                 NOT FOR PUBLICATION WITHOUT THE
                APPROVAL OF THE APPELLATE DIVISION

                                     SUPERIOR COURT OF NEW JERSEY
                                     APPELLATE DIVISION
                                     DOCKET NO. A-5973-11T4
                                                 A-6002-11T4
                                                 A-0632-12T1

RICHARD W. BERG, ROBERT J. BRASS,
THOMAS CANNAVO, MELAINE B. CAMPBELL,     APPROVED FOR PUBLICATION
LARRY ROBERT ETZWEILER, KATHY FLICKER,
                                               June 26, 2014
ARNOLD GOLDEN, CHARLES GRINELL, TONI
A. HENDRICKSEN, HAROLD KASSELMAN,           APPELLATE DIVISION
SUSAN LOTHIAN, STEPHEN H. MONSON,
MARTIN C. MOONEY, SR., BRIAN MULHOLLAND,
CHARLES OUSLANDER, ANNE C. PASKOW,
SHARYN PEIFFER, SAMUEL REAL, JR.,
GREGORY J. SAKOWICZ, SUSAN W. SCIACCA,
WILLIAM H. SCHMIDT, FRED SCHWANWEDE,
JOHN J. SMITH, DEBRA STONE, SHERI TANNE,
and JACK L. WEINBERG,

      Plaintiffs-Appellants,

and

NEW JERSEY EDUCATION ASSOCIATION,
NEW JERSEY STATE POLICEMEN'S BENEVOLENT
ASSOCIATION, INC., COMMUNICATIONS WORKERS
OF AMERCA, AFL-CIO, NEW JERSEY FRATERNAL
ORDER OF POLICE, NEW JERSEY STATE
FIREFIGHTERS' MUTUAL BENEVOLENT
ASSOCIATION, PROFESSIONAL FIREFIGHTERS
ASSOCIATION OF NEW JERSEY, AMERICAN
FEDERATION OF STATE, COUNTY AND MUNICIPAL
EMPLOYEES, COUNCIL 1, AFL-CIO, AMERICAN
FEDERATION OF STATE, COUNTY AND MUNICIPAL
EMPLOYEES, COUNCIL 73, AFL-CIO, AMERICAN
FEDERATION OF TEACHERS NEW JERSEY STATE
FEDERATION, AFL-CIO, INTERNATIONAL
FEDERATION OF PROFESSIONAL AND TECHNICAL
EMPLOYEES, AFL-CIO, LOCAL 194,
INTERNATIONAL FEDERATION OF PROFESSIONAL
AND TECHNICAL EMPLOYEES, AFL-CIO, LOCAL
195, INTERNATIONAL FEDERATION OF
PROFESSIONAL AND TECHNICAL EMPLOYEES,
AFL-CIO, LOCAL 200, PROBATION ASSOCIATION
OF NEW JERSEY, NEWARK FIREFIGHTERS UNION,
MORRIS COUNCIL NOS. 6 AND 6A, NJCSA,
IFPTE, ALF-CIO, JERSEY CITY POLICE
OFFICERS BENEVOLENT ASSOCIATION, CAMDEN
COUNTY COUNCIL #10, INTERNATIONAL
BROTHERHOOD OF TEAMSTERS LOCAL 97,
BELLEVILLE PBA LOCAL 28, NEW JERSEY
ASSOCIATION OF SCHOOL ADMINISTRATORS, NEW
JERSEY PRINCIPALS AND SUPERVISORS
ASSOCIATION, NEW JERSEY ASSOCIATION OF
SCHOOL BUSINESS OFFICIALS, NEW JERSEY
RETIREES' EDUCATION ASSOCIATION,
TRANSPORT WORKERS UNION LOCAL 225, NEW
JERSEY SUPERIOR OFFICERS LAW ENFORCEMENT
ASSOCIATION, ATLANTIC CITY WHITE COLLAR
PROFESSIONAL ASSOCIATION, INTERNATIONAL
BROTHERHOOD OF ELECTRICAL WORKERS LOCAL
210, ATLANTIC CITY SUPERIOR OFFICERS
ASSOCIATION, PETER BURKHALTER, DEE
TRUCHON, GEORGE O'BRIEN, THOMAS TEVLIN,
ROBERT BROWER, ROSEMARIE JANKOWSKI, IRIS
J. ELLIOTT, KENNETH D. KING, FRANK ELMER
HICKS, WILLIAM A. PARKER, BRAD FAIRCHILD,
DWIGHT COVALESKI, ANTHONY F. WIENERS,
GARY SOUSS, WILLIAM LAVIN, CHARLES WEST,
MARIAN LEZGUS, MELANIE HAFDELIN, STEVEN
ENGRAVALLE, CINDY BARR-RAGUE, DOMINICK
MARINO, JOHN J. GEROW, JANET S. ZYNROZ,
ALFRED CRESCI, RAE C. ROEDER, MARYANN
PIUNNO SMITH, MARYANN MESICS, DENNIS
REITER, ANTHONY MISKOWSKI, VINCENT
KAIGHN, WILLIAM S. BAUER, JR., MICHAEL
CALABRESE, and DEBORAH JACOBS,

     Plaintiffs/Intervenors-Appellants,

v.

HON. CHRISTOPHER J. CHRISTIE, HON. KIM
GUADAGNO, SECRETARY OF STATE OF THE
STATE OF NEW JERSEY, DIRECTOR, DIVISION
OF PENSIONS, BOARD OF TRUSTEES, PUBLIC
EMPLOYEES' RETIREMENT SYSTEM, TREASURER,
STATE OF NEW JERSEY and STATE OF NEW



                               2            A-5973-11T4
JERSEY,

     Defendants-Respondents.
__________________________________________

MICHAEL DeLUCIA, PATRICIA DeLUCIA,
ROBERT C. BROWN and ANNE K. BROWN,

     Plaintiffs-Appellants,

v.

STATE OF NEW JERSEY, DEPARTMENT
OF THE TREASURY, DIVISION OF
PENSIONS AND BENEFITS,

     Defendants-Respondents.
___________________________________________

     Argued January 28, 20141 – Decided June 26, 2014

     Before Judges Reisner, Alvarez and Carroll.

     On appeal from the Superior Court of New Jersey,
     Law Division, Mercer County, Docket Nos. L-2996-
     11 and L-1354-12.

     Daniel Louis Grossman argued the cause for
     appellants    Berg,  Brass,  Cannavo,   Campbell,
     Etzweiler, Flicker, Golden, Grinell, Hendricksen,
     Kasselman, Lothian, Monson, Mooney, Mulholland,
     Paskow,    Peiffer,  Real,   Sakowicz,   Sciacca,
     Schmidt, Schwanwede, Smith, Stone, Tanne, and
     Weinberg in A-5973-11.

     Charles Ouslander, appellant,    argued   the   cause
     pro se in A-5973-11.

     Kenneth I. Nowak, Ira W. Mintz and David I. Fox
     argued the cause for appellants in A-6002-11
     (Zazzali, Fagella, Nowak, Kleinbaum & Friedman,

1
  After oral argument, we directed supplemental briefing, which
was completed on February 25, 2014.




                                  3                          A-5973-11T4
P.C.,   attorneys    for   appellants     New   Jersey
Education   Association,     New   Jersey    Retirees'
Education    Association,      New     Jersey    State
Policemen's     Benevolent      Association,     Inc.,
American   Federation     of    State,    County   and
Municipal    Employees,     Council     1,    AFL-CIO,
Belleville    PBA   Local    28,    George    O'Brien,
Rosemarie Jankowski, Iris J. Elliott, William A.
Parker, Anthony Wieners, Gary Souss, Marian
Lezgus, and Melanie Hafdelin; Weissman & Mintz,
L.L.C., attorneys for appellants Communications
Workers of America, AFL-CIO, American Federation
of State, County and Municipal Employees, Council
73, International Federation of Professional and
Technical Engineers, AFL-CIO & CLC, Local 194,
International Federation of Professional and
Technical Engineers, AFL-CIO & CLC, Local 200,
Peter Burkhalter, Dee Truchon, Rae C. Roeder,
Maryann Piunno Smith, Maryann Mesics, Dennis
Reiter,   Anthony    Miskowski,     Vincent    Kaighn,
William S. Bauer, Jr., Michael Calabrese, and
Deborah Jacobs; Fox and Fox, L.L.P., attorneys
for appellants New Jersey State Firefighters'
Mutual Benevolent Association of New Jersey,
Probation Association of New Jersey, Newark
Firefighters Union Morris Council Nos. 6 and 6A,
NJCSA, IFPTE, AFL-CIO, Thomas Tevlin, Robert
Brower, Brad Fairchild, Dwight Covaleski, William
Lavin, and Charles West; Markowitz and Richman,
attorneys for appellant New Jersey Fraternal
Order of Police; Mets Schiro & McGovern, L.L.P.,
attorneys for appellants Professional Firefighters
Association of New Jersey, American Federation of
Teachers    New    Jersey     Federation,     AFL-CIO,
International Brotherhood of Teamsters Local 97,
Dominick Marino, and John Gerow; Oxfeld Cohen,
P.C.,   attorneys    for   appellant     International
Federation    of    Professional      and    Technical
Engineers, AFL-CIO & CLC, Local 195; Detzky &
Hunter, L.L.C., attorneys for appellant Jersey
City Police Officers Benevolent Association;
Spear Wilderman, P.C., attorneys for appellant
Camden County Council #10; Robert M. Schwartz,
attorney for appellants New Jersey Principals and
Supervisors Association, Janet S. Zynroz, and
Alfred Cresci; O'Brien, Belland & Bushinsky,



                             4                           A-5973-11T4
    L.L.C.,   attorneys    for   appellants   Transport
    Workers Union Local 225, New Jersey Superior
    Officers Law Enforcement Association, Atlantic
    City   White   Collar   Professional   Association,
    International Brotherhood of Electrical Workers
    Local 210, and Atlantic City Superior Officers
    Association;   Maria   M.   Lepore,  attorney   for
    appellants New Jersey Association of School
    Administrators, Kenneth D. King, and Steven
    Engravalle; and Lindabury, McCormick, Estabrook &
    Cooper, P.C., attorneys for appellants New Jersey
    Association of School Business Officials, Frank
    Elmer Hicks, and Cindy Barr-Rague; Mr. Nowak, Mr.
    Mintz, Edward M. Suarez, Jr., Steven P. Weissman,
    Matthew D. Aremen, Mr. Fox, Craig S. Gumpel,
    James M. Mets, Kevin P. McGovern, Arnold Shep
    Cohen, Stephen B. Hunter, James Katz, Mr. Schwartz,
    Kevin Jarvis, Ms. Lepore, and Paul E. Griggs, on
    the joint briefs).

    Robert T. Lougy, Assistant Attorney General, argued
    the cause for respondents in A-5973-11 and in A-
    6002-11   (John   J.   Hoffman,   Acting   Attorney
    General, attorney; Mr. Lougy, of counsel; Jean P.
    Reilly, Deputy Attorney General, and Diane J.
    Weeden, Deputy Attorney General, on the briefs).

    Robert C. Brown argued the cause for appellants
    in A-0632-12.

    Diane J. Weeden, Deputy Attorney General, argued
    the cause for respondents in A-0632-12 (John J.
    Hoffman,   Acting  Attorney   General,  attorney;
    Robert T. Lougy, Assistant Attorney General, of
    counsel; Jean P. Reilly, Deputy Attorney General,
    and Ms. Weeden, on the briefs).

    The opinion of the court was delivered by

REISNER, P.J.A.D.

    In these appeals, which we have consolidated for purposes

of this opinion, several groups of public-employee plaintiffs

challenge   the   constitutionality   of   N.J.S.A.   43:3B-2   (Chapter



                                  5                             A-5973-11T4
78), a 2011 statute that suspended the payment of cost of living

increases    (COLAs)    to     current    and    future      retirees     receiving

pensions from each of the State's public pension funds.                     See L.

2011, c. 78, § 25.       The trial court dismissed the complaints on

summary judgment.        For the reasons that follow, we affirm the

grant of summary judgment in DeLucia v. State of New Jersey, A-

0632-12.    We reverse the grant of summary judgment in Berg and

New Jersey Education Association v. Christie (Berg), A-5973-11

and A-6002-11, and we remand Berg to the trial court for further

proceedings      required     to   address    plaintiffs'      Contract     Clause

claims under the New Jersey Constitution.

                                         I

    The State pension systems have been addressed at length in

a number of recent opinions.             See, e.g., Teamsters Local 97 v.

State, 434 N.J. Super. 393, 407-25 (App. Div. 2014); N.J. Educ.

Ass'n v. State, 412 N.J. Super. 192, 214-15 (App. Div.), certif.

denied,    202   N.J.   347   (2010).        Nonetheless,     for   the    sake   of

clarity, we find it necessary to review the history in detail,

since "[t]he legal issues must be viewed realistically against

the story of these pension plans."                   Spina v. Consol. Police &

Firemen's     Pension    Fund      Comm'n,      41    N.J.   391,   393    (1964).

Likewise, because this litigation has been conducted in several




                                         6                                 A-5973-11T4
different courts, we discuss its procedural history in greater

detail than we otherwise might.

                                  THE PENSION SYSTEMS

      Resolution           of   this     appeal     requires      a    review          of    the

statutory      framework        and    history     surrounding        the:        1)     State-

administered      retirement           systems;     2)   Pension       Adjustment           Act,

N.J.S.A. 43:3B-1 to -10; and 3) non-forfeitable rights statute,

N.J.S.A. 43:3C-9.5.             We will discuss that framework here.

      A.      The State-Administered Retirement Systems

      Plaintiffs           in   Berg    are    a   group   of     twenty-six           retired

attorneys who are currently receiving pension benefits through

the Public Employees' Retirement System (PERS), N.J.S.A. 43:15A-

1 to -141.       PERS was established in 1954, L. 1954, c. 84, and is

the     largest       of    the    State-administered            retirement         systems.

N.J.S.A. 52:18A-108(c).                The intervenors in Berg are retired and

active vested members in the three largest state-administered

defined benefit retirement systems:                     1) PERS; 2) the Police and

Firemen's      Retirement         System      (PFRS),    established         in   1944,        L.

1944,    c.    253,    under      N.J.S.A.     43:16A-1     to    -16.2;      and      3)    the

Teachers' Pension and Annuity Fund (TPAF), reorganized in 1955,

under N.J.S.A. 18A:66-1 to -93.                      The DeLucia plaintiffs are

retired members of PFRS.




                                               7                                       A-5973-11T4
      PERS, PFRS, and TPAF are governed by separate boards of

trustees.      N.J.S.A. 43:15A-17 (PERS); N.J.S.A. 43:16A-13 (PFRS);

and N.J.S.A. 18A:66-56 (TPAF).            The day-to-day administration of

the retirement systems is conducted by the Department of the

Treasury, Division of Pensions and Benefits.               N.J.S.A. 52:18A-95

to   -100    (Division     of    Pensions);    N.J.S.A.    43:15A-18   (PERS);

N.J.S.A. 43:16A-13 (PFRS); N.J.S.A. 18A:66-57 (TPAF).                Employees

are vested in these systems after having obtained ten years of

service credit.         N.J.S.A. 43:15A-38 (PERS); N.J.S.A. 43:16A-11.2

(PFRS); N.J.S.A. 18A:66-36 (TPAF).

      The State-administered retirement systems are funded by:

1) contributions from employees' wages; 2) contributions from

the State, as the employer; and 3) the return earned on invested

assets.      N.J.S.A. 43:15A-24 (PERS); N.J.S.A. 43:16A-15 (PFRS);

N.J.S.A. 18A:66-18 (TPAF).             See also N.J. Educ. Ass'n, supra,

412 N.J. Super. at 214-15 (describing TPAF statutory funding and

contribution scheme).           Employees' contributions to the systems

are set by statute as a percentage of salary.               N.J.S.A. 43:15A-

25 (PERS); N.J.S.A. 43:16A-15 (PFRS); N.J.S.A. 18A:66-29 (TPAF).

      The State's contributions are computed by actuaries, who

act as technical advisors to the board of trustees, based on an

annual      valuation    of     the   assets   and   the   fund   liabilities.

N.J.S.A. 43:15A-24 (PERS); N.J.S.A. 43:16A-16 (PFRS); N.J.S.A.




                                         8                             A-5973-11T4
18A:66-16 (TPAF).          See Passaic v. Consol. Police Pension Fund

Comm'n, 18 N.J. 137, 140-41 (1955) (explaining in simple terms

the theory of pension funding and the actuary's role).                           As the

Division of Pensions explained in its Employers' Pension and

Benefits   Administration         Manual        (EPBAM),     in   the   State   pension

systems the employer is essentially "responsible for filling the

gap   between   the       funds   needed     to    meet     the   retirement      system

obligations     and       those available         from      employee     contributions

and    investment         earnings     on         system      assets."       Employers'

Pension      and      Benefits        Administration              Manual        (EPBAM),

http://www.nj.gov/treasury/pensions/epbam/pensions/funding1.htm

(last visited June 12, 2014).2

      The State is statutorily required to contribute, to each

system or fund, both a "normal contribution," which includes

basic retirement allowances and COLAs as determined by the board

of trustees in consultation with the system's or fund's actuary,

and   an   accrued        liability        contribution.           N.J.S.A.       43:3C-

9.5(c)(1).         "The     amount    of    the       State's     annually      required

contributions      shall     be   included       in   all    annual     appropriations

acts as a dedicated line item," N.J.S.A. 43:3C-9.5(c)(1), and

2
   Because the appellate record consists only of materials
submitted to the trial court, R. 2:5-4, internet citations in
this opinion are to materials that were either the subject of
stipulations in the trial court or to public documents of which
we can take judicial notice. See N.J.R.E. 201.



                                            9                                   A-5973-11T4
the   Legislature   "shall   make   an   appropriation   sufficient   to

provide for the obligations of the State."         N.J.S.A. 43:15A-37

(PERS); N.J.S.A. 18A:66-33 (TPAF).       Commencing July 1, 2011, the

State's contribution

           shall be made in full each year to each
           system or fund in the manner and at the time
           provided by law.     The contribution shall be
           computed by actuaries for each system or
           fund based on an annual valuation of the
           assets and liabilities of the system or fund
           pursuant    to    consistent    and    generally
           accepted   actuarial    standards    and   shall
           include the normal contribution and the
           unfunded   accrued    liability    contribution.
           The State with regard to its obligations
           funded through the annual appropriations act
           shall be in compliance with this requirement
           provided the State makes a payment, to each
           State-administered     retirement    system   or
           fund, of at least 1/7th of the full
           contribution, as computed by the actuaries,
           in the State fiscal year commencing July 1,
           2011 and a payment in each subsequent fiscal
           year   that    increases   by    at   least   an
           additional 1/7th until payment of the full
           contribution is made in the seventh fiscal
           year and thereafter.

           [N.J.S.A. 43:3C-14.]

      The money in the pension funds is held in trust for the

exclusive use of the members or their beneficiaries.           N.J.S.A.

43:3C-9.1.

      B.   The Pension Adjustment Act

      In 1958, at approximately the same time that PERS, PFRS,

and TPAF were established, the Pension Adjustment Act, N.J.S.A.




                                    10                         A-5973-11T4
43:3B-1 to -10, was adopted.   L. 1958, c. 143.   The Act provided

for limited modest increases, based on a fixed adjustment, to

the first $480 of the retirement allowances of state employees

(including members of PERS, PFRS, and TPAF), who had retired

before 1952, that is, prior to the advent of Social Security

coverage for public employees.    L. 1958, c. 143.    The State, as

employer, bore the cost of the adjustments (except TPAF), which

were, as initially enacted, to be made on a          "pay-as-you-go"

basis and were subject to appropriation by the Legislature.        L.

1958, c. 143.   The Sponsor's Statement to the bill explained:

              This bill is intended to meet in some
         part the situation that exists for certain
         former public employees who, having retired
         on pensions based on the salary levels of
         many years ago, now face varying degrees of
         hardship because of serious increases in the
         cost of living since their retirement. Some
         of these retired employees have in fact been
         obliged to seek old age assistance, and it
         is expected that this bill will provide an
         alternative for them on a more dignified,
         even-handed basis.    There is no attempt in
         this bill to suggest the general need for a
         cost-of-living   index,    or  an   escalator
         clause, for pension or retirement systems.
         The great majority of New Jersey's public
         employees   have  been   covered  under   the
         Federal Old Age and Survivors' Insurance
         program in recent years, and the benefits
         payable under this program have tended to
         increase with increases in the cost of
         living, thus the problem may not be as
         severe in the future.

              A   cut-off  point,  beyond  which  no
         adjustment of pension would be made, is, of



                                 11                         A-5973-11T4
             necessity, arbitrary, but, in this bill, the
             factors have been continued to a date low
             enough, 1951 (13% increase in the basic
             amount), to represent liberal treatment of
             the meaning of "hardship."    No increase is
             provided in those cases where the ratio of
             increase would be so small that the average
             taxpayer usually must adjust to it in his
             own personal way; in fact, an extension of
             the schedule of increases into this area
             would involve the State in administrative
             costs   utterly   disproportionate  to   the
             benefits that would result.

             [Sponsor's Statement to Assembly Bill No.
             367, at 4-5 (March 24, 1958) (emphasis
             added).]

      In 1961, the Act was amended to increase the retirement

allowance by applying an increased percentage adjustment to the

first $600 in benefits, and by adding employees who had retired

in   1952,   1953    and   1954.   L.    1961,   c.   144.   The   Sponsor's

Statement explained:

             The   adjustment  formula is intended to
             overcome the loss of real income by a
             retired person as a result of constantly
             rising prices. . . .

                    . . . .

                  The Pension Increase Act of 1958 now
             provides for increases to persons retired
             prior to January 1, 1952. This date marked
             the point where the Inadequate Pensions
             Committee formula showed a loss of at least
             10% in purchasing power due to inflation
             after retirement.   Since 1958 the cost of
             living has continued to rise and the fixed
             incomes of retired public employees have
             been reduced still further in purchasing
             power.     The present bill applies the



                                        12                          A-5973-11T4
           committee formula to correct this . . . .
           This adjustment preserves the principle that
           no increase should be provided unless the
           loss of purchasing power is at least 10%.

           [Sponsor's Statement to Assembly                 Bill    No.
           559, at 3-4 (May 1, 1961).]

    In 1964, the statute was amended to apply the percentage

adjustment to the first $900 in retirement allowance.                      L. 1964,

c. 198, § 1.         Then Governor Hughes confirmed that the "program

extends only to those who retired prior to 1955 and prior to the

advent of Social Security coverage."               Governor's Statement upon

Signing Assembly Bill No. 610, L. 1964, c. 198 (Oct. 13, 1964).

    The first major revision to the Act was made in 1969, when

the Act was amended to:           1) grant adjustments or COLAs to all

eligible retirants of state-administered pension systems, not

just those who retired before 1955; and 2) provide adjustments

based on an amount equal to one-half of the percentage of the

change in the Consumer Price Index (CPI), not a fixed formula.

L. 1969, c. 169, § 1.          See Brown v. Twp. of Old Bridge, 319 N.J.

Super.   476,    511   (App.    Div.)   (increases     in    annual       COLAs    are

calculated      by    reference    to   CPI   to    protect        retirees       from

increased inflation), certif. denied, 162 N.J. 131 (1999).                         The

Sponsor's Statement explained:

                This bill will help protect retired
           public employees against excessive loss of
           purchasing power caused by inflation.   The
           bill   is  partially   based  on   existing



                                        13                                  A-5973-11T4
           legislation   which   provides               for   fixed
           increases to certain public                  pensioners.
           This bill does the following:

           1. It provides that those who retired prior
           to 1955 (prior to . . . Social Security
           coverage . . .) will receive an increase in
           accordance with the changes in the cost of
           living appropriate to their calendar year of
           retirement as such percentage of increase
           will be applied to the full allowance of the
           retirant rather than to any part of that
           allowance.

           2. It permits adjustments for most retirants
           effective, July 1, 1970 if funds are
           appropriated to provide for such increases.

           3. It requires the Director of the Division
           of Pensions to review the increase in the
           cost of living based on the Consumer Price
           Index issued by the United States Department
           of Labor and to include in his appropriation
           request . . . amounts sufficient to increase
           the retirement allowances or pensions of
           eligible retirants by 1/2 of the percentum
           of change in the index.

           4. The legislation contemplates an annual
           review of the index and permits adjustments
           upwards or downwards, as the case may be, in
           order to maintain the purchasing power of
           the retired public employee.

           [Sponsor's Statement to Assembly Bill No.
           292, at 6-7 (Jan. 27, 1969) (emphasis
           added).]

    From     1982    to   1991,   the     State   retirement      systems     grew

dramatically,       and   the   growth    in   assets    and   the    return     on

retirement    investments       far   outpaced    the    growth      in   benefit

payments from the retirement systems.               Sponsor's Statement to




                                         14                               A-5973-11T4
Senate Bill No. 540, at 28 (March 12, 1992), (L. 1992, c. 41).

During that period pension adjustments were enhanced, and the

Act was amended to:              1) expand COLAs to include survivors, L.

1971,   c.    139;      2)    reduce    the    lag        time   for     updating     the   CPI

adjustment,        L.    1975,   c.     375;    3)    increase         the   percentage      of

adjustment from 50% to 60% of the CPI, L. 1977, c. 306; and 4)

provide for payment for the entire month in which the retirant

dies, L. 1993, c. 335.

    From 1987 to 1990, the Act was amended, with regard to

funding, to:            1) provide that COLAs were to be prefunded by

employers, rather than on a pay-as-you-go basis; and 2) that

COLA payments shall be paid by the retirement system and funded

as employer obligations by the same method provided by law for

funding      of    employer          obligations          for    the     basic      retirement

benefits.         N.J.S.A. 43:3B-4a (TPAF); N.J.S.A. 43:3B-4.2 (PFRS);

N.J.S.A. 43:3B-4.3 (PERS).3               As the Division of Pensions stated

in the EPBAM:           "An employer's contribution to one of the State's

defined      benefit         plans    covers        not     only       the   cost    of basic

pension allowances, but also future cost-of-living adjustments

(COLA)."            EPBAM,       http://www.nj.gov/treasury/pensions/epbam/


3
  The laws governing the state-administered retirement systems
were amended in conformance with the funding provisions.
N.J.S.A.   43:15A-24.1  (PERS); N.J.S.A.  43:16A-15.6  (PFRS);
N.J.S.A. 18A:66-18.1 (TPAF).



                                               15                                     A-5973-11T4
pensions/funding1.htm     (last     visited     June   12,   2014).         The

Sponsor's Statement to the PERS bill, L. 1990, c. 6, explained:

               The bill provides for adequate reserve
          funding for pension adjustment benefits for
          all members of [PERS] . . . for retirees and
          their dependents for which the State is
          required to pay the premiums.     At present,
          these benefits are paid for on a current
          basis by the State and other employers. The
          liability for these benefits for active and
          retired members is growing rapidly.        If
          steps are not taken soon to recognize and
          provide reserve funding for this liability,
          a severe fiscal crisis could develop in the
          future requiring payment of these benefits
          out of the current operating budgets of the
          State and local employers.    Reserve funding
          of   these  liabilities   can   also  provide
          savings through investment earnings.

               The    bill   provides    that  pension
          adjustment benefits for all PERS members,
          and beneficiaries and post-retirement health
          care benefits for qualified, retired State
          employees and their dependents shall be paid
          by the retirement system. The liability for
          pension adjustment benefits will be funded
          as employer obligations of the State and
          local    employers   participating  in   the
          retirement system.

          [Sponsor's Statement to Senate Bill No. 665,
          at 3 (March 8, 1990).]

The   Senate   Revenue,   Finance     and     Appropriations   Committee's

Statement set forth that the bill provided for the "recognition

of . . . (COLA) payments as a liability of the PERS system."

Committee's Statement to Senate Bill No. 665, at 1 (Feb. 5,

1990).   See also Governor's Statement upon Signing Senate Bill




                                    16                                A-5973-11T4
No. 2602, L. 1989, c. 204 (Dec. 19, 1989) (prefunding mechanism

will result in substantial savings to urban municipalities).

    C.    The Genesis of the Current Pension Dispute

    Beginning    in   the    mid-1990's,      a     series    of   Executive     and

Legislative    policy       decisions     —        which     the   State      later

characterized as short-sighted — resulted in underfunding of the

pension   systems.      As    described       in    then     Governor   Corzine's

February 24, 2008, Budget Summary presented to the Legislature:

                The seeds of this problem were sown in
           the mid-1990s, when New Jersey sold pension
           bonds and revalued its pension investments
           (from their original "book" value to their
           current   market   value).      These   tactics
           enabled the State to avoid making its normal
           appropriations    into    the   system,    thus
           relinquishing those resources to support
           other programs.      The pension funds were
           invested in the stock market and, initially,
           produced a sizeable balance.      That balance
           provided a convenient rationalization for
           two things: 1) the elimination of State and
           local    government    contributions     (i.e.,
           pension "holidays") totaling an estimated $8
           billion   over   seven   years;   and   2)   an
           expansion of benefits through changes in the
           calculation of pension benefit payments.
           From    fiscal   1997    through    2005,    no
           appropriations were made to . . . (PERS),
           the State's largest system. Similarly, from
           fiscal 2000 through 2005, no appropriations
           were provided to the next largest        system
           . . . (TPAF).

                Beginning in fiscal 2000, however, the
           value of the State's pension investments
           declined precipitously due to the stock
           market crash, resulting in an asset loss of
           approximately $20 billion (24%) by the end



                                    17                                     A-5973-11T4
          of fiscal 2002.      Income tax receipts over
          this   same   period     also    were    adversely
          affected.    However, instead of instituting
          deep   program    cuts    to    re-align    budget
          expenses with available revenues, the State
          shorted the pension system by substituting
          excess pension assets in place of the normal
          cash appropriation. The Benefit Enhancement
          Fund,   which   was    originally     created   to
          support some of the aforementioned benefit
          expansions,    was   also     tapped    for   this
          purpose.

               This combination of asset losses and
          increased benefits triggered a rapid and
          steady increase in the system's unfunded
          liability   (i.e.,   degree  to    which   the
          actuarially-determined   obligations    exceed
          the value of pension assets).     From fiscal
          2004 to the present, the unfunded liability
          more than doubled, from $12 billion to
          approximately $25 billion, of which $16.6
          billion represents the State's liability.

          [FY 2009 Budget In Brief, Executive Summary,
          at 19.]

     D.   The Non-forfeitable Right Statute

     In 1997, the Legislature introduced a bill, signed into law

on June 5, 1997, conforming the administration of certain State-

administered retirement systems, including PERS, PFRS, and TPAF,

to federal Internal Revenue Code requirements; however, the bill

also established "certain non-forfeitable" pension rights.            L.

1997, c. 113, § 2.4   Significant to this appeal, the law provided


4
  As further discussed in Part III of this opinion, the 1997
statute followed an investigation by the Internal Revenue
Service, aimed at requiring the State to repay sums removed from
                                                     (continued)


                                 18                            A-5973-11T4
that   vested   members        "shall   have    a    non-forfeitable       right     to

receive     benefits      as   provided    under     the   laws    governing        the

retirement system or fund upon the attainment of five years of

service     credit   in    the   retirement     system     or   fund   .    .   .    ."

N.J.S.A. 43:3C-9.5(b).           "[A] 'non-forfeitable right to receive

benefits' means that the benefits program, for any employee for

whom the right has attached, cannot be reduced.                    The provisions

of   this   section    shall     not    apply   to    post-retirement       medical

benefits which are provided pursuant to law."                     N.J.S.A. 43:3C-

9.5(a).     Nonetheless, N.J.S.A. 43:3C-9.5(e) provided:

             Except as expressly provided herein and only
             to the extent so expressly provided, nothing
             in this act shall be deemed to (1) limit the
             right of the State to alter, modify or amend
             such retirement systems and funds, or (2)
             create in any member a right in the corpus
             or management of a retirement system or
             pension fund . . . .

       The Senate Budget and Appropriations Committee's Statement

to L. 1997, c. 113 explained:

                  The bill also provides that a vested
             member of a retirement system or fund listed
             in the bill will have non-forfeitable right
             to receive benefits as provided under the
             laws governing the retirement system or fund
             upon the attainment of five years of service
             credit in the system or fund or on the date


(continued)
the pension funds. The statute was intended to ensure that the
pension funds would continue to qualify for favorable federal
tax treatment.



                                          19                                A-5973-11T4
         of the enactment of the bill, whichever is
         later.   However, this provision of the bill
         will not apply to postretirement medical
         benefits which are provided pursuant to law.
         The bill also requires the State to make an
         annual normal contribution and an annual
         unfunded accrued liability contribution to
         each system and fund except under two
         circumstances set forth in the bill.

              The   bill   will   not    preclude  the
         forfeiture,   suspension   or   reduction  of
         benefits for dishonorable service.         In
         addition, the right to receive benefits will
         not be deemed to:    (1) limit the right of
         the State to alter, modify or amend the
         retirement    systems,    other    than   the
         abovementioned benefits for members who have
         attained 10 years of service, or (2) create
         in any member a right in the corpus or
         management of a retirement system.

         [Committee's Statement to Senate     Bill   No.
         1119, at 1-2 (April 17, 1997).]

    With regard to the fiscal impact of L. 1997, c. 113, the

Senate Budget and Appropriations Committee set forth that:

         As   amended,   the    bill   establishes   a
         "nonforfeitable" right to certain pension
         benefits after five years of service credit
         for vested employees.    The fiscal impact of
         this provision, if any, cannot be calculated
         because any impact would only occur as the
         result   of  future   statutory   changes  in
         pension benefits which cannot be foreseen.

         [Committee's Statement to Senate     Bill   No.
         1119, at 2 (April 17, 1997).]

    In 2010, the Legislature introduced Senate Bill Nos. 2, 3,

and 4, which were passed and signed into law on March 22, 2010.

The "bills implemented some of the recommendations of the Joint



                               20                          A-5973-11T4
Legislative Committee on Public Employee Benefits Reform, Final

Report (Dec. 1, 2006) (Final Report) . . . ."                            See Paterson

Police PBA Local 1 v. City of Paterson, 433 N.J. Super. 416,

419-21    (App.    Div.     2013)    (describing         history    of     bills      and

provisions of Final Report).               The Final Report was created to

identify "proposals that will terminate abuses of the pension

systems   and     control    the    cost      of    providing      public    employee

retirement,     health    care     and   other     benefits."        Final      Report,

supra, at 1.       The Committee found that as of 2006, New Jersey's

retirement systems had an $18 billion unfunded liability.                          Ibid.

The main contributors to that liability were:                        1) "State and

local government employer pension 'holidays' totaling $8 billion

over seven years; [2)] [N]egative investment returns resulting

in a $20 billion loss; [3)] Costly pension benefit enhancements

and   early   retirement     incentive        programs;    and     [4)]    Continuous

increases in enrollment."           Ibid.

      Relevant to this appeal, Senate No. 2, enacted at L. 2010,

c. 1, § 29, and codified as amended at N.J.S.A. 43:3C-9.5(b),

removed public employees who had become vested members of the

State-administered retirement systems on or after May 21, 2010

(the bill's effective date), from the "non-forfeitable right"

provision.        Under   this     provision       new   members    of    the    State-

administered retirement systems do not have a non-forfeitable




                                         21                                     A-5973-11T4
right to receive retirement benefits upon the attainment of five

years of service credit.   N.J.S.A. 43:3C-9.5(b).

    The Sponsor's Statement to L. 2010, c. 1, explained that:

              This section implements Recommendation
         7 of the Joint Legislative Committee on
         Public Employee Benefits Reform set forth in
         the final report dated December 1, 2006.
         The committee recommended "the repeal on a
         prospective basis for new employees of
         N.J.S.A. 43:3C-9.5 . . . because the
         Legislature should not be permanently and
         inextricably bound by an action of a prior
         session of the Legislature."

              The bill would remove public employees
         who   become   members   after   the   bill's
         effective date of the [PERS, PFRS, and TPAF]
         . . . from the law that provides vested
         members with a non-forfeitable right to
         receive benefits, as provided under the laws
         governing the retirement system or fund,
         upon the attainment of five years of service
         credit in the retirement system or fund.

         [Sponsor's Statement to Senate Bill No. 2,
         at 74 (Feb. 8, 2010).]

    Significantly, Recommendation 7 of the Joint Committee's

Final Report, upon which the Legislature relied, provided:

         In a legal opinion to the Joint Committee,
         Peter J. Kelly, Principal Counsel, the
         Office   of   Legislative   Services    (OLS),
         explained that "legislation that has the
         effect    of  detrimentally    altering    the
         retirement benefits of active members of
         State-administered retirement systems who
         have accrued at least five years of service
         credit, or of retired members, would be
         unconstitutional as violative of the federal
         and    State   constitutional    proscription
         against impairment of the obligation of



                                22                        A-5973-11T4
         contract." . . . Similarly, in a legal
         opinion for New Jersey’s Treasurer, Bradley
         Abelow, the Office of the Attorney General
         advised that "N.J.S.A. 43:3C-9.5 created
         legally enforceable rights in vested members
         of the state pension systems to the benefits
         programs of those systems" and consequently
         under "the State and Federal Constitutions,
         the Legislature may not enact laws which
         substantially impair those rights, except in
         the narrow circumstances recognized by state
         and federal courts."

             . . . .

             Repeal of N.J.S.A. 43:3C-9.5 should be
         prospective only, that is, it should apply
         to those employed after the repeal. The OLS
         legal opinion pointed out that because the
         statute "created a contractual right for the
         members to whom it is applicable, any
         subsequent amendment or repeal thereof would
         not extinguish the rights conferred on those
         members."

              · RECOMMENDED ACTION

              The Joint Committee recommends the
         repeal on a prospective basis for new
         employees   of  N.J.S.A.   43:3C-9.5,  which
         provides members of the State-administered
         retirement systems with a non-forfeitable
         right to receive in retirement the benefits
         provided by statute at the time a member of
         a retirement system attains five years of
         service credit. . . . [T]he Legislature
         should not be permanently and inextricably
         bound by an action of a prior session of the
         Legislature.

         [Final Report, supra, at 77-79 (emphasis added).]

In its Final Report the Committee concluded that:

         Detrimentally   altering    the   retirement
         benefits of active members of the retirement



                               23                       A-5973-11T4
            systems who have accrued at least five years
            of service credit, or of retired members,
            would be unconstitutional as an impairment
            of contract based on a legal opinion
            provided   by  the   nonpartisan  Office   of
            Legislative   Services   and  similar   legal
            advice prepared by the Office of the
            Attorney General for the State Treasurer.

            [Id. at 1 (emphasis added).]

      In 2011, however, the Legislature made significant changes

to public employee pension and health care benefits, including

the     suspension   of   automatic     COLAs   for   current   and    future

retirees.     L. 2011, c. 78, § 25 (codified as amended at N.J.S.A.

43:3B-2(a)).     The statute provides that commencing on June 28,

2011,

            no   further  adjustments   to   the  monthly
            retirement allowance or pension originally
            granted to any retirant and the pension or
            survivorship    benefit   granted    to   any
            beneficiary shall be made in accordance with
            the provisions of P.L.1958, c.143 (C.43:3B-1
            et    seq.),  unless    the   adjustment   is
            reactivated as permitted by law.         This
            provision shall not reduce the monthly
            retirement benefit that a retirant or a
            beneficiary is receiving on the effective
            date of P.L.2011, c.78 when the benefit
            includes an adjustment granted prior to that
            effective date.

            [N.J.S.A. 43:3B-2(a).]

      Under   Chapter     78,   the   newly-created   pension   committees,

which are comprised of both labor and state appointees, have the

discretionary authority to reactivate COLAs when the individual




                                       24                             A-5973-11T4
pension   funds   attain    the   "targeted   funded    ratio,"     that   is,

seventy-five percent funding in "State fiscal year 2012, and

increased in each fiscal year thereafter by equal increments for

seven years, until the ratio reaches 80 percent at which it

shall remain for all subsequent fiscal years."            N.J.S.A. 43:3C-

16.   See N.J.S.A. 43:15A-17 (PERS pension committee); N.J.S.A.

43:16A-13   (PFRS   pension   committee);     N.J.S.A.    18A:66-56     (TPAF

pension committee).     The Sponsor's Statement explained:

                 The committees of these systems will
            have the authority to reactivate the cost of
            living adjustment on pensions and modify the
            basis for the calculation of the cost of
            living adjustment and set the duration and
            extent of the activation.   A committee must
            give    priority   consideration    to    the
            reactivation   of   the   cost   of    living
            adjustment.

                  . . . .

            Under the bill, the automatic cost-of-living
            adjustment will no longer be provided to
            current    and     future    retirees    and
            beneficiaries, unless it is reactivated as
            permitted by the bill.

            [Sponsor's Statement to Senate             Bill   No.
            2937, at 119-20 (June 13, 2011).]

      The Division of Pensions and Benefits estimated that the

            total State savings attributable to the
            changes   to   employee  contributions  for
            pensions and health care and to pension
            benefit and actuarial changes, such as
            elimination of the retiree COLA for the
            State-administered retirement systems, will
            be $45,689,111 in FY 2012, $114,768,000 in



                                     25                              A-5973-11T4
               FY 2013, and $203,442,676 in FY 2014.    The
               fiscal impact in FY 2012 resulting from the
               pension reform changes are estimates and are
               subject to change.

               [Fiscal Note to Senate, No. 2937, 214th Leg.
               (N.J. June 28, 2011).]

    In     a    press    release      accompanying     the    bill,    the   Governor

stated    that    "pension      funds    are    considered     to     be   adequately

funded if their AVA funded ratio is at or above 80% (the federal

standard for "at-risk" funds).              At the end of fiscal 2010, the

State's plans' combined AVA funded level was just 56 percent."

Governor's Statement upon Signing Senate Bill No. 2937, L. 2011,

c. 78 (June 28, 2011).

               These reforms protect the pension system for
               retirees, increasing the funded ratio of the
               combined state and local systems from the
               current 62% to more than 88% over the next
               thirty years.    By 2041, this will reduce
               total pension underfunding to $37 billion.
               Without these critical reforms, the unfunded
               liability across the pension systems would
               have skyrocketed to $183 billion, resulting
               in a massive impact on state and local
               budgets.

               [Ibid.]

    As     part    of    the    political      compromise     that    produced     its

passage,       Chapter   78    also     amended   the    non-forfeitable        right

statute    to     provide      that    members    of    the    State-administered

pension systems have a contractual right to the annual required

contribution made by the employer or any other public entity.




                                          26                                 A-5973-11T4
L. 2011, c. 78, § 26, codified at N.J.S.A. 43:3C-9.5(c)(2).             The

statute was also amended to provide that any rights reserved to

the State under N.J.S.A. 43:3C-9.5(e) to modify or amend the

retirement systems "shall not diminish the contractual rights of

employees    established   by   subsections   a,   b,   and   c   of   this

section."    Ibid.   (emphasis added).

    N.J.S.A. 43:3C-9.5 (emphasis added), currently provides:

            a. For purposes of this section, a "non-
            forfeitable right to receive benefits" means
            that the benefits program, for any employee
            for whom the right has attached, cannot be
            reduced.    The provisions of this section
            shall not apply to post-retirement medical
            benefits which are provided pursuant to law.

            b. Vested members . . . shall have a non-
            forfeitable right to receive benefits as
            provided   under   the   laws   governing  the
            retirement    system   or    fund   upon   the
            attainment of five years of service credit
            in the retirement system or fund or on the
            effective date of this act, whichever is
            later.   This    subsection   shall    not  be
            applicable to a person who becomes a member
            of these systems or funds on or after the
            effective date [May 21, 2010] of P.L.2010,
            c.1 . . . .

            c.   (1) The State and all other applicable
            employers shall make their annual normal
            contribution to each system or fund as
            determined   by  the   applicable board  of
            trustees in consultation with the system's
            or fund's actuary . . . .

                 (2) Each member    of [PERS, PFRS, TPAF,
            and other retirement    systems] . . . shall
            have a contractual      right to the annual
            required contribution    amount being made by



                                   27                             A-5973-11T4
the member's employer or by any other public
entity. The contractual right to the annual
required    contribution   means   that  the
employer or other public entity shall make
the annual required contribution on a timely
basis to help ensure that the retirement
system is securely funded and that the
retirement benefits to which the members are
entitled by statute and in consideration for
their public service and in compensation for
their work will be paid upon retirement.
The failure of the State or any other public
employer to make the annually required
contribution shall be deemed to be an
impairment of the contractual right of each
employee.   The Superior Court, Law Division
shall have jurisdiction over any action
brought by a member of any system or fund or
any board of trustees to enforce the
contractual    right   set  forth   in  this
subsection.     The State and other public
employers shall submit to the jurisdiction
of the Superior Court . . . and shall not
assert sovereign immunity in such an action.
If a member or board prevails in litigation
to enforce the contractual right set forth
in this subsection, the court may award that
party their reasonable attorney's fees.

d. This act shall not be construed to
preclude forfeiture, suspension or reduction
in benefits for dishonorable service.

e. Except as expressly provided herein and
only to the extent so expressly provided,
nothing in this act shall be deemed to (1)
limit the right of the State to alter,
modify or amend such retirement systems and
funds, or (2) create in any member a right
in the corpus or management of a retirement
system or pension fund. The rights reserved
to the State in this subsection shall not
diminish the contractual rights of employees
established by subsections a., b., and c. of
this section.




                     28                        A-5973-11T4
      In their complaint, the Berg intervenors asserted that from

2006 to 2011 the unfunded liability of the retirement systems

increased as follows:                PERS increased from $2.6 billion to an

estimated $15.6 billion; TPAF increased from $5.8 billion to

$31.2    billion;       and    PFRS     increased        from    $3.5     billion   to    $11

billion.        During that same period the funding ratios decreased.

The     State    does     not       contest       those     allegations,       which      are

consistent        with        the     actuarial          reports     in      the    record.

Intervenors allege that the increase in unfunded liabilities and

the decrease in funded ratios of the TPAF, PERS and PFRS are

attributable in significant part to the reduced contributions

from the State and local employers.

        In the 2014 budget, the Legislature appropriated a $1.676

billion payment for the pension systems, consistent with the

funding    formula       set        forth   in     the    2010     pension    amendments.

N.J.S.A. 43:3C-14, L. 2010, c. 1, § 38.                          However, by Executive

Order    156     (May    20,    2014),      the    Governor      reduced      the   State's

pension contribution by ordering the State Treasurer to freeze

expenditures.5          The Executive order was issued in response to

what the Governor characterized as an $875 million shortfall in




5
  The validity of the Executive Order is not before us, and our
opinion is not intended to address that issue.



                                              29                                    A-5973-11T4
expected    State       tax       revenues     and    a     total       revenue     gap    of

approximately $1.3 billion.

                                   PROCEDURAL HISTORY

      On July 26, 2011, plaintiffs, Richard W. Berg and twenty-

five other retired government attorneys (plaintiffs), filed a

notice     of    claim       in    accordance        with    the        statutory       notice

requirement      of    the    Contractual         Liability       Act    (CLA),     N.J.S.A.

59:13-5,    asserting        that     they    had    contractual,         statutory,      and

constitutional rights to COLAs.

      On December 2, 2011, plaintiffs filed a complaint, Berg v.

Christie, MER-L-2996-11, against the Governor, the Secretary of

State, the Director of the Division of Pensions (Director), the

Board of Trustees of PERS, the State Treasurer, and the State

(collectively defendants), challenging the constitutionality and

enforceability of the suspension of their COLAs under Chapter

78.     Plaintiffs alleged the suspension constituted a breach of

express and implied contract (counts one and two), violated the

Contract    and       Due    Process       Clauses    of    the    Federal        and   State

Constitutions (counts three, four, and six), and violated their

state    civil    rights          (count    five).         They    sought     a     judgment

declaring Chapter 78 unconstitutional, a permanent injunction,

monetary damages, and attorneys' fees and costs.




                                             30                                     A-5973-11T4
    On     February     2,   2012,    defendants     filed     a       Rule   4:6-2(e)

motion to dismiss for failure to state a claim upon which relief

can be granted.         Plaintiffs filed a cross-motion for summary

judgment.       Plaintiffs and defendants filed joint stipulations,

including   a    stipulation    that     reports     cited    by       defendants    in

their brief were admitted into evidence with the consent of the

parties.    As a result, the motion to dismiss was converted into

a summary judgment motion.           R. 4:6-2.

    On April 16, 2012, intervenors, a group of state and local

active and retired employees and the labor organizations that

represented them, filed a motion on short notice to intervene,

on the COLA issue only.6             By order issued on May 2, 2012, the

trial court granted the motion for intervention pursuant to Rule

4:33-2.     On    May   8,   2012,    intervenors      filed       a    complaint    in

intervention,     asserting     claims       of   violation    of       the   Contract

6
  On April 11, 2012, intervenors filed a separate "declaratory
judgment and class action" complaint in state court, New Jersey
Education Association v. State of New Jersey, MER-L-0771-12,
against the State, the Governor, and the State Treasurer,
challenging   several  provisions   of   Chapter   78,  including
suspension of the COLAs. Assignment Judge Mary Jacobson stayed
the proceedings in New Jersey Education Association, MER-L-0771-
12, pending decision in Berg.
     Previously, on November 17, 2011, intervenors had also
filed a complaint in federal district court.     N.J. Educ. Ass'n
v. State, Civ. No. 11-5024 (D.N.J. March 5, 2012). On March 5,
2012, United States District Court Judge Anne Thompson dismissed
the federal complaint on sovereign immunity grounds under the
Eleventh Amendment to the United States Constitution.




                                        31                                    A-5973-11T4
Clause (count one), violation of Due Process (count two), and

equitable estoppel.

      On    May       25,    2012,     a   Law     Division          judge    conducted      oral

argument     on       the    motions,      and     issued        a    brief    oral    decision

granting defendants' motion for summary judgment.                                     The judge

found      that      the     suspension      of       COLAs      under       Chapter    78    was

constitutional              because,       under           the   Debt        Limitation       and

Appropriations             Clauses,    the       Legislature          retained     continuing

authority       to    amend     the    pension        systems.         The    judge    did    not

decide plaintiffs' Contract Clause, and other claims.7                                  On June

20,     2012,        the     judge     issued         an     amended     order     dismissing

plaintiffs' complaints.8

                                             II

      On an appeal from a summary judgment order, our review is

de novo, and we owe no deference to the trial court's legal

interpretations.             See Perez v. Professionally Green, LLC, 215


7
  Nor did the judge at any point certify the case as a class
action.   In fact, the plaintiffs in Berg emphasize, in their
reply brief, that theirs is not a class action.
8
  On August 24, 2012, intervenors filed an amended complaint in
New Jersey Education Ass'n, MER-L-771-12, deleting their COLA
claims, class allegations, and damages claims. In October 2012,
defendants filed a motion to dismiss in that case. On February
21, 2013, Judge Jacobson issued a well-reasoned decision
granting defendants' motion to dismiss intervenors' amended
complaint.




                                                 32                                     A-5973-11T4
N.J. 388, 398-99 (2013).        We agree with the Berg plaintiffs9 that

the trial court erred in premising its decision on the Debt

Limitation     and    Appropriations       Clauses    of   the   New     Jersey

Constitution.     The Appropriations Clause, N.J. Const. art. VIII,

§ 2, ¶ 2, requires "that the State's finances be conducted on

the basis of a single fiscal year covered by a single balanced

budget."     N.J. Educ. Ass'n, supra, 412 N.J. Super. at 216.                The

clause generally bars the courts from ordering the Legislature

to appropriate funds.         City of Camden v. Byrne, 82 N.J. 133, 149

(1980).     The Debt Limitation Clause, N.J. Const. art. VIII, § 2,

¶   3,    prohibits   "'one   Legislature    from    incurring   debts    which

subsequent Legislatures would be obliged to pay, without prior

approval by public referendum.'"           City of Camden, supra, 82 N.J.

at 152 (citation omitted).

         There is no dispute that, at the current time, there are

sufficient funds in the pension systems to pay COLAs to current

retirees.       Moreover,      pensions      are     neither     funded       by

appropriations on a pay-as-you-go basis, in the way that COLAs

used to be, nor is their payment contingent on the making of a

current appropriation.         Compare N.J.S.A. 43:3B-4.1 with N.J.S.A.

43:3B-4a.      During the years that the State skipped making its


9
  We refer to the original plaintiffs                and   the   intervenors,
collectively, as "the Berg plaintiffs."



                                      33                               A-5973-11T4
pension     contributions,         the    pension     systems    continued          paying

COLAs to retirees.           In fact, in 2010, the State assured this

court   that      the   pension     systems        were    capable    of    paying       out

benefits for the next thirty years, despite the State's failure

to   make   its    contributions         to   the   funds.      N.J.       Educ.    Ass'n,

supra, 412 N.J. Super. at 215 n.14.                       Hence, COLAs can be paid

currently without the need for any legislative appropriation.

Consequently,      neither    the        Appropriations      Clause     nor   the      Debt

Limitations Clause is currently implicated here, where the issue

is   payment      to    retirees    from      the   pension     funds      rather      than

payment by the Legislature into the funds.                     See City of Camden,

supra, 82 N.J. at 148-53; N.J. Educ. Ass'n, supra, 412 N.J.

Super. at 215 (noting the "clear distinction between the right

to receive pension benefits and the funding method adopted by

the Legislature to assure that monies are available for the

payment of such benefits.")

      It may be argued that if the pension funds are not restored

to fiscal health, at some point the money will run out and an

appropriation will be needed to restore the funds' solvency.                                A

lawsuit aimed at requiring such an appropriation would implicate

both the Appropriations Clause and the Debt Limitation Clause.

See N.J. Educ. Ass'n, supra, 412 N.J. Super. at 216.                           However,

we conclude that in this lawsuit, such a potential eventuality




                                              34                                   A-5973-11T4
does not trigger either clause.                 See Passaic, supra, 18 N.J. at

147 (finding no violation of the Debt Limitation Clause in the

creation of a pension fund to which State law provides the State

"shall" contribute); Enourato v. N.J. Bldg. Auth., 90 N.J. 396,

402-03,     410     (1982)        (holding       that      contracts        subject    to

legislative    appropriation         do    not     violate    the    Debt    Limitation

Clause, but recognizing that the State's failure to honor its

financial commitments may affect its bond rating).

      Nor can we agree with the trial court's conclusion that

N.J.S.A.    43:3C-9.5(e)           defeats       plaintiffs'         contract    claim.

Subsection (e) reserves to the Legislature the "right to alter,

modify or amend" the retirement systems, "[e]xcept as expressly

provided herein . . . ."                  Ibid. (emphasis added).               Reading

section 9.5 as a whole, the emphasized phrase clearly refers to

the   rights      created    in    sections        9.5(a)    and     (b),    which    are

exceptions to the reserved right to alter, modify or amend the

retirement systems.          Thus, section 9.5 gives retired or vested

members a non-forfeitable right to their pension benefits as

described    in    subsections       (a)     and    (b),     while    subsection      (e)

allows the State to modify the pension systems as to employees

or retirees to whom subsection (b) does not apply.

      We have considered the additional contentions raised by the

Berg plaintiffs, and we conclude that, to a large extent, they




                                           35                                   A-5973-11T4
are    recycling   arguments      that      were   litigated     and     decided

adversely to the intervenor-plaintiffs in the prior state and

federal lawsuits noted in section I of this opinion.                       Those

arguments were properly addressed and rejected by Judge Mary

Jacobson, New Jersey Education Association v. State, No. L-0771-

12 (Law Div. June 13, 2013), and Judge Anne Thompson, New Jersey

Education Association v. State, Civ. No. 11-5024 (D.N.J. March

5,    2012).   With     respect   to   the    State's     Eleventh     Amendment

immunity, we add that the State may not "be forced to entertain

in its own courts suits from which it was immune in federal

court . . . ."     Howlett v. Rose, 496 U.S. 356, 365, 110 S. Ct.

2430, 2437, 110 L. Ed. 2d 332, 346 (1990); see also Alden v.

Maine, 527 U.S. 706, 748, 119 S. Ct. 2240, 2263, 144 L. Ed. 2d

636, 673-74 (1999).        Because the State has sovereign immunity

with    respect    to    plaintiffs'        federal     causes   of      action,

plaintiffs'    federal     Contract      Clause       claims   were    properly

dismissed.10   See Allen v. Fauver, 167 N.J. 69, 75 (2001).                  With

the exception of their State Contract Clause claims (discussed


10
   As discussed later in this opinion, because the Contract
Clauses in the State and Federal Constitutions are construed the
same way, dismissal of the federal claim has no impact on the
legal analysis of plaintiffs' state Contract Clause cause of
action. See Fid. Union Trust Co. v. N.J. Highway Auth., 85 N.J.
277, 299 (1981) (discussing parallel construction of Federal and
State Contract Clause).




                                       36                               A-5973-11T4
in    section    III,     infra),      the     Berg      plaintiffs'       arguments     are

without      sufficient       merit    to     warrant     further     discussion        in   a

written opinion.        R. 2:11-3(e)(1)(E).

       Turning    to    the    DeLucia        case,      plaintiffs    are    former     law

enforcement officers who were wounded in the line of duty and

retired on disability pensions paid by the Police and Firemen's

Retirement       System    (PFRS)11           In    an     effort     to    differentiate

themselves      from    the     Berg       plaintiffs,      they     filed    a    separate

lawsuit, raising claims based on the Victims' Rights Amendment,

N.J. Const. art. I, ¶ 22; the Crime Victim's Bill of Rights,

N.J.S.A.      52:4B-34     to       -38;     and    the     tax-exemption         and   non-

assignability provision of the PFRS statute, N.J.S.A. 43:16A-17.

In an oral opinion issued on August 24, 2012, the trial court

dismissed their complaint.

       While we are not unsympathetic to the DeLucia plaintiffs

and    the    sacrifices       they     made       during    their     law   enforcement

careers, the statutory and constitutional provisions they cite

are irrelevant to the issue of their entitlement to a pension or

a COLA.      Without relying on N.J.S.A. 43:3C-9.5, these plaintiffs

also    argue    more     generally         that    a     COLA     represents      deferred

compensation      which       the     State    cannot       deny    them.       These    and

related arguments were properly rejected by the trial court.

11
     The former officers' wives are co-plaintiffs.



                                              37                                   A-5973-11T4
Plaintiffs' appellate arguments do not merit further discussion

here.     R. 2:11-3(e)(1)(E).12

     Hence, we turn to the contract issue.

                                  III

     A.     The Existence of a Contractual Right

     Plaintiffs claim that the following language gives vested

or retired employees a contractual right to receive not only

basic pension benefits but COLAs:

             a. For purposes of this section, a "non-
             forfeitable right to receive benefits" means
             that the benefits program, for any employee
             for whom the right has attached, cannot be
             reduced.    The provisions of this section
             shall not apply to post-retirement medical
             benefits which are provided pursuant to law.

             b. Vested members of [PERS, PFRS, TPAF, and
             other   retirement    systems],   upon   the
             attainment of five years of service credit
             in the retirement system or fund or on the
             date of enactment of this bill, whichever is
             later, shall have a non-forfeitable right to
             receive benefits as provided under the laws
             governing the retirement system or fund upon
             the attainment of five years of service
             credit in the retirement system or fund or
             on the effective date of this act, whichever
             is later.

             [N.J.S.A. 43:3C-9.5(a) and (b).]

12
   We reach the same conclusion with respect to the separate
argument raised by pro se plaintiff Ouslander in the Berg case.
He seeks to differentiate himself from the remaining plaintiffs,
by claiming promissory estoppel based on having taken early
retirement. That argument is likewise unconvincing and warrants
no further discussion here. R. 2:11-3(e)(1)(E).



                                   38                       A-5973-11T4
      We     begin     with        some    basic        principles      of       statutory

interpretation.           In construing any legislation, we attempt to

determine and effectuate the intent of the Legislature.                                Allen

v. V & A Bros., Inc., 208 N.J. 114, 127 (2011).                                  We first

consider     the     statute's        plain       language,      but    "[w]hen         'the

Legislature's intent cannot be derived from the words that it

has   chosen[,]'       a     court     may     use      extrinsic      tools     such    as

legislative history, legal commentary, sponsors' statements, or

a Governor's press release."                 Nini v. Mercer Cnty. Cmty. Coll.,

202   N.J.     98,     108      (2010)       (citations       omitted).            Indeed,

"[s]tatutes     cannot        be    read     in   a     vacuum   void       of    relevant

historical and policy considerations and related legislation."

Borough of Matawan v. Monmouth Cnty. Bd. of Taxation, 51 N.J.

291, 299 (1968).

      Because       pension     legislation        is    remedial      in    nature,     it

should     generally       be      liberally      construed      in    favor      of    the

employee.      Klumb v. Bd. of Educ. of the Manalapan-Englishtown

Reg'l High Sch. Dist., 199 N.J. 14, 34 (2009).                        However, in this

case, the principle is in tension with the general rule that

statutes are not to be construed as creating contracts.

      Because the primary role of the Legislature is to enact

statutes,     not    to    create     contracts,        our   courts    are      generally

reluctant to imply a contract created by legislation.                                   N.J.




                                             39                                   A-5973-11T4
Educ. Ass'n, 412 N.J. Super. at 206.       That reluctance extends to

the State's pension funds.       The concept was explored at length

in Spina, supra, 41 N.J. at 403-04, which involved a pension

crisis arising from a combination of overly generous benefits

and inadequate funding.       In upholding the Legislature's power to

increase the retirement age and years-of-service requirement,

the   Court   declined   to    characterize    the    pension     right   as

contractual.13

               In these circumstances, it seems idle
          to sum up either the public's or the
          employee's contribution in one crisp word.
          We have no doubt that pension benefits are
          not a gratuity within the constitutional ban
          against the donation of public moneys. . . .
          And we think the employee has a property
          interest in an existing fund which the State
          could not simply confiscate.     Whether the
          interest thus secured from arbitrary action
          is    limited   to    the   employee's   own
          contribution or extends to the entire fund
          and whether it becomes still more secure
          upon retirement, we need not say. . . . The
          usual situation, as in the case before us,
          is a fund that cannot meet all of the
          present and future demands upon it. And the
          question is whether the Legislature is free
          to rewrite the formula for the good of all
          who have contributed.

          [Spina, supra, 41 N.J. at           402    (citations
          omitted) (emphasis added).]


13
    The Court noted that during the 1947 Constitutional
Convention, the drafters rejected language conferring on public
employees a contractual right to pension benefits.    Id. at 400
n.3; see N.J. Educ. Ass'n, supra, 412 N.J. Super. at 294-95.



                                   40                              A-5973-11T4
    The Court further observed that the contract approach to

pension benefits was likely to hamper the Legislature's ability

to deal with funding crises affecting the pension fund:

                   The   difficulty       with      the   contract
              approach is that it        cannot     withstand the
              pressures upon it.

                   If the contractual obligation of the
              public employer is really to equal the
              expectations of all of the rank-and-file
              members, it must include a guaranty by the
              employer of the solvency of the fund. . . .

                  . . . .

              Moreover, even as to the disposition of the
              fund   itself,   the  contract   concept   is
              cumbersome.    What happens if the plan is
              unsound, so that little or nothing will
              remain for those presently contributing? .
              . . As a practical matter, legislative
              intervention is the only sensible approach.
              . . . True the needed power in the
              Legislature to revise a plan without the
              consent of the parties to the "contract"
              could be said to be "implied," but it seems
              odd to say the State may unilaterally
              rewrite its own contract . . . .     We think
              it   more   accurate   to   acknowledge   the
              inadequacy of the contractual concept.

              [Id. at 403-04.]

    Mindful      of   our   required    hesitancy     to   infer   legislative

contracts, and the practical difficulties the Court described in

Spina,   we    nonetheless    find     that   the   non-forfeitable     rights

statute enacted in 1997 created a contractual right.                 Based on

our review of the legislative history of the Act, we conclude




                                       41                             A-5973-11T4
that the creation of a contractual right to pension benefits

stemmed from concerns raised by public employee unions after the

State, through 1994 legislation, re-valued pension fund assets,

L. 1994, c. 62, and later skipped making contributions to the

pension funds.

    During a May 20, 1996 legislative hearing on the State's

public    pension   systems,   then-State   Treasurer    Bryan    Clymer

insisted that the pension systems were fiscally sound, despite

concerns expressed by public employee unions.           Public Hearing

Before    Senate    State   Management,   Investment    and   Financial

Institutions Committee (May 20, 1996) (Pension Hearing).                 He

stated:

           Public employee and teacher unions opposed
           pension reform, and are now suing me
           personally in Federal court in an attempt to
           overturn the reform. Their argument is that
           we are underfunding the retirement systems
           and, in the near future, contributions will
           rise dramatically.   This, they claim, will
           result in voter and taxpayer outcry for a
           reduction in pension benefits.

           [Pension Hearing at 3-4.]

    In response, a union representative challenged Clymer to

support S-1132, a recently-introduced bill that would guarantee

public employees a contractual right to their pension benefits:

           We believe that S-1132 achieves the level of
           security that most public employees are
           entitled  to   and  that   Treasurer  Clymer
           maintains they have.   If the pension funds



                                   42                            A-5973-11T4
             are as secure as the Treasurer and his
             actuary maintain, he should have no problem
             signing off on S-1132.     This bill simply
             affirms that vested members of the various
             public retirement systems have a contractual
             property right to a secure and financially
             sound retirement system and the benefits
             provided by that system.

             [Pension Hearing at 53.]

      The    hearing     was    chaired   by   Senator      Peter     Inverso,14       the

principal sponsor of S-1119, which was eventually adopted as the

1997 non-forfeiture legislation.               Senator Inverso introduced S-

1119 on May 9, 1996, two weeks before the hearing.                          Unlike S-

1132, the bill the unions supported, S-1119 originally did not

contain a contractual rights provision.

      The original sponsor's statement, as well as the language

of   the    original     bill,   made     clear   that     its   purpose     was       "to

conform the administration of the [pension systems] to federal

Internal     Revenue     Code    requirements     in    order    to    maintain        the

qualified status of these retirement systems and pension funds."

Sponsor's Statement to Senate Bill No. 1119, at 4 (May 9, 1996).

The bill stemmed from an investigation by the Internal Revenue

Service     based   on    allegations      that      the   State      had   illegally

diverted pension funds to other uses.                      The lawsuit had been




14
   Senator Inverso noted during                the     hearing     that     he     was    a
certified public accountant.



                                          43                                     A-5973-11T4
settled on March 21, 1996, with the State agreeing to restore

the funds to the pension system.

    During the May 20, 1996 hearing, a union-retained actuary

explained the employees' concern that, as a result of skipping

pension payments, the State would eventually find itself facing

a need to make a much larger contribution in the future, would

balk at such a large expenditure, and would instead try to cut

benefits.      The   actuary   urged,   "it   is   critical   that   this

Legislature guarantee the benefits that employees have earned"

and argued that the Legislature should accomplish that goal by

providing a contractual right to the benefits.         Pension Hearing

at 68-69.

    Senator Inverso responded:

            I feel strongly that the same protections
            and rights that are accorded . . . under an
            ERISA [Employee Retirement Income Security
            Act] standard to people in the private
            sector, should be accorded to people in the
            public sector, the governmental sector; that
            once they have their pensions established as
            at a point in time with regard to vesting
            it, that you cannot go back retroactively
            and change what has been earned, what has
            been accrued, what has been vested in.

            [Pension Hearing at 69.]

Senator Inverso indicated that he was prepared to negotiate with

the "administration" (presumably, the Executive Branch) on that

point.   Pension Hearing at 70.




                                   44                           A-5973-11T4
     On April 17, 1997, Senate Bill No. 1119, was amended by the

Senate   Budget     and    Appropriations          Committee      to    add   the    non-

forfeiture    provision.15          The    Committee      Statement      to    the   bill

reiterated    its     purpose     to      ensure    that    the    pension      systems

conformed to Internal Revenue Code requirements.                         However, the

Statement    also     recited     that,     with    the    exception      of    medical

benefits, the bill amendments

            [p]rovide a vested member of a system or
            fund listed in the bill with a non-
            forfeitable right to receive benefits as
            provided   under  the   laws  governing   the
            retirement system or fund in effect on the
            date of attainment of five years of service
            credit in the system or fund by the member.

            [Committee's Statement to Senate                   Bill     No.
            1119, at 2 (April 17, 1997).]

Nothing in the Statement suggested that COLAs, as opposed to

medical benefits, were to be excluded from the non-forfeitable

rights   provision.         The     Statement      also    noted       that   the    bill

required    the   State    "to    make     annual    normal       contributions       and

annual     unfunded       accrued      liability       contributions           to    each

retirement system or fund except under two circumstances set

forth in the bill."        Ibid.




15
   At that time, Senator Inverso was the Vice-Chair of the
Committee.    See    APPROPRIATIONS    HANDBOOK    FY    1997-98,
http://www.state.nj.us/treasury/omb/publications/98approp/pdf/as
ection.pdf (last visited June 12, 2014).



                                           45                                   A-5973-11T4
      In a recent case, the State conceded that retirees have a

contractual     right     to   the   basic     pension    benefit     they   began

receiving upon retirement.            N.J. Educ. Ass'n, supra, 412 N.J.

Super. at 215.       N.J. Educ. Ass'n involved a challenge by members

of the Teachers' Pension and Annuity Fund to the State's method

of funding the pension system.             We affirmed the dismissal of the

lawsuit, "finding that TPAF members, although entitled by law to

the   receipt   of    vested    benefits       upon   retirement,     possess    no

constitutionally-protected           contract     right   to    the   particular

level,   manner      or   method     of   State   funding      provided   in    the

statute."     Id. at 196.      Although the contractual right to vested

benefits on retirement was not directly at issue in N.J. Educ.

Ass'n, we recognized the "non-forfeitable rights" language of

N.J.S.A. 43:3C-9.5:

                 The general statutes recognize that
            vested members have "a non-forfeitable right
            to receive benefits," which they define as
            "mean[ing] that the benefits program, for
            any   employee  for   whom   the  right   has
            attached, cannot be reduced."        N.J.S.A.
            43:3C-9.5(a), (b).       However, they also
            reserve the State's right to alter the
            "retirement systems and funds," and they
            deny that members have rights in the pension
            funds themselves . . . .

            [Id. at 200.]

We also acknowledged the State's concession that section 9.5

created contract rights:




                                          46                              A-5973-11T4
                   The   fact   that   plaintiffs    have   no
              constitutionally-protected vested contract
              right in systematic funding of TPAF does not
              mean that the pension statutes confer no
              rights at all. There is a clear distinction
              between   the   right   to    receive    pension
              benefits and the funding method adopted by
              the Legislature to assure that monies are
              available for the payment of such benefits.
              As to the former, N.J.S.A. 43:3C-9.5(b)
              provides that members "shall have a non-
              forfeitable right to receive benefits as
              provided   under   the   laws   governing    the
              retirement    system   or    fund    upon    the
              attainment of five years of service credit
              in the retirement system or fund. . . ."
              (emphasis added).       The "non-forfeitable
              right" means "that the benefits program, for
              any   employee   for   whom   the   right    has
              attached, cannot be reduced."           N.J.S.A.
              43:3C-9.5(a).    The essence of the right,
              acknowledged by the Attorney General, is the
              receipt of promised funds upon retirement,
              presumably at the rate fixed by law when
              such benefits were conferred.      Indeed, the
              Attorney General concedes that in granting a
              non-forfeitable right to receive benefits,
              "the    Legislature    intended    to     create
              enforceable contractual rights."

              [Id. at 215 (first emphasis in original,
              second emphasis added) (footnote omitted).]

       We noted that "[a]s to this non-forfeitable right" both

parties agreed that TPAF would "continue to have enough assets

[to pay pension benefits] for at least the next thirty years . .

. ."    Id. at 215 n.14.      Hence, there had been "no impairment —

much less a substantial one — of plaintiffs' non-forfeitable

right    to    receive   accrued   pension   benefits."     Ibid.        We

concluded, however, that one Legislature could not bind a future



                                    47                           A-5973-11T4
Legislature    to    make    an    appropriation       for     the   pension      fund,

without running afoul of the Appropriations Clause.                    Id. at 216.

    In N.J. Educ. Ass'n, the State's position on the contract

question was consistent with opinions previously issued by the

Office of the Attorney General and the Office of Legislative

Services.     As previously discussed, both opinions advised that

N.J.S.A.    43:3B-9.5       created    a        contractual    right   to    pension

benefits, and hence the State could not diminish vested pension

benefits unless it could satisfy the constitutional standards

under which the State may impair the obligation of a contract.

    Based on the foregoing, we begin from the premise that the

"non-forfeitable rights" clause created a contractual right to

receive,    upon    retirement,       pension      benefits     at   the    rates    in

effect at the time the employee attained five years of service

or at the time the non-forfeitable rights statute was passed,

whichever was later.             The issue in this case is whether, in

enacting    the     non-forfeitable        rights     clause,    the   Legislature

intended    that    cost    of    living    increases     be    included     in    that

contractual right.

    The State argues that because COLAs are controlled by the

Pension Adjustment Act, while each individual pension system or

retirement plan is governed by its own separate legislation, the

term "benefits" in the non-forfeitable rights clause should be




                                           48                                A-5973-11T4
interpreted as applying only to the benefits provided by each

separate pension/retirement system and not to COLAs.

       The history of the pension statutes, including amendments

to the Pension Adjustment Act, convinces us that COLAs are such

an integral part of the pension system that the Legislature must

have    intended    that   they   be    included         as    part   of   the    non-

forfeitable right, N.J.S.A. 43:3C-9.5, guaranteed in 1997.                          As

previously    discussed,      while    COLAs      were    originally       funded   by

annual appropriations, and could be denied if the Legislature

failed to make an appropriation, N.J.S.A. 43:3B-5, that system

was abandoned decades ago.

       Instead, through amendments adopted in the late 1980's and

early 1990's, COLAs are funded in the same way that the regular

pension benefits are funded, and COLAs are payable from each of

the    applicable   pension    funds.        See    N.J.S.A.        43:16A-15.6     (L.

1989, c. 204, § 7); N.J.S.A. 43:16A-15.7 (L. 1991, c. 511, § 3);

N.J.S.A.    43:15A-24.1    (L.    1990,      c.    6,    §    2).     As   plaintiff

Ouslander points out, the Committee's Statement to Senate Bill

No. 665, which was eventually codified at                    N.J.S.A. 43:15A-24.1,

explains that the bill "provides that the COLA payment would be

recognized as a liability of the system in the same manner as

other   retirement    benefits    are     now     liabilities."         Committee's

Statement to Senate Bill No. 665, at 1 (Feb. 5, 1990).                           Hence,




                                        49                                   A-5973-11T4
we reject the State's argument that the reference, in section

9.5(b), to a retiree's non-forfeitable entitlement "to receive

benefits as provided under the laws governing the retirement

system or fund" refers only to benefits under the basic pension

funds and not to COLAs.16        We conclude that the laws governing

COLAs are part of the laws governing the retirement systems or

funds.

     The   State    also   contends    that   when    the   non-forfeitable

rights   statute,    N.J.S.A.   43:3C-9.5,    was    enacted,   the   Pension

Adjustment Act, N.J.S.A. 43:3B-2, explicitly provided that COLAs

could be decreased, revoked, or repealed "as otherwise provided

in this act."       Consequently, the State argues, the Legislature

would not logically have intended to include COLAs in the non-


16
   Plaintiffs argue that, in other contexts, including the
valuation of assets during a divorce, and calculation of a
disability-retired police officer's compensation for purposes of
N.J.S.A. 40A:14-154, courts have recognized COLAs as an integral
part of a retiree's pension.    See Hayden v. Hayden, 284 N.J.
Super. 418, 423 (App. Div. 1995); Brown, supra, 319 N.J. Super.
at 511-12. The State relies on another matrimonial case, Moore
v. Moore, 114 N.J. 147, 163 (1989), for the proposition that
COLAs are "contingent on state appropriation." The argument is
unpersuasive. The quoted language referred to an expert report
written in 1982, id. at 152, when COLAs were still funded on a
pay-as-you-go basis. Further, Moore was decided on February 15,
1989. The PFRS statute, the source of the husband's pension in
that case, was amended on December 20, 1989, to provide that
COLAs were to be funded and paid for in the same manner as
regular pension benefits. See N.J.S.A. 43:16A-15.6; L. 1989 c.
204, § 7.




                                      50                              A-5973-11T4
forfeitable rights provision because, as defined in section 2 of

the Pension Adjustment Act, COLAs were always subject to change

by amendment to the Adjustment Act, and the Legislature should

not be deemed to have repealed section 2 by implication.                          The

State thus argues that the non-forfeitable rights in N.J.S.A.

43:3C-9.5 cannot be read to impliedly repeal N.J.S.A. 43:3B-2,

and   the   State    remained    free   to    change   future      COLA   rates   by

amending the Pension Adjustment Act.

      We    conclude   this     argument     is   based   on   a   misreading     of

subsection 3B-2, which reads in pertinent part:

             The monthly retirement allowance or pension
             originally granted to any retirant . . .
             shall be adjusted in accordance with the
             provisions of this act provided, however,
             that:

                    . . . .

             Pension adjustments shall not be paid to
             retirants or beneficiaries who are not
             receiving   their   regular,    full,    monthly
             retirement     allowances,      pensions      or
             survivorship   benefits.      The    adjustment
             granted under the provisions of this act
             shall be effective only on the first day of
             a   month,   shall   be    paid    in    monthly
             installments, and shall not be decreased,
             increased, revoked or repealed except as
             otherwise   provided   in   this    act.      No
             adjustment shall be due to a retirant or a
             beneficiary unless it constitutes a payment
             for an entire month; provided, however, that
             an adjustment shall be payable for the
             entire month in which the retirant or
             beneficiary dies.




                                        51                                 A-5973-11T4
               [N.J.S.A. 43:3B-2 (emphasis added).]

     We    read       the   highlighted      language,     on    which      the    State

relies, as language of limitation.                    Specifically, the language

limits    changes      in   previously-granted         COLAs    to   those    specific

situations allowed by the Pension Adjustment Act.                      For example,

N.J.S.A. 43:3B-3 sets forth the formula for calculating COLAs

each year.       Other provisions address the voluntary waiver of a

right to increased retirement allowances, N.J.S.A. 43:3B-6, the

cessation of payments if monies are not appropriated, N.J.S.A.

43:3B-5,17      and     the   termination        of     COLA    benefits      if     the

Legislature       provides       for    a   "blanket      increase     in     original

retirement allowances."            N.J.S.A. 43:3B-8.           In context, we read

section    2    as    limiting    the   extent    to    which    a   COLA    that    was

already awarded could be reduced, increased or revoked.                        Nothing

in its language suggests that the Legislature could not, in

separate       legislation,      contractually         guarantee     the     right   to

receive a COLA.         Hence, N.J.S.A. 43:3B-2 and N.J.S.A. 43:3C-9.5

are compatible and, contrary to the State's argument, the latter

does not implicitly "repeal" the former.

     During the 1996 Pension Hearing, the participants discussed

the basic pension benefits and COLAs as part of the same system.

17
  This section was rendered obsolete when the pension statutes
were amended to provide for pre-funding of COLAs instead of
funding on a pay-as-you-go basis through annual appropriations.



                                            52                                A-5973-11T4
See, e.g., Pension Hearing at 55.                      Clearly the Legislature was

well aware that COLAs were part of the various pension benefit

plans.        In     fact,     in        discussing       the    various       actuarial

assumptions,       Robert    Baus,       the     State's      actuarial    consultant,

observed that the inclusion of COLAs as a pre-funded part of the

pension system, instead of as a separate pay-as-you-go item, was

a critical issue:           "The methodology is not driving the funding

of this system.        What is driving the funding of this system is

the phasing in of the COLA.                 That is where the sensitivity of

the cost is going to come in."                  Pension Hearing at 2, 77.

      Moreover, in section 9.5(a), the Legislature specifically

excepted    health     benefits          from    the     non-forfeitable       right    it

created.     Given the historical context in which the section was

enacted, we conclude that if the Legislature also intended to

except     COLAs,    it     would    have        specifically      so    stated.        In

construing     a    statutory       provision          that   contains     a    specific

exception, "'doubts should be resolved in favor of the general

provision rather than the exceptions.'"                         Prado v. State, 186

N.J. 413, 426-27 (2006) (citation omitted).

      The approach taken in the non-forfeitable rights statute

enacted in 1997, was also consistent with ERISA, which has been

construed as including COLAs, but not health benefits, as part

of   the   accrued    benefit       to    which     an   employee   is    entitled     on




                                            53                                  A-5973-11T4
retirement and which cannot, absent very limited circumstances,

be decreased after the employee retires.                 See 29 U.S.C.A. §

1054(g)(1); Williams v. Rohm & Haas Pension Plan, 497 F.3d 710,

713 (7th Cir. 2007), cert. denied, 552 U.S. 1276 (2008).18                  "'In

contrast [to health benefits] the COLA [is] inseparably tied to

the monthly retirement benefit as a means for maintaining the

real value of that benefit.            It [cannot], therefore, be said to

be ancillary to the benefit . . . .'"              Williams, supra, 497 F.3d

at   713    (citation     omitted,    second   and    third   alterations    in

original).

      For    all    of   these     reasons,   we   conclude   that   the   non-

forfeitable right provision, which creates a contractual right

to receive pension benefits, applies to COLAs.                  In the next

section,    we     address   the    constitutional    implications    of   that

conclusion.19


18
   That approach may also have reflected Senator Inverso's
observation, at the Pension Hearing, that the right to public
pension benefits should be protected in the way private pension
benefits are protected under ERISA. See Pension Hearing at 69.
19
  We have intentionally refrained from addressing the scope of
the class entitled to protection under section 9.5.           As
previously noted, a class has not been certified in this case,
and the record contains minimal information about the individual
plaintiffs. Those employed between 1997 and 2010 gave the State
the benefit of their labor in exchange for the contractual
protection section 9.5 provided, and those who retired during
that time presumably did so in reliance on having contractually-
guaranteed COLA benefits in retirement.    The parties have not
                                                     (continued)


                                        54                            A-5973-11T4
    B. The State and Federal Contract Clauses

    As   we   recently   recognized,   while   the   State   and   Federal

Constitutions protect legislative impairment of the obligations

of contracts, that protection is not absolute:

          The Federal and State Constitutions prohibit
          the passage of any "law impairing the
          obligation of contracts."     U.S. Const. art.
          I, § 10, cl. 1; N.J. Const. art. IV, § 7, ¶
          3.    "The    two     clauses    are     applied
          coextensively     and    provide     the    same
          protection." N.J. Educ. Ass'n v. State, 412
          N.J. Super. 192, 205 (App. Div.) (citation
          and   internal   quotation    marks    omitted),
          certif. denied, 202 N.J. 347 (2010).          In
          addressing a claim for violation of the
          Contract Clause, the threshold inquiry is
          whether the law "operated as a substantial
          impairment of a contractual relationship."
          Allied Structural Steel Co. v. Spannaus, 438
          U.S. 234, 244, 98 S. Ct. 2716, 2722, 57 L.
          Ed. 2d 727, 736 (1978).        In making that
          determination courts inquire whether: 1)
          "there is a contractual relationship"; 2)
          the "change in law impairs that contractual
          relationship"; and 3) "the impairment is
          substantial."   Gen. Motors Corp. v. Romein,
          503 U.S. 181, 186, 112 S. Ct. 1105, 1109,
          117 L. Ed. 2d 328, 337 (1992). If the state
          law constitutes a substantial impairment, it
          may nonetheless "be constitutional if it is
          reasonable   and    necessary   to    serve   an
          important public purpose."      U.S. Trust Co.
          v. New Jersey, 431 U.S. 1, 25, 97 S. Ct.
          1505, 1519, 52 L. Ed. 2d 92, 112 (1977).


(continued)
briefed, and we have not addressed, whether the necessary
elements for the formation of a contract exist with respect to
employees who retired before section 9.5 was enacted, and who
had since July 1, 1970, been receiving COLAs. L. 1969, c. 169.
That issue may be raised on remand.



                                  55                               A-5973-11T4
           [Teamsters Local 97, supra, 434 N.J. Super.
           at 425.]

See also Farmers Mut. Fire Ins. Co. v. N.J. Prop. Liab. Ins.

Guar. Ass'n, 215 N.J. 522, 546 (2013).

    As we also stated in Teamsters Local 97, supra, 434 N.J.

Super. at 402-03,

           the money that funds employee benefits is
           not unlimited.    The State's officials are
           charged with the profound responsibility not
           only of ensuring that the health care and
           pension systems remain fiscally sound, but
           also that the State remains fiscally strong
           and that the burden on the State's taxpayers
           does not become intolerable.

    However,      consistent    with        constitutional    principles     and

common   sense,   we   cannot   blindly        defer   to    the   State's   own

evaluation   of    a   law's    reasonableness         and   necessity,      lest

political expediency replace objective fiscal evaluation:

           The Contract Clause is not an absolute bar
           to subsequent modification of a State's own
           financial   obligations.      As   with   laws
           impairing    the   obligations    of   private
           contracts,     an     impairment     may    be
           constitutional if it is reasonable and
           necessary to serve an important public
           purpose.      In   applying   this   standard,
           however, complete deference to a legislative
           assessment of reasonableness and necessity
           is not appropriate because the State's self-
           interest is at stake. A governmental entity
           can always find a use for extra money,
           especially when taxes do not have to be
           raised.     If a State could reduce its
           financial obligations whenever it wanted to
           spend the money for what it regarded as an




                                       56                              A-5973-11T4
            important   public  purpose,   the   Contract
            Clause would provide no protection at all.

            [U.S. Trust Co., supra, 431 U.S. at 25-26,
            97 S. Ct. at 1519, 52 L. Ed. 2d at 112
            (footnote omitted).]

Further, in enacting a law that impairs contractual rights, "a

State is not free to impose a drastic impairment when an evident

and more moderate course would serve its purposes equally well."

Id. at 31, 97 S. Ct. at 1522, 52 L. Ed. 2d at 115.

    As noted earlier, in evaluating a Contract Clause claim, a

court   must   consider      whether   the   challenged     legislation      "(1)

'substantially     impair[s]      a    contractual       relationship,'        (2)

'lack[s] a significant and legitimate public purpose,' and (3)

is 'based upon unreasonable conditions and . . . unrelated to

appropriate governmental objectives.'"             Farmers Mut. Fire Ins.,

supra, 215 N.J. at 546 (citations omitted).

    In this case, the State argues that the pension system was,

and still is, in financial difficulty that must be addressed

lest the system eventually collapse.                Our Supreme Court has

acknowledged "the serious fiscal issues that confront the State

and that led to the passage of Chapter 78."               DePascale v. State,

211 N.J. 40, 63 (2012).           Moreover, the fiscal health of the

pension   system   is   of    importance     to   both   current   and    future

retirees.       Although,      even    without     a     current   legislative

appropriation, there is now money in the pension funds from



                                       57                                A-5973-11T4
which     to       pay       COLAs,    unless     there       is    a    long-term        financial

solution, the money in the pension funds may eventually run out.

         In    another        context,     the    Court       has       interpreted        Spina    as

endorsing the State's authority to modify pension benefits when

needed        to     ensure      the    integrity        of    the       pension      fund.         In

disagreeing           with       a     County's        interpretation          of     a     statute

mandating uniform benefits for all employees, the Court stated:

                While it has been held, moreover, that
                pension benefits can be modified in the
                interest of assuring the integrity of the
                pension system despite the compensatory
                aspect of their nature, it seems clear that
                they cannot be rescinded unilaterally when
                the    underlying    motivation    is    not
                preservation of the integrity of the benefit
                system but the erroneous belief that the
                benefits must be discontinued.

                [Gauer v. Essex Cnty. Div. of Welfare, 108
                N.J. 140, 150 (1987) (citing Spina, supra,
                41 N.J. at 402).]

         It may be argued that the Chapter 78 legislation was part

of   a    reasonable,           tripartite        approach         to    the   pension-funding

problem,           which       required     some        contribution           from        all     the

stakeholders             –    additional    pension       contributions             from    current

employees, the resumption of normal pension contributions by the

State with additional contributions to pay down the shortfall,

and the temporary cessation of COLAs for retirees.                                   See L. 2010,

c. 1 § 38; L. 2011, c. 78, §§ 8, 10, 15, 25.                                It may further be

argued        that    in      temporarily       suspending         COLAs,      the    Legislature



                                                  58                                        A-5973-11T4
chose a "moderate course" rather than the more drastic step of

reducing the basic pension benefit for retirees.              See U.S. Trust

Co., supra, 431 U.S. at 31, 97 S. Ct. at 1522, 52 L. Ed. 2d at

115.

       On the other hand, plaintiffs contend that the State was

partially responsible for the pension shortfall by skipping its

pension   contributions   in   prior     years,    and   it   should   not    be

permitted to thus precipitate a pension crisis and then solve it

at the expense of retirees.             Plaintiffs also argue that the

State has taken contradictory positions about the health of the

pension systems, assuring this court in N.J. Educ. Ass'n that

the systems were sound enough to meet their obligations for the

next   thirty   years   despite   the    State's    failure    to   make     its

contributions, and now telling us that "the pension system is

teetering on the brink of collapse."          See testimony of Senator

Sweeney (a sponsor of Senate Bill No. 2937) before the Senate

Budget and Appropriations Committee on June 16, 2011.

       In a recent submission, plaintiffs further point out that

the State is proposing to renege on its promised contributions,

through an Executive Order suspending a portion of the State's

planned pension payments for this fiscal year and the next.                  See

Executive Order 156 (May 20, 2014).         Of course, in response, the

State would no doubt contend that there were other reasons for




                                   59                                  A-5973-11T4
the   pension      shortfall,   including         drastic       investment       losses

caused by the financial "meltdown" in the stock market, and that

it intends to make as large a contribution as it can in the

current     and    coming   fiscal     years,       consistent          with    avoiding

another general budget crisis.

      As noted below, on this record, we cannot determine which

side has the better arguments.20               Further, even if we were to

currently     view    the   suspension       of   COLAs        as   a    moderate     and

reasonable step, that view might change in the future, depending

on how long the suspension lasts, how quickly the cost of living

increases, and whether, and to what extent, the State meets its

own obligations under the tripartite approach it created.

      While   we     note   these    issues,      we    agree       with   intervenor-

plaintiffs    and    defendants,     who     both      argue    that,      if   we   find

section 9.5 created contractual rights, we cannot fairly decide

the constitutional impairment-of-contract claim on this record.

Because the trial court did not address the contract clause

issue at all, and because a contract-impairment claim presents


20
  The summary judgment record the parties created was extremely
limited, consisting of a few factual stipulations and an
agreement that several actuarial reports and similar documents
would be admitted in evidence. There were no expert depositions
or other expert analysis of the evidence. By contrast, in N.J.
Educ. Ass'n, the trial court held a four-day bench trial on the
contract impairment issue.    See N.J. Educ. Ass'n, supra, 412
N.J. Super. at 201.



                                        60                                      A-5973-11T4
"a mixed question of fact and law,"               N.J. Educ. Ass'n, supra,

412 N.J. Super. at 206 n.10, a remand is required to allow all

sides to create a complete evidentiary record.              Hence, we remand

this case to the trial court for further proceedings consistent

with      this   opinion.    If   there     are   additional     arguments     the

parties wish to raise on remand concerning the impairment-of-

contracts issue, they may do so.

       In remanding, we end with these observations.                 It is not

the courts' role to run the pension systems.               Our responsibility

is   to    interpret   and   apply   the    Constitution    in   light   of    the

evidence, and we will do so.           But to a very great extent, the

strength of the pension systems rests on policy choices made by

the other two branches of government, and on their political

will to preserve the systems and satisfy prior commitments made

to public employees and retirees.            See Spina, supra, 41 N.J. at

404-05.

       Affirmed in DeLucia (A-0632-12).            Reversed and remanded in

Berg (A-5973-11, 6002-11).




                                       61                                A-5973-11T4
