Cabarrus Cnty. Bd. of Educ. v. Dep't of State Treasurer
| Decision Date | 03 April 2020 |
| Docket Number | No. 369PA18,369PA18 |
| Citation | 374 N.C. 3,839 S.E.2d 814 |
| Parties | CABARRUS COUNTY BOARD OF EDUCATION v. DEPARTMENT OF STATE TREASURER, RETIREMENT SYSTEMS DIVISION ; Dale R. Folwell, State Treasurer, in his official capacity; and Steven C. Toole, Director, Retirement Systems Division, in his official capacity |
| Court | North Carolina Supreme Court |
Michael Crowell ; and Tharrington Smith, LLP, Raleigh, by Deborah R. Stagner and Lindsay V. Smith, for petitioner-appellee.
Joshua H. Stein, by Matthew W. Sawchak, Solicitor General, Blake W. Thomas, Deputy General Counsel, Ryan Y. Park and James W. Doggett, Deputy Solicitors General, and Katherine A. Murphy, Assistant Attorney General, for respondent-appellants.
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., by Elizabeth L. Troutman and Jill R. Wilson, Greensboro; and Allison Brown Schafer for North Carolina School Boards Association, amicus curiae.
This case involves a dispute between petitioner Cabarrus County Board of Education and the Retirement Systems Division of the Department of the State Treasurer; State Treasurer Dale R. Folwell,1 acting in his official capacity; and former executive director of the Retirement System, Steven C. Toole,2 acting in his official capacity, concerning the manner in which the cost of pensions for certain retirees should be funded. Respondents manage the Teachers' and State Employees' Retirement System, which pays eligible retired state employees a fixed monthly pension based upon the retiree's four highest-earning consecutive years of state employment.
In 2014, the General Assembly enacted An Act to Enact Anti-Pension-Spiking Legislation by Establishing a Contribution-Based Benefit Cap, S.L. 2014-88, § 1, 2014 N.C. Sess. Laws 291, which is codified, in pertinent part, at N.C.G.S. § 135-5(a3). The Act establishes a retirement benefit cap applicable to certain employees with an average final compensation of $100,000 or more per year whose retirement benefit payment would otherwise be significantly greater than the contributions made by that retiree during the course of his or her employment with the State. Id . In order to calculate the benefit cap applicable to each retiree, the Act directs the Retirement System's Board of Trustees to "adopt a contribution-based benefit cap factor recommended by the actuary, based upon actual experience, such that no more than three-quarters of one percent (0.75%) of retirement allowances are expected to be capped" and to calculate the contribution-based benefit cap for each retiring employee by converting the employee's total contributions to the Retirement System to a single life annuity and multiplying the cost of such an annuity by the cap factor. Id . In the event that the retiree's expected pension benefit exceeds the calculated contribution-based benefit cap, the Retirement System is required to "notify the [retiree] and the [retiree's] employer of the total additional amount the [retiree] would need to contribute in order to make the [retiree] not subject to the contribution-based benefit cap." N.C.G.S. § 135-4(jj) (2019). At that point, the retiree is afforded ninety days from the date upon which he or she received notice of the additional payment amount or the date of his or her retirement, "whichever is later, to submit a lump sum payment to the annuity savings fund in order for the [R]etirement [S]ystem to restore the retirement allowance to the uncapped amount." Id. The retiree's employer is entitled to "pay[ ] all or part of the ... amount necessary to restore the [retiree's] retirement allowance to the pre-cap amount." Id.
According to N.C.G.S. § 135-6(l ), "[t]he Board of Trustees shall designate an actuary who shall be the technical adviser of the Board of Trustees on matters regarding the operation of the funds created by the provisions of this Chapter." N.C.G.S. § 135-6(l ) provides that "all the assumptions used by the [Retirement] System's actuary, including mortality tables, interest rates, annuity factors, and employer contribution rates, shall be set out in the actuary's periodic reports or other materials provided to the Board of Trustees," with the materials to be "accepted by the Board [of Trustees]," N.C.G.S. § 135-6(l ), and adopted by the Board of Trustees by means of an informal board resolution memorialized in its minutes pursuant to the Administrative Code. See 20 N.C. Admin. Code 2B.0202(a) (1981) ().
The Board of Trustees hired Larry Langer and Michael Ribble of Buck Consultants to serve as the "[c]onsulting [a]ctuary." At a meeting held by the Board of Trustees on 23 October 2014, Mr. Langer and Mr. Ribble presented certain calculations and assumptions, including summaries of expected retirement patterns, based upon a 2012 valuation of the Retirement System's assets and liabilities. The actuary then recommended a cap factor of 4.8, which the Board of Trustees unanimously approved.
Prior to his retirement on 1 May 2015, Dr. Barry Shepherd served as the superintendent of Cabarrus County Schools. In light of his employment history, Dr. Shepherd was eligible to receive benefits from the Retirement System. At the time of his retirement, the Retirement System determined that Dr. Shepherd's pension benefits were subject to the contribution-based benefit cap and informed both Dr. Shepherd and the Board of Education that an additional contribution to the Retirement System in the amount of $208,405.81 would be required in order for Dr. Shepherd to receive the full retirement benefit to which he would have otherwise been entitled. Upon receiving this information, the Board of Education submitted the required amount on Dr. Shepherd's behalf.
On 18 October 2016, the Board of Education filed a request for a declaratory ruling asking that the invoice and the cap factor used to calculate the amount shown on the invoice be declared "void and of no effect because the [Board of Trustees] did not follow the rule making procedures of ... the Administrative Procedure Act." According to the Board of Education, the cap factor was "not an actuarial assumption under 20 N.C. Admin. Code 02B.0202" and was not, for that reason, "exempt from the rule making procedures of the [Administrative Procedure Act]." On 17 November 2016, Mr. Toole denied the Board of Education's request on the grounds that the Board of Trustees "ha[d] statutory authority to adopt various recommendations of its actuary" and that its "adoption of a cap factor for the contribution-based benefit cap ... based upon the recommendations of its actuary, [was] not void."
On 16 December 2016, the Board of Education filed a petition for judicial review in the Superior Court, Cabarrus County, in which it sought a declaratory ruling that (1) "the cap factor is a rule within the meaning of [N.C.]G.S. [§] 150B-2(8a) and that it may be adopted by the ... Board of Trustees and implemented by the Retirement System[ ] ... only by complying with the rule making procedures of Article 2A of the [Administrative Procedure Act]"; that (2) "the cap factor adopted by the ... Board of Trustees ... is void and of no effect because of the failure of the [rustees to follow the rule making procedures of Article 2A of the [Administrative Procedure Act]"; that (3) "the respondents may not implement [N.C.]G.S. [§] 135-5(a3) until a cap factor is adopted in compliance with the rule making procedures of Article 2A of the [Administrative Procedure Act]"; and that (4) "the Retirement System['s] ... assessment of $208,405.81 against [the Board of Education] is void because of the failure of respondents to adopt a cap factor lawfully." This case was subsequently transferred to the Superior Court, Wake County, by consent of the parties.
On 25 April 2017, the Board of Education moved for summary judgment in its favor. On 30 May 2017, the trial court entered an order granting summary judgment in favor of the Board of Education on the grounds that (1) "[t]he Board of Trustees' adoption of the cap factor in [N.C.]G.S. [§] 135-5(a3) is subject to rule making under the [Administrative Procedure Act]"; (2) "respondents' denial of petitioner's [r]equest for a [d]eclaratory [r]uling was in error as a matter of law"; and (3) "[t]he substantial rights of petitioner have been prejudiced by the respondents' decision." As a result, the trial court determined that the Board of Education was "entitled to have this Court declare that the Board of Trustees' adoption of the cap factor on October 23, 2014, and adoption of the new factor on October 22, 2015, are void and of no effect."3 Respondents noted an appeal to the Court of Appeals from the trial court's order.
In seeking relief from the trial court's order before the Court of Appeals, respondents argued that the General Assembly had intended that the cap factor be adopted by the Board of Trustees by resolution, rather than by the use of Administrative Procedure Act-complaint rulemaking procedures. Respondents argued that the General Assembly had expressly delineated the functions that required the use of rulemaking procedures in Article 1, Chapter 135 of the General Statutes and that the list of functions contained in that chapter did not include the adoption of actuarial recommendations. In addition, respondents contended that the Administrative Procedure Act did not override the statutory provisions governing the operation of the Retirement System, which spell out specific administrative procedures that must be used in connection with the adoption of actuarial recommendations. Finally, respondents argued that the trial court had erred by failing to defer to the Retirement System's interpretation of the relevant...
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