438 U.S. 234 (1978)
Allied Structural Steel Co., an Illinois corporation, maintained a pension plan for its salaried employees that it had adopted in 1963 and qualified under section 401 of the Internal Revenue Code.1 The plan provided that the company was the sole contributor to the pension trust fund. The company made contributions based on actuarial predictions.2 It retained the right to amend or terminate the plan at any time and for any reason.3
In the event of termination, assets were distributed first to retired employees, then to those eligible for retirement, and finally to other covered employees whose rights had not vested, with employees assured payment only to the extent of the assets.4 The plan expressly stated that no employee had any right to trust assets upon termination of employment except as provided, and that neither the employer nor trustee was liable beyond the assets.5
On April 9, 1974, Minnesota enacted the Private Pension Benefits Protection Act, which applied to private employers of 100 or more employees with at least one Minnesota resident who provided pension benefits under a qualified plan.6 The Act imposed a pension funding charge on such an employer if it terminated the plan or closed a Minnesota office. It required the employer to purchase deferred annuities for employees with at least 10 years of service whose nonvested benefits would otherwise be forfeited.7 Periods of employment prior to the Act's effective date were included in the 10-year criterion.8
During the summer of 1974, the company began closing its Minnesota office, which had 30 employees, and on July 31 discharged 11 of them. At least nine of the discharged employees had worked for the company for 10 years or more but did not have vested pension rights under the plan.9
On August 18, the State notified the company that it owed a pension funding charge of approximately $185,000 under the Act.10
The company brought suit in federal district court seeking injunctive and declaratory relief on the ground that the Act unconstitutionally impaired its contractual obligations. A three-judge district court upheld the constitutional validity of the Act as applied to the company.11 An appeal was taken to the Supreme Court under 28 U.S.C. § 1253, and the Court noted probable jurisdiction.12
Whether the application of Minnesota's Private Pension Benefits Protection Act to Allied Structural Steel Co.'s pre-existing pension plan violates the Contract Clause of the United States Constitution?13
The Contract Clause provides that no State shall pass any Law impairing the Obligation of Contracts. Although the Clause is not to be read literally, it imposes limits on state power to abridge existing contractual relationships even in the exercise of police power. A state law that substantially impairs contractual obligations must be justified as a reasonable and necessary means to achieve a legitimate public purpose, considering factors such as whether the law addresses a broad societal interest rather than a narrow class, operates in an area previously subject to regulation, and effects only a temporary alteration rather than a severe and permanent change.14
Yes. The Minnesota Act substantially impaired the company's contractual relationship with its employees by imposing a pension funding charge of approximately $185,000 upon the closing of its Minnesota office, an obligation not present under the pension plan that allowed termination without further liability.15 The impairment is severe because it retroactively modified the compensation terms on which the company had relied for over a decade in calculating its contributions.16
The law does not address a broad generalized economic or social problem. It has an extremely narrow focus, applying only to private employers of 100 or more employees closing offices in Minnesota who had established voluntary pension plans.17 Furthermore, the Act invaded an area never before subject to regulation by the State and worked a severe, permanent, and immediate change in the contractual relationships without any provision for gradual applicability.18
Therefore, the application of the Minnesota Act to the company's pre-existing pension plan violates the Contract Clause.19
Related opinions on this issue
Justice Blackmun concurred to emphasize that the Minnesota Act represents a classic example of special interest legislation that the Contract Clause was designed to prevent.20 The Act was enacted at the request of a single union and targets only a limited number of employers within the state rather than addressing a broad social issue through generally applicable rules.21 It functions as a targeted intervention that compels specific companies to provide benefits never bargained for in the original contracts.22
This form of legislative interference with private arrangements falls squarely within the protections the Contract Clause affords against such narrow and self-interested enactments.23
Joined by Justices White And Marshall
Justice Brennan dissented on the ground that the Contract Clause does not apply to legislation that creates new duties rather than diminishing existing contractual obligations.24 The Minnesota Act imposes supplemental responsibilities on employers to protect employee expectations but does not relieve any party of a prior duty or nullify any contractual term.25 In his view the proper constitutional inquiry is under the Due Process Clause, and the Act satisfies that standard because it reasonably addresses a serious social problem by spreading costs to those who benefited from employee labor.26
The legislation is not wholly retrospective since liability arises only from post-enactment plant closings, and it reflects a permissible legislative judgment about protecting long-service employees from unforeseen plant closures.27