Argued: October 24, 2013.
As amended by order of the Supreme Court August 14, 2014.
Appeal from Thurston County Superior Court. 11-2-02213-4. Honorable Chris Wickham.
Timothy G. Leyh, Randall T. Thomsen, and Katherine S. Kennedy (of Calfo Harrigan Leyh & Eakes LLP ); and Robert W. Ferguson, Attorney General, and Anne Hall and Sarah E. Blocki, Assistants, for petitioners.
Donald E. Clocksin ; Harriet K. Strasberg ; Edward E. Younglove III (of Younglove & Coker PLLC ); and Richard E. Spoonemore and Eleanor Hamburger (of Sirianni Youtz Spoonemore Hamburger ), for respondents.
Rebecca R. Glasgow on behalf of Washington State School Directors' Association, amicus curiae.
Keith A. Buchholz, Jeanine M. Gorrell, and Timothy G. Sekerak on behalf of Washington State Legislature, amicus curiae.
Josh Weiss on behalf of Washington State Association of Counties, amicus curiae.
Daniel G. Lloyd on behalf of Washington State Association of Municipal Attorneys and Association of Washington Cities, amici curiae.
AUTHOR: Chief Justice Barbara A. Madsen. WE CONCUR: Justice Charles W. Johnson, Justice Susan Owens, Justice Mary E. Fairhurst, Justice Debra L. Stephens, Justice Charles K. Wiggins, Justice Steven C. Gonzá lez, Justice Sheryl Gordon McCloud, Laurel H. Siddoway, Justice Pro Tem.
[181 Wn.2d 236] Madsen, C.J.
¶ 1 -- The Washington Department of Retirement Systems (DRS) and the State of Washington petition for review of an order granting summary judgment to a class of public employee unions and unaffiliated employees and holding that the 2011 repeal of legislation granting future uniform cost of living adjustments (UCOLA) to the respondents' monthly pension payments was an unconstitutional impairment of the State's contractual obligation with its employees. We disagree because the legislature reserved its right to repeal the pension rights at [181 Wn.2d 237] issue and the original enactment of UCOLA did not impair any existing contract rights of state employees. Accordingly we reverse.
FACTS AND PROCEDURAL HISTORY
¶ 2 The Public Employees' Retirement System (PERS) Plan 1 and the Teachers' Retirement System (TRS) Plan 1 governed the state's pre-1977 pension program for school teachers, administrators, and other
state employees. Because PERS Plan 1 and TRS Plan 1 provide substantially the same benefits, they will together be referred to as " Plan 1." On October 1, 1977, the legislature eliminated Plan 1 as an option for new employees, replacing Plan 1 with Plan 2 and later adding Plan 3 as a second option. Current Plan 1 members therefore all entered state employment before October 1, 1977. Plan 1 is a defined benefit plan where, after retirement, members are paid a fixed monthly pension amount irrespective of their level of contribution. A statutory formula determines Plan 1 members' pension amounts, looking to the members' years of service and average compensation level during their highest two consecutive years. See RCW 41.32.498; RCW 41.40.185 (outlining that the Plan 1 annual retirement allowance shall be two percent of the employee's average final compensation for each service credit year). Plan 1 is contributory; the benefit is paid out of contributions from the employer and the employee, as well as investment returns on prior contributions. Employee contribution is capped, whereas the employer contribution level can vary with need and is set by the legislature biennially. As it originally stood, Plan 1 did not include any adjustment for changes in cost of living.
¶ 3 As the years progressed, pressure mounted to adjust pensions to reflect greater retiree longevity and increased inflation. Beginning in the early 1970s, the legislature enacted a series of cost of living adjustments (COLAs) that [181 Wn.2d 238] were limited to specific groups and time periods. In 1973, the legislature provided an adjustment based on a cost of living factor. This COLA stated that an adjustment " shall" be made, " provided, that the department finds, at its sole discretion" that the system assets could fund the COLA. Former RCW 41.32.499 (1994) (capitalization omitted); former RCW 41.40.195 (1994). Under this scheme, COLAs were never granted to TRS Plan 1 employees and were granted only through 1980 to PERS Plan 1 employees. Hence, for the 15 years prior to the creation of a uniform COLA system in 1995, DRS never exercised its discretion to grant a COLA under the 1973 provision. In subsequent years the legislature enacted three other COLAs to benefit discrete populations of the state employee community: minimum retirement allowance recipients, retirees whose benefit had lost a specified amount of its purchasing power, and retirees who were at least 70 years old. 
¶ 4 In 1995, motivated by the desire to simplify calculations, expand coverage, and streamline the administration of COLA benefits, the legislature passed a UCOLA scheme. Laws of 1995, ch. 345, § 1. UCOLA repealed the 1973 COLA and the purchasing power COLA, and made the age-70 COLA permanent for those already receiving it. Final B. Report on Substitute S.B. 5119, 54th Leg., Reg. Sess. (Wash. 1995). UCOLA also replaced the old minimum benefit COLA with a new minimum allowance of $ 24.22 per year of [181 Wn.2d ...