Wayne Cnty. Emps. Ret. Sys. v. Wayne Cnty.

• Decision Date: 09 May 2013
• Docket Number: Docket No. 308096.
• Citation: 836 N.W.2d 279,301 Mich.App. 1
• Parties: WAYNE COUNTY EMPLOYEES RETIREMENT SYSTEM v. WAYNE COUNTY.
• Court: Court of Appeal of Michigan — District of US

301 Mich.App. 1

836 N.W.2d 279

WAYNE COUNTY EMPLOYEES RETIREMENT SYSTEM

v.WAYNE COUNTY.

Docket No. 308096.

Court of Appeals of Michigan.

Submitted March 12, 2013, at Detroit.

Decided May 9, 2013, at 9:00 a.m.

Racine & Associates (Marie T. Racine, Detroit, and Jennifer A. Cupples) and Jaffee, Raitt, Heuer & Weiss, PC (by Brian G. Shannon), for the Wayne County Employees Retirement System and the Wayne County Retirement Commission.

Dickinson Wright PLLC, Detroit, (by Francis R. Ortiz, Phillip J. DeRosier, Scott A. Petz, and Jeffrey E. Ammons) for Wayne Charter County.

VanOverbeke, Michaud & Timmony, P.C., Detroit, (by Francis E. Judd and Michael J. VanOverbeke), for the Michigan Association of Public Employee Retirement Systems.

Before: MURPHY, C.J., and O'CONNELL and BECKERING, JJ.

MURPHY, C.J.

This case concerns retirement system assets, formulas, allocations, and funding, and it involves a constitutional and statutory challenge by plaintiffs Wayne County Employees Retirement System (the Retirement System) and Wayne County Retirement Commission (the Retirement Commission) in regard to a county ordinance enacted in 2010 by defendant Charter County of Wayne (the County) through a vote of defendant Wayne County Board of Commissioners (the County Board). Plaintiffs argue that the ordinance violates Const. 1963, art. 9, § 24, and the Public Employee Retirement System Investment Act (PERSIA), MCL 38.1132 et seq. The trial court granted defendants' motion for summary disposition, rejecting plaintiffs' constitutional and statutory objections to the ordinance. Plaintiffs appeal this ruling as of right. We hold that, while some of the language is safe from challenge, multiple provisions of the ordinance violate PERSIA, most importantly a provision requiring an offset of certain inflation reserve assets against the County's annual contribution to the pension fund. The offset provision improperly authorized the County to take excess Retirement System inflation reserve assets and use them for the County's benefit. The benefit of the offset to the County was that it greatly reduced the amount of money needed to be paid from the County's own coffers to satisfy constitutionally mandated pension funding obligations. We find it unnecessary, for the most part, to analyze this case under Const. 1963, art. 9, § 24. Furthermore, the trial court granted summary disposition in favor of plaintiffs relative to count III of the County's counterclaim, which alleged that the Retirement Commission mismanaged the assets of the Retirement System, violating certain fiduciary duties. The County has cross-appealed that ruling. We hold that the trial court did not err in summarily dismissing the fiduciary-duty claims, given that the County lacked standing to raise such claims and/or failed to establish the existence of a genuine issue of material fact with respect to the claims. We also reject a couple of additional cursory arguments posed by the County regardingattorney fees and costs and Const. 1963, art. 9, § 24, which the trial court did not address. In sum, we affirm in part and reverse in part.

I. OVERVIEW

The ordinance at issue placed a $12 million limit on the balance of a reserve for inflation equity, referred to as the Inflation Equity Fund (IEF), which previously had no particular dollar cap, and which is funded by investment earnings, exceeding a certain threshold rate of return, on pension assets pursuant to an actuarially based formula. The ordinance additionally placed a $5 million limit on the distribution of monies from the IEF to eligible retirees and survivor beneficiaries, commonly referred to as the “13th check” distribution, which also had no prior dollar cap, and which, although discretionary, had been made annually in varying amounts without fail since the inception of the IEF in the mid–1980s. Twelve regular monthly pension distributions, paid from assets of the defined benefit plan—which include contributions by the County and its employees, and the investment earnings thereon—are enjoyed by those eligible as an accrued financial benefit on the basis of service rendered.¹ The purpose or intent behind creating and funding the IEF was to provide extra cash to assist retirees and survivor beneficiaries in fighting the effects of inflation. The use of regular cost-of-living allowances (COLAs) predated the creation of the IEF and the payment of 13th checks.

The challenged ordinance further required that the amount in the IEF in excess of the $12 million dollar cap, which excess was approximately $32 million given that the IEF's balance had grown to around $44 million at the time of the ordinance's enactment, be debited from the IEF and credited to the defined benefit plan assets. In turn, the ordinance mandated use of the excess, the $32 million, to offset or reduce the County's defined benefit annual required contribution (ARC), with the credited amount thereafter being deemed part of the defined benefit plan assets. IEF and defined benefit plan assets are all held together in trust, but accounting records provide for a distinct allocation or crediting of the assets.² The Retirement Commission is responsible for determining the County's ARC for purposes of defined benefit funding, and the Retirement Commission employs an actuary to make the necessary actuarial calculations and develop ARC numbers. Assets in the IEF are not taken into consideration in fixing the amount of the ARC. The ordinance effectively allowed defendants to satisfy ARC obligations through an accounting transaction that substantially depleted assets that had accumulated in the IEF and were chiefly designated for 13th checks, shifting and adding the “excess” IEF assets to the defined benefit plan assets as opposed to attaining ARC compliance by adding to the defined benefit plan assets through a direct contribution from County coffers. Finally, the ordinance additionallyimposed particular amortization periods and caps to be used in calculating the ARC.

The Michigan Constitution provides in relevant part:

The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.

Financial benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be used for financing unfunded accrued liabilities. [Const. 1963, art. 9, § 24.]

Plaintiffs argued that the ordinance violated both clauses of Const. 1963, art. 9, § 24, by diminishing or impairing accrued financial benefits, and by effectively abrogating the County's annual funding obligation or ARC. The trial court disagreed, ruling on cross-motions for summary disposition that “the IEF is not an accrued financial benefit” and that payment of the 13th check is entirely discretionary, not mandatory, under the ordinance and applicable collective bargaining agreements (CBAs).

Plaintiffs also contended that the ordinance violated various provisions of PERSIA by taking a credit against the Retirement System's trust assets for the County's benefit during a period of underfunding, by overriding the Retirement Commission's discretion in taking such a credit, by treating trust assets as assets of the County, and by the imposition of amortization periods and caps in derogation of the Retirement Commission's discretion. The trial court again disagreed, ruling on cross-motions for summary disposition that § 20m of PERSIA, MCL 38.1140m, “does not address or prohibit the transfer of funds from the IEF ... to meet the County's [ARC][o]bligation.” With respect to additional PERSIA provisions relied on by plaintiffs in support of their arguments, the trial court rejected them for the many reasons set forth in defendants' summary disposition brief. Plaintiffs appeal the rulings on their constitutional and statutory challenges as of right.

The County cross-appeals the trial court's ruling granting summary disposition in favor of plaintiffs with respect to count III of the County's counterclaim, which sought declaratory and injunctive relief on the basis that the Retirement Commission violated various fiduciary duties in managing the assets of the Retirement System. The County alleged a number of improprieties by the Retirement Commission in count III, including allocating investment losses to defined benefit plan assets but not to the IEF, electing to make 13th-check distributions when defined benefit plans were underfunded, directing the Retirement System's assets to the IEF and away from the defined benefit plan assets despite the fact that the plans were underfunded, making 13th-check payments to all members of the various retirement plans despite the ineligibility of members who participated solely in the defined contribution plan, failing to establish written policies and objectives for determining when IEF distributions should be made, and in bringing an untenable lawsuit. On cross-motions for summary disposition, the trial court granted summary disposition in favor of plaintiffs, ruling that plaintiffs had submitted evidence showing compliance with the Retirement Commission's fiduciary duties and other legal obligations and that the County had failed to present evidence sufficient to create a genuine issue of material fact on its claims, thereby entitling plaintiffs to judgment as a matter of law.³

II. BACKGROUND

A. UNDERLYING COUNTY AUTHORITY: MICHIGAN CONSTITUTION, CHARTER COUNTIES ACT, AND WAYNE COUNTY CHARTER

Under the authority of Const. 1963, art. 7, § 2, “[a]ny county may ... adopt ... a county charter in a manner and with powers and limitations to be provided by generallaw....” Pursuant to 1966 PA 293, the Legislature enacted the charter counties act (CCA), MCL 45.501 et seq. “Every county adopting a charter under the provisions of ... [the CCA] shall be a body corporate.” MCL 45.501. “Wayne County...