349 P.3d 220
Ariz. Ct. App.2015Background
- The Arizona State Retirement System charged Arizona State University (ASU) for an actuarial unfunded liability arising from a 2011 termination incentive program affecting 17 members.
- The System administers a trust fund funding retirement and disability benefits; unfunded actuarial accrued liability arises when liabilities exceed assets.
- The System’s actuary sets contribution rates using assumptions and studies; the 749 statute governs calculating unfunded liabilities.
- The System adopted a Policy to implement §38-749, calculating active vs retired liabilities and applying charges to employers; the Policy was applied consistently.
- ASU appealed on two bases: lack of APA rulemaking for the Policy and alleged improper calculation of liability; the administrative hearing favored the System, and the superior court affirmed.
- The supreme court held the Policy is a rule requiring APA rulemaking; absence of substantial compliance invalidates the rule and the associated charge; remand for refund with interest and costs.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the Policy a rule under the APA? | ASU argues the Policy implements law and is generally applicable. | System contends the Policy is not a rule as it does not regulate; it is an interpretation or methodology. | Yes, the Policy is a rule. |
| Must the System follow APA rulemaking when §38-749 is silent on rulemaking? | APA applies unless expressly exempted; silence does not exempt. | Silence on rulemaking allows noncompliance. | APA rulemaking required. |
| Would APA compliance infringe fiduciary duties? | Rulemaking would not necessarily breach duties; protects process. | Compliance could hinder fiduciary mandate. | Compliance would not breach fiduciary duties. |
| Is the System an agency subject to the APA? | APA applies to agencies, including systems serving fiduciary functions. | System is not a traditional regulator and thus exempt. | System is an agency under the APA. |
| What is the remedial consequence of APA noncompliance? | Policy invalid and charges must be refunded. | Policy could stand despite APA issues. | Policy invalid; refund of $1,149,103 plus interest; remand for adjustments. |
Key Cases Cited
- Carondelet Health Servs., Inc. v. Ariz. Health Care Cost Containment Sys. Admin., 182 Ariz. 221 (App. 1994) (rules and methodology can be rules when implementing session laws)
- Southwest Ambulance, Inc. v. Ariz. Dep’t of Health Servs., 183 Ariz. 258 (App. 1995) (ambulance rate schedules as rules for calculations)
- Cochise County v. Ariz. Health Care Cost Containment Sys., 170 Ariz. 443 (App. 1991) (rules promulgated without APA compliance may be invalid)
- Canyon Ambulatory Surgery Ctr. v. SCF Ariz., 225 Ariz. 414 (App. 2010) (discussed agency scope and APA applicability to state funds)