Wisconsin Retired Teachers Ass'n, Inc. v. Employe Trust Funds Bd.
| Decision Date | 16 March 1995 |
| Docket Number | No. 94-0712,94-0712 |
| Citation | 195 Wis.2d 1001,537 N.W.2d 400 |
| Parties | , 103 Ed. Law Rep. 404, 19 Employee Benefits Cas. 2894 WISCONSIN RETIRED TEACHERS ASSOCIATION, INC., Conan S. Edwards, Donald G. McCloskey, Margaret McCabe, Martha M. Schmidt and Mary Grace Jeffery, Plaintiffs-Respondents-Cross-Appellants, Wisconsin Education Association Council by Its President, James Blank, Richard Collins, David Camplin, Phillip Dowling and Michael Zemplinski, Individuals, Intervening Plaintiffs-Respondents-Cross-Appellants, 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, Wisconsin Education Association Council by its President James Blank, Richard Collins, David Camplin, Phillip Dowling and Michael Zemplinski, Individuals, Intervening Plaintiffs-Respondents-Cross-Appellants, 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 Department of Employe Trust Funds and its Secretar |
| Court | Wisconsin Court of Appeals |
For the defendants-appellants-cross-respondents the cause was submitted on the briefs of Thomas M. Pyper of Whyte, Hirschboeck & Dudek, S.C. of Madison, and Peter L. Gardon of Reinhart, Boerner, Van Deuren, Norris & Rieselbach, S.C., Madison. There was oral argument by Peter L. Gardon.
For the defendants-co-appellants-cross-respondents the cause was submitted on the briefs of Arvid A. Sather and Ann Ustad Smith of Michael, Best & Friedrich, Madison. There was oral argument by Ann Ustad Smith.
For the intervening plaintiffs-respondents-cross-appellants the cause was submitted on the briefs of Chris Galinat, Bruce Meredith and Anthony L. Sheehan for Wisconsin Education Association Council. There was oral argument by Bruce Meredith.
For the plaintiffs-respondents-cross-appellants, Wisconsin Retired Teachers Association, Inc., the cause was submitted on the briefs of John W. Calhoun, John H. Bowers and Kent I. Carnell of Lawton & Cates, Madison. There was oral argument by John W. Calhoun.
For the plaintiffs-respondents-cross-appellants, State Engineering Association, the cause was submitted on the briefs of William Haus and Michael E. Banks of Kelly and Amicus Curiae brief was filed by Betsy J. Abramson of Coalition of Wisconsin Aging Groups--Elder Law Center, and Mary Ellen Signorille of American Association of Retired Persons.
Haus, Madison. There was oral argument by William Haus.
Before EICH, C.J., GARTZKE, P.J., and VERGERONT, J.
This class action challenges the constitutionality of legislation 1 concerning the Wisconsin Retirement System (WRS), the retirement system for public employees. Under the legislation, earnings on the WRS trust fund assets of certain annuitants are used to pay supplemental benefits that are not a commitment of the WRS trust fund. Only annuitants who retired prior to October 1, 1974, receive the supplemental benefits. The purpose of the legislation is to reduce the general purpose revenue (GPR) funding of supplemental benefits. We conclude the legislation and its implementation unconstitutionally take the property of the plaintiff class of WRS annuitants for a public purpose without just compensation. The WRS trust fund annuity reserve account must be reimbursed by the amount distributed that replaced GPR expenditures for supplemental benefits, plus an amount equal to the average rate of earnings of the investment trust fund assets since the date of the first distribution. We also conclude that the attorneys for the class are entitled to payment of attorney fees from the amount paid back to the annuity reserve account.
The State Engineering Association (SEA) and the Wisconsin Retired Teachers Association (WRTA) initiated this action. The Wisconsin Education Association Council (WEAC) intervened as a plaintiff. 2 The defendants are the members of the Employe Trust Funds Board (trustees); Gary Gates, the Secretary of the Department of Employe Trust Funds; James Klauser, the Secretary of the Department of Administration; and Charles Smith, the State Treasurer. 3
The trial court held that the legislation violates constitutional prohibitions against the taking of property without just compensation, 4 increasing benefits without providing state funds, 5 and impairment of contracts. 6 It concluded that neither sovereign immunity nor the separation of powers doctrine bars monetary relief under the first two of these constitutional provisions, and ordered payments to certain class members. The trial court also decided that Gates and the trustees had breached their fiduciary duties but were shielded from personal liability under the doctrine of official immunity. The trial court ordered payment of plaintiffs' attorney fees.
Defendants appeal, claiming that the legislation is constitutional; that sovereign immunity bars all monetary relief; that Gates and the trustees did not breach their fiduciary duties; and that attorney fees should not have been awarded. On cross-appeal, plaintiffs contend that the constitutional prohibition against the impairment of contracts is self-executing; that the trial court's remedy does not make them whole; and that Gates and the trustees are not entitled to official immunity.
In addition to our conclusions regarding an unconstitutional taking and attorney fees, we also hold: (1) the prohibition in the Wisconsin Constitution against increasing benefits without providing state funds does not entitle any class member to prospective monetary relief; (2) sovereign immunity bars monetary relief from defendants in their official capacities for impairment of contract; (3) Gates and the trustees did not breach their fiduciary duties; and (4) Gates and the trustees are not personally liable.
The WRS provides benefits to public employees as set forth in ch. 40, STATS. The Department of Employe Trust Funds (DETF) is the state agency created to administer the WRS under the direction and supervision of the Employe Trust Funds Board (board). Section 15.16, STATS. Section 40.01, STATS., creates a public employee trust fund "solely for the purpose of ensuring the fulfillment at the lowest possible cost of the benefit commitments to participants, as set forth in this chapter, and shall not be used for any other purpose." Section 40.01(2). The source of the WRS trust fund's assets are the statutorily-required contributions of the participating employees and employers and the investment earnings on those contributions.
Within the trust fund there is a fixed retirement investment trust 7 that contains three reserve accounts relevant to this case. Employee contributions are credited to the employee accumulation reserve account and employer contributions are credited to the employer accumulation reserve account. Section 40.04(4) and (5), STATS. The third reserve account is the annuity reserve account. Section 40.04(6). When a participating employee retires, funds are transferred from the first two accounts into the annuity reserve account in an amount equal to the present value of the annuity. 8 In addition to these three reserve accounts, ch. 40, STATS., provides for a "transaction amortization account" (TAA). Section 40.04(3). The TAA is an accounting mechanism. It smooths out the effects of gains and losses arising in all three reserve accounts due to financial market fluctuations. The amount and timing of allocations from the TAA to the three reserve accounts is specified by statute. Section 40.04(3).
In addition to monthly annuities, 9 annuitants receive increased benefits in the form of dividends distributed from the surplus in the annuity reserve account. The primary source of this surplus is investment earnings exceeding the "assumed benefit rate," currently five percent. Section 40.02(6), STATS. Section 40.27(2), STATS., requires that this surplus be distributed "if the distribution will result in at least a 2% increase in the amount of annuities in force, on recommendation of the actuary." 10 Since 1984, the board's policy has been to distribute dividends under § 40.27(2) as an equal
percentage of increase in the amount of all annuities in force, except that dividends for annuities in force for less than one year are pro-rated for that year. WIS.ADM.CODE § ETF 20.25(1). The dividend is added to a recipient's fixed annuity and becomes part of the annuity for purposes of determining subsequent percentage increases. 11
Legislation in 1974 significantly increased fixed annuities for those retiring on or after October 1, 1974...
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