In Layman v. State, the Supreme Court considered whether provisions of the Teacher and Employee Retention Incentive Program ("TERI") created a binding contract that could not be altered by a subsequent statutory enactment. Under TERI, the state provided a means for eligible employees to retire, but continue to work subject to several limitations. Under this old TERI program, an employee could retire, but continue to work for an additional five years after retirement. Instead of receiving their retirement check, the old TERI program participants' retirement money was placed in a non-interest bearing account to be paid out at the end of the five-year program period. During the five year period, the employees were deemed retired and made no further contributions to the retirement system out of their paycheck. In addition, old TERI program participants gave up the opportunity to accrue further service credit, thus, any increase in salary would not result in an increase in retirement benefits. In return, the State was able to retain a large number of experienced and well-trained employees for a period not to exceed five years.
The General Assembly changed the rules of the game with Act 153, under which old TERI participants are now required "to pay to the system the employee contribution as if a program participant were an active contributing member,"while gaining no additional service credit. The Supreme Court held that Act 153 was improper because the old TERI statute created a contract with state employees. Act 153 sought to materially alter terms which formed a substantial part of the basis for the bargain struck between the State and old TERI participants.
Thus, the Court found that "the provision of the old TERI statute created a binding contract and hold that the State breached that contract by applying the requirements of Act 153 to old TERI participants enrolled prior to July 1, 2005."