In re Pera Salary Determinations Affecting Retired & Active Emps. of Duluth
| Decision Date | 06 August 2012 |
| Docket Number | No. A11–1330.,A11–1330. |
| Citation | 820 N.W.2d 563 |
| Parties | In the Matter of the PERA SALARY DETERMINATIONS AFFECTING RETIRED AND ACTIVE EMPLOYEES OF the CITY OF DULUTH. |
| Court | Minnesota Court of Appeals |
OPINION TEXT STARTS HERE
Syllabus by the Court
The Public Employees Retirement Association's interpretation of Minn.Stat. § 353.01, subd. 10, as it concerns the city's salary-supplement payments, is invalid because the interpretation is an improper promulgation of a new rule. The association's interpretation of that statute is subject to the rulemaking requirements of the Minnesota Administrative Procedure Act, is inconsistent with the plain meaning of the statute, and is not a longstanding interpretation of the statute.
The Public Employees Retirement Association's interpretation of Minn.Stat. § 353.01, subd. 10(b)(2), as it concerns the city's insurance-supplement payments, is not an improperly promulgated new rule. The association's interpretation of that statute is consistent with the plain meaning of the statute.
Elizabeth A. Storaasli, Dryer Storaasli Knutson & Pommerville, Ltd., Duluth, MN, for relators.
Lori Swanson, Attorney General, Julie Ann Leppink, Assistant Attorney General, St. Paul, MN, for respondent Public Employees Retirement Association.
Considered and decided by JOHNSON, Chief Judge; CHUTICH, Judge; and CRIPPEN, Judge.*
In March 2009, the Public Employees Retirement Association (PERA) notified 485 active and retired employees of the City of Duluth that PERA intended to make adjustments to their defined-benefit retirement plans. PERA decided that adjustments were necessary because it determined that the city had, for more than a decade, miscalculated the amounts of contributions to its employees' retirement plans. PERA's adjustments would result in smaller retirement annuity payments for retired city employees.
Some of the persons who received PERA's notices challenged the decision, which led to contested-case proceedings before an administrative law judge. At the culmination of those proceedings, the PERA Board of Trustees reaffirmed the decision to make adjustments to the affected retirement plans. We are asked to review the PERA board's decision by way of a writ of certiorari. We conclude that the PERA board's decision is correct with respect to one form of compensation that the city paid to its employees because PERA's interpretation of the relevant statute is consistent with the plain meaning of the statute. But with respect to the other form of compensation that the city paid to its employees, we conclude that the PERA board's decision is erroneous because it is based on an improperly promulgated new rule that is inconsistent with the plain meaning of the relevant statute and is not a longstanding interpretation of the statute. Therefore, we affirm in part, reverse in part, and remand to PERA for further proceedings.
PERA administers several public-sector employee retirement plans. As a general rule, employees of municipalities are required to be members of PERA and to participate in one of its retirement plans. Minn.Stat. § 353.01, subd. 2a (2010). Both municipal employees and their municipal employers must contribute to an employee's retirement plan each pay period. Minn.Stat. §§ 353.27, subds. 2, 3, .65, subds. 2, 3 (2010).
Upon retirement, a member employee is entitled to receive a defined benefit from a PERA retirement plan in the form of monthly annuity payments. Minn.Stat. §§ 353.29, subd. 1, .651, subd. 1 (2010). The amount of the annuity payment is based on the employee's compensation before his or her retirement. Minn.Stat. §§ 353.29, subd. 3, .651, subd. 3. Both the employer and the employee must make periodic contributions to an employee's retirement plan, which also are based on the employee's compensation. Minn.Stat. §§ 353.27, subds. 2, 3, 4, .65, subds. 2, 3, .29, subd. 3, .651, subd. 3.
Not all types of compensation are considered for purposes of calculating contributions. The forms of compensation that are included in or excluded from an employee's so-called “PERA salary” are determined by statute. SeeMinn.Stat. § 353.01, subd. 10 (2010). If the employer makes an error in determining an employee's PERA salary, PERA is required by statute to make refunds of erroneous contributions. Id., subd. 7(c) (2008). Furthermore, “[i]n the event that a retirement annuity ... has been computed using invalid service or salary, [PERA] must adjust the annuity or benefit and recover any overpayment....” Id., subd. 7(d) (2010).
During the past two decades, the city has compensated some of its employees with monthly payments that supplement their regular salaries. The city first agreed to pay supplemental compensation in a 1995–96 collective-bargaining agreement (CBA) with one of its unions. Beginning in 1997, the city agreed to make similar monthly payments of supplemental compensation to members of four other unions. Initially, the city agreed to make monthly payments of $25 to each represented employee's qualified deferred-compensation plan. In subsequent CBAs, the city increased the monthly payments several times until they reached $229 in 2009. The parties refer to these monthly payments as “deferred compensation” payments, but it is more appropriate for this court, for purposes of this opinion, to refer to them as “salary supplement” payments. 1
Beginning in 1997, the CBAs between the city and the five unions also provided employees with an alternative form of supplemental compensation. Specifically, the CBAs permitted city employees to elect, in lieu of salary-supplement payments, to receive monthly payments that could be applied to the employee's purchase of group health insurance. The parties refer to these monthly payments as “insurance supplement” payments. Both salary-supplement payments and insurance-supplement payments were included in future CBAs that governed the city's labor-management relationships until 2008 and 2009.
As previously stated, the city is required to report salary information to PERA each pay period and to remit contributions to its employees' retirement plans. Minn.Stat. §§ 353.27, subds. 3, 4, .65, subd. 3. From 1995 to 2007, the city included both the salary-supplement payments and the insurance-supplement payments in its calculations of so-called “PERA salary.” The city relied on PERA staff when deciding to include the supplemental payments in PERA salary. According to a former payroll employee, Jackie Morris, the city sought guidance from PERA staff when it began making salary-supplement payments in 1995 and was told to include those payments in PERA salary. The city implemented PERA staff's guidance and adopted the same approach two years later with respect to insurance-supplement payments.
In July or August of 2007, however, the city auditor, Wayne Parson, contacted PERA staff and was told that the city should not include either salary-supplement payments or insurance-supplement payments in the city's calculations of PERA salary. The city discontinued the practice of including supplemental payments in PERA salary in September 2007. One year later, in September 2008, the city's chief administrative officer, Lisa Potswald, sent a letter to PERA stating that the supplemental payments to employees had been erroneously included in PERA salary. After receiving Potswald's letter, PERA staff and the city conducted a joint investigation to determine the scope of the payments that had been included in PERA salary. This investigation led to the decision by PERA staff that it was necessary to make adjustments to the contributions and benefits of the city's employees.
In March 2009, PERA sent letters to 485 active and retired employees, advising them that “PERA staff has determined that certain amounts reported to our association as ‘salary’ by [the city] cannot be used for purposes of calculating retirement plan contributions or benefits.” PERA's letters advised each employee or retiree of the total amount of contributions that had been improperly withheld during employment and, thus, would be refunded. PERA's letters also advised each retiree of a downward adjustment to his or her monthly retirement annuity payment, as well as the amount of overpaid benefits that they would be required to repay.
Seventy current and former city employees filed petitions for review by the PERA Board of Trustees. SeeMinn.Stat. § 356.96 (2010). The PERA board referred the petitions to the Office of Administrative Hearings for contested-case proceedings before an administrative law judge (ALJ). The petitions were consolidated and assigned to a single ALJ. The petitioners argued that PERA had erred by interpreting section 353.01, subdivision 10, to exclude the supplemental payments from their PERA salary.
After denying motions for summary disposition and holding an evidentiary hearing, the ALJ issued a 62–page, single-spaced order with findings of fact, conclusions of law, and a recommendation to PERA. With respect to the salary-supplement payments, the ALJ concluded that PERA's interpretation of the statute was not properly promulgated as an interpretive rule and, thus, may not be applied to the city and petitioners. With respect to the insurance-supplement payments, the ALJ concluded that PERA's interpretation of the statute is an interpretive rule that may be applied to the city's supplemental payments to the petitioners because the interpretation is consistent with the plain meaning of the statute. Accordingly, the ALJ recommended that the PERA board reverse the decision of PERA staff in part by not adjusting contributions and benefits based on the salary-supplement payments.
Some petitioners and the PERA staff filed exceptions to the ALJ's findings, conclusions, and recommendation. The PERA board issued an...
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