Allied Structural Steel Co. v. Spannaus
In Allied Structural Steel v. Spannaus, 438 U.S. 234, 242, 98 S.Ct. 2716, 2721, 57 L.Ed.2d 727 (1978), a private employer challenged the constitutionality of Minnesota's Private Pension Benefits Protection Act which subjected the employer to a "pension funding charge" if the employer terminated a pension plan or closed a Minnesota office.
The Court held the Minnesota statute invalid under the Contract Clause.
The Court noted that the Minnesota law not only retroactively modified the employer's obligations, it did so in an area where the element of reliance was vital--the funding of a pension plan. Id. at 246, 98 S.Ct. at 2723.
The Court went on to state that:
"These pension plans, like other forms of insurance, depend on the accumulation of large sums to cover contingencies. The amounts set aside are determined by a painstaking assessment of the insurer's likely liability. Risks that the insurer foresees will be included in the calculation of liability, and the rates or contributions charged will reflect that calculation. The occurrence of major unforeseen contingencies, however, jeopardizes the insurer's solvency and ultimately, the insureds' benefits. Drastic changes in the legal rules governing pension and insurance funds, like other unforeseen events can have this effect." Id. at 246-47, 98 S.Ct. at 2723.
In Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 98 S.Ct. 2716, 57 L.Ed.2d 727 (1978), the Supreme Court invalidated a statute that altered the pension plan liabilities of employers who either terminated a pension plan or closed a Minnesota office.
The statute, intended to protect discharged workers, essentially required the employer to assure all employees of at least ten years standing a full pension regardless of the vesting provisions of any existing plan. Stressing the fact that the severe disruption of contractual obligations was unexpected and served only a relatively narrow public interest, the Court held that not even the presumption favoring legislative judgments as to necessity and reasonableness could save the act.