Allied Structural Steel Co. v. Spannaus

Allied Structural Steel, a company chartered in Illinois, had a Minnesota office in which it employed 30 persons. In 1963, the company adopted a general pension plan whereby a salaried employee who reached the age of 65 would be entitled to receive a monthly pension. The amount was computed by multiplying one percent of his or her average monthly earnings by the total number of years he or she had been employed; so if someone had worked for the company 20 years, earning an average of $2,000 a month in salary, the employee's pension would be $20 multiplied by 20 years, or $400 a month. There was no minimum length of service required by the company before employees were entitled to receive the pension. The size of the pension would, however, depend on the number of years worked. The plan further stipulated that an employee would receive the pension if he or she (1) had worked 15 years for the company and reached the age of 60; or (2) was at least 55 years of age, and the sum of his or her age and years of service with the company was at least 75; or (3) was less than 55 years of age, but the sum of the age and years of service was at least 80. (For example, a 50 year-old employee who had worked 30 years for the company would qualify under the third option.)

Each year the company made contributions to the fund, according to the predictions its accountants made regarding eventual payout needs. Just as the company had voluntarily chosen to inaugurate the plan, it reserved the right to change the plan in whole or in part, or to terminate it at any time and for any reason. If it did terminate the plan, however, Allied promised to distribute the funds, first to meet obligations it had made to employees who were already retired,and then to those eligible for retirement. Any remaining balance would be distributed to the employees under the plan who had not yet retired. The plan further stated, "No employee shall have any right to, or interest in, any part of the Trust's assets upon termination of his employment or otherwise, except as provided from time to time under this Plan, and then only to the extent of the benefits payable to such employee out of the assets of the Trust." Furthermore, the plan noted that the company could dismiss employees at any time and for any reason, and that the plan itself served as no guarantee that it would not do so. By most standards, it was a fair and equitable plan, given the fact that the company had entered into it voluntarily and that the funds came from the company, not from the employees. As Justice Stewart later observed, "In sum, an employee who did not die, did not quit, and was not discharged before meeting one of the requirements of the plan would receive a fixed pension at age 65 if the company remained in business and elected to continue the pension plan in essentially its existing form."

In 1974, two events occurred which would ultimately lead to the Supreme Court's review of Allied Structural Steel Co. v. Spannaus. On April 9, the State of Minnesota passed its Private Pension Benefits Protection Act. The act imposed a "pension funding charge" on any private company that (1) employed 100 or more people, at least one of whom was a Minnesota resident; (2) maintained a pension plan; (3) terminated the plan or closed a Minnesota office; and (4) did not have pension funds sufficient to cover full pensions for all employees who had worked for the company for at least ten years. Under the act, the employer would have to purchase deferred annuities, payable to the employees at normal retirement age, to satisfy the deficiency.

This was clearly at odds with Allied's plan, and the situation came to a head that summer, when the company set in motion a plan to close its Minnesota office--a plan which it had made before Minnesota passed its act. On 31 July, Allied dismissed 11 of its 30 Minnesota employees, and in August it notified the Minnesota Commissioner of Labor and Industry, in accordance with Minnesota law, that it was closing its Minnesota office. As it turned out, at least nine of the discharged employees had at least ten years' worth of service each. Though they did not yet qualify for the company's pension plan, they qualified for pensions under the Minnesota Act, and on August 18, the state presented Allied with a pension funding charge of some $185,000.

Allied brought a suit in federal district court asking for injunctive and declaratory relief. The Minnesota Act was unconstitutional, according to the company's legal counsel, because it impaired the company's contractual obligations under the pension agreement. At issue was the Contract Clause of the Constitution: "No State shall . . . pass any . . . Law impairing the Obligation of Contracts." The three-judge panel ruled that the Minnesota statute was constitutional as applied to Allied Structural Steel's pension plan. Allied appealed to the Supreme Court, and the Chamber of Commerce of the United States filed a brief of amicus curiae urging reversal.