Duncan v. Muzyn

• Decision Date: 12 August 2016
• Docket Number: No. 15-6019,15-6019
• Citation: 833 F.3d 567
• Parties: Jerry Duncan, et al. Plaintiffs, Charles T. Evans ; David McBride; Ronald E. Farley; Larry J. Simpson; Robert B. Bonds; Steve Hinch, Plaintiffs–Appellants, v. Leonard J. Muzyn, et al., Defendants, Tennessee Valley Authority Retirement System; Tennessee Valley Authority, Defendants–Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

833 F.3d 567

Jerry Duncan, et al. Plaintiffs,Charles T. Evans ; David McBride; Ronald E. Farley; Larry J. Simpson; Robert B. Bonds; Steve Hinch, Plaintiffs–Appellants,

v. Leonard J. Muzyn, et al., Defendants,Tennessee Valley Authority Retirement System; Tennessee Valley Authority, Defendants–Appellees.

No. 15-6019

United States Court of Appeals, Sixth Circuit.

Argued: June 14, 2016

Decided and Filed: August 12, 2016

ARGUED: Michael J. Wall, Branstetter, Stranch & Jennings, PLLC, Nashville, Tennessee, for Appellants. James S. Christie, Jr., Bradley Arant Boult Cummings LLP, Birmingham, Alabama, for Appellee Tennessee Valley Authority Retirement System. Edward C. Meade, Tennessee Valley Authority, Knoxville, Tennessee, for Appellee Tennessee Valley Authority. ON BRIEF: Michael J. Wall, James G. Stranch, III, R. Jan Jennings, Joe P. Leniski, Jr., Michael G. Stewart, Branstetter, Stranch & Jennings, PLLC, Nashville, Tennessee, for Appellants. James S. Christie, Jr., Bradley Arant Boult Cummings LLP, Birmingham, Alabama, Edmund S. Sauer, Bradley Arant Boult Cummings LLP, Nashville, Tennessee, for Appellee Tennessee Valley Authority Retirement System. Edward C. Meade, Edwin W. Small, Frances Regina Koho, Tennessee Valley Authority, Knoxville, Tennessee, for Appellee Tennessee Valley Authority.

Before: SILER, ROGERS, and SUTTON, Circuit Judges.

OPINION

ROGERS

, Circuit Judge.

Public and private pension plans alike often include cost-of-living adjustments to base benefits so that plan participants can receive the real value of those benefits. One way to calculate such adjustments is to make them dependent on yearly changes in the consumer price index. For more than four decades, the Tennessee Valley Authority Retirement System (TVARS) did just that. Employees of the Tennessee Valley Authority (TVA), who participate in TVARS-managed retirement plans, thus received cost-of-living adjustments on top of their investment returns, pension benefits, and supplemental benefits. That changed in 2009. In that year, with the retirement system's financial health in jeopardy, the TVARS board amended the rules that govern the system to cap or eliminate cost-of-living adjustments for the years 2010–2013, increase the eligibility age for cost-of-living adjustments, and lower the interest rate on a savings fund. The complaint in this case soon followed, with the plaintiffs arguing—among other things—that cost-of-living adjustments are vested benefits and that the TVARS board violated one of its own rules by reducing such a benefit. The plaintiffs also raised a Takings Clause claim.

None of the claims survived summary judgment. According to the district court, the plaintiffs did not have a private right of action to enforce the board's compliance with the TVARS rules, and the Takings claim failed on the merits. Despite having adopted the 2009 amendments, the TVARS now professes that it did so in error, agreeing with the plaintiffs that courts may review the board's 2009 actions and that cost-of-living adjustments are vested. The TVA disagrees on the vesting issue.

Summary judgment in favor of the TVA and the TVARS was proper on the Takings Clause claim. Because cost-of-living adjustments are not vested, the agencies were also entitled to summary judgment on the merits of the claim that the board violated TVARS rules by reducing vested benefits. As for the remaining claims alleging violations of the TVARS rules, those claims are judicially reviewable in the context of this case. Remand is therefore required for the district court to address those claims in the first instance.

In 1933, Congress created the TVA, a federal agency that is organized and operated as a corporation. See Tennessee Valley Authority Act of 1933, 16 U.S.C. §§ 831 et seq.

Several years later, the TVA established the TVARS for the purpose of managing the retirement plans of TVA employees, who become members of the retirement system upon accepting employment. The TVA created the TVARS by promulgating Rules and Regulations (the Rules), which established how the retirement system would be administered and what benefits would be payable to plan participants. As the system is a governmental pension plan, it is not governed by the Employee Retirement Income Security Act (ERISA). See 29 U.S.C. §§ 1002(32), 1003(b)(1). The TVA's statutory authority to create the retirement system has long been beyond question. See

Tenn. Valley Auth. v. Kinzer , 142 F.2d 833, 836–37 (6th Cir. 1944).

According to the Rules, the TVARS is governed by a seven-member board. Rule 3.1, Rules and Regulations of the TVA Retirement System, available at http://www.tvars.com/pdf/tvars_rules_regs.pdf (last visited June 22, 2016). Three of the board's members are elected by TVA employees, three others are appointed by the TVA, and the last board member is selected by a majority vote of the other six. Id. The relationship between the TVARS and the TVA is unique. Although the TVARS was created by the TVA, it is operated for the benefit of TVA employees. The TVARS board was accordingly given broad authority to manage the retirement system, including decision-making responsibility on investment portfolios, the “interest rate or rates to be used in all actuarial and other calculations,” and what benefits are payable and to whom. Rule 3.7, 4.1, 4.5. The board was also entrusted with the power to amend the Rules, from “time to time [and] as may be necessary to carry out the provisions of the Retirement System.” Rule 3.6. Notwithstanding this extensive power, the independence of the TVARS from the TVA remains cabined in significant ways. Almost all of the retirement system's funding comes from the TVA, and the board must submit to the TVA annual reports on the system's financial condition. Rule 3.5, 9.B.1, 9.B.5. The board's amendment prerogative is circumscribed by the Rules, too. For one thing, the TVA wields a veto power: amendments proposed by the board become effective only if the TVA does not exercise its veto within thirty days. Rule 13. In addition, Rule 13 contains a so-called anti-cutback provision, prohibiting amendments that “reduce the then accrued benefits of the existing members or beneficiaries which are nonforfeitable or [are] covered by accumulated reserves held therefor.” This appeal hinges on the anti-cutback provision, as the plaintiffs' chief argument is that the TVARS violated Rule 13 by reducing cost-of-living adjustments (COLAs) for the years 2010–2013.

The plaintiffs in this case are among the 36,000 current and former TVA employees who participate in the retirement system. Two-thirds of the participants are retired. Under the Rules, the retirement income of those participants comes from four sources. First, eligible beneficiaries receive a monthly pension benefit in an amount linked to their average compensation and years of service.¹ Rule 6.A.2, 7.C. Second, beneficiaries receive a monthly supplemental benefit that is related to the costs of medical insurance. Rule 18.A–B. Third, beneficiaries have the option of contributing to a fixed-rate fund or variable-rate fund, both of which are managed by the TVARS. Rule 9.A, 19.A. The interest rate for the fixed fund was lowered by the 2009 rule amendments that are at issue in this case. Fourth, beneficiaries may receive COLAs, payments that increase pension and supplemental benefits based on yearly changes in the consumer price index (CPI). Excepting the years at issue in this case, COLAs are triggered as follows:

The board shall increase (subject, however, to the provisions of section 11) that portion of the monthly benefit payable to each retiree, or beneficiary of a deceased member or retiree, which is derived from TVA's contributions to the System ... whenever the 12–month average of the Consumer Price Index (CPI) for any year after 1966 exceeds by as much as one percent (1%) the CPI average for the preceding year.

Rule 6.I, 7.L; see also Rule 18.C.3. By tying COLAs to the CPI, the Rules preserve the purchasing power of pension and supplemental benefits.

COLAs have not always been a part of the retirement system. That feature was implemented in 1967, when the board amended the Rules to apply COLAs to benefits based on TVA contributions. Later amendments contained language explicitly committing the TVA to funding COLAs: “[a] further ‘cost-of-living contribution’ ” to the TVARS, in addition to two other types of contributions, “shall be made [by the TVA] to provide the funds to pay for increases in monthly benefits.” Rule 9.B.1. The Rules make clear that COLAs are an important feature of the retirement system. According to one provision, “[t]he total amount payable each year by TVA to the Retirement System shall be not less than the sum of the normal contribution rate and the accrued liability contribution rate ... plus cost-of-living contributions.” Rule 9.B.5. As for the amount of a COLA, one provision gives the board some discretion to depart from the CPI formula: “the board may, in its discretion and with the approval of TVA, apply for any year a maximum different from [a 5% cap].” Rule 6.I, 7.L.

Another round of amendments followed soon after, in 1974. Prior to that date, none of the benefits provided to beneficiaries was vested, a term that the parties agree is synonymous with nonforfeitable. That meant that the Rules did not prevent the board from reducing a participant's future benefits. After the enactment of ERISA, however, the board decided to guarantee certain categories of benefits instead of offering the plan-termination insurance that ERISA required for private pensions. Although ERISA does not apply to the retirement system, the board took this action in recognition of the congressional intention that employers should follow through with their financial commitments to employees. Rule 13 was therefore amended to include the anti-cutback provision, which protects accrued benefits that are vested. Rule 11.B.1, the only rule defining what...