Stevens v. Fox
| Decision Date | 11 October 2016 |
| Docket Number | No. 114,676,114,676 |
| Citation | 383 P.3d 269,2016 OK 106 |
| Parties | Joe Stevens and Cecil Dooley, Oklahoma taxpayers and vested participants in the Oklahoma Public Employees Retirement System, Plaintiffs/Appellants, v. Joseph A. Fox, Executive Director of the Oklahoma Public Employees Retirement System, Dewayne McAnally, Steve Paris, Michael D. Evans, Jill Geiger, James R. “Rusty” Hale, Thomas E. Kemp, Jr., Don Kilpatrik, Brian Maddy, Lucinda Meltabarger, Michael Moradi, Cleve Pierce and Frank Stone, as and constituting the Board of Trustees of the Oklahoma Public Employees Retirement System, Defendants/Appellees. |
| Court | Oklahoma Supreme Court |
Robert A. Nance and Stephanie L. Theban, Riggs, Abney, Neal, Turpen, Orbison & Lewis, Inc., Oklahoma City, Oklahoma, for Plaintiffs/Appellants.
Marc Edwards and Catherine L. Campbell, Phillips Murrah, P.C., Oklahoma City, Oklahoma, for Defendants/Appellees.
Patrick R. Wyrick, Solicitor General, Mithun S. Mansinghani, Deputy Solicitor General, and Sarah A. Greenwalt, Assistant Solicitor General, Office of the Attorney General, Oklahoma City, Oklahoma, for Attorney General.
FACTS AND PROCEDURAL HISTORY
¶ 1 The focus of this appeal concerns the validity of HB 2630; 2014 Okla. Sess. Laws c. 375 (effective November 1, 2014).1 HB 2630 created the Retirement Freedom Act (74 O.S. Supp. 2014, § 935.1 et seq.
). The main purpose of HB 2630 was to create a new defined contribution system within the Oklahoma Public Employees Retirement System (OPERS) for persons who initially become a member of OPERS on or after November 1, 2015. This includes most state employees hired on or after this date.2 To accomplish this purpose, the act provides OPERS could either establish a new defined contribution “plan or use an existing plan.” Title 74 O.S. Supp. 2014, § 935.3. Those members of OPERS hired prior to this date are allowed to remain in the defined benefit plan under OPERS. To help understand the issues involved it is necessary to explain the differences between defined benefit plans and defined contribution plans.
¶ 2 Prior to November 1, 2015, most state employees and some other governmental employees have participated in the OPERS defined benefit plan. A defined benefit plan provides an employee who retires from the plan a fixed periodic payment based upon a formula. See Hughes Aircraft Co. v. Jacobson , 525 U.S. 432, 439, 119 S.Ct. 755, 142 L.Ed.2d 881 (1999)
. In other words, it provides a pension. As the name implies, the benefit is defined. If you know the factors to place in the formula you can determine the benefit. In the case of the OPERS defined benefit plan, both the employer and employee make monthly contributions to fund the plan. The plan assets are kept in a pool of assets rather than individual dedicated accounts for employees. The employer bears the entire investment risk and underfunding may result in a myriad of ways including a shortfall in the plan's investments, insufficient contributions or inaccurate actuarial assumptions. These plans typically use actuaries to determine assumptions concerning the necessary contributions and investment return to cover projected benefit obligations. These assumptions take into account items such as, unfunded and underfunded plan amendments, changes in investment yields, changes in mortality rates, experience losses, salary increases and employee turnover. See 1996 OK AG 21, ¶ 7. In essence, actuaries make an educated guess as to what the future will bring in order to advise the system on the level of funding needed to pay expected future benefits. Inherent in all defined benefit plans is a lack of certainty.
¶ 3 HB 2630 creates a new defined contribution system within OPERS. Title 74 O.S. Supp. 2014, § 935.2
. Under a defined contribution plan there can never be an insufficiency of funds to cover promised benefits. Hughes, 525 U.S. at 439, 119 S.Ct. 755 (citations omitted). The obvious incentive for creating this new defined contribution system is its certainty and inability to be underfunded. Defined contribution plans provide an individual account for each participant and benefits are based solely upon the amounts contributed to the participants account and the earnings on those contributions. Id. As its name implies, the amount contributed is defined, however, the future benefit such an account will bring is unknown. The risk is shifted from the employer to the employee. In this new defined contribution system employees contribute between 3% to 7% of compensation and the employer shall match that contribution. Title 74 O.S. Supp. 2014, § 935.5. In addition, HB 2630 also requires employers making contributions on behalf of those employees in the new defined contribution system to make an additional contribution to the now closed defined benefit plan. Title 74 O.S. Supp. 2014, § 935.10 provides the amount of this contribution to the defined benefit plan will be equal to the difference between the employer contribution made to the defined benefit plan and the employer contribution made on behalf of the members in the new defined contribution system. The stated purpose for this contribution is to help “reduce the liabilities of the defined benefit pension plan.” Title 74 O.S. Supp. 2014, § 935.10 (B). HB 2630 also requires each employer with employees participating in the new defined contribution system to pay an amount “to reimburse the cost of administration of the defined contribution system, as determined by the Board.” Title 74 O.S. Supp. 2014, § 935.6 (E).
¶ 4 On October 24, 2014, the Plaintiffs/Appellants, Joe Stevens and Cecil Dooley (Appellants) filed their Petition for Declaratory and Supplemental Relief challenging the validity of HB 2630. The Appellants claimed they have both taxpayer standing as resident Oklahoma taxpayers and individual standing as vested members in the OPERS defined benefit plan to bring this action. The Appellants' prayer for relief requested HB 2630 be found void ab initio because it is unconstitutional and in violation of certain sections of the Oklahoma Pension Legislation Actuarial Analysis Act (62 O.S. § 3101
–3114 ) (OPLAAA). They also requested the Defendants/Appellees Joseph A. Fox, Executive Director of the Oklahoma Public Employees Retirement System, Dewayne McAnally, Steve Paris, Michael D. Evans, Jill Geiger, James R. “Rusty” Hale, Thomas E. Kemp, Jr., Don Kilpatrik, Brian Maddy, Lucinda Meltabarger, Michael Moradi, Cleve Pierce and Frank Stone, as and constituting the Board Of Trustees of the Oklahoma Public Employees Retirement System (collectively, Appellees), be enjoined from enforcing HB 2630.
¶ 5 The Appellants asserted the Legislature violated OPLAAA when it enacted HB 2630. OPLAAA was enacted in 2006; 2006 Okla. Sess. Laws c. 292 (SB 1894). OPLAAA establishes legislative procedures for introducing, hearing, and passing retirement legislation. It provides separate legislative procedures for fiscal and non-fiscal retirement bills. Since 2007, it has been applicable to “retirement systems” defined in 62 O.S., § 3103 (9)
as “the Teachers' Retirement System of Oklahoma, the Oklahoma Public Employees Retirement System, the Uniform Retirement System for Justices and Judges, the Oklahoma Firefighters Pension and Retirement System, the Oklahoma Police Pension and Retirement System, the Oklahoma Law Enforcement Retirement System, or a retirement system established after January 1, 2006.” 2007 Okla. Sess. Laws c. 186, §§ 2–3; see also 62 O.S. 2011, § 3102.
¶ 6 OPLAAA requires the Legislative Service Bureau to contract with a firm or entity to provide the actuarial services and duties under the Act. Title 62 O.S. 2011, § 3103
. OPLAAA refers to this firm or entity as the “Legislative Actuary.” It grants the Legislative Actuary authority to determine whether a proposed retirement bill is a fiscal retirement bill3 or a non-fiscal retirement bill4 and requires the Legislative Actuary to provide a written certification of that determination. Title 62 O.S. 2011, § 3105. The certification is attached to the original introduced bill and the whole process is a “condition precedent” to the introduction of any retirement bill.5
¶ 7 Each party filed a motion for summary judgment. The Appellants' primary argument was the Legislature failed to follow the regulations it set for itself under OPLAAA and therefore HB 2630 is void. They alleged the Legislative Actuary incorrectly certified HB 2630 as being a non-fiscal retirement bill because it created a new retirement system and created or increased the costs, benefits, normal cost and actuarial accrued liability of OPERS.6 This incorrect certification resulted in HB 2630 being passed by the Legislature using the wrong OPLAAA procedures. In addition, they argued HB 2630 unconstitutionally impaired the Appellants' retirement security rights in violation of Okla. Const. art. 2, § 157
and Okla. Const. art. 5, § 548 and certain funds were not used exclusively for the defined benefit members in violation of both Okla. Const. art. 23, § 129
and the Internal Revenue Code Section 401 (a) (2) (26 U.S.C. § 401 (a) (2) ).10
¶ 8 The Appellants asserted they have both taxpayer and individual standing. Their taxpayer standing argument is based on their challenge to an “alleged illegal expenditure of public funds.” Oklahoma Pub. Employees Ass'n v. Oklahoma Dep't of Cent. Servs., 2002 OK 71, ¶ 10, 55 P.3d 1072
. Their individual standing argument is based on their vested status in the OPERS defined benefit plan which they claimed, pursuant to Taylor v. State & Educ. Employees Grp. Ins. Program, 1995 OK 51, 897 P.2d 275, gives them a cognizable interest in the actuarial soundness of their pension funds.
¶ 9 In Appellees' motion for summary judgment they argued OPLAAA (62 O.S. 2011, § 3105
) grants the Legislative Actuary sole authority for determining whether a retirement bill is fiscal or non-fiscal and his certification was correct for the following reasons: 1) OPLAAA's...
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