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November 7, 2016

New York Law Journal

By: Alan M. Klinger, Dina Kolker, David J. Kahne

Around the country, despite an improving economy, state and local governments are struggling
to balance budgets and have taken aim at public employee pensions. Although New York has well-funded and well-protected public pension plans, this national pressure, and the upcoming referendum on a state Constitutional Convention—which carries the threat of stripping safeguards against unfair impairment—will likely bring renewed attention to the level of benefits and the legal protections public employees possess.
States, including New Jersey, California and Illinois, continue to face challenges in paying for perennially underfunded pension liabilities. Public employee pensions, designed to attract and retain quality employees to long-term public service, have increasingly been in the cross-hairs of budget-trimming legislators unwilling to explore other (often politically risky) fixes. Since 2009, nearly every state has enacted some type of public pension “reform,” including increased eligibility requirements, higher employee contributions, and limiting cost-of living increases.
These legislative changes have spurred pension-related litigation, with the Contracts Clause of the Federal Constitution often serving as the principal shield against reductions or eliminations of promised pension rights. U.S. Const. art. I, §10, cl. 1 (“No State shall … pass any … Law impairing the Obligation of Contracts.”) This provision was designed to safeguard legitimate expectations of contracting individuals, like public employees, against repudiation by a state government. Courts applying the Contracts Clause look to whether (1) the challenged law impairs a contractual relationship, (2) the impairment is substantial, and (3) it is necessaryto serve an important public purpose.

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