Wisconsin Retired Teachers Ass'n, Inc. v. Employe Trust Funds Bd.
| Decision Date | 17 January 1997 |
| Docket Number | No. 94-0712,94-0712 |
| Citation | 207 Wis.2d 1,558 N.W.2d 83 |
| Parties | , 116 Ed. Law Rep. 1203 WISCONSIN RETIRED TEACHERS ASSOCIATION, INC., Conan S. Edwards, Donald G. McCloskey, Margaret McCabe, Martha M. Schmidt and Mary Grace Jeffery, Plaintiffs-Respondents-Cross Appellants-Cross Petitioners, Wisconsin Education Association Council, by its President, James Blank, Richard Collins, David Camplin, Philip Dowling and Michael Zemplinski, Individuals, Intervening Plaintiffs-Respondents-Cross Appellants-Cross Petitioners, v. EMPLOYE TRUST FUNDS BOARD, Paul Adamski, David J. Anderson, Constance P. Beck, Gale Duschak, Joann Elder, Stephen Frankel, Vincent Graham, Marvin Grosskreutz, William F. Kienzle, Barbara A. Monroe, James R. Klauser, Secretary of the Wisconsin Department of Administration, Gary Gates, Secretary of the Department of Employe Trust Funds and Charles P. Smith, State Treasurer, Defendants-Appellants-Cross-Respondents. State Engineering Association, by its Board of Directors, Bernard E. Kranz, Melvin B. Sensenbrenner, Robert W. Schaefer, Jerry A. Sieling, Roger A. Bohn, James A. Andreshak, Steven Noel, Ronald S. Hett, William E. Sheppard, Richard Feeney, James B. Rice, Robert S. Merila, Thomas F. Dobson, Richard M. Story, Nile A. Ostenso (who are also plaintiffs in their individual capacities), and Charles W. Newhouse, and the Association of Career Executives, and its President, James S. Thiel (who is also a plaintiff in his individual capacity), Plaintiffs-Respondents-Cross Appellants-Cross Petitioners, WISCONSIN EDUCATION ASSOCIATION COUNCIL, by its President, James BLANK, Richard Collins, David Camplin, Philip Dowling and Michael Zemplinski, Individuals, Intervening Plaintiffs-Respondents-Cross Appellants-Cross Petitioners, v. EMPLOYE TRUST FUNDS BOARD, Paul Adamski, David J. Anderson, Constance P. Beck, Gale Duschak, JoAnn Elder, Stephen Frankel, Vincent Graham, Marvin Grosskreutz, William F. Kienzle, Barbara A. Monroe, James J. Murphy, Donald Smart, Mark Stone, Kenneth Stelzig, Curtis Thomas, Marilyn Wigdahl, The Depart |
| Court | Wisconsin Supreme Court |
For the defendants-co-appellants-cross respondents-petitioners there were briefs by Ann Ustad Smith, Arvid A. Sather and Michael, Best & Friedrich, Madison and oral argument by Ann Ustad Smith.
For the plaintiffs-respondents-cross appellants-cross petitioners there was a brief by William Haus and Michael E. Banks, Madison and oral argument by William Haus.
For the plaintiffs-respondents-cross appellants-cross petitioners there were briefs by John William Calhoun, John H. Bowers, Aaron N. Halstead and Shneidman, Myers, Dowling, Blumenfield, Ehlke, Hawks & Domer, Madison.
For the defendants-appellants-cross respondents there was a brief by Thomas M. Pyper and Whyte, Hirschboeck, Dudek, S.C. and Peter L. Gardon and Reinhart, Boerner, Van Deuren, Norris & Rieselbach, S.C., all of Madison and oral argument by Thomas Pyper.
For the intervening plaintiffs-respondents-cross appellants-cross petitioners there were briefs by Chris Galinat, Bruce Meredith, Anthony L. Sheehan and Wisconsin Education Association Council, Madison.
Amicus curiae brief was filed by Richard Thal, Margaret Becker and Cullen, Weston, Pines & Bach, Madison for the Wisconsin Professional Police Association.
Defendants, James R. Klauser, Secretary of the Wisconsin Department of Administration, and Charles P. Smith, State Treasurer, seek review, 1 and the plaintiffs, the State Engineering Association (SEA), the Wisconsin Retired Teachers Association (WRTA), and the Wisconsin Education Association Council (WEAC), seek cross-review, of a published decision of the court of appeals. Wisconsin Retired Teachers Ass'n v. Employe Trust Funds Bd., 195 Wis.2d 1001, 537 N.W.2d 400 (Ct.App.1995). The court of appeals' decision affirmed in part and reversed in part a decision of the circuit court for Dane County, Angela B. Bartell, Judge.
At issue is the constitutionality of 1987 Wis. Act 27, §§ 436m, 684r, and 688km, 2 under which Wisconsin Retirement System (WRS) trust funds were used to pay a "Special Investment Performance Dividend" (SIPD) to certain WRS annuitants. 3 We conclude that Act 27 and its implementation constitute a taking of the plaintiffs' property without just compensation, in violation of Article I, § 13 of the Wisconsin constitution. 4 Accordingly, we order the Administration Defendants, in their official capacities, to replenish the WRS fixed annuity reserve account in an amount equal to all funds paid out of the account pursuant to Act 27, plus interest at the effective rate. See Wis.Stat. § 40.02(23) (1987-88). 5 We also conclude that the ETF Defendants did not breach their fiduciary duties by implementing Act 27. Finally, we determine that the plaintiffs are entitled to reasonable attorney fees to be paid out of the recovery under the "common fund" doctrine.
Chapter 40 of the Wisconsin Statutes creates and governs the Public Employe Trust Fund, a system of benefits designed to protect public employees from the financial hardships of old age, disability, illness, and accidents. Wis.Stat. § 40.01(1). The Department of Employe Trust Funds (DETF) is an executive branch agency administering the Trust Fund "under the direction and supervision of the employe trust fund board." Wis.Stat. § 15.16. The ETF Board appoints the Secretary of the DETF. § 40.03(1)(c).
Within the Trust Fund, there is a fixed retirement investment trust (FRIT). § 40.04(3). The FRIT receives funds from three sources: (1) contributions from participating employees; (2) contributions from participating employers; and (3) investment earnings on the employee and employer contributions.
There are four accounts within the FRIT. First, there is an employee accumulation reserve account, which holds funds related to employee contributions. § 40.04(4). Second, there is an employer accumulation reserve account, which holds funds related to employer contributions. § 40.04(5). Third, there is an annuity reserve account, which holds funds sufficient to make annuity payments to those retiring public employees who choose to receive their retirement benefits on an installment basis. § 40.04(6). When an employee retires and elects to take an annuity, the employee and employer accumulation reserves transfer to the annuity reserve an amount equal to the present value of the annuity. § 40.04(6). Fourth, there is a transaction amortization account (TAA). § 40.04(3). The TAA is an accounting mechanism which allows the three reserve accounts to spread over time the recognition of gain or loss on investments, thus partially insulating annuitants from the fluctuations of the investment marketplace. Every year, each of the FRIT's three reserve accounts is credited with a proportionate share of the TAA balance. § 40.04(3)(a). 6
Depending upon the investment performance of the FRIT's assets, a surplus may be generated in the annuity reserve. Wisconsin Stat. § 40.27 7 authorizes and governs post-retirement adjustments to annuities based upon the occurrence of surpluses in the annuity reserve account. On an actuary's recommendation, the ETF Board must distribute an annuity reserve account surplus to annuitants "if the distribution will result in at least a 2% increase in the amount of annuities in force." § 40.27(2). Distributions must be "expressed as percentage increases in the amount of the monthly annuity in force." § 40.27(2)(a). Any prior § 40.27(2) annuity reserve account surplus distributions are included for purposes of calculating the percentage increase in an annuity. Id. The ETF Board has the equitable discretion to give annuitants varying percentage increases, based solely upon the effective date of the annuity. § 40.27(2)(b). The distributions made under § 40.27(2) cannot reduce, or be reduced by, any other benefits. § 40.27(2)(c). Finally, the surplus distributions do not become a part of a retiree's base annuity, which is guaranteed by the State. Rather, the ETF Board can revoke § 40.27(2) annuity increases when necessary to preserve the financial integrity of the fixed annuity reserve. Id.
The legislature has frequently changed the formula for calculating a retiring employee's initial annuity benefit. These changes generally increase a retiree's base annuity, and have always been applied prospectively. As a result, state employees retiring prior to statutory increases in base annuities receive no enhancement of their base annuity. See, Retirement Research Committee Staff Report # 76, Review of WRS Annuitant Equity and Adequacy Concerns (1985). Benefits "cliffs" are created between those retiring before and those retiring after beneficial legislation.
The legislature has attempted to blunt the erosive economic effect of these benefits "cliffs" by providing "supplemental benefits" to older annuitants. Since 1974, the legislature has provided supplemental benefits to pre-1974 annuitants in an effort to bring their benefits more into line with those of post-1974 annuitants. 8 These supplemental benefits are paid from general purpose revenue (GPR), and are subject to continuing appropriation by the legislature. They are administered by the DETF, and are added to the monthly checks of eligible annuitants.
In 1987, the legislature enacted the legislation at issue in this case. 9 Act 27 caused approximately $78.6 million to be transferred from the TAA to the annuity reserve account. Wis.Stat. § 40.04(3)(e)1. 10 The Act ordered the ETF Board to distribute the transferred money as a special investment performance dividend payable only to those annuitants then receiving GPR-funded...
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