76 Op. Att'y Gen. 299 | Wis. Att'y Gen. | 1987
GARY I. GATES, Secretary Department of Employe Trust Funds
You request my opinion as to whether sections 436m, 684r and 688km of 1987 Wisconsin Act 27 (the 1987 budget bill) violate the contract clauses of the United States or Wisconsin Constitutions. Specifically, you ask:
Does redirecting the investment earnings of the assets in the annuity reserve to fund supplemental benefits payable only to pre-1974 retirees violate the contractual rights of those who retired after that date?
It is my opinion that these statutory changes do not cause a constitutional infringement of the contractual rights of the Wisconsin Retirement System (WRS) annuitants who retired after 1974 and are not given the benefit of the "special performance dividend." The contractual rights of the various WRS annuitants are not uniform and are greatly determined by the content of the statutes in effect on the date the annuitants terminated public employment. Consequently, a general statement as to the constitutional rights of all annuitants under the WRS is inappropriate in answering your question.
All laws are presumed to be constitutional and one attacking a statute must, to overcome this presumption, prove the statute unconstitutional beyond a reasonable doubt. State ex rel. Cannonv. Moran,
Sections 436m, 684r and 688km of the 1987 budget bill (as vetoed in part by the Governor) state as follows: *300
SECTION 436m. 20.515 (1)(a) of the statutes is amended to read:
20.515 (1)(a) Annuity supplements and payments. A sum sufficient to pay the benefits authorized under ss.
40.02 (17)(d)2, [1985stats.,]* and 40.27 (1) and (1m), 1985 stats., in excess of the amounts payable under other provisions of ch. 40 and any distributions made under s.40.04 (3) (e) after the effective date of this paragraph . . . . [revisor inserts date], notwithstanding s.40.27 (2) and to reimburse any amounts expended under par. (w) for the costs of administering the benefits provided under ss.40.02 (17)(d)2, [1985 stats.]*, and 40.27 (1) and (1m), 1985 stats.
SECTION 684r. 40.04 (3)(e) of the statutes is created to read:
40.04 (3)(e)1. As of the last day of the first full month occurring after the effective date of this subdivision . . . . [revisor inserts date], $230,000,000 shall be distributed from the transaction amortization account of the fixed retirement investment trust to the appropriate reserve of the fixed retirement investment trust as follows:
a. The portion credited to the fixed annuity reserve shall be distributed by the board as soon as possible after the effective date of this subdivision . . . . [revisor inserts date], but with an effective date of July 1, 1987. Notwithstanding s.
40.27 (2), the board shall make the distribution as a special investment performance dividend to provide an annuity increase only to those persons currently receiving a supplemental benefit under [ss..]*, and 40.27 (1) and (1m), 1985 stats. [40.02 (17)(d)2, 1985 statsThe special investmentperformance dividend under this subdivision shall beequal to the supplemental annuity that an annuitantcurrently receives pursuant to ss.40.02 (17)(d), 1985stats., and 40.27 (1) and (1m), 1985 stats.]* Any payment under s.20.515 (1)(a) to annuitants receiving special investment performance dividends under this subdivision shall be reduced by the amount of the special investment performance dividends under this subdivision.b. The board, on recommendation of the actuary, shall provide that the portion of funds transferred from the transaction amortization account under this subdivision credited to the fixed employer accumulation reserve shall be included in the actuary's recommendation of the required employer contribution for calender *301 year 1988, as otherwise determined under s.
40.05 (2) (am). [The portion of funds transferred from thetransaction amortization account under this subdivisioncredited to the fixed employe accumulation reserveshall be included in determining the rate of interestcredited to individual employe accumulation accounts asof December 31, 1987 notwithstanding any restriction oninterest credits provided by sub. (4)(a).]*c. The board shall make the distribution under subd. 1.a as soon as possible after the effective date of this subdivision . . . . [revisor inserts date]. Until such time as the special investment performance dividend is effective, the supplemental annuity benefit under [
s]*s. [40.02 (17)(d)2, 1985 stats.,and]* 40.27 (1) and (1m), 1985 stats., shall continue to be funded from money available under s.20.515 (1)(a). After the effective date of the special investment performance dividend, the department shall provide from the portion to be credited to the fixed annuity reserve funds sufficient to reimburse the appropriation under s.20.515 (1)(a) for supplemental benefits payments made after June 30, 1987.SECTION 688km. 40.27 (1) and (1m) of the statutes are repealed.
Section
The 1987 budget bill thus amends section
That portion credited to the fixed annuity reserve is denominated a "special performance dividend" and is distributed solely to those annuitants eligible for supplemental benefits under section
Article
As the court stated in Cannon,
The budget bill statutory changes that accelerate transfer of monies from the transaction amortization account to increase earnings credited to the annuity reserve, payable solely to supplemental benefit recipients, potentially cause detriment to non-supplemental benefit recipients in two ways. First, limiting the special performance dividend to supplemental benefit recipients precludes the remainder of the WRS annuitants from receiving an annuity increase due to the accelerated recognition of gains from the transaction amortization account. Second, in future years, all WRS annuitants could receive reduced dividend increases because later transfers from the transaction amortization account would be lower because of the present transfer of monies from that account.
Section
(3) A fixed retirement investment trust and a variable retirement investment trust shall be maintained within the fund under the jurisdiction and management of the investment board for the purpose of managing the investments of the retirement reserve accounts and of any other accounts of the fund as determined by *303 the board, including the accounts of separate retirement systems. Within the fixed retirement investment trust there shall be maintained a transaction amortization account and a current income account, and any other accounts as are established by the board or the investment board. . . .
(a) All earnings, profits or losses of the fixed retirement investment trust and the net gain or loss of the variable retirement investment trust shall be distributed annually on December 31 to each participating account in the same ratio as each account's average daily balance within the respective trust bears to the total average daily balance of all participating accounts in that trust. For the fixed retirement investment trust the amount to be distributed shall be the then balance of the current income account plus 7% of the then balance of the transaction amortization account.
. . . .
(6) An annuity reserve shall be maintained within the fund to which shall be transferred amounts equal to the present value as of the date of commencement of annuities granted under this chapter. The reserve shall be increased by investment earnings at the effective rate and shall be reduced by the aggregate amount of annuity payments and death benefits paid with respect to the annuities.
"Effective rate" is defined at section
(a) For the fixed annuity division, the rate, . . . determined by dividing the remaining fixed annuity division investment earnings for the calendar year or part of the calendar year, after making provision for any necessary reserves and after deducting prorated interest and the administrative costs of the fixed annuity division for the year, by the fixed annuity division balance at the beginning of the calendar year as adjusted for benefit payments and refunds paid during the year excluding prorated interest.
Fixed annuity reserve surpluses are distributed under the authority of section
(2) Fixed annuity reserve surplus distributions. Surpluses in the fixed annuity reserve established under s.
40.04 (6) and (7) shall be distributed by the board if the distribution will result in *304 at least a 2% increase in the amount of annuities in force, on recommendation of the actuary, as follows:(a) The distributions shall be expressed as percentage increases in the amount of the monthly annuity in force, including prior distributions of surpluses but not including any amount paid from funds other than the fixed annuity reserve fund, preceding the effective date of the distribution. The percentage increase in any calendar year may not exceed the salary index for the previous calendar year. For purposes of this subsection, annuities in force include any disability annuity suspended because the earnings limitation had been exceeded by that annuitant in that year.
(b) Different percentages may be applied to annuities with different effective dates as may be determined to be equitable but no other distinction may be made among the various types of annuities payable from the fixed annuity reserve.
(c) The distributions shall not be offset against any other benefit being received but shall be paid in full, nor shall any other benefit being received be reduced by the distributions. The annuity reserve surplus distributions authorized under this subsection may be revoked by the board in part or in total as to future payments upon recommendation of the actuary if a deficit occurs in the fixed annuity reserves.
Rights of the post-1974 annuitants established in section
Wisconsin common law holds that participants have no vested rights to retirement benefits absent a specific statutory or contractual provision creating vested rights. State ex rel.McCarty v. Gantter,
Section
Rights exercised and benefits accrued to an employe under this chapter for service rendered shall be due as a contractual right and shall not be abrogated by any subsequent legislative act. The right of the state to amend or repeal, by enactment of statutory changes, all or any part of this chapter at any time, however, is reserved by the state and there shall be no right to further accrual of benefits nor to future exercise of rights for service rendered after the effective date of any amendment or repeal deleting the statutory authorization for the benefits or rights. This section shall not be interpreted as preventing the state from requiring forfeiture of specific rights and benefits as a condition for receiving subsequently enacted rights and benefits of equal or greater value to the participant.
Arguably then, one of the contractual rights accrued "for service rendered" by WRS participants is the right to fixed annuity reserve surplus distributions. Section
While section
Section
Any person who is a participant in the Wisconsin retirement system before March 9, 1984, and who is not subsequently a participating employe in the Wisconsin retirement system shall continue to have the amount of, and eligibility for, the person's benefits determined in accordance with the statutes in effect on the date the person terminated as a participating employe.
Fixed annuity reserve distribution as mandated in section
Even those WRS participants who were not participating employes after January 1, 1982, and thus not covered by the vesting language of section
Any person who is a participant in the Wisconsin retirement fund or a member of either the state teachers retirement system or the Milwaukee teachers retirement fund prior to January 1, 1982, and who does not subsequently become a participating *307 employe in the Wisconsin retirement system, shall continue . . . to have the amount of and eligibility for the person's benefits determined in accord with the statutes in effect on the date the person terminated as a participating employe.
The statutory benefits which vested on termination of employment prior to January 1, 1982, also included annuity improvements from distribution of annuity reserve surpluses. See secs. 41.20 (1)(a) and 42.37 (5), Stats. (1979). Statutes in effect prior to January 1, 1982, further provided that annuity reserve surplus distributions "shall not be offset against any other benefit received but shall be paid in full, nor shall any other benefit being received be reduced by any such distribution." See sec.
As the court stated in Cannon,
The degree of impairment determines the level of scrutiny to which the legislation in question will be subjected. In Allied Structural Steel Co. v. Spannaus,438 U.S. at 244-45 , the court stated:
"[T]he first inquiry must be whether the state law has, in fact, operated as a substantial impairment of a contractual relationship. The severity of the impairment measures the height of the hurdle the state legislation must clear. Minimal alteration of contractual obligations may end the inquiry at its first stage. Severe impairment, on the other hand, will push the inquiry to a careful examination of the nature and purpose of the state legislation." (Footnotes omitted.)
In finding that an impairment was severe, the Spannaus court relied upon those "factors that reflect the high value the Framers placed on the protection of private contracts." Id. at 245. In particular, the court noted that the legislation in question nullified an express term of the contract which was bargained for and reasonably relied upon by the parties, resulting in a completely unexpected liability to the plaintiff. *308
The impairment does not appear to be severe in terms of the effect on an individual retiree's benefit. You have informed my office that the special investment dividend if distributed to all annuitants, based on the present pre-budget bill statutes, would result in an annuity increase of approximately two percent. This does not appear to be a significant impairment in light of the authority of the Employe Trust Funds Board to equitably allocate the surplus distributions. That Board has specific authority to provide higher increases to annuitants who retired at earlier dates thus limiting or completely denying increases to later annuitants. Sec.
The court indicated in Cannon,
As previously shown, a substantial number of the post-1974 annuitants were employed during a period during which express statutory contract terms vested in them the general right to annuity improvements based on surpluses in the fixed annuity account. In Chappy v. LIRC,
While the subject 1987 budget bill sections thus do not have to be based upon a significant and legitimate public purpose to survive a constitutional challenge, it is my opinion that the legislation would pass such higher test. As stated in Chappy,
There is no legislative statement of the public purpose served by creating the special performance dividend method of payment of pre-1974 supplemental benefits rather than continuing payment from general fund monies. You have, however, informed my office that the amount of money available from the "special performance dividend" would fund the supplemental benefits into perpetuity with little necessity for future general purpose revenue funds. The pre-1979 annuitants never had a vested right to continued payment of the supplements since such supplements were, as stated in section
As the Wisconsin Supreme Court stated in North Side Bank v.Gentile,
This court's review of a legislative enactment is limited in scope. All statutes are presumed to be constitutional, and the *310 party attacking a statute must prove it unconstitutional beyond a reasonable doubt. [Case cites omitted.] "The cardinal rule of statutory construction is to preserve a statute and find it constitutional if it is at all possible to do so." [Case cite omitted.] We must uphold the constitutionality of a statute if there is any reasonable basis for it.
"[T]he task of this court in passing upon the constitutionality of laws is limited and restrained. This court does not sit as a superlegislature debating and deciding upon the relative merits of legislation. It looks for a reasonable basis upon which the legislature might have acted, and assumes that the legislature had such a purpose in mind when it enacted the law in question." [Case cite omitted.]
I therefore conclude that, given the presumption of constitutionality, section 684r of the 1987 budget bill, which limits the distribution from the special performance dividend to only those annuitants receiving a supplemental benefit, does not violate the contract clauses of the United States or Wisconsin Constitutions.
DJH:WMS