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The Contracts Clause of the United States Constitution prohibits laws that impair existing contractual obligations. Nevertheless, few state laws have been struck down on that basis. One notable example occurred in the United States Supreme Court case of Allied Structural Steel Company v. Spannaus, 438 U.S. 234 (1978).
Allied Structural Steel Company provided its employees with pensions. Pension rights vested once employees turned sixty-five or met certain combinations of age and tenure.
In 1974, Minnesota passed the Private Pension Benefits Protection Act, which imposed several new requirements on some Minnesota employers. Although Allied was an Illinois company, it had an office in Minnesota and was covered by the act. Specifically, the law levied a charge on employers that failed to maintain funds sufficient to pay full pensions to all employees who’d worked for the company for ten years or more.
Although Allied’s pension funds were sufficient to meet its contractual obligations under its own pension plan, the contributions didn’t cover the additional employees entitled to funds under the act. Minnesota assessed a pension-funding charge of $185,000 on Allied, and Allied sued the Minnesota attorney general to challenge the charge.
Ultimately, the Supreme Court accepted the case to determine the constitutionality of a state law that altered employers’ contractual pension obligations. In a split decision, the Court struck down the law as a violation of the Contracts Clause, as it severely impaired Allied’s contractual obligations and was too narrow to protect a larger social interest.