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July 20, 1984

Donald J. DEVINE, Director, Office of Personnel Management, Defendant; NATIONAL ASSOCIATION OF RETIRED FEDERAL EMPLOYEES, et al., Plaintiffs, v. Donald J. DEVINE, Director, Office of Personnel Management, Defendant

The opinion of the court was delivered by: HOGAN

 THOMAS F. HOGAN, District Judge.

 The related cases of National Treasury Employees Union (NTEU) v. Devine and National Association of Retired Federal Employees (NARFE) v. Devine are before this Court on defendant's motion to dismiss in each case; NTEU's motion for partial summary judgment; and NARFE's motion for summary judgment. Both cases arise out of amendments to the Civil Service Retirement Act, 5 U.S.C. § 8331, et seq. In 1962, P.L. 87-793 provided for an automatic adjustment in federal retirees' annuities whenever the Consumer Price Index rose by a predetermined growth factor. After several amendments, in 1976 Congress enacted P.L. 94-440 which provided for full cost-of-living adjustments (COLA) to be made twice annually for all annuitants.

 In January 1981, P.L. 96-449 § 401 altered the first-year COLA for federal civil service retirees so that they now received a pro rata share of the first six months' adjustment based upon the month in which the employee retired, rather than the full amount of the twice-yearly adjustment. In July 1981, P.L. 97-35 § 1702(a) eliminated the twice-yearly COLA and substituted a single annual adjustment which would again be calculated as a pro rata share of the yearly increase based upon the month of the employee's retirement. NTEU and NARFE question the constitutionality of the elimination of the twice-yearly COLA as a taking of private property without just compensation (Fifth Amendment) and as a violation of the contract clause (Art. I, § 10, as applicable to the federal government by the due process clause of the Fifth Amendment) by allegedly abrogating the plaintiffs' property right or implied contract to a twice-annual COLA. It is material that plaintiffs Martin G. Weitzel, James F. Ruddy and Harold J. Oland are the only plaintiffs in the NTEU action who retired prior to the enactment of § 1702(a). The remaining plaintiffs in the NTEU action are still employed by the federal government. NTEU seeks declaratory judgment that § 1702(a) of P.L. 97-35 is unlawful; an injunction against application of the same; or money damages and the opportunity to be reinstated into equivalent positions.

 The assertions of plaintiffs in the NARFE action fully complement those of NTEU and add additional counts as to the following legislation. In September 1982, P.L. 97-253 § 301(a) diminished COLAs for persons who retired before age 62 from fiscal year 1981 through fiscal year 1985. All plaintiffs in NARFE retired prior to January 1981 and all are age 61 or less. NARFE asserts that P.L. 97-253 is a violation of the equal protection component of the Fifth Amendment due process clause as invideous discrimination on the basis of age. Further, NARFE seeks declaratory judgment that P.L. 96-499 § 401, which eliminated the full COLA adjustment for persons who retired during the six-month COLA period and required that the first annuity adjustment be computed on a prorated basis, is unlawful as a taking of property without just compensation and as a violation of the contract clause. NARFE seeks declaratory judgment that the following provisions are unlawful and permanent injunction preventing their application; P.L. 96-499 § 401; P.L. 97-35 § 1702(a); and P.L. 97-253 § 301(a).


 The issue before this Court is whether Congress intended federal civil service annuitants to have a compensable property right in the COLA formula in effect at the time of their retirement. It is clear that the Constitution alone does not create any property interest. Board of Regents v. Roth, 408 U.S. 564, 577, 408 U.S. 564, 92 S. Ct. 2701, 2709, 33 L. Ed. 2d 548 (1972). Whether a guarantee of property has been given must be determined through an examination of the particular statute. Bishop v. Wood, 426 U.S. 341, 345, 96 S. Ct. 2074, 2077, 48 L. Ed. 2d 684 (1976). The pertinent statutory provision, 5 U.S.C. § 8334(b), has been interpreted differently by each party as to whether Congress embodied in the act a guarantee against changes in the level of annuity benefits. That section provides:

Each employee or Member is deemed to consent and agree to these deductions [i.e., percentage deductions mandated by § 8334(a)] from basic pay. Notwithstanding any law or regulation affecting the pay of an employee or Member, payment less these deductions is a full and complete discharge and acquittance of all claims and demands for regular services during the period covered by the payment, except the right to the benefits to which the employee or Member is entitled under this subchapter.

 Id. (emphasis added). Plaintiffs interpret this language to demonstrate that retirement benefits (including COLAs) are deferred compensation since they are "under this subchapter." However, the defendant interprets the emphasized language to indicate that Congress did not intend to guarantee an employee the level of benefits in effect at the time of retirement. The defendant asserts that this language should logically be interpreted to include the concept of periodic amendment to the subchapter. The defendant relies for support on Dodge v. Board of Education, 302 U.S. 74, 58 S. Ct. 98, 82 L. Ed. 57 (1937), where the Court upheld the constitutionality of a state statute decreasing annuity payments to retired teachers. The Supreme Court examined the language of the statute at issue which had no clause explicitly permitting revision of benefits. The Court found no guarantee by the state to a particular level of benefits stating that "the presumption is that such a law is not intended to create private contractual or vested rights but merely declares a policy to be pursued until the legislature shall ordain otherwise." Id. at 79, 58 S. Ct. at 100. Further, in the field of national economic policy, strong deference is to be accorded legislation against a due process attack. Pension Benefit Guaranty Corp. v. Gray, 467 U.S. 717, , 104 S. Ct. 2709, , 81 L. Ed. 2d 601 (1984). Legislative acts "adjusting the burdens and benefits of economic life . . . [have] a presumption of constitutionality. . . ." Id. 428 U.S. at 10, 96 S. Ct. at 2890 quoting Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 15, 96 S. Ct. 2882, 2892, 49 L. Ed. 2d 752 (1976). This analysis is equally applicable to the taking clause of the Fifth Amendment.

 The statute at issue contains no explicit provision either permitting or disallowing revision of the level of benefits. The plaintiff emphasizes this lack of a permissive amendment provision by indicating that case law determining that no vested right exists to Social Security benefits noted that the Social Security Act reserves to Congress the right to alter, amend or repeal any provision. 42 U.S.C. § 1304. However, the CSRA directs the civil service Board of Actuaries to study the retirement system and to recommend to Congress and the Office of Personnel Management "such changes as in the Board's judgment are necessary to protect the public interest and maintain the System on a sound financial basis." 5 U.S.C. § 8347(f). The defendant asserts that such language is incompatible with plaintiff's interpretation which would freeze the level of benefits for each employee when he reaches retirement age. Defendant relies on Hisquierdo v. Hisquierdo, 439 U.S. 572, 99 S. Ct. 802, 59 L. Ed. 2d 1 (1979), in which the Supreme Court read into the Railroad Retirement Act an amendment provision similar to the Social Security Act's provision permitting alteration of retirement benefits. The Court relied upon the similarity of the acts for this interpretation. In comparison to Hisquierdo, the statute in the pending cases before this Court presents a more compelling basis for reading an amendment provision into CSRA due to the forthright statement in 5 U.S.C. § 8347(f).

 The plaintiffs assert that the legislative history of the 1920 Retirement Act supports the view that retirement benefits are deferred compensation. Plaintiffs cite statements of Congressmen who indicated the purpose of the 1920 pension bill as compensation. See, e.g., 59 Cong.Rec.Pt. 6, p. 6300 (R. Hammil) ("Pensions are not gratuities, and they should not be considered as such"); 59 Cong.Rec.Pt. 6, p. 6378 (R. Mann) (stating that the benefits are "part and parcel of the subject of the wage you pay" and an inducement to keep employees in government service).

 The defendant relies upon the legislative history of the Postal Service and Federal Employees Salary Act of 1962, the statute creating the COLA formula to which plaintiffs claim an entitlement, to indicate the error of plaintiffs' position. The purpose of the 1962 Act was stated as providing the COLA formula for "persons now on the retirement rolls." S.Rep. No. 2120, 87th Cong., 2d Sess. (Sept. 24, 1962), reprinted in 1962 U.S.Code Cong. and Ad.News 3034, 3035. The defendant's argument is that the language indicates that the COLAs were not deferred compensation, since giving it to those already on the rolls precludes any quid pro quo which hallmark compensation. The plaintiff rebuts with the argument that Congress was protecting both groups against inflation and "what is deferred compensation for one group could be something of a more altruistic nature for the other." (NTEU's Motion for Partial Summary Judgment at 15, citing no authority.)

 However, one of the primary problems Congress identified under the COLA provisions of the Civil Service Retirement Act was the need to effectively monitor the dates of retirement. At the time the "look back" provision was enacted, COLA increases were made every six months and employees retiring within that period received no part of the COLA for that period. See S.Rep. No. 93-456, 93d Cong., 1st Sess. (1973), reprinted in 1973 U.S.Code Cong. and Ad.News 2316. As a result, employees tended to retire just before the beginning of a new COLA period:

Experience demonstrates that employees who had been planning to retire later, although eligible, almost invariably change their plans to retire just prior to the effective date of each cost-of-living increase in order to benefit from it. In the most recent instance, the increase effective July 1, 1973, nearly 90,000 employees choose [sic] to retire simultaneously, or nearly so. This massing of ...

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