Minneapolis Teachers Retirement Fund Ass'n v. State

Decision Date18 August 1992
Docket NumberNo. CX-92-271,CX-92-271
Citation490 N.W.2d 124
Parties78 Ed. Law Rep. 94, 15 Employee Benefits Cas. 2289 MINNEAPOLIS TEACHERS RETIREMENT FUND ASSOCIATION, et al., Appellants, v. STATE of Minnesota, Respondent.
CourtMinnesota Court of Appeals

Syllabus by the Court

I. Appellants have no contractual right to an actuarially sound pension fund because no statute can be reasonably interpreted as a promise that the fund will be kept actuarially sound.

II. The legislature's 1975 and 1985 modifications of the funding method for the Minneapolis Teachers Retirement Fund did not unconstitutionally impair a contractual obligation.

Curtis D. Forslund, Gray, Plant, Mooty, Mooty & Bennett, Minneapolis, for appellants.

Hubert H. Humphrey, III, Atty. Gen., Catharine F. Haukedahl, Sol. Gen., St. Paul, for respondent.

Considered and decided by FORSBERG, P.J., and HUSPENI and PETERSON, JJ.

OPINION

PETERSON, Judge.

Appellants initiated an action seeking a declaratory judgment that 1975 Minn.Laws ch. 306, Sec. 30 is unconstitutional as applied and that Minn.Stat. Sec. 354A.07 (1974) is revived and in full force and effect. 1 Appellants assert the State of Minnesota is obliged to provide adequate funds to maintain the Minneapolis Teachers Retirement Fund in an actuarially sound condition and that the state's failure to do so amounts to an unconstitutional impairment of the contract rights of Minneapolis teachers. Appellants moved for summary judgment. The trial court denied the motion and, instead, granted summary judgment for respondent.

FACTS

The Minneapolis Teachers Retirement Fund Association (MTRFA) is a non-profit corporation created in 1909, pursuant to 1909 Minn.Laws ch. 343, to serve as the fiduciary for retirement funds for teachers employed by the Minneapolis Board of Education.

The original 1909 legislation authorized teachers in a city having a population of more than 50,000 to establish a retirement fund association, with the consent of the city council. 1909 Minn.Laws ch. 343, Sec. 1. An association created under the 1909 act was required to

formulate a plan for * * * the collection and disbursement of a fund for the benefit of retired teachers * * * which * * * shall be submitted to the * * * city council * * * for approval.

1909 Minn.Laws ch. 343, Sec. 3. The 1909 legislation provided that the plan formulated by the association "may include a provision that a portion of said fund shall be raised by taxation upon the property of the said city." 1909 Minn.Laws ch. 343, Sec. 5. The legislation also provided that a

plan may provide in the event that the funds of the association are not sufficient to pay annuities in full, as provided in said plan, in any particular year, that the amount available shall be pro-rated between those entitled to receive the same.

1909 Minn.Laws ch. 343, Sec. 8.

If a plan with a taxation provision was adopted, the association was required to annually certify to the proper authorities, who have charge of the levying of taxes in said city and in the county in which said city is located, the amount which it will be necessary to raise by taxation in order to carry out the plan so adopted * * * for the coming year, and it shall be the duty of the said authorities so having charge of the levying of taxes to include in the tax levy for the ensuing year, a tax in addition to all other taxes, sufficient to produce said sum so certified.

Provided, however, that said tax shall in no event exceed one-tenth of a mill upon all taxable property of said city.

1909 Minn.Laws ch. 343, Sec. 6, codified at Minn.Gen.Stat. Sec. 1427 (1913). 2

The plan adopted by MTRFA in 1909 included a taxation provision and a pro rata distribution provision.

In 1921, Minn.Gen.Stat. Sec. 1427 (1913) was amended to provide that when an association certified to city and county authorities the amount of taxation necessary to carry out the plan for the next year, the taxing authorities were required to levy "so much of the sum so certified as the said authorities having charge of the levying of taxes for school purposes in said city shall approve." 1921 Minn.Laws ch. 303, Sec. 1.

In 1945, the statute was further amended to provide that, when an association made its certification to the taxing authorities,

any portion of the sum so certified which is not included in the tax so levied and collected shall be increased with interest at the rate currently earned on the invested funds of the Association and added to the amount certified for the ensuing year

1945 Minn.Laws ch. 390, Sec. 2. However, local taxing authorities retained the discretion to levy taxes in an amount less than the certified amount. 3

In 1967, the statutory requirement that MTRFA annually certify to local taxing authorities the amount necessary to carry out the plan for the next year was amended to require that, before making the certification, a copy of the proposed certification, and other information, be provided by the association to the state auditor. 1967 Minn.Laws Extra Sess. ch. 32, art. 3, Sec. 3. The state auditor was then required to pay to the association from state funds

an amount equal to the average amount that the state of Minnesota would be required to pay annually for all contributing members of the [association] under the state teachers retirement fund program multiplied by the number of contributing members of the [association].

Id.

The effect of this amendment was to require the state to pay to MTRFA the average amount per teacher the state would have paid to the state teachers retirement fund if the Minneapolis teachers had been members of the state fund rather than members of MTRFA. However, the 1967 amendment also required that the amount paid to MTRFA by the state be deducted from the amount MTRFA proposed to certify to local taxing authorities and that the amount necessary to raise by taxation in order to carry out the plan be reduced by the amount of the state's payment. Id. Local taxing authorities retained authority to levy property taxes to remedy any deficiency between the state payment and the amount necessary to carry out the plan.

In 1975, the legislature repealed both the requirement that MTRFA annually certify an amount to local taxing authorities and the authority of local taxing authorities to levy property taxes to make payments to MTRFA. 1975 Minn.Laws ch. 306, Secs. 30 34. Instead, the legislature required the state to make contributions to MTRFA

equal to the amount, expressed as a percentage of payroll, that the state of Minnesota is required to pay for all contributing members of the state teachers retirement association.

1975 Minn.Laws ch. 306, Sec. 30.

In 1985, the legislature created a new system for making employer contributions to teacher retirement association funds, including MTRFA. 1985 Minn.Laws 1st Spec.Sess. ch. 12, art. 11, Secs. 1-2. Under the new system, the state would no longer make payments directly to MTRFA. Instead, the state was required to make a payment to the Minneapolis school district and the district was required to make employer contributions to MTRFA. 1985 Minn.Laws 1st Spec.Sess. ch. 12, art. 11, Secs. 2, 13. The amount of the state payment to the district was determined by a formula. 1985 Minn.Laws 1st Spec.Sess. ch. 12, art. 11, Sec. 2. The amount of the payment could be less than the total employer contributions the district was required to make to MTRFA.

In 1990 MTRFA had an unfunded actuarial accrued liability (UAAL) of over $400 million.

The trial court found that a pension is part of appellants' employment contract. However, the court concluded that actuarial soundness of the retirement fund was not a term of the contract and that, because MTRFA retirees have always received their full benefits, the contract has not been impaired. Therefore, the trial court granted summary judgment for respondent.

ISSUE

Did the legislature's 1975 and 1985 modifications of the funding method for MTRFA unconstitutionally impair a contractual obligation?

ANALYSIS

On appeal from summary judgment we are to determine whether any genuine issues of material fact exist and whether the trial court erred in its application of the law. Offerdahl v. University of Minn. Hosps. & Clinics, 426 N.W.2d 425, 427 (Minn.1988). In discharging this obligation, we view the evidence in the light most favorable to the party against whom summary judgment has been granted. Grondahl v. Bulluck, 318 N.W.2d 240, 242 (Minn.1982).

Challenges to the constitutionality of statutes are disfavored and we presume every legislative enactment to be constitutional. Jacobsen v. Anheuser-Busch, Inc., 392 N.W.2d 868, 872 (Minn.1986), cert. denied, 479 U.S. 1060, 107 S.Ct. 941, 93 L.Ed.2d 991 (1987). The burden rests with appellants to demonstrate beyond a reasonable doubt that the act violates a constitutional provision. Id. On such questions we owe no deference to the trial court's conclusions. We are not bound by the trial court's legal conclusions. Frost-Benco Elec. Ass'n. v. Minnesota Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn.1984).

Appellants claim the employment contract of Minneapolis teachers has included

a systematic method of funding [employer's pension fund contributions], which assured the teachers of Minneapolis that the employer's contribution to their pension fund was backed by the taxing power of the city, and that taxes needed to pay the required contributions would be levied upon request.

Appellants complain that the removal of this "system" has made the retirement fund actuarially unsound and "the actuarial unsoundness of the fund itself works a contract impairment."

The United States and Minnesota constitutions prohibit passage of any law that impairs a contractual obligation. 4 We apply a three part test to determine whether a claimed contractual impairment is unconstitutional. The initial question is whether the state law has, in fact, operated as a...

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