BOATMEN'S FIRST NAT. BANK v. KAN. PUB. EMP. RET.

• Citation: 915 F. Supp. 131
• Decision Date: 12 January 1996
• Docket Number: No. 94-1179-CV-W-1.,94-1179-CV-W-1.
• Parties: BOATMEN'S FIRST NATIONAL BANK OF KANSAS CITY, Plaintiff, v. KANSAS PUBLIC EMPLOYEES RETIREMENT SYSTEM, Defendant.
• Court: U.S. District Court — Western District of Missouri

915 F. Supp. 131

BOATMEN'S FIRST NATIONAL BANK OF KANSAS CITY, Plaintiff, v. KANSAS PUBLIC EMPLOYEES RETIREMENT SYSTEM, Defendant.

No. 94-1179-CV-W-1.

United States District Court, W.D. Missouri, Western Division.

January 12, 1996.

Ronald Holt, Bryan, Cave, Kansas City, MO, for plaintiff.

Kenneth P. Ross, Chicago, IL, for defendant.

ORDER

WHIPPLE, District Judge.

On December 16, 1994, this Court issued a Preliminary Injunction Order, restraining Defendant, the Kansas Public Employees Retirement System ("KPERS"), from filing suit against Plaintiff, Boatmen's First National Bank of Kansas City ("Boatmen's"), in any court other than this one. KPERS appealed that Order, and, in a June 7, 1995 decision, the United States Court of Appeals for the Eighth Circuit directed this Court to enter an order containing detailed findings of fact and conclusions of law concerning the preliminary injunction and the issue of Eleventh Amendment immunity.¹ Accordingly, this Court directed the parties to submit briefs on the issues of injunctive relief and the Court's subject matter jurisdiction. After reviewing the parties' briefs, the Court held an evidentiary hearing on Thursday, September 7, 1995, to provide the parties an opportunity to present all facts relevant to the issue of subject matter jurisdiction and KPERS' potential Eleventh Amendment immunity. The Court has reviewed the record of proceedings upon Boatmen's motion for injunctive relief, the parties' briefs, and the proposed findings of fact and conclusions of law on the Eleventh Amendment issue. Based upon the foregoing, the Court hereby makes the following findings of fact and conclusions of law:

I. SUBJECT MATTER JURISDICTION

A. Findings of Fact

1. KPERS is based in Topeka, Kansas, and is a "body corporate and an instrumentality of the State of Kansas." K.S.A. § 74-4903. KPERS was established to administer retirement benefits for employees of participating public employers in the State of Kansas. K.S.A. § 74-4901. Boatmen's is a national banking association, having its principal place of business in Kansas City, Missouri.

2. Among other things, KPERS makes various investments with funds contributed by public employers and employees. K.S.A. § 74-4921. The State of Kansas is one of approximately 1,300 employers that actively participate in KPERS. While any governmental entity in the State of Kansas, including counties, cities and school districts, can choose to affiliate with KPERS, some public employers have chosen not to join.

3. The statutory framework indicates that KPERS was established as a self-sustaining entity. K.S.A. § 74-4921(1) provides in relevant part:

there is hereby created in the state treasury the Kansas public employees retirement fund. All employee and employer contributions shall be deposited in the state treasury to be credited to the Kansas public employees retirement fund. The fund is a trust fund and shall be used solely for the exclusive purpose of providing benefits to members and member beneficiaries and defraying reasonable expenses of administering the fund. Investment income of the fund shall be added or credited to the fund as provided by law. All benefits payable under the system, refund of contributions and overpayments, purchases or investments under the law and expenses in connection with the system unless otherwise provided by law shall be paid from the fund (emphasis added).

Thus, the State of Kansas maintains KPERS' funds in a trustee capacity for KPERS' members and beneficiaries.

4. KPERS acquires its funding primarily from three sources: employer contributions, employee contributions and investment income. An analysis of KPERS' funding over the 30-year period ending with fiscal year 1991 reveals that 22.4% of KPERS' total revenue was derived from employee contributions, 30.8% was derived from employer contributions, and 46.8% was derived from net investment income. KPERS' 1991 Annual Report, at 26. The State of Kansas makes employer contributions on behalf of all state school districts, community colleges and vocational technical schools. As an employer, the State must contribute funds to KPERS calculated in relationship to the number of state employees and the dollar level of their compensation. Between 1985 and 1994, state funds accounted for 64% to 74% of total employer contributions. KPERS estimates that over the next 40 years, state funds will comprise approximately 80% of all employer contributions, with the remaining 20% coming from other government entities.

5. The monies in the KPERS trust fund represent revenues collected from a limited class of persons and employers. These funds are segregated from the general funds of the State of Kansas and are not the product of legislative appropriation. To make a payment from the KPERS trust fund, the Chairperson or Executive Secretary of the KPERS' Board of Trustees must execute a voucher authorizing the Director of Accounts to issue a warrant which is drawn on the state treasury and against the KPERS trust fund. K.S.A. § 74-4921(1). Although these payments are made on state warrants, the money used to fund those payments is taken only from the KPERS trust fund. KPERS can also make payments to other state agencies from which it obtains goods or services by using interfund transfer vouchers.

6. If the KPERS trust fund were to become depleted, due, for instance, to a heavy investment loss or a large adverse judgment, KPERS' Board could recommend an increase in the rate of employer contributions to make up the shortfall. Such an unfunded liability could also be satisfied at least in part through investment earnings, as KPERS has historically received the greatest portion of its revenue from net investment income. However, the rate of employee contributions could only be increased to fund a corresponding increase in defined benefits.

7. Meredith Williams, the Executive Secretary of KPERS, testified that KPERS has previously paid adverse money judgments with money in the KPERS trust fund. He further stated that KPERS has never requested funds from the State of Kansas to assist KPERS in paying an adverse judgment.

8. The State of Kansas has no legal obligation to pledge the general revenue of the State for the operations of KPERS. Nor is the State subject to any statutory or legal requirement obligating it to assist KPERS in paying adverse judgments. If KPERS were to incur a substantial judgment resulting in an operating shortfall, the State of Kansas could make no payment to KPERS without an act of the Kansas legislature.

9. The State's only obligation to KPERS is that of a participating employer required to make contributions on behalf of its employees. K.S.A. §§ 74-4919, 74-4920c, 74-4939. This obligation is identical to that of the other public employers participating in the KPERS system.

10. A large investment loss by KPERS in any one year will not necessarily require a corresponding increase in recommended employer contributions for the next year because numerous other factors considered in the actuarial calculation, for example, future investment earnings and recoveries from other parties allegedly liable for the loss, may offset the effect of such a loss. KPERS is presently amortizing certain of its investment losses over a forty-year period via a slight increase in employer contribution rates (.383%). However, KPERS has not shown that its alleged $50,000,000 loss in Home Savings debentures, if not recovered from other defendants, will deplete the KPERS trust fund reserves to the extent that an additional increase in employer contributions will be required.

11. One objective of KPERS' investment strategy during the 1980s was to stimulate the Kansas economy. However, this goal was secondary to KPERS' primary purpose of investing its assets to preserve the value of the KPERS trust fund so as to provide adequate retirement benefits for participating public employees.

12. By statute, KPERS is a distinct legal entity that can sue and be sued in its official name. K.S.A. § 74-4904. It has also been granted certain powers to carry out its purpose, including a limited power to contract with the State and third parties. K.S.A. §§ 74-4909, 4903. KPERS' staff, with input from its Board, decides whether to file and when to settle lawsuits.

13. Benefits paid by KPERS and property owned by KPERS are immune from state taxation. K.S.A. § 74-4923(b).

14. KPERS is governed by a nine-member Board of Trustees that is responsible for the general administration of the system. K.S.A. §§ 74-4905(a), 74-4909(1). Four Board members are appointed by the Governor, one is appointed by the President of the Senate, one is appointed by the Speaker of the House, two are elected by KPERS' members and retirees, and the final member is the State Treasurer. K.S.A. § 74-4905(a). Actions taken by the Board require a favorable vote of at least five Board members. K.S.A. § 74-4906(2). Prior to July 1, 1993, KPERS' Board was comprised of seven members — all appointed by the Governor. In addition, all KPERS Board meetings are open to the public. K.S.A. § 74-4909(4).

15. As a statutorily created entity, KPERS must abide by many requirements set by the Kansas legislature. For example, KPERS' Board must annually present a report to the Governor and other State officials detailing its operations, income, disbursements, financial condition, and investments. K.S.A. §§ 74-4907(2), 74-4921(11). The Legislative Post-Audit Committee conducts an annual audit of KPERS' accounts and the Legislative Post-Auditor conducts an annual financial-compliance audit of KPERS' investments. K.S.A. §§ 74-4907a(3), 74-4921(12)(a). In addition, KPERS' employees are subject to Kansas state employee travel restrictions and ethical rules and the Kansas Civil Service Act. K.S.A. § 74-4908(2). KPERS' principal office must be in Topeka; its offices are assigned by the Kansas Secretary of Administration. K.S.A. §...