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ON\n IN CLERK'S OFFICE MARCH 25, 2021\nSUPREME COURT, STATE OF WASHINGTON\n MARCH 25, 2021\n SUSAN L. CARLSON\n SUPREME COURT CLERK\n\n IN THE SUPREME COURT OF THE STATE OF WASHINGTON\n\n GAILIN HESTER, BRETT YACKLIN, )\n DOUG CLEVENGER and GREG ULRICH,)\n each individually and on behalf of their )\n respective marital communities, and on ) No. 98495-6\n behalf of all others similarly situated, )\n )\n Petitioners, )\n )\n v. ) En Banc\n )\n STATE OF WASHINGTON; )\n WASHINGTON DEPARTMENT OF )\n RETIREMENT SYSTEMS; and )\n WASHINGTON STATE PATROL, )\n )\n Respondents. )\n ) Filed : March 25, 2021\n\n JOHNSON, J.—This case involves a challenge to former RCW\n\n 43.43.120(23)(a) (2001), which excluded certain overtime from the calculation of\n\n the monthly pension benefit granted under the Washington State Patrol Retirement\n\n System (WSPRS). Four Washington State troopers (Troopers) hired before the\n Hester v. State, No. 98495-6\n\nstatute became effective claim that this exclusion of voluntary overtime from the\n\ncalculation of their monthly pensions is an unconstitutional impairment of their\n\ncontract with the State in violation of article I, section 10 of the United States\n\nConstitution and article I, section 23 of the Washington State Constitution.1 On\n\ncross motions for summary judgment, the trial court ruled that (1) the statute of\n\nlimitations was three years and accrued at retirement, (2) there remained issues of\n\nmaterial fact regarding whether the change was offset by comparable benefits, and\n\n(3) the change was reasonable and necessary to serve a legitimate public purpose.\n\nWe affirm the trial court's rulings on the statute of limitations and on comparable\n\nbenefits. However, we vacate its legitimate public purpose ruling as premature\n\ngiven that the issue of comparable benefits remains for trial. We therefore affirm\n\nand remand for additional proceedings.\n\n FACTS AND PROCEDURAL HISTORY\n\n The WSPRS was created in 1947 for the benefit of commissioned\n\nWashington State troopers. Chapter 43.43 RCW. This case arises out of a\n\nlegislative amendment to the WSPRS enacted in 2001. Specifically, the Troopers\n\nchallenge an amendment altering what was included in their \"average final salary.\"\n\n 1\n The trial court did not rule on the Troopers' motion for class certification. The Troopers\nare presented as a putative class for purposes of this case.\n\n 2\n Hester v. State, No. 98495-6\n\nThe amendment excluded certain voluntary overtime pay from the calculation of\n\nthe amount of the monthly pension they would receive.\n\n Since its inception, chapter 43.43 RCW has provided a monthly pension for\n\nretired members of WSPRS under statutory definitions. The monthly pension is\n\ncalculated by multiplying two percent of the \"average final salary\" by the number\n\nof years of service. RCW 43.43.260(1)-(2). The definition of \"average final salary\"\n\nand what is included in that computation has changed over time. The relevant\n\ndefinition in this case is the \"average monthly salary\" for a period of two years\n\nleading up to retirement, or any consecutive two-year period of service, whichever\n\nis greater. See RCW 43.43.120(3)(a). 2 But the statute did not originally define what\n\nwas included in an employee's \"salary\" for the average monthly salary calculation.\n\nWithout a definition, the salary simply calculated all salary earned, including all\n\novertime worked during the relevant two-year period.\n\n The inclusion of all overtime in computing average monthly salary\n\ngenerated a practice the parties refer to as \"pension spiking\" or \"pension\n\nballooning.\" Appellants' Corrected Opening Br. at 20, 31; Br. of Resp'ts at 1, 31.\n\nThe practice was that a trooper knows their monthly pension will be calculated\n\n 2\n Engrossed Senate Bill 5143, which contains the legislative amendment at issue in this\ncase, created two classes of retirees upon its enactment in 2001. One plan governed currently\ncommissioned troopers and the other governed those joining on or after July 1, 2003. The salary\ndefinition also delineated between those commissioned before July 1, 2001. The Troopers and\nthe proposed putative class were commissioned before July 1, 2003 and before July 1, 2001, so\nthe statutory sections pertaining to troopers commissioned after those dates are not discussed.\n\n 3\n Hester v. State, No. 98495-6\n\nbased on their average monthly salary during two years of service. And with this\n\nknowledge, troopers approaching retirement would work more overtime than\n\nnormal during those years, causing an increase in both their average final salary\n\nand the ultimate monthly pension they receive.3\n\n In 2001, the legislature enacted Engrossed Senate Bill 5143, which added a\n\ndefinition of \"salary\" that excluded voluntary overtime from the calculation of\n\naverage final salary. LAWS of 2001, ch. 329, § 3(23).4 \"Voluntary overtime\" was\n\nleft undefined, but it was generally interpreted as overtime that employees\n\nvolunteer for, rather than overtime that is case driven or assigned by a supervisor.\n\nVoluntary overtime hours have mostly been earned through state contracts with\n\nthird parties for security services for special events. Under these third-party\n\ncontracts, the State is reimbursed for the salary paid, including benefits. The\n\nexclusion of voluntary overtime from the definition of salary resulted in a decrease\n\n 3\n In 1999, a report by the Joint Legislative Audit and Review Committee found that \"[t]he\naverage WSPRS retiree had an estimated regular salary of $46,977 and an average final\ncompensation of $57,633, which was 23 percent above the final two-year regular salary. An\nestimated 61 percent of that 23 percent was attributable to overtime earnings in the last two years\nof employment.\" Clerk's Papers at 389.\n 4\n The legislature redefined \"salary\" to include voluntary overtime up to 70 hours per year\nafter July 1, 2017. LAWS of 2017, ch. 181, § 1(21); RCW 43.43.120(21)(a) (\"On or after July 1,\n2017, salary shall exclude overtime earnings in excess of seventy hours per year in total related\nto either RCW 47.46.040 or any voluntary overtime.\"). Although the Troopers argue that they\nare challenging the 2017 amended definition in addition to the 2001 definition, this case only\naddresses the 2001 amendments because that is the only legislative amendment challenged in the\ncomplaint.\n\n 4\n Hester v. State, No. 98495-6\n\nof the possible monthly pension benefit retiring employees will receive by\n\nlowering the compensation included in the calculation of their average final salary.\n\n In addition, the legislature made two other changes impacting the Troopers'\n\npensions in 2001 that the parties discuss as relevant to the unconstitutional\n\nimpairment claim. First, the legislature changed the amount employees must\n\ncontribute from their salaries to the pension fund throughout their career from\n\nseven percent of their salaries to the greater of two percent or the employer rate.\n\nLAWS of 2001, ch. 329, § 11. Second, it changed the cost of living adjustment\n\n(COLA), which increases the future monthly pension retired employees receive to\n\naccount for inflation. The COLA changed from a fixed two percent increase to a\n\ncompounding COLA percentage based on the consumer price index with a\n\nmaximum increase of three percent, where additional percentages above three\n\npercent are banked to be used if the following years' increase falls below three\n\npercent. LAWS of 2001, ch. 329, § 4 (codified at RCW 43.43.260(5)).\n\n On November 29, 2017, four retired troopers hired before the 2001 statutory\n\namendment sued the State of Washington, the Washington State Department of\n\nRetirement Systems (DRS), and the Washington State Patrol. The Troopers argued\n\nthat the legislative amendment improperly excluded overtime they had worked\n\nduring the final two years of service prior to retirement from their monthly pension\n\n 5\n Hester v. State, No. 98495-6\n\ncalculation.5 They raised four claims, 6 but pertinent to this appeal, the Troopers\n\nargued that the overtime exclusion was an unconstitutional impairment of their\n\nemployment contract pursuant to article I, section 23 of the Washington\n\nConstitution and article I, section 10 of the United States Constitution. The\n\nTroopers sought class certification consisting of a class of similarly situated\n\ntroopers. Both parties moved for summary judgment prior to the trial court ruling\n\non class certification.\n\n The State moved for dismissal and summary judgment. It argued that the\n\nclaims were time barred by a three-year statute of limitations for unwritten\n\ncontracts and that the statute of limitations accrued at the time the legislative\n\namendment was enacted in 2001. The Troopers cross moved for summary\n\njudgment on the statute of limitations, contending that a six-year period for written\n\ncontracts applied and that the statute of limitations accrued on retirement. The\n\nTroopers also argued that a new limitations period begins every time an impaired\n\nmonthly benefit is paid (the continual accrual rule).\n\n The trial court granted in part and denied in part each parties' motion for\n\nsummary judgment. It concluded that a three-year statute of limitations for\n\n 5\n Each of the named troopers worked voluntary overtime hours, and some worked\nsubstantial amounts of this type of overtime. For example, Greg Ulrich claimed he worked 300\nvoluntary overtime hours during the two-year period used to calculate his average final salary.\n 6\n The Troopers also claimed that the overtime exclusion was a breach of contract and a\nviolation of the wage rebate act (ch. 49.52 RCW).\n\n 6\n Hester v. State, No. 98495-6\n\nunwritten contracts applied and that the limitations period accrued at retirement. 7\n\nThe court also concluded that the continual accrual rule did not apply to the\n\nTroopers' claims. As a result, the court dismissed the claims of one of the named\n\ntroopers, Brett Yacklin, because he had retired more than three years before the\n\nsuit was filed. But it allowed the other three named troopers' claims to move\n\nforward because they had retired less than three years before the suit.\n\n Both parties also moved for summary judgment on the merits. The Troopers\n\nargued that their contract with the State was impaired by the overtime exclusion\n\nbecause that exclusion lowered the average final salary used to calculate their\n\nmonthly pension. They also contended that the overtime exclusion was not\n\nreasonable and necessary to serve a legitimate public purpose and that a lowered\n\ncontribution rate and increased COLA percentage were not comparable benefits.\n\nThe State countered in its motion for summary judgment that the legislature added\n\na definition of salary for the purpose of limiting pension spiking by taking away\n\ntroopers' ability and incentive to control an increase in their pensions through\n\nworking voluntary overtime. The State argued that the prevention of pension\n\nspiking was a legitimate public purpose necessary to protect the retirement fund's\n\nintegrity, and that the lowered contribution rate and increased COLA adjustment\n\n 7\n The court also concluded that laches did not bar any of the claims made within the\napplicable statute of limitations. Neither party challenges that ruling.\n\n 7\n Hester v. State, No. 98495-6\n\nwere comparable benefits. The trial court granted the State's motion for summary\n\njudgment in part, concluding that the State had shown that the overtime exclusion\n\nwas reasonable and necessary to serve a legitimate public purpose. But it also\n\ndenied summary judgment to both parties by deciding that there were issues of\n\nmaterial fact as to whether the amendments provided comparable benefits.\n\n The Troopers moved the superior court to certify the summary judgment\n\norder for an immediate discretionary review. On February 4, 2019, the superior\n\ncourt granted the motion, certified the order for discretionary review, and stayed\n\nfurther proceedings pending a decision on any motion for discretionary review.\n\nTroopers were then granted discretionary review in Division One of the Court of\n\nAppeals, and we granted a subsequent motion to transfer review to this court.\n\n ANALYSIS\n\n Standard of Review\n\n We review summary judgment de novo. Wash. Educ. Ass'n v. Dep't of Ret.\n\nSys., 181 Wn.2d 233, 241, 332 P.3d 439 (2014) (WEA). The trial court order\n\npresents only legal issues, which involve application of the constitutionality of the\n\nstatutory amendment at issue here. Constitutional issues are questions of law,\n\nwhich we review de novo. Lenander v. Dep't of Ret. Sys., 186 Wn.2d 393, 403,\n\n377 P.3d 199 (2016).\n\n 8\n Hester v. State, No. 98495-6\n\n Statute of Limitations\n\n Both parties dispute the trial court's ruling that pension impairment claims\n\nhave a statute of limitations that accrues upon retirement and lasts for a period of\n\nthree years. We have previously addressed and resolved this issue as applied in\n\npension impairment claims and have held that these types of claims are subject to a\n\nthree-year statute of limitations period, which accrues upon retirement. Noah v.\n\nState, 112 Wn.2d 841, 843, 846, 774 P.2d 516 (1989). Noah involved a similar\n\ndispute claiming a breach of a pension contract based on the legislature's exclusion\n\nof unused vacation pay in the computation of employees' \"average final salary.\" In\n\nthat case, since the claims all involved plaintiffs who had retired more than three\n\nyears prior to the lawsuit, the trial court had dismissed the claims by applying a\n\nthree-year statute of limitations, which we affirmed. We held that the right the\n\ncomplainant was seeking to establish—using accrued vacation pay in calculating\n\nretirement benefits—was statutorily based. Therefore, even though we recognized\n\nthat pension rights cases have some characteristics of a contract and are\n\ncharacterized as contractual in nature, the public retirement statute in and of itself\n\ndid not constitute a complete contract in writing. Noah, 112 Wn.2d at 844-46.8\n\n 8\n In analyzing the appropriate limitations period for pension impairment claims, Noah\nrelied on the statute of limitation periods for contracts claims, which have a period that depends\non whether the contract is in writing. RCW 4.16.080(3) (three-year statute of limitations for \"an\naction upon a contract or liability, express or implied, which is not in writing\"), .040(1) (six-year\nstatute of limitations for \"[a]n action upon a contract in writing\").\n\n 9\n Hester v. State, No. 98495-6\n\n Other cases have affirmed this rule. WEA, 181 Wn.2d at 248 (\"It is well\n\nsettled that retirees are subject to a three-year statute of limitations for actions\n\nalleging a breach of pension contracts.\"); see also Bowles v. Dep't of Ret. Sys., 121\n\nWn.2d 52, 78-79, 847 P.2d 440 (1993). Therefore, the trial court applied these\n\nholdings in ruling that a three-year statute of limitations period applied accruing\n\nupon retirement to the Troopers' claims.\n\n The parties argue that the trial court's decision to follow the settled law on\n\nthe statute of limitations is incorrect, but none of their arguments are persuasive\n\nand they would require overruling these prior cases. The Troopers argue the trial\n\ncourt erred by deciding that the continual accrual theory did not apply to these\n\nclaims. Appellants' Corrected Opening Br. at 40. Our cases have not applied the\n\ncontinual accrual theory to pension impairment claims, but the Troopers primarily\n\npoint to California case law to support their argument. Abbott v. City of Los\n\nAngeles, 50 Cal. 2d 438, 462, 326 P.2d 484 (1958); Appellants' Corrected Opening\n\nBr. at 41-43. The reasoning underlying this theory is that the State impairs and\n\nbreaches the employees' contract rights each time it pays them less than they were\n\nowed. The Troopers argue that this theory is further supported by the law applied\n\nto installment contracts, where each payment is a new obligation and thus breach\n\nof that payment begins a new limitations period. Appellants' Corrected Opening\n\nBr. at 43.\n\n 10\n Hester v. State, No. 98495-6\n\n Applying this theory would cut against the purpose of a statute of\n\nlimitations. Retirees could bring a lawsuit challenging the constitutionality of a\n\nfuture amendment to the pension system as long as they were receiving a monthly\n\npayment. Although we found California cases persuasive in our seminal pension\n\ncase, Bakenhus v. City of Seattle, 48 Wn.2d 695, 296 P.2d 536 (1956), the analogy\n\nto installment contracts is unpersuasive. While Bakenhus relied on a contracts\n\ntheory to analyze pension impairment claims, we also recognized that the use of a\n\ncontracts analysis in pension cases may \"not be flawless in a purely legalistic\n\nsense.\" Bakenhus, 48 Wn.2d at 701. Moreover, applying the continual accrual rule\n\nwould be contrary to our previous holdings that pension contract claims accrue at\n\nretirement alone and are subject to a three-year statute of limitations, as we held in\n\nNoah.\n\n Second, the Troopers claim that a six-year statute of limitations applies to\n\ntheir claims because the statute is a contract in writing. RCW 4.16.040(1). But no\n\nsupport exists for this argument. Again, in Noah, we reasoned that in some cases a\n\nstatute may be treated as a contract in writing when there is legislative intent to\n\ncreate contract rights and where the statute is a complete written contract. We\n\nconcluded that the statute governing \"Plan 1\" of the Public Employees' Retirement\n\nSystem (PERS 1) was not one of them and that the claim was subject to a three-\n\nyear statute of limitations period. We reasoned that the statute governing PERS 1\n\n 11\n Hester v. State, No. 98495-6\n\nwas similar to an unwritten contract because the inclusion of unused vacation pay\n\nin the average final salary was an administrative interpretation not contained in the\n\nstatute and the statute did not show legislative intent to create a complete contract.\n\nNoah, 112 Wn.2d at 845-46.\n\n Here, the Troopers attempt to distinguish Noah by arguing that the WSPRS,\n\nunlike the PERS 1 statute at issue in Noah, has all the elements of a written\n\ncontract. Appellants' Corrected Opening Br. at 45-47. But this case is similar to\n\nNoah in that the inclusion of overtime was not expressly in the pension statute. The\n\nTroopers have not presented any statutory section supporting a complete contract,\n\nand we find none. Nor does any legislative intent show that the statute was\n\nintended to be a complete contract in writing.\n\n The State also complains that the trial court incorrectly decided that the\n\nstatute of limitations period accrues at retirement. Because of the length of time\n\nbetween the statutory amendment and the suit, the State urges us to conclude that\n\nthe statute of limitations accrues at the legislative amendment, 2001 in this case.\n\nBr. of Resp'ts at 16-26. If we agreed with the State, all of the Troopers' claims\n\nwould be barred given that the suit was initiated 17 years after the 2001\n\namendment.\n\n But we have consistently recognized that pension impairment claims accrue\n\nat the date of retirement rather than at enactment of legislation. Starting with\n\n 12\n Hester v. State, No. 98495-6\n\nBakenhus, we recognized that no injury occurs until retirement. 48 Wn.2d at 696-\n\n97 (while the statute of limitations was not at issue in Bakenhus, the claim was\n\nbrought after retirement and 13 years after a legislative amendment). Similarly in\n\nWEA, we considered a pension impairment claim brought by a class based on an\n\namendment and repeal to COLA adjustments for PERS 1 and the Teachers'\n\nRetirement System Plan 1. The legislative amendment was enacted 16 years before\n\nthe lawsuit was initiated, and while we concluded that the amendment was not an\n\nunconstitutional impairment, we first noted that certain members of the class\n\nwould have been allowed to move forward based on an accrual date at retirement\n\nand a statute of limitations period of three years. WEA, 181 Wn.2d at 248-251. The\n\nState counters that claims accrue at retirement only in cases involving a challenge\n\nto a DRS interpretation and that a legislative amendment should establish the time\n\nthe claim exists. Br. of Resp'ts at 20-23. But, as noted, we have previously\n\nconsidered claims occurring more than three years after the date of a legislative\n\namendment. The State further argues that the discovery rule as applied in contracts\n\ncases supports its claim because retirees have notice of the impact of a legislative\n\namendment before retirement. Br. of Resp'ts at 23-26. But, as occurred in this\n\ncase, no breach occurs until retirement because the statutory computation is not\n\napplied before retirement.\n\n 13\n Hester v. State, No. 98495-6\n\n The State does not provide any persuasive reasons to abandon our previous\n\ncases. We affirm the trial court's ruling on the statute of limitations, which applied\n\nthe settled law that these claims accrue at retirement and are subject to a three-year\n\nstatute of limitations. We affirm the trial court on these rulings.\n\n Comparable Benefits and Legitimate Public Purpose\n\n The Troopers next argue that they are entitled to summary judgment on the\n\nmerits regarding their underlying claim that the State unconstitutionally impaired\n\ntheir pension contracts in violation of article I, section 23 of the Washington\n\nConstitution and article I, section 10 of the United States Constitution.9 In this type\n\nof claim, we have held the state and federal contracts provisions are interpreted in\n\nthe same manner. WEA, 181 Wn.2d at 242.\n\n We considered the extent to which pension contracts may create enforceable\n\ncontractual rights in Bakenhus, 48 Wn.2d at 698-701. Bakenhus considered\n\nwhether a city's amendment that decreased the amount of pension benefits\n\nreceived by a retired police officer was an impairment of the police officer's\n\ncontract with the city. We concluded that pensions are similar to \"deferred\n\ncompensation for services rendered\" and thus the police officer had a vested\n\n 9\n Article I, section 23 of the Washington Constitution provides that \"[n]o . . . law\nimpairing the obligations of contracts shall ever be passed,\" and article I, section 10 of the\nUnited States Constitution similarly provides that \"[n]o State shall . . . pass any . . . Law\nimpairing the Obligation of Contracts.\"\n\n 14\n Hester v. State, No. 98495-6\n\ncontractual right to the previous method of calculating his monthly pension.\n\nBakenhus, 48 Wn.2d at 698. We found persuasive California cases holding that any\n\nmodification of pension benefits must be for the purpose of ensuring the continued\n\nflexibility and integrity of the pension system, otherwise they are invalid. We also\n\nnoted that to be valid, any impairment must create and provide \"‘comparable new\n\nadvantages.'\" Bakenhus, 48 Wn.2d at 702 (quoting Allen v. City of Long Beach, 45\n\nCal. 2d 128, 131, 287 P.2d 765 (1955)). We found that because the decrease in\n\npension benefits was not reasonable or necessary to maintain the flexibility or\n\nintegrity of the pension system and because it provided no comparable benefit, the\n\ncity had impaired the officer's contract and the statutory revisions could not be\n\nconstitutionally applied in those circumstances.\n\n While Bakenhus is our seminal case analyzing pension impairment claims,\n\nwe have since clarified that its principles operate within a broader context for\n\nclaims of impairment of other public contracts. As an analytical tool, we ask, \"(1)\n\nwhether a contractual relationship exists, (2) whether the legislation substantially\n\nimpairs the contractual relationship, and (3) if there is substantial impairment,\n\nwhether the impairment is reasonable and necessary to serve a legitimate public\n\npurpose.\" WEA, 181 Wn.2d at 243. But the requirements of flexibility, integrity,\n\nand comparable benefits recognized in Bakenhus strongly inform this analysis in\n\npension impairment cases, and, in particular, the application of the substantial\n\n 15\n Hester v. State, No. 98495-6\n\nimpairment prong. More specifically, for an impairment to be unconstitutional, no\n\ncomparable benefits must exist. This is based on a theory of mutual assent; assent\n\nto a legislative modification negatively impacting pension benefits is presumed if\n\nthat legislation also provides a comparable or greater benefit. Thus, there is \"no\n\ncontract impairment so long as those disadvantageous modifications were\n\naccompanied by comparable new advantages.\" WEA, 181 Wn.2d at 249.\n\n Here, the trial court's summary judgment order was twofold: (1) there\n\nremained issues of material fact about whether the amendment provided benefits\n\ncomparable to the exclusion of certain overtime pay and (2) there were no issues of\n\nmaterial fact that the overtime exclusion was reasonable and necessary to serve a\n\nlegitimate public purpose.\n\n The parties do not dispute that a limited contract right to the inclusion of\n\nvoluntary overtime had vested for the first prong of the test. Under the second\n\nprong, as previously mentioned, substantial impairment is measured by the extent\n\nto which the legislation provides comparable benefits.\n\n The trial court does not explicitly mention the substantial impairment prong\n\nin its ruling. Instead, the trial court's order denied summary judgment on whether\n\nthe amendment provided comparable benefits, concluding that genuine issues of\n\nmaterial fact existed based on the expert calculations filed. The parties provided\n\ndetailed and conflicting expert declarations regarding whether the amendment\n\n 16\n Hester v. State, No. 98495-6\n\nprovided benefits comparable to the inclusion of overtime in the calculation of\n\naverage final salary. The experts disagree on the method of calculating these\n\nalleged benefits over the length of retirement and the assumptions made in those\n\ncalculations. We agree with the trial court that these are factual disputes requiring\n\nresolution at trial. We therefore affirm that part of the trial court's ruling and\n\nreiterate that comparable benefits is a part of the substantial impairment analysis,\n\nwhich remains an issue for trial.\n\n As to the third prong, we vacate the trial court's ruling that the overtime\n\nexclusion was reasonable and necessary to serve the legitimate public purpose of\n\npreventing pension spiking. We have concluded since Bakenhus that pension\n\nbenefits might be modified where the purpose of maintaining the flexibility and\n\nintegrity of the pension system is threatened, and we have analyzed this issue\n\nwithin the substantial impairment prong. Lenander, 186 Wn.2d at 415. Even when\n\na modification is justified by a legitimate purpose, our cases have concluded that\n\n\"the modifications must be accompanied by corresponding benefits.\" Wash. Fed'n\n\nof State Emps. v. State, 98 Wn.2d 677, 689, 658 P.2d 634 (1983) (emphasis added).\n\n The Troopers argue that the exclusion of overtime could not have advanced\n\na legitimate public purpose because the investments that fund their pensions were\n\noverfunded at the time of the amendment and therefore the financial integrity of\n\nthe fund was not threatened. Appellants' Corrected Opening Br. at 30. But because\n\n 17\n Hester v. State, No. 98495-6\n\nlegitimate public purpose is tied to the issues of substantial impairment and\n\ncomparable benefits, and because we affirm the trial court's ruling that genuine\n\nissues of material fact remain regarding whether the benefits provided by the\n\namendment were equal to or more advantageous than the inclusion of overtime, it\n\nwas premature to rule on the issue of legitimate public purpose where the question\n\nof comparable benefits remains an issue for trial. Therefore, we vacate the trial\n\ncourt's ruling on that issue.\n\n CONCLUSION\n\n We affirm the trial court's ruling that the statute of limitations accrues on\n\nretirement and lasts for three years. We also affirm its ruling that there are genuine\n\nissues of material fact as to whether the amendment provided benefits equal to or\n\nmore advantageous than the overtime exclusion. But we vacate the trial court's\n\nruling that the overtime exclusion was reasonable and necessary to serve a\n\nlegitimate public purpose. A decision on that third prong of the public contracts\n\nanalysis was premature without knowing the existence and financial extent of the\n\nimpairment and the value of new financial benefits created. We therefore remand\n\nfor trial.\n\n 18\n Hester v. State, No. 98495-6\n\nWE CONCUR:\n\n 19\n Hester v. State, No. 98495-6 (González, C.J., concurring in part and dissenting in part)\n\n No. 98495-6\n\n GONZÁLEZ, C.J. (concurring in part and dissenting in part) — I concur with\n\nthe majority that the statute of limitations for the claims brought in this case is\n\nthree years and accrues at the time of retirement. I also agree that there are\n\nmaterial questions of fact concerning comparable benefits that preclude summary\n\njudgment on the issue. However, I disagree with the majority's analytical\n\napproach to determine whether there was a legitimate public purpose to the\n\nstatutory change to this pension system. The majority is wrong about how the\n\nlegitimate public purpose factor fits into our overall framework for analyzing\n\npublic contract impairment in the context of public pension plans.\n\n The Bakenhus decision remains the \"driving force\" when analyzing the\n\nconstitutionality of changes to a public pension system. Wash. Educ. Ass'n v.\n\nDep't of Ret. Sys., 181 Wn.2d 212, 223, 332 P.3d 428 (2014) (WEA II) (citing\n\nBakenhus v. City of Seattle, 48 Wn.2d 695, 296 P.2d 536 (1956)). Relevant to this\n\ncase, Bakenhus requires that any change must be made for a legitimate purpose and\n\nthat any disadvantageous changes must be offset by comparable new advantages.\n\n 1\n Hester v. State, No. 98495-6 (González, C.J., concurring in part and dissenting in part)\n\nBakenhus, 48 Wn.2d at 701-03 (citing Allen v. City of Long Beach, 45 Cal. 2d 128,\n\n130, 287 P.2d 765 (1955)). These are the two main controverted principles that the\n\ntrial court considered on cross motions for summary judgment, and the parties\n\nagree that both principles must be satisfied for the State to prevail.\n\n We consider these principles within the broader framework for analyzing\n\npublic contract impairment in general. Wash. Educ. Ass'n v. Dep't of Ret. Sys.,\n\n181 Wn.2d 233, 244, 332 P.3d 439 (2014) (WEA I). Under the Carlstrom test we\n\nask, \"(1) Does a contractual relationship exist, (2) does the legislation substantially\n\nimpair the contractual relationship, and (3) if there is substantial impairment, is the\n\nimpairment reasonable and necessary to serve a legitimate public purpose?\"\n\nLenander v. Dep't of Ret. Sys., 186 Wn.2d 393, 414, 377 P.3d 199 (2016) (citing\n\nWEA I, 181 Wn.2d at 243); Carlstrom v. State, 103 Wn.2d 391, 394-96, 694 P.2d 1\n\n(1985). Specifically, the Bakenhus principles inform the analysis of whether there\n\nis substantial impairment under prong two. Lenander, 186 Wn.2d at 414-15.\n\n Bakenhus established two independent principles. First, the court\n\nrecognized the necessity of allowing the legislature to make reasonable changes to\n\npension plans for the purpose of keeping the pension system flexible and\n\nmaintaining its integrity. Bakenhus, 48 Wn.2d at 701 (quoting Allen, 45 Cal. 2d at\n\n131). To be sustained as \"reasonable,\" the changes \"‘must bear some material\n\n 2\n Hester v. State, No. 98495-6 (González, C.J., concurring in part and dissenting in part)\n\nrelation to the theory of a pension system and its successful operation, and changes\n\nin a pension plan which result in disadvantage to employees should be\n\naccompanied by comparable new advantages.'\" Id. at 702 (quoting Allen, 45 Cal.\n\n2d at 131).\n\n These two independent inquiries of legitimate purpose and comparable new\n\nbenefits are the issues before us. As to the first, the trial court held \"that there was\n\nsufficient and necessary, reasonable, legitimate purpose for the amendment.\" 2\n\nVerbatim Tr. from Recorded Proceedings (VRP) at 61. To determine whether the\n\nchanges to the pension system were made for the legitimate purpose of ensuring\n\nflexibility and integrity of the pension system, we ask if the changes \"‘bear some\n\nmaterial relation to the theory of a pension system and its successful operation.'\"\n\nBakenhus, 48 Wn.2d at 702 (quoting Allen, 45 Cal. 2d at 131). In this case, the\n\nanswer is yes, and thus, unlike the majority, I would affirm on that point.\n\n Since its inception in 1947, the Washington State Patrol Retirement System\n\n(WSPRS) calculated an employee's monthly pension amount as a percentage of\n\ntheir average final salary multiplied by the number of years of service. LAWS of\n\n1947, ch. 250, § 15. The term \"salary\" was not defined in the original statute, and\n\nfor many years in practice all overtime, including voluntary overtime, was included\n\nin the calculation. In 2001, the legislature defined \"salary\" in a way that excluded\n\n 3\n Hester v. State, No. 98495-6 (González, C.J., concurring in part and dissenting in part)\n\nvoluntary overtime. LAWS OF 2001, ch. 329, § 3(23) (currently codified as RCW\n\n43.43.120(21)(a)). This was an appropriate and legitimate use of legislative power.\n\nFundamental to the operation of a pension system is the calculation of monthly\n\nbenefits based on a predictable definition of what is included. A performance audit\n\nby the Joint Legislative Audit and Review Committee found that many employees\n\nwere working more voluntary overtime than usual in their last two years of service\n\nin order to increase the amount of their average final salary, thus increasing their\n\nmonthly pension amounts. This process, known as \"pension spiking\" frustrates the\n\nsystem's ability to predict future obligations. Furthermore, the practice allows\n\nsome employees to increase their potential pension more than others. Availability\n\nof voluntary overtime is not equal across the state and even where it was available\n\nit was sometimes assigned in violation of Washington State Patrol policy. And the\n\npractice has created public outrage in other states, creating a real risk of\n\nundermining public confidence. The effects of pension spiking on predictability,\n\nequity, and public confidence all support the conclusion that the changes \"‘bear\n\nsome material relation to the theory of a pension system and its successful\n\noperation.'\" Bakenhus, 48 Wn.2d at 702 (quoting Allen, 45 Cal. 2d at 131). Thus\n\nI would affirm the trial court's ruling on this issue.\n\n 4\n Hester v. State, No. 98495-6 (González, C.J., concurring in part and dissenting in part)\n\n Having established that the changes were made for a legitimate purpose, the\n\ncourt must also decide whether disadvantageous changes were offset by\n\ncomparable new advantages. I agree with the majority that material issues of fact\n\nremain. Majority at 16-17. Both sides presented competent evidence that\n\nsuggested the new benefits did, or did not, offset any legitimate expectation held\n\nby the officers. Thus, I would affirm the trial court on this issue as well.\n\n The majority seems to agree that both Bakenhus factors are properly\n\nconsidered under prong two of the Carlstrom test. Majority at 17 (\"We have\n\nconcluded since Bakenhus that pension benefits might be modified where the\n\npurpose of maintaining the flexibility and integrity of the pension system is\n\nthreatened, and we have analyzed this issue within the substantial impairment\n\nprong.\" (citing Lenander, 186 Wn.2d at 415)). The majority concludes it was\n\n\"premature to rule on the issue of legitimate public purpose\" when the issue of\n\ncomparable benefits has yet to be decided. Id. at 18. But this confuses the test for\n\nlegitimate purpose from Bakenhus with the justification prong of the Carlstrom\n\ntest.\n\n Properly understood, the third prong of the Carlstrom analysis is a balancing\n\ntest used when the State substantially impairs a contract. It asks whether the\n\nsubstantial impairment was \"‘nevertheless justified as a reasonable and necessary\n\n 5\n Hester v. State, No. 98495-6 (González, C.J., concurring in part and dissenting in part)\n\nexercise of the State's sovereign power'\" and attempts to \"strike[] a balance\n\nbetween the inherent police power of the state and the legitimate expectations of\n\nthose who enter into contracts with the state.\" Tyrpak v. Daniels, 124 Wn.2d 146,\n\n156, 874 P.2d 1374 (1994) (quoting Cont'l Ill. Nat'l Bank & Tr. Co. v.\n\nWashington, 696 F.2d 692, 697 (9th Cir. 1983), and citing U.S. Tr. Co. v. New\n\nJersey, 431 U.S. 1, 23-24, 97 S. Ct. 1505, 52 L. Ed. 2d 92 (1977)). Thus, where\n\nBakenhus asks whether changes to a pension system were motivated by a\n\nlegitimate purpose, the third prong of the Carlstrom test asks whether\n\ndisadvantageous changes were reasonable and necessary to effectuate that purpose.\n\nWe have never reached this stage of the Carlstrom analysis in a public pension\n\ncase.\n\n In the case before us, the parties agree that the State must show that the\n\nchanges were both made for a legitimate purpose and accompanied by comparable\n\nnew advantages. These two independent factors from Bakenhus are properly\n\nconsidered under the second prong of Carlstrom to determine if the contractual\n\nrelationship was substantially impaired. But whether there was a legitimate\n\npurpose is a separate question in the public pension analysis. It can and should be\n\nreached independently of the question of comparable new advantages. The State\n\n 6\n Hester v. State, No. 98495-6 (González, C.J., concurring in part and dissenting in part)\n\nhas met its burden of establishing that the changes were motivated by a legitimate\n\npurpose, thus I would affirm the trial court on that issue. 1\n\n There may be a time when we are presented with a case where the State\n\nmakes changes to a pension system that are not offset by comparable new\n\nadvantages but argues that the changes were nevertheless reasonable and necessary\n\nto effectuate the legitimate purpose that motivated the changes in the first place.\n\nHowever, this is not that case.2 I would wait until the issue is properly before the\n\ncourt before speculating on the answer.3\n\n With these observations I concur in part and dissent in part.\n\n1\n The majority notes the troopers' argument that the pension plan was overfunded at the time of\nthe changes and therefore \"the financial integrity of the fund was not threatened.\" Majority at 17\n(citing Appellants' Corrected Opening Br. at 30). While this argument may be relevant under\nprong three of the Carlstrom analysis, it is of no matter here. Under the threshold legitimate\npurpose analysis discussed above, the State need show only that the changes \"‘bear some\nmaterial relation to the theory of a pension system and its successful operation.'\" Bakenhus, 48\nWn.2d at 701 (quoting Allen, 45 Cal. 2d at 131). The State has made that showing in this case.\n2\n \"The State is not asking this Court to . . . rule that the Legislature did not need to provide\ncomparable advantages to offset the voluntary overtime exclusion.\" Br. of Resp'ts at 36.\n3\n I note that in a similar case, the California Supreme Court held that a change without\ncomparable advantages could be sustained if providing comparable advantages would undermine\nthe legitimate purpose that motivated the change. Alameda County Deputy Sheriff's Ass'n v.\nAlameda County Emps.' Ret. Ass'n, 9 Cal. 5th 1032, 470 P.3d 85, 266 Cal. Rptr. 3d 381 (2020).\nThis is not properly before us.\n 7\n Hester v. State, No. 98495-6 (González, C.J., concurring in part and dissenting in part)\n\n 8", "publication_date": "2021-01-01", "publication_status": "public", "record_id": "rec:v1:4f349da9-f537-7e4c-8fd7-493160e928ed", "schema_version": "1.0.0-draft.1", "source_locators": [ { "artifact_id": "art:v1:dd99632c-fd0f-7dcc-8b41-af125eeba21f", "locator": "full-text", "quote_sha256": "5a55a6acb4baf3671a5d1175c46dc8b0f97f10510136303eaaaafde02277da33" } ], "status": "current", "structure_sha256": "5a55a6acb4baf3671a5d1175c46dc8b0f97f10510136303eaaaafde02277da33", "text_scope": { "excludes": [ "footer", "navigation", "annotations", "headnotes", "summaries", "editorial_content" ], "includes": [ "opinion_body" ] }, "version_id": "ver:v1:9ac1ef19-b0c0-73a8-81a6-280054d84d09" } }