Montana Ass'n of Underwriters v. State, By and Through Dept. of Administration, 13555

• Decision Date: 23 May 1977
• Docket Number: No. 13555,13555
• Citation: 34 St.Rep. 297,563 P.2d 577,172 Mont. 211
• Parties: MONTANA ASSOCIATION OF UNDERWRITERS, Plaintiff and Appellant, v. STATE of Montana, acting By and Through the DEPARTMENT OF ADMINISTRATION, and Montana Benefits, Inc., Defendants and Respondent.
• Court: Montana Supreme Court

Page 577

563 P.2d 577

172 Mont. 211

MONTANA ASSOCIATION OF UNDERWRITERS, Plaintiff and Appellant, v. STATE of Montana, acting By and Through the DEPARTMENT OF ADMINISTRATION, and Montana Benefits, Inc. Defendants and Respondent.

No. 13555.

Supreme Court of Montana.

Submitted March 17, 1977.

Decided April 29, 1977.

Rehearing Denied May 23, 1977.

Philip W. Strope, argued, Helena, for plaintiff and appellant.

Small, Cummins & Hatch, Helena, Robert T. Cummins, argued, Helena, J. Michael Young, argued, Helena, for defendants and respondents.

HASWELL, Justice.

Plaintiff filed an action for declaratory judgment and injunctive relief against that State Department of Administration and a private corporation to block implementation of a deferred compensation plan for public employees. The district court, Lewis and Clark County, the Hon. Gordon R. Bennett, district judge, granted summary judgment to defendants denying the requested relief. Plaintiff appeals.

Plaintiff is the Montana Association of Life Underwriters, a trade association whose members are involved, among other things, in the field of employee pension plans. There are two defendants: The Department of Administration (DOA), an administrative agency of the state of Montana; and Montana Benefits, Inc. (MBI), a private profit corporation, which is engaged in establishing and administering the deferred compensation plan for public employees.

In 1974 the Montana legislature enacted legislation authorizing public employees to enter into a deferred compensation plan. Chapter 264, 1974 Session Laws, codified as sections 68-2701 through 68-2709, R.C.M. 1947. Essentially the legislation authorized the state or its political subdivisions, after reaching agreement with its employees, to enter into a program whereby its employees could defer a portion of their pay in a qualified deferred compensation plan under the federal Internal Revenue Code. Under such a plan the employee would not pay income taxes on the portion of his salary deferred until it was finally distributed to him under the plan. The state or its political subdivision incurred no financial liability for losses incurred by any plan established under the legislation. DOA was authorized to contract with employees to defer compensation under any qualified plan, to establish rules and regulations for the proper operation of the plan, and to contract with private corporations or institutions for consolidated billing and other administrative services.

Pursuant to this legislation, DOA entered into a written agreement on September 17, 1975 with Montana Public Employees Benefit Services Co., Inc., the predecessor of MBI, wherein the corporation was given the exclusive right to establish and administer a plan of deferred compensation for public employees. On the same date DOA entered into a written agreement with MBI wherein this corporation was granted the same exclusive right. At the time of contracting Montana Public Employees Benefit Services Co., Inc. was not yet incorporated. Following incorporation, that corporation's name was changed to MBI. After the present suit was filed, DOA entered into a third contract with MBI identical to the previous contracts.

The deferred compensation plan was prepared and offered by the corporation to the state, which adopted it. This plan had been approved as a 'nonqualified unfunded' plan by the Internal Revenue Service in a private letter ruling. This ruling determined that income deferred by public employees under the plan was not includable in the employee's gross income until actually received by the employee or his beneficiaries, provided state law permits implementation of the plan.

Plaintiff challenges the deferred compensation plan adopted by the state on three grounds, which we are asked to review on appeal:

(1) Whether the 1974 legislation requires the state to adopt and implement only a 'qualified' funded deferred compensation plan within the meaning of § 401(a), Internal Revenue Code 1954, as amended.

(2) Whether the agreement between DOA and MBI is void for lack of legal capacity by MBI to contract.

(3) Whether DOA has authority to grant an exclusive contract to MBI.

The gist of the first issue is whether the legislature in using the words 'qualified plan' and similar language meant a plan qualified for deferred income tax liability or whether it referred to a qualified deferred compensation plan within the meaning of § 401(a), Internal Revenue Code 1954.

Plaintiff argues that the words 'qualified' and 'nonqualified' are words of art with distinct meanings, when used within the context of the Internal Revenue Code. It argues the Montana legislature used the words 'qualified plan' in that sense in the deferred compensation act to provide adequate funding and security of employee contributions from diversion to other purposes. Therefore, it contends, the legislature meant a qualified plan under § 401(a), Internal Revenue Code 1954 which insures adequate funding, security, and prevents diversion of funds to other purposes.

At the outset we note the legislation in question provides in pertinent part:

'68-2701. Deferred compensation programs permitted.

'The state * * * may establish, after reaching agreement with any employee * * * a program for employees to defer any portion of that employee's compensation up to the maximum allowed by the Internal Revenue Code in a plan qualified for exemption under applicable sections of the Internal Revenue Code.' (Emphasis added.)

In subsequent sections reference is made to 'any qualified plan' (section 68-2702), to 'qualified plans' (section 68-2705), to 'any qualified private pension plans' (section 68-2706), and to 'all qualified defrred compensation plans' (section 68-2708).

A cardinal principle of statutory construction is that the intent of the legislature must first be determined from the plain meaning of the words used, and if interpretation of the statute can be so determined, the courts may not go further and apply any other means of interpretation. Keller v. Smith, Mont., 553 P.2d 1002, 33 St.Rep. 828; Dunphy v. Anaconda Co., 151 Mont. 76, 438 P.2d 660, and cases cited therein.

Here the language of the act clearly indicates the term 'qualified plan' means a plan qualifying for deferral of income taxation under federal laws. Section 68-2701 authorizes a deferred compensation program for public employees 'in a plan qualified for exemption under applicable sections of the Internal Revenue Code.' This language demonstrates the underlying purpose of the act-tax saving by exemption under federal tax laws. The exemption is not limited to a plan qualified under § 401(a) of the Internal Revenue Code or any other specific section thereof. The act says a plan qualified for exemption 'under applicable sections of the Internal Revenue Code.' It does not speak of 'funded' or 'unfunded' plans, § 401(a) plans, or use the technical jargon of the Internal Revenue Code.

Where the language of a statute is plain, unambiguous, direct and certain, the statute speaks for itself and there is nothing left for the court to construe. Keller v. Smith, supra; Dunphy v. Anaconda Co., supra. Our function is simply to declare what is contained in the statute, and neither insert what has been omitted nor omit what has been inserted. Section 93-401-15, R.C.M.1947; Clark v. Hensel Phelps Construction Co., Mont., 560 P.2d 515, 34 St.Rep. 61; Hammill v. Young, Mont., 540 P.2d 971, 32 St.Rep. 935. Accordingly, we will not construe the language of section 68-2701-'in a plan qualified for exemption under applicable sections of the Internal Revenue Code'-to mean only a § 401(a) plan.

Plaintiff argues the deferred compensation plan in question does not conform to Montana's statutory requirements because it is 'unfunded' and does not provide the necessary security for employee contributions. It is contended that a qualified, funded § 401(a) plan provides such security, and the legislature intended...