Board of Trustees of Public Employees' Retirement Fund of State of Ind. v. Sullivan, No. 90-3010

CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)
Writing for the CourtBefore EASTERBROOK, MANION and KANNE; EASTERBROOK
Citation936 F.2d 988
PartiesBOARD OF TRUSTEES OF the PUBLIC EMPLOYEES' RETIREMENT FUND OF the STATE OF INDIANA, Plaintiff-Appellant, v. Louis W. SULLIVAN, Secretary of Health and Human Services, and United States of America, Defendants-Appellees.
Decision Date15 July 1991
Docket NumberNo. 90-3010

Page 988

936 F.2d 988
BOARD OF TRUSTEES OF the PUBLIC EMPLOYEES' RETIREMENT FUND
OF the STATE OF INDIANA, Plaintiff-Appellant,
v.
Louis W. SULLIVAN, Secretary of Health and Human Services,
and United States of America, Defendants-Appellees.
No. 90-3010.
United States Court of Appeals,
Seventh Circuit.
Argued April 19, 1991.
Decided July 15, 1991.

Page 989

Michael Schaefer, Deputy Atty. Gen., Federal Litigation, Indianapolis, Ind., for plaintiff-appellant.

Thomas E. Kieper, Asst. U.S. Atty., Indianapolis, Ind., Edward L. Koven, Dept. of Health and Human Services, Region V, Office of General Counsel, Chicago, Ill., for defendants-appellees.

Before EASTERBROOK, MANION and KANNE, Circuit Judges.

EASTERBROOK, Circuit Judge.

When the federal government pays its share of the costs of a cooperative state-federal program, it underwrites part of the fringe benefits of the employees who carry out the program on behalf of the state. It is difficult, however, to define the proper share of the federal government. States are tempted to set up accounting systems that shift a disproportional share of the total costs of their employees to the federal

Page 990

government. Understanding this incentive, the federal government inspects the books to protect its interest, and it insists on a rule of neutrality: the state may not allocate to federal programs costs greater than those the state charges to itself for an equivalent slice of the employee's time.

The federal government audited Indiana's reimbursement for 1971-78 and concluded that the state made retirement contributions on behalf of federally-funded workers exceeding those on behalf of workers paid from state coffers. We simplify the facts to lay bare the nature of the dispute. Indiana has a defined-benefit retirement plan (the Public Employees' Retirement Fund of the State of Indiana, "PERF" for short) for all state and municipal employees. Indiana treats its Employment Security Division (IESD) as a separate entity for purposes of contributions to PERF. The IESD is indeed an unusual part of state government, because the federal government reimburses 100% of the costs of its administration of the unemployment compensation program, including the full salaries and benefits of state employees. 42 U.S.C. Secs. 502(a), 1101(c)(1)(A). Reimbursement of administrative expenses began in 1935 as a carrot to states considering unemployment compensation programs.

Retirement benefits in Indiana follow the standard pattern for workers in the public sector: payments depend on the number of years of service and the average salary during the years preceding retirement. The same formula is used to determine benefits for all state employees, including those of the IESD. An identical formula for benefits does not imply equal costs. Turnover has been slower in the IESD than elsewhere, so its retirees have both more years of service and higher terminal salaries than do workers at other agencies. Both the additional years and the higher salaries translate to higher pension benefits.

At the beginning of the audit period there were three categories of contributing agencies: municipal governments, the IESD, and other state agencies. If PERF's calculations showed that any of these three categories was underfunded (that is, if the capital balance of the account plus current contributions did not match the present value of promised benefits), PERF required the municipality or agency to increase the rate of contributions to eliminate the underfunding by the end of a fixed number of years. That number was 30 years for the IESD and other state agencies, 15 years for municipalities.

In 1972, when PERF's actuaries determined that the IESD's account would be exhausted in 3 1/2 years, Indiana began charging the IESD a higher rate, which would end the underfunding in 15 years. This meant that the federal government, funding the IESD pensions, was paying a higher percentage of the wage bill than the state contributed for employees of other agencies. Disparity in assessment was only half of the story; the state legislature did not appropriate all of the money PERF sought for state-funded agencies. Appropriations fell short of the amount required to eliminate the underfunding even within 30 years. The conjunction of the different periods for achieving full funding with the failure of the legislature to appropriate the full sums PERF assessed produced:

 Contribution Rates (% of gross payroll)
                Fiscal Year IESD State
                1972 13.77 4.98
                1973 13.77 4.76
                1974 Qs 1 & 2 12.45 4.01
                1974 Qs 3 & 4 12.45 2.89
                1975 10.16 3.62
                1976 9.15 6.00
                1977 8.54 6.00
                1978 7.82 6.00
                

Federal auditors demanded in 1980 that PERF repay the difference, which with the sums attributable to a few other agencies came to more than $6 million. Indiana balked, and after losing in the highest administrative tribunal (the Departmental Appeals Board of the Department of Health and Human Services) the state filed this action in 1982 against HHS seeking to block collection and prevent the government from reducing current payments in order to...

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3 practice notes
  • Alabama v. Shalala, Civil Action No. 99-A-271-N.
    • United States
    • United States District Courts. 11th Circuit. Middle District of Alabama
    • 15 Diciembre 2000
    ...the Circular, which was first called the Budget Bureau Circular A-87. Board of Trustees of Pub. Employees' Retirement Fund v. Sullivan, 936 F.2d 988, 991 (7th Cir.1991). In 1970, the newly-created Office of Management and Budget ("OMB") gained authority over the Circular, which th......
  • U.S. v. Golden Elevator, Inc., No. 93-3827
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • 21 Junio 1994
    ...States v. Medico Industries, Inc., 784 F.2d 840 (7th Cir.1986); Board of Trustees of the Public Employees' Retirement Fund v. Sullivan, 936 F.2d 988 (7th Cir.1991). An error by an executive official leaves the rule of law unaffected and enforceable. In this case it is defendants who want to......
  • Leffler v. Meer, No. 94-2842
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • 20 Julio 1995
    ...fee request was foreclosed by this Court's previous directive that "[t]he parties shall bear their own costs." Leffler I, 936 F.2d at 988. B. Prevailing Defendant Attorney's Fees for the Plaintiffs also appeal the district court's award of $3,702.93 in attorney's fees and expenses......
3 cases
  • Alabama v. Shalala, Civil Action No. 99-A-271-N.
    • United States
    • United States District Courts. 11th Circuit. Middle District of Alabama
    • 15 Diciembre 2000
    ...the Circular, which was first called the Budget Bureau Circular A-87. Board of Trustees of Pub. Employees' Retirement Fund v. Sullivan, 936 F.2d 988, 991 (7th Cir.1991). In 1970, the newly-created Office of Management and Budget ("OMB") gained authority over the Circular, which th......
  • U.S. v. Golden Elevator, Inc., No. 93-3827
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • 21 Junio 1994
    ...States v. Medico Industries, Inc., 784 F.2d 840 (7th Cir.1986); Board of Trustees of the Public Employees' Retirement Fund v. Sullivan, 936 F.2d 988 (7th Cir.1991). An error by an executive official leaves the rule of law unaffected and enforceable. In this case it is defendants who want to......
  • Leffler v. Meer, No. 94-2842
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • 20 Julio 1995
    ...fee request was foreclosed by this Court's previous directive that "[t]he parties shall bear their own costs." Leffler I, 936 F.2d at 988. B. Prevailing Defendant Attorney's Fees for the Plaintiffs also appeal the district court's award of $3,702.93 in attorney's fees and expenses......

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