STATE OF SOUTH DAKOTA
OFFICE OF
THE ATTORNEY GENERAL

April 15, 1969

Gordon O. Hayes, Administrator
South Dakota Public Employees Retirement System
Pierre, South Dakota 57501

OFFICIAL OPINION NO. 69-38

South Dakota Public Employees Retirement System. Once a state employee earns a vested interest in such system and retires, the Legislature cannot amend statutes that act to destroy such vested interests

Dear Mr. Hayes:

You have requested my official opinion based upon these facts:

"X, born January 27, 1929, was employed by the State of South Dakota on October 1, 1952, and continued in such employment until October 25, 1967, at which time he resigned from state employment to take a Federal position. X has not withdrawn his contribution to the State Retirement System at this time."

The question you have submitted is whether or not, under these facts, X has a vested interest in such system.

The significance of your question may be seen from the fact that our South Dakota Public Employees Retirement System statute, which originated in Chapter 303 of the Session Laws of 1967, was amended by Chapter 216 of the Session Laws of 1968. This later act was designated an emergency measure and became effective February 15, 1968. The original and amended statute (Section 9) provide: "A member must withdraw his contributions from the retirement system upon termination of employment provided he does not have a 'vested interest' in the system." Both the original and the amended act require "ten years of creditable service" with the state in order to earn any vested interest in such retirement system.

Under the original act, which had not been amended at the time of severing his state employment, X was entitled to fourteen years and nine months of "prior service credit" as an employee of the state. (See Sections 2(12) b, 6 and 7 of Chapter 303 of the Session Laws of 1967,) However, the amendment of said Section 2(12) by Chapter 216 of the Session Laws of 1968 added the significant provision that: "No prior service shall be earned prior to the attainment of age thirty." If this amendment is applicable to X, it may be demonstrated that he has had only eight years eight months prior creditable service as a state employee-giving him credit for his employment after age thirty-so he has no vested interest in the retirement system, and the system should refund him his payments thereto.

In a memorandum opinion dated November 12, 1968, directed to you, this office advised that any liberalization of benefit payments arising from such 1968 amendments should not inure to benefit a person who retired from the system prior to the effective dates of such 1968 amendments, and to whom his contributions to such system had been refunded. The present inquiry seeks the converse question: Do any restrictions or limitations arising from the 1968 amendment act to affect the rights of a retiree who retired prior to the effective date of the 1968 amendments? In other words, when it is shown that a person under the retirement system at the time of retirement had earned "ten years of creditable service," so as to have a vested right in such retirement system, and upon attainment of the stipulated age, to receive some form of pension payment, would a more restrictive amendment of such retirement system, prior to the attainment of the age to accept such pension payments, act to cancel the years of creditable service and to annul any vested rights such retiree may have in the system. In Tait v. Freeman (1953) 74 SD 620, 57 NW 2d 520, our court was concerned with a teachers retirement system established in 1939. After a review of the question of vesting of pensions, it concluded that the relationship between the members of a retirement system and the system itself is contractual. The court cited many ALR annotations on this subject. These have been superseded by the annotation in 52 ALR 2d 437.

While the courts vary in their interpretation of the problem of vesting, all courts agree that pension systems must be liberally construed because of the beneficial nature of such enactments. I believe that most modern courts would agree with the court in State ex rel Holton v. City of Tampa (Florida 1934) 159 So. 292, 98 ALR 501 where it was held that once a member of a particular pension plan had fulfilled the requisite conditions, that thereafter any statute which would deprive him of his pension rights or reduce the amount of pensions to such an extent as to be a pension in name only, such would be unconstitutional as a deprivation of vested rights. Likewise, in Terry v. Berkeley (1953) 41 Cal. 2d 698, 263 P 2d 833 the court intimated the same conclusion.

It would be useless for me to cite all of the voluminous cases on the question. I appreciate there is no unanimity on the subject.

It is my opinion, however, that under the statutes that existed at the time X retired he had sufficient "earned creditable service" that he then had a vested interest in the retirement system. The only condition then required of him to actually receive a payment from such fund was to attain the age stipulated by the Legislature requisite to receive such pension payment. (In this regard, may I make it perfectly clear that I am not furnishing any answer to the interesting question of whether or not the Legislature could thereafter modify the time when such pension itself would become payable.) X had a vested right to such years of creditable service. As the statute, in the words of our court, makes a contract between X and such retirement system, it is my opinion that the Legislature could not thereafter amend the statute in such a manner as to strip X of his earned years of creditable service, and reduce his years of employment by the state to the extent of denying him his vested interest.

I conclude that under the facts X has a vested interest in the retirement system, and his contribution should remain in the system. When he attains the proper age for receipt of a pension from such system, he is eligible to receive such payments.

Respectfully submitted,

Gordon Mydland
Attorney General