The New Hampshire Supreme Court held that the enactment of RSA 100-A:16, I(a) did not establish a contractual right to a fixed contribution rate for New Hampshire Retirement System (NHRS) members; therefore, the legislature was entitled to amend the statute to increase contribution rates.
In 2011, the legislature amended RSA 100-A:16, I(a), which sets forth NHRS members’ contribution rates to the retirement system. The 2011 amendment increased contribution rates for all Group I members and for Group II permanent police and fire fighter members. A petition was brought in the superior court by the Professional Fire Fighters of New Hampshire, the New Hampshire Police Association, the National Education Association – New Hampshire, and the State Employees Association of New Hampshire, challenging the amendment and requesting declaratory and injunctive relief. The petitioners argued that enactment of RSA 100-A, I(a) created a contract between the State and the NHRS members that prohibited the State from increasing contribution rates to the retirement system. Therefore, they argued, the 2011 amendment violated the contract clause of both the U.S. and NH Constitution.
The superior court judge agreed with the petitioners and found that the legislature intended to create a contract, determining that once public employees’ pension rights vested after 10 years of creditable service, the State was contractually bound to honor its obligation to provide a pension without modification or decrease in benefits. The Supreme Court reversed, holding that the contract clause claim must fail because RSA 100-A, I(a) did not give NHRS members a contractual right to a fixed contribution rate.
The contract clause of the U.S. Constitution prohibits a state from passing a law that impairs the obligation of contracts.[1] In evaluating a contract clause claim, a court must determine whether a change in state law has resulted in the substantial impairment of a contractual relationship, which requires a three-step test: 1) whether there is a contractual relationship; 2) whether a change in law impairs that contractual relationship; and 3) whether the impairment is substantial.
The Court determined that the petitioners’ claim failed at step 1 because there was no contractual relationship between the State and the NHRS members. First, the Court noted that the law creates a presumption that legislation does not create a contract because the purpose of legislation is not to make contracts but to make laws that establish the policy of the state. Second, the Court expressly adopted the “unmistakability doctrine,” which mandates that legislation creates a contract only where a state shows clear intent to be bound to a particular contractual obligation. Applying the unmistakability doctrine to the language on RSA 100-A:16, I(a), the Court found no indication that the legislature unmistakably intended to bind itself from prospectively changing the rate of NHRS member contributions to the retirement system. The Court also noted that its holding was consistent with case law from other states.
[1] Although the NH Constitution does not contain precisely the same provision, Part I, Article 23 has been interpreted to provide the same protections as the contract clause of the U.S. Constitution.