban on so-called "double dipping" now contained therein would not apply to such retirees.  Their LEOFF Plan I benefits would, however, be suspended during their period of membership service under the new system. 

            Analysis: 

            In analyzing these amendments and their relationships to the provisions of this bill which relate to disability retirement, let us first note, and comment briefly on, the absence of any corresponding amendments to the service retirement provisions of chapters 41.18 and 41.20 RCW.  While it is theoretically possible to characterize those still active municipal firemen and police officers who are covered by either of those two laws (along with chapter 41.26 RCW) as retiring thereunder, as a practical matter their primary pension benefits are those provided for by the LEOFF retirement law.  See, RCW 41.26.040(2).  Therefore, assuming the passage of H-118/81, supra, such persons would all be subject to the modifications in service retirement which we have above outlined‑-even without the enactment of similar amendments to the laws governing their "old" pension systems.  And thus, on that count, we do not regard the failure of H-118/81 also to include such amendments to those other laws (i.e., chapters 41.18 and 41.20 RCW) as legally significant in terms of our analysis of the bill under the Bakenhus rule,supra. 

            With that understanding, let us now move onward. 

            Just as the provisions of this bill which relate to disability retirement (as above outline) would be disadvantageous to the members affected, it seems equally clear that the proposed changes in service retirement coverage would be advantageous to those same membersas a class.  They would be able to retire earlier on the basis of service alone, and once retired, they would be able to go back to work in some other public employment and proceed to earn a second pension.  Accordingly, at first blush, the concept enunciated in the Bakenhus case might seem to be here accomplished by this attempted balancing of the scale, so to speak, within the confines of one single pension bill.  However, on closer analysis of the bill and its potential impact on the affected membersas individuals, a problem will quickly be discerned. 

             [[Orig. Op. Page 14]]

            Let us attempt to explain, by two illustrative examples, what we mean. 

            First, let us take the case of a perhaps fairly typical law enforcement officer or fire fighter who is now in active service under LEOFF Plan I but who has less than five years of service credit.  If, under the existing law, he were to be injured to the extent of being rendered unable to continue performing the functions of his current employment for a period of at least six continuous months, he would then be eligible for a disability retirement allowance even though he was still capable of working at some other kind of gainful employment.  Likewise, under the proposed new definition of "disability," supra, it would still apparently be able to qualify, initially, for a disability retirement allowance on the basis of simply being unable to perform ". . . the duties of [his] . . . current position . . ."  But then, the individual involved could only continue to draw that retirement allowance for ". . . the period of thirty months after the member acquired the condition, . . ." unless he thereafter was found to be so disabled as to be unable to engage ". . . in any occupation or employment for which . . . [he] is qualified by reason of education, training, or experience . . ."  And, because he did not have at least five years of membership service at the time of his separation on account of disability, he still could not‑-even under the new law‑-obtain a service retirement allowance instead.  Clearly, this individual would thus be placed in a position, through passage of the bill, whereby he would be detrimentally affected without, as to him, any correlative advantage.  The mere fact that hecould have qualified for a service retirement allowance if he had not been injured and thus had been able to continue in service for some further period of time10/ would amount to nothing but a meaningless gesture in his particular case. 

            Second, let us assume a similar case arising even after the member involved has completed at least five years of service.  Specifically, for illustrative purposes, let us now take the case of a law enforcement officer or fire fighter who, after the passage of H-118/81,supra, becomes disabled (as therein defined) after completing a total of ten years of service.  And, again, let us further assume that the specific injury or illness involved, while rendering him thereafter  [[Orig. Op. Page 15]] unable to perform the functions of ". . . the member's current position . . ." is not so severe as to cause him to be permanently incapacitated for the performance of any occupation or employment for which he is qualified.  Under existing law, this person could obtain a disability retirement allowance which, regardless of his number of years of service, would pay him at least 50% of his final average salary at the time of retirement.  See, RCW 41.26.130.  But under the new provisions above described, he would only be eligible for (and thus seemingly require to choose between): 

            (a) A disability retirement allowance, thus computed, for a thirty-month period; or 

            (b) An actuarially-reduced service retirement allowance which (assuming, further, that he is less than fifty years of age), under RCW 41.26.100as it would be amended, would most certainly be substantially less than fifty percent of his average final salary. 

            Again, it appears obvious that this individual also would be disadvantageously affected by the proposed legislation without any correlative benefit or advantageas to him.

            This brings us to the critical point in our analysis of this bill.  Simply stated, it is not sufficient, under theBakenhus rule, to balance changes that are disadvantageous to a particular individual by also providing beneficial modifications which, although perhaps helpful to other members of his class, are of no use to him in his own specific case.  This point, it seems to us, was first made clear by the Court in the Bakenhus case itself when, at pp. 702-3, it observed that: 

            "The appellants have now shown wherein this arbitrary limitation was justified.  It is true that other benefits were added under the 1937 act, but they are not the benefits to which the respondent has become entitled by fulfilling the conditions necessary to receive a retirement pension.  Approximately one third of the anticipated pension has been removed with nocorresponding benefit, and no showing by the appellants that the reduction was necessary to preserve and perfect the system, nor that it bore any reasonable relation to the purposes of the pension plan."  (Emphasis supplied) 

             [[Orig. Op. Page 16]]

            And the same thought was expressed, once again, three years later, inDailey v. Seattle, 54 Wn.2d 733, 344 P.2d 718, supra, when, in summarizing the elements of the Bakenhus rule, the Court said, at page 738: 

            "3. That an act of the legislature, making a change in pension rights, will be weighed against pre‑existing rights in each individual case to determine whether it is reasonable and equitable . . ."  (Emphasis supplied) 

            In conclusion, therefore, even though H-118/81, supra, differs from the first bill (H-154/81) which we considered in this opinion in the respect that it contains both detrimentaland beneficial provisions, our prognosis (again, assuming the continuing viability of the Bakenhus rule) is not in the final analysis really very much different.  In our opinion, the disadvantageous disability retirement provisions of this bill, if enacted, could not constitutionally be applied in any case involving a current or LEOFF Plan I member where, under the facts of his particular case, the more advantageous service retirement provisions would either not apply at all (as in our first illustration above) or would, even though applicable, result in a significant dimunition in retirement pay (as in our second example). 

            H-117/81: 

            We turn, next, to the third and final bill which you have asked us to review.  This bill would also deal with disability retirement for members of the LEOFF Retirement System but would take a quite different approach to what is perceived to be the "problem."  Whereas both of the other draft bills herein discussed would alter various significantsubstantive provisions of the statutes as they now exist, this one, instead, would leave all of those provisions in effect and would only alter a procedural aspect of the processing of a disability retirement application. 

            Presently, an application for disability retirement by a LEOFF Plan I member under RCW 41.26.120,supra, is initially submitted to, and considered by, a local disability board at the city or county level, as the case may be.  Thereupon, if the local disability board grants the application, its order is reviewable by the state retirement board under subsection (3) of that statute, 

             [[Orig. Op. Page 17]]

            ". . . for the purposes of determining (a) whether the facts as found by the disability board are supported by substantial evidence in the record, except the finding of whether or not the disability was incurred in line of duty; and (b) whether the order is in accordance with law on the basis if such facts. . . ." 

            Then, this same subsection goes on to provide that: 

            ". . . If an affirmative determination is made by the retirement board on both of the aspects of the decision and order, it shall be affirmed; otherwise, it shall be reversed and remanded to the disability board for such further proceedings as the retirement board may direct." 

            Basically, H-117/81 would change this by first transferring the review function from the retirement board to the director of the Department of Retirement Systems11/ and then replacing the above‑quoted standard of review with the following new provision: 

            ". . . The director may affirm the decision of the disability board or remand the case for further proceedings if the director finds the disability board's findings, inferences, conclusions, or decisions are:
 

            "(a) In violation of constitutional provsions [provisions]; or
 

            "(b) In excess of the statutory authority or jurisdiction of the disability board; or 

             [[Orig. Op. Page 18]]

            "(c) Made upon lawful procedure; or 

            "(d) Affected by other error of law; or
 

            "(e) Clearly erroneous in view of the entire record as submitted and the public policy contained in this chapter; or
 

            "(f) Arbitrary of capricious." 

            In addition, the director would be required to adopt rules, in accordance with the state Administrative Procedure Act (APA), under which each local disability board would be required to perform its functions.  Those rules would include, but not be limited to, the following: 

            "(a) Standards governing the type and manner of presentation of medical, employability, and other evidence before disability boards; and
 

            "(b) Standards governing the necessity and frequency of medical and employability reexaminations of persons receiving disability benefits." 

            Analysis: 

            At the outset we note that the proposed new standards of review, as above set forth, are identical to those contained in RCW 34.04.130(6) with regard to the scope of judicial review of contested case proceedings of state administrative agencies under the APA.  Thus, they have all generally acquired a fairly well understood meaning in actual application which would most certainly seem to make them useful in the proposed, somewhat analogous, context of review by the director of local disability board proceedings. 

            It is important to recall, at this point, the underlying constitutional basis for theBakenhus rule.  Although not specifically identified in any of the cases in which it has been applied, the reason for the rule having attained a constitutional dimension is, as earlier indicated, seemingly an implicit understanding on the part of the Court that legislative action unreasonably reducing or impairing existing pension rights violates the provisions of Article I, section 23 of the Washington Constitution and Article I, section 10 of the United  [[Orig. Op. Page 19]] States Constitution‑-both of which prohibit laws ". . . impairing the obligation of contracts . . ."  Accord,Indiana ex rel. Anderson v. Brand, 303 U.S. 95, 58 S.Ct. 443, 82 L.Ed. 685 (1938), supra.12/ 

             We have previously concluded that both H-154/81 and H-118/81, as now drafted, would result in such an impairment of the vested rights of existing members or retirees under chapters 41.26, 41.20 and 41.18 RCW as those laws now read.  Unlike either of these other two bills, however, H-117/81, supra, would not affect the substantive legal rights of the members involved because it would not amend or otherwise alter any of the statutes by which those rights to disability retirement benefits have been granted.  Instead, it would merely modify the rules of procedure under which their entitlement to those benefits, in a given case, is to be established and determined.  The question, therefore, is whether such an unconstitutional impairment of contractual obligations would also result from a change in the law which affects only those procedural rules.  And the answer, in our opinion, is in the negative. 

            Long ago, in the early case of State ex rel. Phinney v. Superior Court, 21 Wash. 186, 57 Pac. 337 (1899), the Washington Court, in reviewing certain changes in the state probate code, said, at page 190: 

            "There are two principles of law which are so well established and so universally conceded that is is not necessary to discuss them here, viz.:  (1) That the law which is in existence at the time the contract or agreement is made is incorporated into, and becomes a part of, or rather, the law of, the agreement or contract; and (2)that there is no vested right in any mere procedure. . ."  (Emphasis supplied) 

                         [[Orig. Op. Page 20]]

            It is, of course, the second of these two propositions which is pertinent here.  The Washington Supreme Court is, moreover, by no means alone in thus ruling that the legislature may, without impairing the obligation of contracts, regulate the procedures which will govern the processing of litigation with respect to both past and future contracts.  See,e.g., 16A C.J.S., Constitutional Law, Sections 394-413 and numerous cases from other jurisdictions cited therein. 

            This completes our consideration of the three draft bills you have asked us to review.  We trust that the foregoing will be of assistance to you.