Title: Wisconsin Professional Police Association, Inc. v. George Lightbourn

State: wisconsin

Issuer: Wisconsin Supreme Court

Document:

2001 WI 59 
 
SUPREME COURT OF WISCONSIN 
 
 
Case No.: 
99-3297-OA 
 
 
Complete Title 
of Case: 
 
Wisconsin Professional Police Association, Inc., 
John Charewicz, David Mahoney, Susan Armagost, 
Steven Urso and State Engineering Association, 
by its President, Thomas H. Miller, David 
Buschkopf, Ross Johnson, Melvin Sensenbrenner, 
Bernard Kranz and Thomas H. Miller,  
 
Petitioners, 
 
v. 
George Lightbourn, Secretary of the Wisconsin 
Department of Administration, Jack C. Voight, 
Wisconsin State Treasurer, Wisconsin Education 
Association Council, by its President Terry 
Craney and its Vice-President, Stan Johnson, and 
Donald Krahn, Margaret Guertler, Gerald Martin 
and Phyllis Pope,  
 
Respondents.  
 
 
ORIGINAL ACTION 
 
 
Opinion Filed: 
June 12, 2001 
Submitted on Briefs: 
      
Oral Argument: 
October 4, 2000 
 
 
Source of APPEAL 
 
COURT: 
      
 
COUNTY: 
      
 
JUDGE: 
      
 
 
JUSTICES: 
 
Concur: 
 
 
Concur & Dissent: BABLITCH, J., concurs and dissents  
 
 
(opinion filed). 
 
Dissent: 
ABRAHAMSON, C.J., dissents (opinion filed). 
 
 
BRADLEY, J., joins dissent. 
 
Not Participating:       
 
 
ATTORNEYS: 
For the petitioners, Wisconsin Professional 
 
2 
Police Association, Inc., John Charewicz, David Mahoney, Susan 
Armagost and Steven Urso, there were briefs by Lester A. Pines, 
Carol Grob, Linda Harfst and Cullen, Weston, Pines & Bach, 
Madison, and oral argument by Lester A. Pines. 
 
 
For the petitioners, State Engineering 
Association, Thomas H. Miller, David Bushkopf, Ross Johnson, 
Melvin Sensenbrenner, and Bernard Kranz, there were briefs by 
Michael E. Banks and Haus, Resnick and Roman, LLP, Madison, and 
oral argument by William Haus. 
 
 
For the respondents, George Lightbourn, Secretary 
of the Wisconsin Department of Administration, and Jack C. 
Voight, Wisconsin State Treasurer, there was a brief by Ann Ustad 
Smith and Michael Best & Friedrich, LLP, Madison, and oral 
argument by Ann Ustad Smith. 
 
 
For the respondents, Wisconsin Education 
Association Council, Terry Craney, Stan Johnson, Donald Krahn, 
Margaret Guertler, Gerald Martin and Phyllis Pope, there was a 
brief by Lucy T. Brown, Anthony L. Sheehan, Michael J. Van 
Sistine and Wisconsin Education Association Council, Madison, and 
oral argument by Anthony L. Sheehan. 
 
 
An amicus curiae brief was filed by Timothy E. 
Hawks and Shneidman, Myers, Dowling, Blumenfield, Ehlke, Hawks & 
Domer, Milwaukee, on behalf of the Wisconsin Federation of 
Teachers, WFT, AFT, AFL-CIO. 
 
 
An amicus curiae brief was filed by Bruce F. 
Ehlke and Shneidman, Myers, Dowling, Blumenfield, Ehlke, Hawks & 
Domer, Milwaukee, on behalf of the AFSCME District Council 40. 
 
2001 WI 59 
 
NOTICE 
This opinion is subject to further editing and 
modification.  The final version will appear 
in the bound volume of the official reports. 
 
 
No. 99-3297-OA  
 
STATE OF WISCONSIN                    :  
  IN SUPREME COURT 
 
 
Wisconsin Professional Police  
Association, Inc., John Charewicz, David  
Mahoney, Susan Armagost, Steven Urso and  
State Engineering Association, by its  
President, Thomas H. Miller, David  
Buschkopf, Ross Johnson, Melvin  
Sensenbrenner, Bernard Kranz and Thomas  
H. Miller,  
 
          Petitioners, 
 
     v. 
 
George Lightbourn, Secretary of the  
Wisconsin Department of Administration,  
Jack C. Voight, Wisconsin State  
Treasurer, Wisconsin Education  
Association Council, by its President  
Terry Craney and its Vice-President, Stan  
Johnson, and Donald Krahn, Margaret  
Guertler, Gerald Martin and Phyllis Pope,  
 
          Respondents. 
 
 
ORIGINAL ACTION for declaratory judgment.  Declaration of 
rights; relief denied. 
 
FILED 
 
JUN 12, 2001 
 
Cornelia G. Clark 
Clerk of Supreme Court 
Madison, WI 
 
 
 
 
 
No. 99-3297  
 
 
2 
¶1 
DAVID T. PROSSER, J.   This is an original action 
under Article VII, Section 3(2) of the Wisconsin Constitution.1   
¶2 
The petitioners consist of two groups: (1) the 
Wisconsin Professional Police Association, Inc. (WPPA) and 
several of its individual members, and (2) the State Engineering 
Association (SEA), by its president, Thomas H. Miller, and 
several of SEA's individual members.  The interests and claims 
of these petitioners are not identical, but all petitioners 
challenge the constitutionality of portions of 1999 Wisconsin 
Act 11 (Act 11) as amended by 1999 Wisconsin Act 12.2  Together, 
the two acts make numerous changes in the Wisconsin retirement 
system (WRS or the system). 
¶3 
The respondents are George Lightbourn, Secretary of 
the Wisconsin Department of Administration, and Jack C. Voight, 
Wisconsin State Treasurer, as well as the Wisconsin Education 
Association Council (WEAC) by its president, Terry Craney, and 
its vice-president, Stan Johnson, and four other individuals who 
are now or have been affiliated with WEAC.  WEAC is the largest 
                     
1 "The supreme court has appellate jurisdiction over all 
courts and may hear original actions and proceedings.  The 
supreme court may issue all writs necessary in aid of its 
jurisdiction."  Wis. Const. art. VII, § 3(2). 
2 The subject of this litigation is 1999 Wisconsin Act 11.  
We note that 1999 Wisconsin Act 12 made minor corrections to 
1999 Wisconsin Act 11.  This opinion uses the terms "Act 11" or 
"the Act" to refer to the combination of 1999 Wisconsin Acts 11 
and 12, unless noted otherwise.  The changes found in Act 12 do 
not materially affect the issues in this case.    
No. 99-3297  
 
 
3 
organization in Wisconsin representing teachers.  Many of WEAC's 
members are participants in the WRS. 
¶4 
The supreme court limits its exercise of original 
jurisdiction to exceptional cases in which a judgment by the 
court significantly affects the community at large.  We accepted 
original jurisdiction in this case because it meets that test.  
The challenges to Act 11 impact the pension interests of more 
than 460,000 "participants"3 in the system, as well as the fiscal 
responsibilities of the State of Wisconsin and all government 
employers4 within this state whose past or present employees are 
                     
3 Wisconsin 
Stat. 
§ 40.02(45) 
(1997-98) 
defines 
"participant" as "any person included within the provisions of 
the Wisconsin retirement system by virtue of being or having 
been a participating employee whose account has not been closed 
under s. 40.25(1) or (2)." 
All statutory references are to the 1997-98 volumes of the 
Wisconsin Statutes unless noted otherwise.  In discussing the 
changes made to Chapter 40 of the statutes by 1999 Wis. Act 11, 
we cite the 1997-98 volumes in order to accurately describe 
these changes.  The 1999-2000 volumes of the statutes contain 
Chapter 40 as modified by Act 11. 
Notwithstanding our use of the 1997-98 volumes of the 
statutes, we use the word "employee," as opposed to "employe," 
whenever we quote the statutes and in all other discussion 
throughout this opinion.  1999 Wis. Act 185, § 193 changed the 
spelling of the word "employe" to "employee" in the statutes and 
this change is reflected in the 1999-2000 volumes.  Because the 
legislature has decided to use the "ee" spelling in the 
statutes, we have used the same spelling, even in the statutory 
quotations from the 1997-98 volumes and the quotations from Act 
11.  We have not, however, changed the spelling of "employe" in 
any quotations from cases.  
4 Wisconsin Stat. § 40.02(28) provides: 
 
No. 99-3297  
 
 
4 
participants in the system.  Historically, several of the major 
cases examining public employee pension issues have begun as 
original actions.  See State ex rel. Dudgeon v. Levitan, 181 
Wis. 326, 193 N.W. 499 (1923); State ex rel. Thomson v. Giessel, 
262 Wis. 51, 53 N.W.2d 726 (1952) (Giessel I); State ex rel. 
Thomson v. Giessel, 265 Wis. 558, 61 N.W.2d 903 (1953) (Giessel 
II); Columbia County v. Bd. Of Trustees of Wis. Ret. Fund, 17 
Wis. 2d 310, 116 N.W.2d 142 (1962).  Moreover, Act 11 includes a 
nonstatutory 
provision 
requesting 
this 
court 
to 
"take 
jurisdiction 
of 
any 
original 
action 
relating 
to 
the 
implementation of this act."  1999 Wis. Act 11, § 27(4t). 
¶5 
Petitioners present multiple challenges to components 
of Act 11.  SEA also challenges the legality of the entire Act 
on procedural grounds.  We have carefully examined each claim 
presented and conclude that none of the challenged portions of 
Act 11 is unconstitutional beyond a reasonable doubt.  We also 
conclude that the Act was not approved in violation of Article 
IV, Section 26 of the Wisconsin Constitution.  Consequently, the 
                                                                  
"Employer" means the state, including each state 
agency, any county, 
city, village, town, 
school 
district, other governmental unit or instrumentality 
of 2 or more units of government now existing or 
hereafter created within the state and any federated 
public library system established under s. 43.19 whose 
territory 
lies 
within 
a 
single 
county 
with 
a 
population of 500,000 or more, except as provided 
under ss. 40.51 (7) and 40.61 (3), or a local 
exposition district created under subch. II of ch. 
229. 
Each 
employer 
shall 
be 
a 
separate 
legal 
jurisdiction for OASDHI purposes.  
No. 99-3297  
 
 
5 
injunction issued by this court on December 29, 1999, is lifted 
so that Act 11 may be enforced. 
 
I. FACTUAL BACKGROUND 
 
 
¶6 
This case requires a thorough grasp of the Wisconsin 
retirement system.  For its facts, the court relies on the 
lengthy Stipulation of Facts agreed to by the parties, under the 
supervision of Reserve Circuit Judge Michael J. Barron, and an 
invaluable 75-page analysis of the system by Tony Mason of the 
Legislative 
Fiscal 
Bureau. 
 
See 
Tony 
Mason, 
Wisconsin 
Legislative Fiscal Bureau, Informational Paper No. 73, Wisconsin 
Retirement 
System 
(1999) 
[hereinafter 
Wisconsin 
Retirement 
System].  Mason's analysis is listed as a stipulated exhibit by 
the parties.  The court draws heavily upon these two documents, 
as well as Chapter 40 of the Wisconsin Statutes, for its 
discussion in this section. 
 
¶7 
The Wisconsin retirement system is the product of many 
years of legislative action on public employee retirement in 
Wisconsin.  This state's first retirement plan for public 
employees was created for Milwaukee protective service employees 
(police and fire) in 1891.5  Many additional retirement plans 
followed, including a pension plan for Milwaukee teachers in 
                     
5 See § 1, ch. 287, Laws of 1891, cited in Tony Mason, 
Wisconsin Legislative Fiscal Bureau, Informational Paper No. 73 
Wisconsin Retirement System 1 (1999) [hereinafter Wisconsin 
Retirement System].  
No. 99-3297  
 
 
6 
1909, and a statewide plan for teachers in 1911.6  As a general 
rule, these early plans operated independent of each other, 
either as county or municipal retirement plans or as retirement 
plans covering certain types of employees, such as teachers and 
protective service employees.7 
 
¶8 
In 
1945, 
the 
legislature 
began 
studying 
the 
possibility of consolidating various public employee retirement 
plans;8 and in 1947, it consolidated many of the plans into a 
state system known as the Wisconsin Retirement Fund.9  The 
legislature also created a 10-member Joint Survey Committee on 
Retirement Systems to monitor public pension plans and proposed 
statutory changes to the state-operated plans.10 
 
¶9 
Over the years, consolidation moved forward.  In 1967, 
the legislature reorganized the executive branch of state 
government, and it created the Department of Employee Trust 
Funds (DETF) as well as a seven-member Employee Trust Funds 
Board (ETF Board or Board) to direct and supervise the new 
                     
6 Wisconsin Retirement System, supra, at 1 (citing ch. 510, 
Laws of 1909 and ch. 322, Laws of 1911).  
7 Wisconsin Retirement System, supra, at 1-3.  
8 Wisconsin Retirement System, supra, at 2; Stipulation of 
Facts at ¶6.  
9 Wisconsin Retirement System, supra, at 2-3 (citing ch. 
206, Laws of 1947, which consolidated various statewide pension 
plans).  
10 Wisconsin Retirement System, supra, at 3 (citing ch. 376, 
Laws of 1947, which created the Joint Survey Committee on 
Retirement Systems).  
No. 99-3297  
 
 
7 
department.11  One result of this legislation was to bring all 
non-Milwaukee pension plans under the administration of DETF.12 
 
¶10 In 
1975, 
efforts 
began 
to 
unite 
the 
Wisconsin 
Retirement Fund, the State Teachers Retirement System, and the 
Milwaukee Teachers Retirement Fund into a system to be known as 
the WRS.13  By 1982, the legislature completed this merger and 
folded 90 percent of all public employees in Wisconsin into one 
pension system.14  This legislation solidified the administration 
and management structure of the WRS under the ETF Board.15 
 
¶11 For purposes of this litigation, the WRS consists of 
approximately 
461,000 
participants: 
roughly 
255,000 
active 
employees, 
103,000 
annuitants, 
and 
103,000 
"inactive 
participants" (former participating employees who have not yet 
become annuitants).16 
                     
11 Wisconsin Retirement System, supra, at 4 (describing ch. 
75, Laws of 1967 as "another significant step towards retirement 
system consolidation").  
12 Wisconsin Retirement System, supra, at 4 (explaining the 
result of ch. 75, Laws of 1967).  
13 Wisconsin Retirement System, supra, at 4 (arguing "the 
most significant advancement of the post-1948 pension fund 
merger philosophy was embodied in ch. 280, Laws of 1975").  
14 Wisconsin Retirement System, supra, at 4 (citing ch. 96, 
Laws of 1981); Stipulation of Facts at ¶6.  
15 Wisconsin Retirement System, supra, at 4 (describing 
effect of ch. 96, Laws of 1981).  
16 Stipulation of Facts at ¶43.  "An 'inactive participant' 
is a participant who is not an annuitant or a participating 
employee."  Stipulation of Facts at ¶41.  
No. 99-3297  
 
 
8 
¶12 There are four categories of active participating 
employees.  The vast majority (about 234,000) are classified as 
general employees.17  The other three categories are (1) elected 
officials 
and 
executive 
employees; 
(2) 
protective service 
employees not subject to Titles II and XVIII of the federal 
Social Security Act; and (3) protective service employees 
subject to the federal Social Security Act. 
¶13 At the end of 1998, the WRS was supported by nearly 
1,200 different employers, including the agencies of the State 
of Wisconsin.18  The WRS is funded by contributions from 
employers and employees, and the interest earned on these 
contributions.19 
 
A. Employee Contributions 
 
¶14 Employee required contributions are determined on a 
statutorily-mandated percentage of an employee's income.20  The 
four 
different 
categories 
of 
employees 
are 
required 
to 
contribute different percentages of their income to their 
                     
17 Stipulation of Facts at ¶43.  
18 Stipulation of Facts at ¶36.  
19 Wis. Stat. § 40.05; Wisconsin Retirement System, supra, 
at 22; Stipulation of Facts at ¶15 (describing where the fixed 
retirement investment trust funding comes from).  
20 Wis. Stat. 
§ 40.05(1); 
Wisconsin 
Retirement System, 
supra, at 34.  
No. 99-3297  
 
 
9 
retirement.21  Employee required contributions range from 5 
percent to 8 percent of employee income, depending upon an 
employee's statutory classification.22  In recent years, the 
state and other public employers have "picked up" most employee 
required contributions as part of their overall compensation of 
employees.23 
 
This 
practice 
is 
permitted 
by 
Wis. 
Stat. 
§ 40.05(1)(b).24  State and local employers "pick up" about 99 
percent of employee required contributions.25  With certain 
limitations, 
employees 
may 
enhance 
their 
pensions 
by 
contributing more than the statutorily-required amount.26  This 
supplementary payment is a voluntary contribution. 
 
¶15 A different kind of employee required contribution is 
known as a "benefit adjustment contribution."27  The benefit 
                     
21 Wis. Stat. 
§ 40.05(1); 
Wisconsin 
Retirement System, 
supra, at 34; Stipulation of Facts at ¶49.  
22 Wis. Stat. § 40.05(1)(a); Wisconsin Retirement System, 
supra, at 35 (Table 22), 44 (Table 27). 
23 Wis. Stat. § 40.05(1)(b); Wisconsin Retirement System, 
supra, at 37-38, 43 (Table 26).  
24 Wisconsin Retirement System, supra, at 37.  
25 Wisconsin Retirement System, supra, at 43 (Table 26).  
The participants in the WRS are all public employees.  Some work 
for the State of Wisconsin (state) and others work for public 
employers such as counties, cities, towns, villages, school 
districts, and library districts.  Wis. Stat. §§ 40.02(27) and 
40.21.  Throughout this opinion, we frequently refer to the 
state alone when we discuss employers.  In so doing, we mean to 
include other public employers. 
26 Wis. Stat. § 40.32.  
27 Wis. Stat. § 40.05(2m); Wisconsin Retirement System, 
supra, at 36-37; Stipulation of Facts at ¶26.  
No. 99-3297  
 
 
10
adjustment contribution resulted from the increased retirement 
benefits approved by the legislature in 1983 Wis. Act 141.28  
Wisconsin 
Stat. 
§ 40.05(2m) 
sets 
the 
benefit 
adjustment 
contribution at 1 percent of employee earnings.29  Many employers 
have chosen to pick up this contribution for their employees; 
and 
for 
accounting 
purposes, 
the 
"benefit 
adjustment 
contribution" 
is 
treated 
as 
an 
employer 
contribution.30  
Wisconsin Stat. § 40.05(2n) permits the ETF Board to adjust 
annually the required benefit adjustment contribution rates, if 
so advised by the actuary.31  For example, even though Wis. Stat. 
§ 40.05(1)(a) sets employee contribution rates at a range of 5 
to 8 percent, adjustments in the rates by the ETF Board meant 
that the rates ranged from 4.3 to 5.8 percent in 1999.32 
 
B. Employer Contributions 
 
 
¶16 Employer contributions are calculated in a different 
manner 
from 
employee 
required 
contributions. 
 
Employer 
                     
28 Wisconsin Retirement System, supra, at 46 (citing 1983 
Wis. Act 141).  
29 Wis. Stat. § 40.05(2m); Wisconsin Retirement System, 
supra, at 36.  
30 Wis. Stat. § 40.05(2m); Wisconsin Retirement System, 
supra, at 36.  
31 Wis. Stat. § 40.05(2n); Wisconsin Retirement System, 
supra, at 36-37; Stipulation of Facts at ¶26.  
32 Stipulation of Facts at ¶49.  
No. 99-3297  
 
 
11
contribution rates, expressed as a percentage of payroll, are 
not set in the statutes but are determined annually as part of 
an actuarial evaluation of the WRS.33  Each year the WRS 
consulting actuary evaluates the funding requirements for the 
system to meet the costs of estimated future retirement 
benefits, utilizing the actuarial assumptions determined in the 
consulting actuary's tri-annual review.34  This valuation process 
is typically conducted during the late spring of each year.35  
The annual contribution rate developed for employers is the 
amount sufficient to fund these normal costs "net of all 
revenues 
received 
from 
the 
statutory 
employee-required 
contributions, the benefit adjustment contributions and those 
investment earnings credited as current income."36  The employer 
contribution rates developed by the actuary are presented to the 
ETF Board for formal approval and become effective on the next 
January 1.37 
 
¶17 One of the actuarial assumptions used to determine 
employer contributions is the "assumed rate," defined in Wis. 
                     
33 Wis. Stat. 
§ 40.05(2); 
Wisconsin 
Retirement System, 
supra, at 38; Stipulation of Facts at ¶28.  
34 Wisconsin Retirement System, supra, at 38; Stipulation of 
Facts at ¶28.  
35 Wisconsin Retirement System, supra, at 38; Stipulation of 
Facts at ¶28.  
36 Wisconsin Retirement System, supra, at 38; Stipulation of 
Facts at ¶28.  
37 Wisconsin Retirement System, supra, at 38; Stipulation of 
Facts at ¶28.  
No. 99-3297  
 
 
12
Stat. § 40.02(7) as "the probable average effective rate 
expected to be earned for the fixed annuity division on a long-
term basis."38  In recent years, § 40.02(7) set the assumed rate 
at 7.5 percent (subject to modification by the ETF Board as 
provided in that statute).39  However, in 1992, the ETF Board, 
upon recommendation of the actuary, changed the assumed rate to 
8 percent, and it used that assumed rate for purposes of 
determining contribution rates for calendar years 1993 through 
2000.40   
 
¶18 Another of the actuarial assumptions used to value the 
employer contributions is an assumption for across-the-board 
salary increases.41  For years § 40.02(7) set the actuarial 
assumption for across-the-board salary increases at 1.9 percent 
less than the assumed rate (subject to modification by the ETF 
Board as provided in that statute).42  However, the assumption 
for across-the-board salary increases was changed by the ETF 
Board, upon the recommendation of the actuary, several times.43  
The actuary's three-year investigation dated 1988, recommended 
(and the Board approved) changing the salary increase assumption 
                     
38 Stipulation of Facts at ¶29.  
39 Stipulation of Facts at ¶29.  
40 Stipulation of Facts at ¶29.  
41 Stipulation of Facts at ¶30.  
42 Stipulation of Facts at ¶30.  
43 Stipulation of Facts at ¶30.  
No. 99-3297  
 
 
13
from 6.0 percent to 5.6 percent.44  The actuary's three-year 
investigation dated 1994 recommended (and the Board approved) 
changing the salary increase assumption from 5.6 percent to 5.3 
percent.  The actuary's three-year investigation dated 1997 
recommended (and the Board approved) changing the salary 
increase assumption from 5.3 percent to 4.8 percent.45 
 
¶19 In addition to the employer required contributions for 
current service, employers are required to pay contributions for 
any unfunded prior service liability (unfunded liability) that 
is owed to the WRS.46  An employer's unfunded liability is the 
result of two factors: (1) a grant of credit under the WRS for 
services rendered by an employee before the employer joined the 
WRS; and (2) an increase in benefits for an employee's prior 
service that is not wholly funded by money already in hand.47  
The second situation is now more common.  When the legislature 
authorizes 
increased 
benefits 
for 
WRS 
participants 
and 
retroactively applies the benefit increase to prior service, it 
may force employers to make unexpected additional contributions 
to the employer reserve to fund the retroactive benefit 
                     
44 Stipulation of Facts at ¶30.  
45 Stipulation of Facts at ¶30.  
46 Wis. Stat. § 40.05(2)(b); Stipulation of Facts at ¶31 
(citing Wis. Stat. § 40.05(2)(b)); Wisconsin Retirement System, 
supra, at 39.   
47 Stipulation of Facts at ¶31; Wisconsin Retirement System, 
supra, at 39.  
No. 99-3297  
 
 
14
increase.48  Once a retroactive benefit increase is approved by 
the legislature, employers usually have to "make up" for not 
having made contributions in the past to fund that benefit 
increase. 
 
¶20 Employer 
contribution 
rates 
for 
the 
payment 
of 
unfunded liability are currently amortized over 40 years.49 
Permitting 
employers to 
spread contributions 
for unfunded 
liability over many years has enabled employers to finance 
retroactive benefits and service credit.  "For most WRS 
employers, [payments began in 1986 and] payments to retire the 
unfunded accrued liabilities arising from previous benefit 
improvements will continue until 2026."50 
 
C. WRS Trusts 
 
¶21 The WRS includes two distinct trusts: a variable 
retirement investment trust (variable trust) and a fixed 
retirement investment trust (fixed trust or FRIT).51  For 
purposes of this litigation, the variable trust contains 
                     
48 Wisconsin Retirement System, supra, at 39.  
49 Wis. Stat. § 40.05(2)(b); Stipulation of Facts at ¶32 
(citing Wis. Stat. § 40.05(2)(b)); Wisconsin Retirement System, 
supra, at 39. 
50 Wisconsin Retirement System, supra, at 39.  
51 Wis. Stat. 
§ 40.04(3); 
Wisconsin 
Retirement System, 
supra, at 24-26; Stipulation of Facts at ¶12.  
No. 99-3297  
 
 
15
approximately $7 billion52 and the fixed trust contains about 
$48.7 billion.53  The variable trust, which is not directly at 
issue in this case, is invested almost exclusively in common and 
preferred stock.54  By contrast, the fixed trust contains a more 
                     
52 Wisconsin Retirement System, supra, at 26. 
53 Stipulation of Facts at ¶15.  The $48.7 billion figure 
does not necessarily reflect actual cash holdings of the fixed 
trust.  Stipulation of Facts at ¶12 n.2.  Rather, accounting 
measures factor into the balance of the trust.  Stipulation of 
Facts at ¶12 n.2.  In addition, the manner in which certain 
types of investment holdings of the fixed trust are valued, such 
as real estate, affect the balance of the trust. Wisconsin 
Retirement System, supra, at 28-29. 
Further, the fixed trust does not necessarily hold $48.7 
billion now.  However, for purposes of this litigation, the 
parties have agreed that the fixed trust contained that amount 
at the end of 1998 and we will use end-of-1998 figures 
throughout this opinion unless otherwise explicitly stated.  
Stipulation of Facts at ¶15 (indicating total balance as of the 
last day of 1998).  The 1998 figures were the most comprehensive 
available when the parties submitted briefs in this case.  The 
precise account balances are not necessary to decide the 
constitutionality of Act 11. 
54 Wisconsin Retirement System, supra, at 26.  The variable 
trust permits participation only for employees who elected to 
participate in the variable trust prior to April 30, 1980.  Wis. 
Stat. § 40.04(7)(a).  Section 319g, ch. 221, Laws of 1979 
precluded any additional elections to participate in the 
variable trust after April 30, 1980.  Thus, the number of 
employees participating in the variable trust is limited and is 
dwindling as employees leave public employment. 
An employee who elected to participate in the variable 
trust before April 30, 1980, currently can place up to 50 
percent of the employee and employer contributions in the 
variable trust.  Wis. Stat. § 40.04(7)(a).  Any employee 
contributions not made to the variable trust are credited to the 
employee's account in the fixed trust.  Wis. Stat. § 40.04(7).  
Employees also have the right to terminate their participation 
in the variable trust.  Wis. Stat. § 40.04(7)(a). 
No. 99-3297  
 
 
16
diversified portfolio of investments than the variable trust.55  
The diversification of the fixed trust decreases a participant's 
potential to earn a large investment profit, but also decreases 
a participant's potential investment loss.56 
¶22 There are 12 different accounts and reserves within 
the fixed retirement investment trust.57  The 12 accounts are as 
follows:  (1) Wis. Stat. § 40.65 duty disability reserve, (2) 
income continuation insurance reserve, (3) long term disability 
insurance 
reserve, 
(4) 
accumulated 
sick 
leave 
conversion 
credits, (5) Milwaukee death benefit account, (6) Milwaukee 
retirement systems account, (7) Wis. Stat. § 62.13 police and 
fire account, (8) WRS employer accumulation reserve, (9) WRS 
employee accumulation reserve, (10) WRS annuity reserve, (11) 
WRS 
undistributed 
earnings 
account, 
and 
(12) 
transaction 
amortization account.58  Only two of the accounts, the Milwaukee 
retirement systems account and the WRS undistributed earnings 
account, are not affected by Act 11.59 
                                                                  
Act 11 will once again allow employees to elect to 
participate in the variable trust.  1999 Wis. Act 11, § 14.  The 
petitioners have not challenged this portion of Act 11.  
55 Wisconsin Retirement System, supra, at 25 (Table 14).  
The fixed trust funds include investments in common and 
preferred stocks, public bonds, private placement securities, 
short-term cash holdings, and real estate.  Id. 
56 Wisconsin Retirement System, supra, at 25-26.  
57 Stipulation of Facts at ¶12; Wisconsin Retirement System, 
supra, at 25. 
58 Wis. Stat. § 40.04(5); Stipulation of Facts at ¶12. 
59 Stipulation of Facts at ¶13.  
No. 99-3297  
 
 
17
¶23 The four accounts or reserves most pertinent to this 
case are the WRS employer accumulation reserve, the WRS employee 
accumulation 
reserve, 
the 
WRS 
annuity 
reserve, 
and 
the 
transaction amortization account (TAA).60 
 
D. Employer Accumulation Reserve 
 
¶24 The 
employer 
accumulation 
reserve 
holds 
employer 
required contributions plus benefit adjustment contributions, 
whether paid by employees or employers, and such other amounts 
as provided in Wis. Stat. § 40.04(5).61  For purposes of this 
litigation, this account holds about $11.5 billion.62  The funds 
in the employer reserve are held in one merged account.63  In 
effect, the funds are pooled.64  At the same time, the funds in 
this account are invested in both the fixed and variable trusts, 
depending upon the extent of employee choices to invest employer 
contributions in each trust respectively.65 
                     
60 Stipulation of Facts at ¶14; Wis. Stat. § 40.04(3) 
(outlining statutory structure for accounts and reserves of the 
public employee trust fund).  
61 Stipulation of Facts at ¶14; Wis. Stat. § 40.04(5). 
62 Stipulation of Facts at ¶12. 
63 Wis. Stat. 
§ 40.04(5); 
Wisconsin 
Retirement System, 
supra, at 23; Stipulation of Facts at ¶17. 
64 Wis. Stat. 
§ 40.04(5); 
Wisconsin 
Retirement System, 
supra, at 23; Stipulation of Facts at ¶17. 
65 Wisconsin Retirement System, supra, at 23; Wis. Stat. 
§ 40.04(7). 
No. 99-3297  
 
 
18
¶25 Unfunded accrued liabilities operate as a debt for 
employers.66  For accounting purposes, they are listed as an 
asset——that is, as a receivable——of the system.67 
 
E. Employee Accumulation Reserve 
 
¶26 The employee accumulation reserve holds the funds 
contributed by or on behalf of employees.68  For purposes of this 
litigation, the account balance of the employee reserve is just 
short of $10 billion.69  Unlike the employer reserve, the 
employee reserve contains individual accounts for each active 
and inactive employee.70  All employee contributions, including 
the 
percentage 
of 
earnings 
mandated 
by 
statute 
and 
any 
additional 
voluntary 
contributions, 
are 
credited 
to 
each 
employee's individual account.71  Even if an employer picks up 
contributions on behalf of the employee, the contributions are 
                     
66 Wis. Stat. § 40.05(2)(b); Stipulation of Facts at ¶¶31-32 
(citing Wis. 
Stat. 
§ 40.05(2)(b)) 
and 
describing unfunded 
liabilities as "owed to the WRS" and a "debt"); Wisconsin 
Retirement System, supra, at 39. 
67 Wisconsin 
Department 
of 
Employee 
Trust 
Funds, 
Comprehensive Annual Financial Report 24 (1998).  
68 Wis. Stat. § 40.04(4)(a); Stipulation of Facts at ¶14; 
Wisconsin Retirement System, supra, at 23.  
69 Stipulation of Facts at ¶12.  
70 Wis. Stat. § 40.04(4)(a); Wisconsin Retirement System, 
supra, at 23; Stipulation of Facts at ¶16.  
71 Wis. Stat. § 40.04(4)(a); Wisconsin Retirement System, 
supra, at 23.  
No. 99-3297  
 
 
19
credited to the employee's individual account.72  The funds in 
the employee reserve are invested in both the fixed and variable 
trusts, depending upon whether an employee has chosen to invest 
a portion of the contributions for him or her in the variable 
trust.73 
 
F. Annuity Reserve 
 
¶27 The third pertinent account is the annuity reserve.74 
For purposes of this litigation, the annuity reserve has a 
balance of $14.8 billion.75  The annuity reserve holds funds for 
employees who choose to accept an annuity instead of a lump-sum 
payment upon leaving public service.76  Most long-term employees 
choose some form of annuity when leaving public employment.77 
¶28 Long-term employees typically choose from a variety of 
annuity options when leaving public employment.  There are three 
                     
72 Wis. Stat. § 40.04(4)(a); Wisconsin Retirement System, 
supra, at 37; Stipulation of Facts at ¶14.  
73 Wisconsin Retirement System, supra, at 23; Wis. Stat. 
§ 40.04(4)(a)2. and (7).  
74 Wis. Stat. § 40.04(6); Stipulation of Facts at ¶14.    
75 Stipulation of Facts at ¶12.  
76 Wisconsin Retirement System, supra, at 24; Stipulation of 
Facts at ¶14.  
77 Wisconsin 
Retirement 
System, 
supra, 
at 
46. 
 
Some 
employees choose a separation benefit when they leave public 
employ.  This benefit is not an annuity and is not typical for 
long-term employees.  Wisconsin Retirement System, supra, at 46.  
No. 99-3297  
 
 
20
types of annuities: straight life annuity, life annuity with 
guarantee period, and joint survivorship annuity.78  In addition, 
two permissible calculation methods lead to two different 
benefit options, a money purchase plan or a formula benefit 
plan.79 
¶29 The formula benefit plan provides an annuity for a 
retiring employee based on a percentage of the employee's final 
average earnings.80  A statutory formula determines an employee's 
initial annuity.81  Different classes of public employees are 
eligible for different percentage calculations in determining 
annuities.82  The WRS has been described as a defined benefit 
plan to the extent that its participants are eligible to receive 
a specific retirement benefit calculated to the following 
formula: (creditable service) x (final average earnings) x 
(formula multiplier) x (actuarial adjustment for retirement 
prior to the normal retirement date).83 
                     
78 Wis. Stat. § 40.24(1); Wisconsin Retirement System, 
supra, at 56-57.  
79 Wis. Stat. § 40.24; Wisconsin Retirement System, supra, 
at 48.  
80 See Wis. Stat. § 40.24; Wisconsin Retirement System, 
supra, at 48-51; see also Wis. Stat. § 40.02(33) (defining final 
average earnings).  
81 Wis. Stat. § 40.23(2), (2m).  
82 Wis. Stat. § 40.23(2), (2m); Stipulation of Facts at ¶46. 
83 Stipulation 
of Facts 
at ¶8; 
see also 
Wis. 
Stat. 
§ 40.23(2) and (2m). 
No. 99-3297  
 
 
21
¶30 The elements of this formula are defined in Chapter 40 
of the statutes: "creditable service" is defined in Wis. Stat. 
§ 40.02(17); "final average earnings" is defined in Wis. Stat. 
§ 40.02(33); "normal retirement date" is defined in Wis. Stat. 
§ 40.02(42); the formula multipliers are set out in Wis. Stat. 
§§ 40.23(2)(b)1-4 and 40.23(2m)(e)1-4.84  Actuarial reductions 
for early retirement are described in Wis. Stat. §§ 40.23(2)(d) 
and 40.23(2m)(f).85 
¶31 The money purchase plan can offer a departing employee 
a better annuity if accumulated funds can purchase a larger 
annuity, based on actuarial tables, than a formula benefit.86 
¶32 When an employee leaves public service, a variety of 
monies are transferred to the annuity reserve to finance the 
employee's annuity.87  The entire balance of the employee's 
account in the employee reserve is transferred to the annuity 
                                                                  
"The WRS is a hybrid plan with characteristics of both a 
defined 
benefit 
plan 
and 
a 
defined 
contribution 
plan."  
Stipulation of Facts at ¶7.  Defined benefit plans are discussed 
in Association of State Prosecutors v. Milwaukee County, 199 
Wis. 2d 549, 558-59, 544 N.W.2d 888 (1996).  In Wisconsin 
Retired Teachers Ass'n v. Employe Trust Funds Board, 207 Wis. 2d 
1, 12, 558 N.W.2d 83 (1997), the court noted that an employee's 
base annuity, the formula benefit, "is guaranteed by the State." 
84 Stipulation of Facts at ¶8.  
85 Stipulation of Facts at ¶9.  
86 See Wis. Stat. § 40.23(3); Wisconsin Retirement System, 
supra, at 53.  
87 Wisconsin Retirement System, supra, at 24; Stipulation of 
Facts at ¶14.  
No. 99-3297  
 
 
22
reserve.88  In addition, an amount is credited to the annuity 
reserve to account for any variable trust participation by the 
employee, including any employer required contributions arising 
from variable trust participation by the employee.89  Finally, an 
amount is transferred from the employer reserve to the annuity 
reserve "that when increased by an interest income assumption of 
5% annually will fully finance the [employee's] future benefit 
payments."90  Even after the funds are sent to the annuity 
reserve, the monies continue to be invested in the fixed trust91 
or in the variable trust in the same proportion as prior to the 
employee leaving public service.92 
 
G. Transaction Amortization Account 
 
¶33 The 
final 
pertinent 
account 
is 
the 
transaction 
amortization account, or TAA.93  For purposes of this litigation, 
the TAA holds approximately $11.5 billion.94  The TAA functions 
                     
88 Wisconsin Retirement System, supra, at 24; Stipulation of 
Facts at ¶14. 
89 Wisconsin Retirement System, supra, at 26; Stipulation of 
Facts at ¶14.  
90 Wisconsin Retirement System, supra, at 24.  
91 Wisconsin Retirement System, supra, at 24; Wis. Stat. 
§ 40.04(3) and (7). 
92 Wisconsin Retirement System, supra, at 24; Wis. Stat. 
§ 40.04(3) and (7).  
93 Wis. Stat. § 40.04(3).  Stipulation of Facts at ¶14.  
94 Stipulation of Facts at ¶12.  
No. 99-3297  
 
 
23
more as an accounting mechanism than as a receptacle for funds, 
such as the employer or employee reserves.95  All gains and 
losses of the fixed trust are credited to the TAA, including 
both realized and unrealized gains and losses.96  "The purpose of 
the TAA is to smooth the impact of investment gains or losses on 
the accounts and reserves of the Fixed Trust."97  Spreading the 
impact of gains and losses over a period of years, as opposed to 
absorbing actual investment experiences immediately, tends to 
create greater predictability for determining the contributions 
necessary to fund the WRS.98 
¶34 On December 31st of each year, 20 percent of the TAA 
balance is distributed to the fixed trust.99  This distribution 
from the TAA is divided proportionately among all the accounts 
in the fixed trust, including the employee, employer, and the 
annuity reserves.100  It enables the other accounts in the fixed 
trust to receive the investment income gained by the fixed 
                     
95 Stipulation of Facts at ¶20; Wisconsin Retirement System, 
supra, at 28 (noting accounting effects of TAA).  
96 Wis. Stat. § 40.04(3)(a); Wisconsin Retirement System, 
supra, at 28; Stipulation of Facts at ¶20.  
97 Wisconsin Retirement System, supra, at 28. 
98 Wisconsin Retirement System, supra, at 28.  
99 Wis. Stat. § 40.04(3)(a); Wisconsin Retirement System, 
supra, at 28; Stipulation of Facts at ¶21.  
100 Wis. Stat. § 40.04(3)(a); Wisconsin Retirement System, 
supra, at 28; Stipulation of Facts at ¶20.   
No. 99-3297  
 
 
24
trust.101 Prior to 1989, only 7 percent of the TAA was 
distributed each year.102  However, 1989 Wis. Act 13 changed the 
distribution to 20 percent at year's close.103 
¶35 Twice 
in 
the 
past, 
the 
legislature 
approved 
legislation providing for special one-time distributions from 
the TAA, apart from the annual statutory distributions.  In 
1987, the legislature passed 1987 Wis. Act 27, in which $230 
million was distributed from the TAA to the various accounts in 
the trust.104  Part of the $230 million was distributed to the 
annuity reserve to fund a special investment performance 
dividend (SIPD) for a specific group of annuitants.105  Various 
employee 
associations 
successfully 
challenged 
the 
constitutionality of 1987 Wis. Act 27, §§ 436m, 684r, and 688km 
in Wisconsin Retired Teachers Ass'n v. Employe Trust Funds 
Board, 207 Wis. 2d 1, 8, 558 N.W.2d 83 (1997).  The Retired 
Teachers court did not decide that case, however, on the 
propriety of the distribution from the TAA.106  Thus, about $74.2 
                     
101 Wis. Stat. § 40.04(3)(a); Wisconsin Retirement System, 
supra, at 28; Stipulation of Facts at ¶20. 
102 Wis. Stat. § 40.04(3)(a) (1987-88); Wisconsin Retirement 
System, supra, at 28; Stipulation of Facts at ¶21.    
103 Stipulation of Facts at ¶21.  
104 1987 Wis. Act 27; Wisconsin Retirement System, supra, at 
29; Stipulation of Facts at ¶22.  
105 1987 Wis. Act 27; Retired Teachers, 207 Wis. 2d at 8; 
Wisconsin Retirement System, supra, at 29; Stipulation of Facts 
at ¶22. 
106 Retired Teachers, 207 Wis. 2d at 8; Stipulation of Facts 
at ¶22.  
No. 99-3297  
 
 
25
million was distributed to the employee reserve, $77.2 million 
to the employer reserve, and $78.5 million to the annuity 
reserve, 
according 
to 
the 
petitioner's 
brief 
in 
Retired 
Teachers. 
¶36 Two years later, the legislature passed 1989 Wis. Act 
13, in which $500 million was distributed from the TAA.107  This 
legislation did not face a legal challenge.108  The 1989 
legislation also distributed money to the employee, employer, 
and annuity reserves.109  Like the 1987 and 1989 Acts, Act 11 
orders a lump sum distribution from the TAA to the accounts and 
reserves in the fixed trust. 
 
II. ACT 11 
 
 
¶37 This section discusses the history and substance of 
Act 11. 
 
¶38 Assembly Bill 495 was introduced on October 1, 1999, 
and referred to the Joint Survey Committee on Retirement 
Systems.  Assembly Bulletin, Assembly Bill 495, at 169 (Dec. 31, 
2000).  On October 4, 1999, the committee held a public hearing 
on the bill and then took executive action.  Id.  The Assembly 
Speaker referred the bill to the Assembly Calendar of October 6, 
                     
107 1989 Wis. Act 13; Wisconsin Retirement System, supra, at 
29; Stipulation of Facts at ¶22. 
108 Stipulation of Facts at ¶22.  
109 1989 Wis. Act 13, § 47(2).  
No. 99-3297  
 
 
26
1999, and Assembly Bill 495 was taken up, voted upon, and passed 
that day.  Id.  The bill was immediately messaged to the Senate, 
referred to and then withdrawn from the Committee on Senate 
Organization, and voted upon by the Senate on October 6, 1999.  
Id.  On December 16, 1999, the Governor signed the bill into law 
as 1999 Wisconsin Act 11.  Id.  Early drafts of pension 
enhancement bills were under review from the beginning of the 
legislative session.110 
 
¶39 Assembly Bill 495 is described in its relating clause 
as 
an 
Act 
"relating 
to: 
benefit 
improvements, 
interest 
crediting, variable annuity option, contribution credits for 
employers, death benefits, credit for legislative service, 
recognition of income and capital gains and losses in the fixed 
retirement investment trust and affecting certain actuarial 
assumptions and liabilities under the Wisconsin retirement 
system."  Several of these changes require discussion. 
 
A. Benefit Improvements 
 
 
¶40 The 
formula 
multiplier 
or 
percentage 
multiplier 
described 
in 
¶¶29-30 
varies 
according 
to 
employee 
classification.111  For a protective occupation participant 
covered by social security, an elected official, and an 
                     
110 Legislative Reference Bureau Drafting File for 1999 Wis. 
Act 11, Legislative History for 1999 Assembly Bill 495.  
111 Stipulation of Facts at ¶10; Wis. Stat. § 40.23(2)(b)1-4 
and (2m)(e)1-4.   
No. 99-3297  
 
 
27
executive participating employee, the formula multiplier is 2 
percent.112  For a protective occupation participant not covered 
by social security, the formula multiplier is 2.5 percent.113  
For all other participants in the WRS, the formula multiplier is 
1.6 percent.114 
 
¶41 Act 11 increases the formula multipliers for all 
classes of participating employees in the WRS for creditable 
service performed before January 1, 2000 as follows:115 
 
1) 
Protective occupation participants not covered by 
social security, from 2.5 percent to 2.665 percent.116 
 
 
2) 
Protective occupation participants covered by 
social security, from 2 percent to 2.165 percent.117 
 
 
3) 
Elected officials and executive participating 
employees, from 2 percent to 2.165 percent.118 
 
 
4) 
Other participants, from 1.6 percent to 1.765 
percent.119 
                     
112 Wis. Stat. § 40.23(2m)(e)2-3. 
113 Wis. Stat. § 40.23(2m)(e)4.  
114 Wis. Stat. § 40.23(2m)(e)1.  
115 Act 
11 
affects 
the 
formula 
multiplier 
only 
for 
"participants who are participating employees after March 9, 
1984."  Wis. Stat. § 40.23(2m).  
116 1999 
Wis. 
Act 
11, 
§ 20 
(amending 
Wis. 
Stat. 
§ 40.23(2m)(e)4).  
117 1999 
Wis. 
Act 
11, 
§ 19 
(amending 
Wis. 
Stat. 
§ 40.23(2m)(e)3).  
118 1999 
Wis. 
Act 
11, 
§ 18 
(amending 
Wis. 
Stat. 
§ 40.23(2m)(e)2).  
No. 99-3297  
 
 
28
The Act provides that creditable service performed after January 
1, 
2000 
shall 
be 
calculated 
according 
to 
the 
prior 
multipliers.120 
¶42 The Act also applies the increased multiplier for past 
service only to "individuals who are participating employees in 
the Wisconsin retirement system on January 1, 2000."121 
 
¶43 Act 11 also raises the benefit cap, namely, the 
maximum amount of initial retirement annuity guaranteed by the 
state, for most employees.122  Under the law in place before Act 
11, the maximum amount of an initial annuity for a participant 
in the WRS was 65 percent of the participant's final average 
earnings.123  The one exception to this rule was for a protective 
occupation participant not covered by social security whose 
initial annuity was capped at 85 percent of the participant's 
final average earnings.124  Act 11 raises to 70 percent the cap 
for all participating employees who are capped at 65 percent, 
except for protectives covered by social security, whose initial 
annuities will continue to be capped at 65 percent.125  It also 
                                                                  
119 1999 
Wis. 
Act 
11, 
§ 17 
(amending 
Wis. 
Stat. 
§ 40.23(2m)(e)1).  
120 1999 Wis. Act 11, §§ 17-20.   
121 1999 Wis. Act 11, § 28(2).  
122 1999 Wis. Act 11, § 16.  
123 Wis. Stat. § 40.23(2m)(b).  
124 Wis. Stat. § 40.23(2m)(b).  
125 1999 Wis. Act 11, § 16.  
No. 99-3297  
 
 
29
maintains the 85 percent cap for protectives not covered by 
social security.126  For these protectives, the maximum initial 
annuity cap will stay at 85 percent of final average earnings. 
 
¶44 The 
benefit 
cap 
hike 
applies 
only 
to 
active 
participating employees in the Wisconsin retirement system on 
January 1, 2000.127  Thus, by the terms of the Act, the 103,000 
"inactive 
participants" 
in 
the 
WRS——that 
is, 
the 
former 
participating employees who have not yet become annuitants——are 
not eligible for either the increase in the multiplier for 
creditable service "performed before January 1, 2000" or the 
benefit cap increase made available for two categories of 
employees.  Active participating employees who begin work after 
January 1, 2000, are ineligible for the increase in the 
multiplier. 
 
B. Accelerated Distribution of Money from the TAA 
 
 
¶45 Two of the components of the public employee trust 
fund are the variable retirement investment trust and the fixed 
retirement investment trust.128  As noted above, the transaction 
amortization account is one of the 12 accounts and reserves 
within the fixed trust.  The TAA is maintained and used to 
smooth out fluctuations in unrecognized gains and losses in the 
                     
126 1999 Wis. Act 11, § 16.  
127 1999 Wis. Act 11, § 28(2).  
128 Wis. Stat. § 40.04(3); Stipulation of Facts at ¶12.  
No. 99-3297  
 
 
30
value of fixed trust assets.129  "The balance of the TAA closely 
parallels the difference between market value and the adjusted 
book value of the assets."130  Each year, 20 percent of the 
balance of the TAA is distributed to participating accounts in 
the fixed trust.131 
 
¶46 Act 11 provides that on December 31, 1999, $4 billion 
is to be distributed from the TAA to the reserves and accounts 
in the fixed trust in amounts equal to the percentage of the 
total distribution determined by dividing each reserve's and 
account's balance on January 1, 1999, by the total balance of 
the fixed trust on January 1, 1999.132  Most of the $4 billion 
distribution is to be sent arithmetically into the employee, 
employer, and annuity reserves.133 
 
¶47 A portion of the $4 billion distribution will fund the 
benefit improvements created by Act 11.  Hence, the $4 billion 
distribution helps both employers and participating employees.  
Money distributed to the employee reserve will enhance the 
                     
129 Wisconsin Retirement System, supra, at 28; Stipulation 
of Facts at ¶¶19-20.  
130 Legislative Reference Bureau Drafting File for 1999 Wis. 
Act 11, Legislative History for 1999 Assembly Bill 495. 
131 Wis. Stat. § 40.04(3)(a); Stipulation of Facts at ¶21.  
132 1999 Wis. Act 11, § 27(1)(a).  
133 These three reserves constitute the vast majority of the 
fixed trust balance and therefore the pro rata distribution 
language in § 27(1)(a) of Act 11 will cause most of the $4 
billion to enter these three accounts.  Stipulation of Facts at 
¶12.  
No. 99-3297  
 
 
31
individual accounts of some of the inactive participants in the 
reserve.  Money distributed to the annuity reserve will produce 
a substantial increase in annual annuity payments. 
 
C. $200 Million Credit 
 
 
¶48 Act 11 also provides that $200 million of the increase 
in 
the 
employer 
reserve 
resulting 
from 
the 
$4 
billion 
distribution will be used to establish employer contribution 
credits to help satisfy required payments that employers have 
for unfunded liabilities.134  These credits have the effect of 
reducing 
employer 
debt 
for 
unfunded 
liabilities, 
thereby 
permitting a suspension of payments for unfunded liability.135  
Employers who have already paid off their unfunded liability or 
who have credits in excess of such unfunded liability can 
suspend payment of the employer required contributions until 
their respective credits are exhausted.136  All employers who are 
part of the WRS will benefit from the contribution credits.137  
                     
134 1999 Wis. Act 11, § 27(1)(b)1; Stipulation of Facts at 
¶57.  
135 1999 Wis. Act 11, § 27(1)(b)1; Stipulation of Facts at 
¶57.  
136 1999 Wis. Act 11, § 27(1)(b)1; Stipulation of Facts at 
¶57.  The estimated suspension period for payments ranges from 
19.6 months on average for school districts to 58.2 months on 
average for special districts.  The estimated payment suspension 
period for the State is 22.1 months. 
137 1999 Wis. Act 11, § 27(1)(b)1; Stipulation of Facts at 
¶57.  
No. 99-3297  
 
 
32
After an employer's credits have been exhausted, the employer is 
required to resume payments to satisfy required contributions 
and any remaining unfunded liability.138 
 
D. Actuarial Assumptions 
 
 
¶49 As noted above, employer required contribution rates, 
expressed as a percentage of payroll, are determined as part of 
each annual actuarial evaluation of the WRS.  One of the 
actuarial assumptions considered is the "assumed rate," defined 
in Wis. Stat. § 40.02(7).139  The statutory assumed rate was 
initially set at 7.5 percent, although, as authorized, the ETF 
Board changed the assumed rate to 8 percent in 1992.140  Act 11 
amends § 40.02(7) so that the new statutory assumed rate is 8 
percent.141  Another actuarial assumption is the assumption for 
across-the-board salary increases.142  This assumption, also set 
out in § 40.02(7), has been statutorily set at 1.9 percent less 
than the assumed rate.143  However, as authorized, the ETF Board 
                     
138 1999 Wis. Act 11, § 27(1)(b)1; Stipulation of Facts at 
¶57.  
139 Stipulation of Facts at ¶29.  
140 Stipulation 
of 
Facts 
at 
¶29; 
see 
also 
Wisconsin 
Retirement System, supra, at 32.  
141 1999 Wis. Act 11, § 5.  
142 Stipulation of Facts at ¶30. 
143 Wis. Stat. § 40.02(7); Stipulation of Facts at ¶30.  
No. 99-3297  
 
 
33
has revised the across-the-board salary assumption several 
times, moving it to 4.8 percent in 1998.144  Act 11 amends the 
1.9 percent in § 40.02(7) to 3.4 percent.145  This produces a 
statutory assumption for across-the-board salary increases of 
4.6 percent (8 percent less 3.4 percent).146 
 
¶50 Both of these actuarial changes may affect employer 
and employee required contributions.147  Nonetheless, the ETF 
Board retains the authority in Wis. Stat. § 40.02(7) to change 
the rates "due to changed economic circumstances" when the 
actuary so recommends.  Moreover, Act 11 provides, in a non-
statutory provision (Section 27(3)) that: "Notwithstanding any 
provision in this act, the employee trust funds board shall 
retain the authority to maintain proper actuarial funding of the 
Wisconsin retirement system." 
 
¶51 For purposes of this litigation, the present unfunded 
liability for all employers totals approximately $2.2 billion.148 
 In the past, the unfunded liability of employers has been 
recalculated following adjustments to the actuarial assumptions 
that govern overall funding requirements for the WRS.149  In 
                     
144 Stipulation of Facts at ¶30.  
145 1999 Wis. Act 11, § 5. 
146 1999 Wis. Act 11, § 5.  
147 Wisconsin Retirement System, supra, at 38-43.  
148 Stipulation of Facts at ¶32.  
149 Stipulation 
of Facts 
at ¶33; 
Wisconsin 
Retirement 
System, supra, at 31-32, 40.  
No. 99-3297  
 
 
34
1989, when the actuary recommended (and the ETF Board approved) 
changing the assumed rate from 7.5 percent to 7.8 percent, the 
DETF recalculated the remaining unfunded liability using the new 
assumed rate.150  As a result, the aggregate unfunded liability 
of all employers as carried on DETF's books, was reduced by 
$90,589,521.151  In 1991, when the actuary recommended (and the 
ETF Board approved) changing the assumed rate from 7.8 percent 
to 8.0 percent, the DETF recalculated the remaining unfunded 
liability using the new assumed rate.152  As a result, the 
aggregate unfunded liability of all employers as carried on 
DETF's books, was reduced by $59,477,500.153  No legal challenge 
to these actions was made.154  In 1994, when the actuary 
recommended (and the ETF Board approved) changing the across-
the-board salary increase assumption from 5.6 percent to 5.3 
percent, the DETF recalculated the remaining unfunded liability 
of employers, using the new salary increase assumption.155  As a 
result, the aggregate unfunded liability of all employers as 
                     
150 Stipulation of Facts at ¶33.  
151 Stipulation of Facts at ¶33.  
152 Stipulation of Facts at ¶33.  
153 Stipulation of Facts at ¶33.  
154 Stipulation of Facts at ¶33.  
155 Stipulation of Facts at ¶33.  
No. 99-3297  
 
 
35
carried on DETF's books was reduced by $85,117,420.156  No legal 
challenge to this action was made.157 
 
¶52 In February 1998, however, the Secretary of DETF asked 
the Attorney General whether the ETF Board had authority to 
adjust unfunded liability, to reflect later adjustment to 
actuarial assumptions.158  On January 15, 1999, Assistant 
Attorney General Jane Hamblen replied on behalf of the Attorney 
General, stating that there was no statutory authority for the 
ETF Board to adjust the unfunded liability balance of employers 
even when the WRS actuary subsequently recommended changes in 
the actuarial assumptions that were used when the initial 
unfunded liability balance was determined.159  Since receipt of 
this reply, the ETF Board has not made any recalculations of the 
unfunded liability balance.160 
 
¶53 Act 
11 
authorizes 
DETF 
to 
adjust 
the 
unfunded 
liability balance of the WRS and of each employer to reflect 
changes in certain assumptions used to value the liabilities of 
the WRS, if the actuary recommends and the ETF Board approves 
the changes.161 
                     
156 Stipulation of Facts at ¶33.  
157 Stipulation of Facts at ¶33.  
158 Stipulation of Facts at ¶34.  
159 Stipulation of Facts at ¶34.  
160 Stipulation of Facts at ¶34.  
161 1999 
Wis. 
Act 
11, 
§ 15 
(creating 
Wis. 
Stat. 
§ 40.05(2)(cm)).  
No. 99-3297  
 
 
36
 
III. PROCEDURAL HISTORY 
 
 
¶54 Seven 
days after 
Governor 
Tommy 
Thompson 
signed 
Assembly Bill 495 into law, the Employee Trust Funds Board, the 
Department of Employee Trust Funds, and Eric O. Stanchfield, 
Secretary of the Department of Employee Trust Funds, filed in 
this 
court 
a 
petition 
for 
preliminary 
injunction, 
or, 
alternatively, a writ of prohibition, to block implementation of 
Act 11.  The three petitioners also filed a petition for leave 
to commence an original action and to have their petition stand 
as a complaint seeking declaratory judgment.  They named as 
respondents Secretary Lightbourn and State Treasurer Voight.  
Five days later, on December 28, 1999, WEAC moved to intervene 
as a respondent.  On December 29, 1999, we preliminarily 
enjoined implementation of the Act, which was scheduled to take 
effect the following day.  In our order, we directed the 
Wisconsin Department of Administration to respond to the Board's 
petition. 
 
¶55 On January 12, 2000, the court modified its order and 
required, 
among 
other 
things, 
memoranda 
on 
whether 
the 
petitioners had standing to question the constitutionality of 
the Act and whether realignment of the parties would be required 
to provide for parties with proper standing to challenge and 
defend the constitutionality of the Act. 
No. 99-3297  
 
 
37
 
¶56 On January 28, 2000, WPPA and SEA separately moved to 
intervene as petitioners, also asking for leave to commence an 
original action. 
¶57 On February 10, 2000, we ruled that the ETF Board's 
petition was not proper because the Board had no authority as a 
state agency to challenge the constitutionality of Act 11.  See 
Columbia County v. Bd. of Trustees of Wis. Ret. Fund, 17 Wis. 2d 
310, 317-19, 116 N.W.2d 142 (1962).  At the same time, we 
granted all motions to intervene, ordered the proposed complaint 
of WPPA to serve as the complaint in this action, and designated 
WPPA and SEA as petitioners.  Lightbourn, Voight, and WEAC were 
designated as respondents.  We ordered the parties to prepare a 
stipulation of facts and appointed Reserve Circuit Judge Michael 
J. Barron to oversee the process of preparing the stipulation.  
Ultimately, Judge Barron's findings of fact, based upon the 
stipulation, were filed with the court on April 10, 2000.  In 
the meantime, we granted SEA permission to supplement the WPPA 
complaint with its own claims. 
¶58 On May 25, 2000, we accepted original jurisdiction of 
this case. 
¶59 WPPA and SEA make the following claims: 
 
1. 
WPPA contends that the $4 billion distribution 
from 
the 
TAA 
violates Wis. 
Stat. 
§ 40.19(1) 
and 
is an 
unconstitutional taking of property and an unconstitutional 
impairment of contract. 
 
2. 
WPPA and SEA contend that the $200 million 
portion of the total funds distributed to the employer reserve 
No. 99-3297  
 
 
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and earmarked as a credit for employers against unfunded 
liability, 
violates 
Wis. 
Stat. 
§ 40.19(1) 
and 
is 
an 
unconstitutional taking of property and an unconstitutional 
impairment of contract. 
 
3. 
WPPA 
and 
SEA 
contend 
that 
the 
legislative 
modifications to the statutory assumed rate and the statutory 
across-the-board salary increase rate usurp the ETF Board's 
authority, thereby impairing their contract rights under Wis. 
Stat. § 40.19(1), and that the rate changes are otherwise 
unconstitutional. 
 
4. 
WPPA contends that raising the 65 percent benefit 
cap by 5 percent for all employees except protective occupation 
employees violates the equal protection clause of the United 
States Constitution and Article I, Section 1 of the Wisconsin 
Constitution. 
 
5. 
SEA contends that Act 11 is unconstitutional 
because it failed to pass the Wisconsin legislature by a three-
fourths vote of all the members elected to both houses of the 
legislature and it fails to provide sufficient state funds to 
cover the cost of increased benefits as required by Article IV, 
Section 26 of the Wisconsin Constitution. 
 
IV. ANALYSIS 
 
 
¶60 Before we examine each of the claims presented to this 
court, we reaffirm the legal standards guiding our decision. 
No. 99-3297  
 
 
39
 
¶61 The court entertains this original action pursuant to 
our authority under Article VII, Section 3(2) of the Wisconsin 
Constitution.  The petitioners ask this court to issue a 
declaratory judgment that certain portions of Act 11 are 
unconstitutional.162 
¶62 To succeed in a challenge to the constitutionality of 
Act 
11, 
the 
petitioners 
must 
show 
that 
the 
Act 
is 
unconstitutional beyond a reasonable doubt. Retired Teachers, 
207 Wis. 2d at 18; State ex rel. Hammermill Paper Co. v. La 
Plante, 58 Wis. 2d 32, 46, 205 N.W.2d 784 (1973). 
¶63 When a court examines the constitutionality of a 
statute, it is not concerned with the wisdom of the legislative 
enactment.  Hammermill Paper Co., 58 Wis. 2d at 47.  A court is 
"judicially concerned only when the statute clearly contravenes 
some constitutional provision."  Gottlieb v. City of Milwaukee, 
33 Wis. 2d 408, 415-16, 147 N.W.2d 633 (1967) (citing Chicago & 
N.W. Ry. Co. v. La Follette, 27 Wis. 2d 505, 521, 135 N.W.2d 269 
(1965)).  When a court reviews the constitutionality of a 
statute, it scrutinizes an exercise of power by a separate 
branch of state government.  Our review is independent but 
deferential.  Our duty is to uphold a legislative act if at all 
                     
162 None of the parties has argued that this matter is not 
sufficiently justiciable for declaratory relief.  We need not 
address in detail, therefore, the four-part justiciability test 
this court has developed to measure the appropriateness of 
declaratory relief.  See Miller Brands-Milwaukee, Inc. v. Case, 
162 Wis. 2d 684, 694, 470 N.W.2d 290 (1991).  Nevertheless, we 
find that this matter is rightly before the court as an action 
for declaratory judgment.  
No. 99-3297  
 
 
40
possible.  Hammermill Paper Co., 58 Wis. 2d at 47; Gottlieb, 33 
Wis. 2d at 415. 
¶64 Our duty to uphold legislation whenever possible is 
embodied in the principle that every legislative act is presumed 
constitutional.  Hammermill Paper Co., 58 Wis. 2d at 47 (citing 
Gottlieb, 33 Wis. 2d at 415).  Thus, "wherever doubt exists as 
to a legislative enactment's constitutionality, it must be 
resolved in favor of constitutionality."  Id. at 46.  "If there 
is 
any 
reasonable 
basis 
upon 
which 
the 
legislation 
may 
constitutionally 
rest, 
the 
court 
must 
assume 
that 
the 
legislature had such fact in mind . . . ."  State ex rel. 
Carnation Milk Prods. Co. v. Emery, 178 Wis. 147, 160, 189 N.W. 
564 (1922). 
 
A. Three-Fourths Vote 
 
 
¶65 SEA contends that Act 11 is unconstitutional because 
it failed to pass the Wisconsin legislature by a three-fourths 
vote of all the members elected to both houses of legislature. 
¶66 SEA raises what we regard as a threshold issue: 
whether 1999 Assembly Bill 495 failed to pass the Wisconsin 
legislature by a three-fourths vote of all the members elected 
to both houses of the legislature, contrary to Article IV, 
Section 26 of the Wisconsin Constitution.  SEA's challenge 
threatens the validity of the entire Act and, consequently, it 
must be addressed first. 
No. 99-3297  
 
 
41
¶67 Article IV, Section 26 of the Wisconsin Constitution 
provides in relevant part as follows: 
 
(1) The legislature may not grant any extra 
compensation to a public officer, agent, servant or 
contractor after the services have been rendered or 
the contract has been entered into. 
 
 
. . .  
 
 
(3) Subsection (1) shall not apply to increased 
benefits for persons who have been or shall be granted 
benefits of any kind under a retirement system when 
such increased benefits are provided by a legislative 
act passed on a call of ayes and noes by a three-
fourths vote of all the members elected to both houses 
of 
the 
legislature 
and 
such 
act 
provides 
for 
sufficient state funds to cover the costs of the 
increased benefits. 
¶68 The text of Article IV, Section 26 raises several 
questions of interpretation that require us to review the 
history of the section, which has been amended five times since 
its inclusion as part of the original constitution. 
 
¶69 At the beginning of the last century, Article IV, 
Section 26 consisted of a single sentence: 
 
Extra compensation.  Section 26.  The legislature 
shall never grant any extra compensation to any public 
officer, agent, servant or contractor, after the 
services shall have been rendered or the contract 
entered into; nor shall the compensation of any public 
officer be increased or diminished during his term of 
office. 
¶70 In 
1921, 
the 
legislature 
approved 
a 
Teachers' 
Retirement Act that contained several features of the present 
retirement system.  Ch. 459, Laws of 1921.  The act provided 
pensions for teachers already in service and computed the 
No. 99-3297  
 
 
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pensions to reflect the teachers' entire service before and 
after enactment of the law.  When the act was challenged in our 
court, the question presented was whether the credit for past 
service for teachers still employed was "extra compensation" in 
violation of Section 26.  This court concluded that the purpose 
of the law was to promote a higher efficiency in the state's 
educational 
system 
by 
retaining 
seasoned 
and 
experienced 
teachers.  State ex rel. Dudgeon v. Levitan, 181 Wis. 326, 339, 
193 N.W. 499 (1923).  The court explained that enactment of a 
pension system would attract future entrants into the teaching 
profession, but failure of that pension system to consider past 
service 
by 
teachers 
already 
working 
would 
generate 
dissatisfaction, "causing the older teachers either to drop out 
of the service or to continue in service with abated interest 
and devotion."  Id. at 341.  The court observed: 
 
We do not think it necessarily follows that because 
the legislature, in its attempt to construct an 
enduring and efficient pension system, saw fit to base 
the annuity which teachers already in service are to 
be awarded in part upon the service rendered prior to 
the enactment of the law, it was its dominant purpose 
or intent to award such teachers extra compensation 
for services already rendered. 
Id. at 342.  The court went on: 
 
As we view it, the annuity based on past service is 
not intended to be, or operate as, compensation for 
past service.  It was rather intended to be, and in 
fact is, an inducement to the seasoned and experienced 
teacher to remain in the service and give the public 
the benefit of his experience.  We think there was 
plenty of room for the legislature to determine that 
the ultimate success of the pension system itself 
required special consideration of those constituting 
No. 99-3297  
 
 
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the educational forces of the state at the time of the 
enactment of the law, not as compensation for prior 
service but rather as an inducement to them to remain 
in 
the 
service, 
to 
the 
great 
benefit 
of 
our 
educational institutions. 
Id. at 343. 
¶71 Three decades after Dudgeon, the court was confronted 
with a more difficult question: whether the legislature could 
appropriate funds to increase retirement benefits for teachers 
"who had retired before June 30, 1951."  State ex rel. Thomson 
v. Giessel, 262 Wis. 51, 65, 53 N.W.2d 726 (1952) (Giessel I).  
This legislative plan was retroactive; no future service was 
required of the retired teachers to qualify for the pension 
increase. 
 
The 
court 
concluded 
that 
the 
plan 
was 
unconstitutional, stating that the effect of the law was "to 
grant extra compensation to public servants after the services 
are rendered . . . in violation of sec. 26, art. IV of the state 
constitution."  Id.  The court added: 
 
 
It has not escaped the attention of the court 
that a decision sustaining an increase of benefits for 
already retired teachers would clear the way for 
legislation 
increasing 
benefits 
for 
all 
public 
employees, 
including 
judges, 
granted 
by 
the 
legislature from time to time after their retirement, 
and such a decision would be consonant with the 
selfish interests of the court.  Nevertheless, as we 
read sec. 26, art IV, Const., this would involve an 
exception to a clear and unmistakable command.  If 
exceptions are to be made, they should not come from 
the legislature or the court but from those whose 
proper function it is to amend the constitution. 
Id. at 64 (emphasis added). 
¶72 Justice George Currie dissented from the decision, 
writing: 
No. 99-3297  
 
 
44
 
In my opinion the time has come when this court 
should take one further forward step . . . and declare 
that sec. 26, art. IV of the constitution, has no 
application to pension or annuity benefit pay to 
retired 
public 
servants 
pursuant 
to 
a 
genuine 
retirement system embodying an otherwise valid statute 
or ordinance serving a public purpose. 
 
 
To hold, as the majority does, that the state is 
powerless to increase retirement benefits to retired 
public 
servants . . . is 
to 
place 
all 
retirement 
systems for public servants in a strait jacket, thus 
rendering it impossible that such retirement benefits 
shall serve the original purpose intended. 
 
Id. at 66 (Currie, J., dissenting). 
¶73 The legislature responded to the Giessel I decision by 
passing a law directed to "emergency substitute teachers," that 
is, retired teachers who signed up for potential service as 
substitutes.  See § 2, ch. 434, Laws of 1953.  The law 
compensated retired teachers for making themselves available for 
service as substitutes, whether or not they actually served, and 
the compensation for that potential service was essentially the 
same as the compensation struck down in Giessel I.  In State ex 
rel. Thomson v. Giessel, 265 Wis. 558, 61 N.W.2d 903 (1953) 
(Giessel 
II), 
the 
court 
upheld 
the 
legislature's 
plan, 
dismissing the contention that the new law was a subterfuge.  
The law required retired teachers to sign up for future service 
as a prerequisite for the "compensation."  This tie to future 
service saved the legislation.  "The act must be construed as 
authorizing a contract by which the state rehires retired 
teachers. . . . The payments provided by the act are not 
No. 99-3297  
 
 
45
intended to be compensation for past services."  Giessel II, 265 
Wis. at 565-66. 
¶74 Before the second Giessel decision was issued, the 
legislature commenced work on a constitutional amendment, as 
suggested in Giessel I.  The amendment eventually added the 
following 
sentence 
to 
Article 
IV, 
Section 
26 
of 
the 
Constitution: 
 
This section shall not apply to increased benefits for 
teachers under a teachers' retirement system when such 
increased benefits are provided by a legislative act 
passed on a call of the yeas and nays by a three-
fourths vote of all the members elected to both houses 
of the legislature. 
¶75 This 1956 amendment introduced two new concepts to 
Section 
26. 
 
One 
was 
the 
concept 
of 
"increased 
benefits . . . under a . . . retirement system."  The second was 
"a legislative act" passed "by a three-fourths vote of all the 
members elected to both houses of the legislature." 
¶76 Teachers were not the only object of legislative 
concern.  For instance, beginning in 1945, the legislature made 
counties with a population of less than 500,000 eligible to join 
the Wisconsin Retirement Fund.  Columbia County, 17 Wis. 2d at 
313-14; Wis. Stat. § 66.90(4) (1945).  By 1961, more than 40 
counties had done so.  Columbia County, 17 Wis. 2d at 314.  In 
1961, the legislature mandated that all remaining counties with 
a population of less than 500,000 be brought into the system.  
§ 2, ch. 459, Laws of 1961.  Inevitably, this meant recognition 
of prior service by continuing employees.  Because of the cost 
this would entail, state aids were provided to all counties 
No. 99-3297  
 
 
46
participating in the fund that had heavy property tax levies for 
contributions to the fund.  Columbia County, 17 Wis. 2d at 314. 
¶77 Eight counties resisted the new legislation, and some 
of their taxpayers challenged the law.  Id. at 313.  They argued 
in part that the 1961 law constituted a grant of extra 
compensation to public officers, agents, or servants after their 
services had been rendered.  Id. at 326.  The taxpayers objected 
to the legislature's mandatory subjection of the counties to the 
fund, requiring contributions from taxes to support retirement 
benefits. 
 
They 
said 
that 
withholding 
state 
aids 
if 
contributions were not paid as well as providing reimbursement 
aids to assist certain counties in making payment amounted to "a 
legislative grant of extra compensation."  Id.  
¶78 The court declared that "sec. 26, art. IV, does not 
apply to counties."  Id.  It ruled that state aids for 
contributions to the fund were not extra compensation by the 
state.  Id. at 327.  It rejected the argument that "some future 
service is necessary in consideration for the payment of past-
service credits."  The court said:  
 
The 
basic 
answer 
lies 
in 
the 
concept 
that 
contributions made to the pension fund are not 
compensation, much less extra compensation paid to 
public officers, agents, or servants.  The payment of 
contributions may ultimately under some conditions 
inure to the benefit of the employee in the form of a 
pension 
benefit 
but 
this 
is 
not 
absolute 
or 
necessarily so and does not amount to compensation as 
that term is used in sec. 26, art. IV of the 
constitution. 
Id. at 327-28. 
No. 99-3297  
 
 
47
 
¶79 The 1962 Columbia County decision, written by Justice 
E. Harold Hallows, was unanimous.  In effect, it embraced the 
argument that Justice George Currie had made in Giessel I ten 
years earlier. 
 
¶80 In 1974, however, Article IV, Section 26 was amended 
again.  The sentence added in 1956 was modified to read: 
 
This section shall not apply to increased benefits for 
persons who have been or shall be granted benefits of 
any kind under a retirement system when such increased 
benefits are provided by a legislative act passed on a 
call of yeas and nays by a three-fourths vote of all 
the members elected to both houses of the legislature, 
which act shall provide for sufficient state funds to 
cover the costs of the increased benefits. 
¶81 The 1974 amendment made several changes to Section 26. 
 First, it struck out the word "teachers" and replaced it with 
the phrase "persons who have been or shall be granted benefits." 
 Second, it modified the word "benefits" with the additional 
phrase "of any kind."  Third, it struck out the word "teachers'" 
before the term "retirement system" so that "retirement system" 
thereafter appeared in the text without qualification.  Fourth, 
it added the clause "which act shall provide for sufficient 
state funds to cover the costs of the increased benefits."  The 
fourth change was added as a floor amendment; it was not part of 
the original proposal.  See Senate Amendment 1 to 1971 Senate 
Joint Resolution 3. 
¶82 Although Section 26 has been amended on three other 
occasions——in 1967, 1977, and 1992——the other amendments are not 
relevant to the current litigation. 
No. 99-3297  
 
 
48
¶83 SEA contends that Act 11, by providing increased 
benefits, "including" the increase in benefit multipliers and 
the cap increase for the initial formula-based annuity for most 
active participants, violates Section 26 because it did not pass 
the legislature on a call of ayes and noes by "a three-fourths 
vote of all the members elected to both houses of the 
legislature."163  Wis. Const. art. IV, § 26.  Another relevant 
provision is the $4 billion recognition from the TAA because it 
has the effect of sending approximately $1.064 billion into the 
employee accumulation reserve account to increase the accounts 
of both active and inactive participants who are not annuitants, 
and about $1.608 billion into the annuity reserve to increase 
annuities for annuitants.164  This latter increase is treated as 
a permanent increase in the annual annuity payment unless the 
system experiences such serious difficulty at some point that it 
is unable to continue to pay the increment.165  This increase is 
not guaranteed by the state, but it is not expected to decline 
unless the system becomes troubled. 
¶84 Respondents argue that Article IV, Section 26 is 
inapplicable to Act 11.166  Respondents Lightbourn and Voight 
                     
163 Petitioner SEA's brief at 46.  
164 Gabriel, Roeder, Smith & Company, Wisconsin Retirement 
System Actuarial Valuations of Benefit and Financing Provisions 
of Assembly Bill 495 8 (Nov. 1999) (prepared for the Joint 
Survey Committee on Retirement Systems).  
165 Wisconsin Retirement System, supra, at 68-69; see also 
Wis. Stat. § 40.27(2)(c).  
166 Respondents Lightbourn and Voight's brief at 88.  
No. 99-3297  
 
 
49
argue that subsection (1) of the section does not serve as a bar 
to increased benefits for persons currently employed. 
 
The benefits about which SEA complains are not 
constitutionally infirm.  They are granted only to 
those currently employed.  As such, they are not 
subject to the provisions of Wis. Const. art. IV, 
§ 26, which is limited in its application to benefits 
for those no longer in government employment.167 
¶85 Respondent 
WEAC 
adds 
that: 
"If 
the 
benefit 
improvements 
enacted 
by 
the 
legislature 
do 
not 
violate 
subsection (1), the exception in subsection (3) does not come 
into play.  Act 11 does not violate subsection (1) as it only 
provides benefits to those who remain in covered employment 
after the passage of Act 11."168  
¶86 WEAC relies on Dudgeon, 181 Wis. 326, Giessel I, 262 
Wis. 51, Giessel II, 265 Wis. 558, and Columbia County, 17 Wis. 
2d 310, in reaching the same conclusion as Lightbourn and 
Voight.169 
¶87 The difficulty with this analysis is that the cases 
cited predate the 1974 constitutional amendment.  Moreover, 
there is minimal discussion in the WEAC brief of de facto 
benefit increases for annuitants——persons who have already 
retired——and for some non-annuitants who are no longer active 
participating employees.  It is not self-evident that a 
constitutional provision that addresses "increased benefits for 
                     
167 Respondents Lightbourn and Voight's brief at 92. 
168 Respondent WEAC's brief at 69.  
169 Respondent WEAC's brief at 70-74.  
No. 99-3297  
 
 
50
persons who have been or shall be granted benefits of any kind 
under a retirement system when such increased benefits are 
provided by a legislative act" has no application whatever to 
Act 11.  Considering the history of pension litigation in the 
last century, it is at least arguable that the 1956 and 1974 
amendments to Article IV, Section 26 have caused Section 26(3) 
to apply to both prospective and retroactive benefit increases 
for participants in the WRS.   
¶88 This court is being invited to hold (1) that Section 
26 has no application to future benefit increases voted by the 
legislature, regardless of the unfunded liability created by the 
increases, and (2) that Section 26 has no application to annuity 
increases voted by the legislature so long as the money to pay 
for the annuity increases comes out of trust funds.  If we so 
rule, we necessarily determine that these species of benefit 
increases require only a majority vote in each house of the 
legislature. 
¶89 In the case at hand, we are not required to determine 
the scope of Section 26 coverage if 1999 Assembly Bill 495 
"passed on a call of ayes and noes by a three-fourths vote of 
all the members elected to both houses of the legislature." 
¶90 The State Assembly now has 99 elected members.170  The 
State Senate has 33 elected members.  The parties have 
stipulated that Assembly Bill 495 passed the Assembly on October 
                     
170 In 1956, at the time the three-fourths vote amendment 
passed, the Assembly had 100 members.  See Wis. Stat. § 4.01 
(1957).  
No. 99-3297  
 
 
51
6, 1999, by a vote of 79 ayes and 20 noes, and it passed the 
Senate the same day by a vote of 23 ayes and 10 noes.  The 
parties stipulate that "AB 495 did not pass the Senate by a 
three-fourths vote."171 
 
¶91 The legislature has approved Joint Rules covering 
procedural matters of interest to both houses.  Joint Rule 12 
provides in part: 
 
JOINT RULE 12. Required vote total. (1) Unless a 
different and higher total vote is required by the 
state 
constitution 
for 
a 
specific 
action, 
all 
questions are decided by a majority of a quorum. 
 
 
(2) As required by the state constitution, each 
of 
the 
following 
bills 
requires 
such 
higher 
affirmative vote total for passage (or concurrence) in 
either house.  The vote shall be taken by ayes and 
noes and shall be so recorded in the journal. 
 
 
 
(a) Three-fourths of all members elected to 
each house are necessary to approve any bill to grant 
increased retirement fund benefits under section 26 of 
article IV of the constitution. 
State of Wisconsin Joint Rules 8 (1999) (as last affected by 
1999 A.J.R. 18) [hereinafter Joint Rule 12].  
¶92 The language in Section 26 under scrutiny is "three-
fourths vote of all the members elected to both houses of the 
legislature."  Joint Rule 12 interprets this language to mean a 
vote of "[t]hree-fourths of all members elected to each house." 
 Joint Rule 12(2)(a).     
¶93 Joint Rule 12 serves as a valuable interpretation of 
the constitution by the legislative branch.  Ultimately, 
                     
171 Stipulation of Facts at ¶52.  
No. 99-3297  
 
 
52
however, the judiciary must determine what the law is.  We note 
that the language in Section 26 is different from at least one 
other provision of the constitution requiring an extraordinary 
vote.  Article VII, Section 13 provides that a "justice or judge 
may be removed from office by address of both houses of the 
legislature, if two-thirds of all the members elected to each 
house concur therein" (emphasis added).  See also Wis. Const. 
art. VIII, §§ 6 and 7(2)(e), and art. XII, § 1 (provisions that 
refer to "each house").  Thus, the issue before us is whether a 
bill subject to Article IV, Section 26(3) requires passage by a 
vote of three-fourths of all members elected to each house, or 
whether the requisite total may be obtained by adding the votes 
in each house to equal three-fourths of the total membership of 
both houses. 
¶94 The 1956 constitutional amendment that included the 
three-fourths vote provision began as Senate Joint Resolution 21 
in the 1953 session.  The Joint Resolution was introduced on 
March 1, 1953, at the request of Senator Charles Brees.  The 
resolution described the proposed amendment as an amendment 
"relating 
to 
extra 
compensation 
of 
public 
officers 
and 
employees."172  The original resolution contained the following 
clause:  "unless such extra compensation or increase or decrease 
in compensation is agreed to, on a call of yeas and nays, by 
three-fourths of all the members elected to each house of the 
                     
172 The relating clause of the joint resolution remained 
intact throughout the legislative process.  
No. 99-3297  
 
 
53
legislature."  1953 S.J.R. 21 (emphasis added).  A subsequent 
Senate amendment changed the text to: "This section shall not 
apply to increased benefits for teachers under a teachers' 
retirement system when such increased benefits are provided by a 
legislative act passed on a call of yeas and nays by a three-
fourths vote of all the members elected to both houses of the 
legislature."  Senate Substitute Amendment 1 to 1953 S.J.R. 21 
(emphasis added). 
¶95 We think the language change is significant.  Inasmuch 
as the resolution began with language referring to "three-
fourths vote of all the members elected to each house" and ended 
with language referring to "three-fourths vote of all the 
members 
elected 
to 
both 
houses," 
we 
conclude 
that 
the 
legislature intended to permit passage of a bill increasing 
benefits under a retirement system when the bill has received 
the votes of three-fourths of the entire elected membership of 
the legislature.  This three-fourths vote does not, however, 
replace the requirement elsewhere in the constitution that a 
bill must pass each house before it may be sent to the governor 
to become law.  It adds to that requirement. 
¶96 Given our interpretation of Section 26, if each house 
of the legislature were to comply with Joint Rule 12, there 
would not be a dispute about whether a retirement bill had 
received the requisite number of votes.173  However, if either 
                     
173 By its terms, Joint Rule 12 requires 75 votes in the 
Assembly and 25 votes in the Senate to approve a bill to grant 
"increased retirement fund benefits under section 26 of article 
IV of the constitution."   
No. 99-3297  
 
 
54
house did not comply with Joint Rule 12, it would prevent the 
other house from passing the bill unless the other house were 
able to muster the difference between 99 total votes and the 
majority vote in the first house . . . even though three-fourths 
of the members of the second house had approved the bill. 
¶97 In this case, we conclude that because Assembly Bill 
495 received 79 votes in the Assembly and 23 votes in the 
Senate, the bill received a total of 102 votes from the members 
elected to both houses of the legislature, and that number is 
more than the three-fourths vote required by Section 26 of the 
constitution. 
¶98 Before examining each of the petitioner's substantive 
challenges, we turn to a discussion of participant interests and 
the rights that flow from them. 
 
B. Participant Rights 
 
¶99 The WRS has approximately 460,000 participants.  A 
participant is defined as "any person included within the 
provisions of the Wisconsin retirement system by virtue of being 
or having been a participating employee whose account has not 
been closed."  Wis. Stat. § 40.02(45). 
¶100 Every participant has interests and rights in the 
Wisconsin retirement system.  Every participant is either an 
annuitant or a potential annuitant (with an individual account 
in the employee reserve).  Thus, each participant has a property 
interest in his or her annuity or individual account, and a 
No. 99-3297  
 
 
55
right to protect that interest.  Beyond this narrow individual 
interest, each participant has a broad property interest in the 
WRS as a whole.174  
¶101 Participants fall into several categories and multiple 
subcategories. 
 
As 
a 
result 
of 
their 
status, 
different 
participants have different interests.  Active participating 
employees share many interests in common with annuitants and 
"inactive participants" who are not yet eligible to receive an 
annuity.  But participants in one category might strongly oppose 
a proposal in the legislature or an action by the ETF Board that 
participants in another category would find quite satisfactory. 
 As an example, annuitants might be pleased if the legislature 
distributed all money in the TAA to the various accounts and 
reserves in the fixed trust because such a distribution would 
produce a short-term bonanza for them from the money sent to the 
annuity reserve.  However, many active participating employees 
would view such a move as destructive to their position for the 
future.  Correspondingly, some active participating employees 
might prefer to limit or stop distributions from the TAA 
. . . until they were ready to retire.  Locking up the TAA would 
not 
please 
current 
annuitants, 
however, 
especially 
when 
investments are doing well.  
¶102 Participants have different property interests. An 
active participating employee has a clear property interest in 
                     
174 Retired Teachers, 207 Wis. 2d at 19 (citing Ass'n of 
State Prosecutors, 199 Wis. 2d at 558).  
No. 99-3297  
 
 
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his or her own account, but that same employee has no property 
interest in a retiree's annuity.  Each annuity belongs to the 
annuitant.   
¶103 The 
principle 
that 
different 
participants 
have 
different property interests is illustrated in two recent cases. 
 In Association of State Prosecutors v. Milwaukee County, 199 
Wis. 2d 549, 552, 544 N.W.2d 888 (1996), this court said: "We 
hold that vested employees and retirees have protectable 
property interests in their retirement trust funds which the 
legislature cannot simply confiscate under the circumstances of 
this case." 
¶104 The court's choice of language was careful and 
deliberate.  It implied that employees and former employees who 
are part of the same system do not all have the same interests 
or the same rights.  The court held that 42 former assistant 
district attorneys of Milwaukee County who chose to become part 
of the WRS after assistant district attorneys became state 
employees did not have a property interest that would permit 
them to remove money from the Milwaukee County employee 
retirement system to fund past service credit in the WRS.  The 
court said they did not have a property interest because they 
were not vested in the Milwaukee County system.  If they had 
been vested, they might have remained in the Milwaukee system.  
By contrast, Milwaukee County employees who were vested in the 
No. 99-3297  
 
 
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Milwaukee system had a right to prevent money from being taken 
out of that system for non-trust purposes.175 
¶105 A second example of diverse legal interests in 
property appeared in Retired Teachers, 207 Wis. 2d 1.  The 1987 
legislature approved a special investment performance dividend 
(SIPD) as part of a $230 million distribution from the TAA.  
1987 Wis. Act 27.  The targeted recipients of the dividend were 
pre-1974 annuitants who were included in the annuity reserve.  
These pre-1974 annuitants received less benefits than post-1974 
annuitants because their base annuities were not improved as a 
result of post-1974 formula enhancements.  Because of the 
discrepancy in 
benefits 
among 
annuitants, 
the 
legislature 
attempted to use money in the TAA to enhance the annuities of 
roughly 25 percent of the entire class of annuitants——at the 
expense of 75 percent of the same class.  We held unanimously 
that this legislative action constituted a taking from the 
annuitants who received no benefits.  The court said: "[W]e must 
determine whether the SIPD legislation 'takes' the plaintiff 
annuitants' property interest in having annuity reserve account 
surpluses distributed in the manner prescribed by § 40.27(2).  
To the extent that the legislation violates the plaintiffs' 
§ 40.27(2) rights, it effectively takes those rights."  Retired 
Teachers, 207 Wis. 2d at 20 (emphasis added). 
                     
175 We never suggested that the 42 former assistant district 
attorneys would not have rights in the future if they rejoined 
the county's work force.  We never said that the attorneys would 
have no standing to protect the Milwaukee system if it were 
being grossly mismanaged. 
No. 99-3297  
 
 
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¶106 Our court found the 1987 legislation deficient in 
several respects, but we did not state or imply that any 
participant other than a post-1974 annuitant could claim a 
"taking."  No participant other than an annuitant had any 
property interest in the annuity reserve. 
¶107 Four decades ago, this court said that teachers have 
"a contractual relationship with the state and a vested right in 
the state teachers' retirement system."  State Teachers' Ret. 
Bd. v. Giessel, 12 Wis. 2d 5, 9, 106 N.W.2d 301 (1960) (Giessel 
III).  These general principles are sound.  Our task is to 
restate them in a contemporary context, attempting to articulate 
a more complete statement of the property interests and rights 
enjoyed by participants. 
 
1. Wisconsin Stat. § 40.19(1) 
 
¶108 The first source of property interests and rights is 
Wis. Stat. § 40.19, which is entitled "Rights preserved."  This 
section applies not only to the WRS but also to the entire 
public employee trust fund.  Wisconsin Stat. § 40.19(1) reads as 
follows: 
 
40.19 Rights preserved. (1) Rights exercised and 
benefits accrued to an employee under this chapter for 
service rendered shall be due as a contractual right 
and 
shall 
not 
be 
abrogated 
by 
any 
subsequent 
legislative act.  The right of the state to amend or 
repeal, by enactment of statutory changes, all or any 
part of this chapter at any time, however, is reserved 
by the state and there shall be no right to further 
accrual of benefits nor to future exercise of rights 
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for service rendered after the effective date of any 
amendment 
or 
repeal 
deleting 
the 
statutory 
authorization for the benefits or rights.  This 
section shall not be interpreted as preventing the 
state from requiring forfeiture of specific rights and 
benefits as a condition for receiving subsequently 
enacted rights and benefits of equal or greater value 
to the participant. 
¶109 We note that the first sentence of subsection (1) uses 
the word 
"employee."  
The 
last 
sentence 
uses 
the 
word 
"participant."  We do not think the word "employee" in the 
subsection limits the scope of rights preserved to active 
participating employees.  Rather, it covers all participants in 
the WRS because all participants have been employees at one time 
or another.  For this proposition, we point to Retired Teachers, 
where this court said: "The parties do not dispute, and we 
agree, that WRS annuitants have a property interest in the WRS. 
 The annuitants' interest finds its genesis both in chapter 40 
and in prior decisions of this court."  207 Wis. 2d at 18 
(emphasis added).  We then cited Wis. Stat. § 40.19(1) and 
quoted from it as authority for these statements. 
¶110 Wisconsin Stat. § 40.19(1) requires a balancing of 
interests.  An employee has certain contractual rights that may 
not be abrogated by any subsequent legislative act.  However, 
the state retains the right to amend or repeal, by enactment of 
statutory changes, any part of the entire chapter "and there 
shall be no right to further accrual of benefits nor to future 
exercise of rights for service rendered after the effective date 
of any amendment or repeal deleting the statutory authorization 
for the benefit or rights."  Wis. Stat. § 40.19(1) (emphasis 
No. 99-3297  
 
 
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added).  Moreover, the state is not prevented by the first 
sentence in the subsection from "requiring forfeiture of 
specific rights and benefits as a condition for receiving 
subsequently enacted rights and benefits of equal or greater 
value to the participant," as provided in the last sentence.  
Id. 
¶111 All participants who have "benefits accrued" are 
protected by § 40.19(1) from the abrogation of those benefits 
unless the benefits are replaced by benefits of equal or greater 
value.  Determining what "rights exercised" or "rights" may not 
be abrogated is less clear.  We agree with respondents 
Lightbourn and Voight, however, that "Section 40.19 provides a 
limited contractual right that does not extend to every 
provision of ch. 40 or every procedural or substantive aspect of 
the WRS——it extends only to 'rights exercised and benefits 
accrued' which are 'due' for 'service rendered.'"176 
¶112 We would understand a contention that a participating 
employee had a right to exercise one of several monetary options 
at retirement if those options had existed during the period 
when the participating employee was rendering service but were 
then eliminated before the employee's retirement.  Such a claim 
would be different from a contention that a participant had a 
right to maintain some operating procedure in the WRS that had 
existed during a period that the participant was rendering 
service. 
                     
176 Respondents Lightbourn and Voight's brief at 14.  
No. 99-3297  
 
 
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2. Wisconsin Stat. § 40.01 
  
¶113 A second source of participant property interests and 
rights is Wis. Stat. § 40.01.  This section sets out the nature 
and purpose of the public employee trust fund: 
 
40.01 Creation and purpose. (1) CREATION.  A "public 
employee 
trust 
fund" 
is 
created 
to 
aid 
public 
employees 
in 
protecting 
themselves 
and 
their 
beneficiaries against the financial hardships of old 
age, disability, death, illness and accident, thereby 
promoting economy and efficiency in public service by 
facilitating the attraction and retention of competent 
employees, by enhancing employee morale, by providing 
for the orderly and humane departure from service of 
employees no longer able to perform their duties 
effectively, 
by 
establishing 
equitable 
benefit 
standards throughout public employment, by achieving 
administrative expense savings and by facilitating 
transfer of personnel between public employers. 
 
 
(2) PURPOSE.  The public employee trust fund is a 
public trust and shall be managed, administered, 
invested and otherwise dealt with 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.  Revenues collected 
for and balances in the accounts of a specific benefit 
plan shall be used only for the purposes of that 
benefit plan, including amounts allocated under s. 
20.515(1)(um) or (ut) or 40.04(2), and shall not be 
used for the purposes of any other benefit plan.  Each 
member of the employee trust funds board shall be a 
trustee of the fund and the fund shall be administered 
by the department of employee trust funds.  All 
statutes relating to the fund shall be construed 
liberally in furtherance of the purposes set forth in 
this section. 
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¶114 Subsection (1) explains the policy objectives of the 
trust fund.  The fund is created, in part, "to aid public 
employees in protecting themselves and their beneficiaries 
against 
the 
financial 
hardships 
of 
old 
age" 
and 
death.  
Subsection (2) declares that the trust fund "is a public trust 
and shall be managed, administered, invested and otherwise dealt 
with solely for the purpose of insuring the fulfillment at the 
lowest 
possible 
cost 
of 
the 
benefit 
commitments 
to 
participants . . . and shall not be used for any other purpose." 
¶115 Like the previously discussed section, Wis. Stat. 
§ 40.01(2) reveals a certain internal tension.  Subsection (2) 
states explicitly that the fund shall be managed and otherwise 
dealt with solely for the purpose of insuring the fulfillment of 
benefit commitments to participants . . . but "at the lowest 
possible cost."  Insuring the fulfillment of benefit commitments 
"at the lowest possible cost" is different from maximizing 
benefits irrespective of cost.  The subsection requires some 
balancing of competing interests. 
¶116 Wisconsin Stat. § 40.01 provides specific safeguards 
to participants.  First, trust fund money must be used for 
proper trust purposes.  This principle is illustrated in several 
cases.  In Giessel III, the Board resisted paying for a study of 
retirement systems from retirement fund assets, as required in 
legislation.  The court agreed: 
 
The question . . . is whether the expense for the 
governor's study commission . . . is a proper expense 
of the retirement system. . . . The cost of adequately 
informing the legislature and the governor so that 
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they may intelligently perform their duties is not a 
proper expense of the teachers' retirement fund. 
12 Wis. 2d at 10-11. 
¶117 In the Retired Teachers case, the court rejected a 
legislative directive that the annuity reserve reimburse the 
state's general fund for certain supplemental benefits paid to 
pre-1974 annuitants.  We said: 
 
Section 
40.27(2) 
governs 
the 
distribution 
of 
investment earnings of the annuity reserve, and it 
anticipates payments only to annuitants.  The section 
is utterly devoid of any authority for using annuity 
reserve funds to reimburse a governmental entity for 
non-trust obligations.  We therefore conclude that the 
Act 
further 
violated 
§ 40.27(2) 
by 
mandating 
a 
reimbursement for interim GPR supplemental benefits, a 
non-trust obligation. 
207 Wis. 2d at 23.   
¶118 A similar principle was set out in Association of 
State Prosecutors with respect to payments from the Milwaukee 
retirement system to the WRS.  199 Wis. 2d at 562-63.  We said: 
"[T]he state cannot simply 'reach' into the County Plan to pay 
for obligations [the state] has incurred."  Id. at 563. 
Transferring funds to the WRS was labeled a non-trust purpose. 
¶119 Second, legislative action affecting the WRS must be 
consistent with the stated objectives of the trust.  We 
recognized in Association of State Prosecutors, 199 Wis. 2d at 
563, that the legislature retains power to adjust or amend a 
retirement plan in certain situations, and in Wis. Stat. 
§ 40.19(1), the legislature explicitly reserves the right to 
make statutory changes.  But participants in the WRS are 
No. 99-3297  
 
 
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empowered to challenge legislative actions that deviate from 
trust objectives or cause injury to the trust. 
¶120 Third, the ETF Board must deal with the Wisconsin 
retirement system in the same faithful manner as trustees would 
administer any trust, that is, they must exercise diligence, 
prudence, and absolute fidelity in managing trust assets.  
Sensenbrenner v. Sensenbrenner, 76 Wis. 2d 625, 635, 252 N.W.2d 
47 (1977); Estate of Allis, 191 Wis. 23, 29, 209 N.W. 945, 210 
N.W. 418 (1926).  Act 11 does not undercut the powers and duties 
of the ETF Board.  Rather, it reaffirms the position of the 
Board.  See 1999 Wis. Act 11, §  27(3).  Wisconsin Stat. § 40.01 
gives participants in the system the right to test whether 
members of the ETF Board have upheld their fiduciary duties.  
Cf. Retired Teachers, 207 Wis. 2d at 26-27.  The inability of 
the 
ETF 
Board 
to 
challenge 
the 
constitutionality 
of 
a 
legislative act affecting the WRS in court does not relieve 
board members of their duties as trustees. 
 
3. Integrity and Security of Trust Fund 
 
¶121 A third source of property interests and rights 
relates to "the integrity and security" of retirement funds.  
This 
interest 
is 
articulated 
in 
Association 
of 
State 
Prosecutors, 199 Wis. 2d at 563, but is inherent in Wis. Stat. 
§§ 40.01 and 40.19.  Respondents Lightbourn and Voight suggest 
that a decrease in contributions that would threaten the 
actuarial soundness of the retirement fund (with no accompanying 
No. 99-3297  
 
 
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provision to provide adequate funding at an appropriate future 
date) and would likely result in nonpayment of or decrease in 
accrued benefits would violate both §§ 40.01(1) and 40.01(2).177 
 Wisconsin Stat. § 40.19(1) surely confers upon participants the 
right to protect their accounts from either abrogation or 
dissipation. 
¶122 We 
now 
turn 
to 
the 
petitioners' 
substantive 
challenges, applying the above-stated principles to petitioners' 
claims. 
 
C. $4 Billion Distribution 
 
¶123 WPPA contends that the $4 billion distribution from 
the 
TAA 
violates 
Wis. 
Stat. 
§ 40.19(1) 
and 
is 
an 
unconstitutional taking of property and an unconstitutional 
impairment of contract. 
¶124 Act 11 directs that $4 billion be distributed from the 
TAA to the other reserves and accounts in the fixed trust after 
the 1999 annual distribution of 20 percent.  This directive is 
embodied in Section 27, a nonstatutory section of the Act.178 
                     
177 Respondents Lightbourn and Voight's brief at 20.  
178 1999 Wis. Act 11, § 27 reads in part: 
 (1) TRANSFER OF FUNDS FROM THE TRANSACTION 
AMORTIZATION 
ACCOUNT 
OF 
THE 
FIXED 
RETIREMENT 
INVESTMENT TRUST. 
 
 
 
(a) On December 31, 1999, after the annual 
distribution required under section 40.04(3)(a) of the 
statutes 
for 
the 
1999 
calendar 
year 
is 
made, 
No. 99-3297  
 
 
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¶125 Most of the $4 billion distribution is sent into the 
employee, employer, and annuity reserves to fund present or 
future retirement benefits for participants in the WRS.  The $4 
billion distribution follows in lock step the earlier 20 percent 
distribution. 
¶126 WPPA's claims that the $4 billion distribution is 
unlawful should be put in historical context.  Prior to 1975, 
all gains and losses of the fixed retirement investment trust 
were fully distributed in the year the gain or loss was 
realized.  The immediate recognition of gains and losses led to 
fluctuations or potential fluctuations in contribution and 
benefit rates from year to year.  In 1973, the legislature 
created the TAA, to be effective in 1975, as an accounting 
mechanism to hold the investment gains and losses of the fixed 
trust, and it regulated the recognition of those gains or losses 
over time as a means of bringing stability to the system.  In 
its early years, the TAA recorded paper deficits.  Nonetheless, 
from 1975 through 1988, the law provided for an annual TAA 
distribution of 7 percent.  From 1989 to the present, the 
statutes have provided for an annual TAA distribution of 20 
                                                                  
$4,000,000,000 
shall 
be 
distributed 
from 
the 
transaction 
amortization 
account 
of 
the 
fixed 
retirement 
investment 
trust to 
the reserves and 
accounts of the fixed retirement investment trust in 
an 
amount 
equal 
to 
a 
percentage 
of 
the 
total 
distribution determined by dividing each reserve's and 
account's balance on the prior January 1 by the total 
balance of the fixed retirement investment trust on 
the prior January 1. 
 
No. 99-3297  
 
 
67
percent.  In 1989, the legislature changed the law to increase 
the percentage of distribution from 7 percent to 20 percent——and 
it did so without challenge.179 
¶127 In 
1987, 
the 
legislature 
authorized 
a 
one-time 
distribution of $230 million from the TAA.  In 1989, the 
legislature authorized a one-time distribution of $500 million 
from the TAA.  In each case, the distribution moved money 
proportionately to other accounts within the fixed trust, such 
as the employee, employer, and annuity reserves; and these one-
time recognitions were not seriously challenged. 
¶128 Act 11 eliminates the TAA over a five-year period and 
creates, in its place, a market recognition account (MRA) that 
is to be used for distributing the total market value investment 
return earned by the fixed trust.  Beginning on December 31, 
2000, the balance of the TAA is to be determined and then 20 
percent of the balance established is to be distributed annually 
to the accounts in the fixed trust.  After the entire balance 
has been distributed, DETF is directed to close the account.   
¶129 WPPA asserts that participants in the WRS have a 
property right to have the investment earnings of the fixed 
trust distributed in the manner set by the pre-Act 11 statute.  
They suggest that a statutory change deviating from the 
established mechanism violates participant property rights under 
Wis. Stat. § 40.19(1) and is unconstitutional. 
                     
179 1989 Wis. Act 13; Stipulation of Facts at ¶21.  
No. 99-3297  
 
 
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¶130 During the last quarter century, as noted above, the 
TAA has been changed several times.  These changes serve as 
precedent for the $4 billion distribution.  The creation of the 
TAA resulting in curtailed distributions, the changes in the TAA 
since 1975 resulting in increased distributions, and the pending 
closure of the TAA all conflict with the proposition that 
participants in the WRS have a property right in a particular 
distribution mechanism frozen in time.  If we approved WPPA's 
position, we would be concluding that past special distributions 
from the TAA were unlawful.  If we accepted WPPA's argument, we 
would be holding that only 20 percent of the TAA could be 
distributed each year, regardless of investment performance.  
This 
position 
is 
untenable. 
 
Wisconsin 
Stat. 
§ 40.19(1) 
specifically recognizes the authority of the legislature to 
enact statutory changes to Chapter 40, so long as accrued 
benefits are not abrogated. 
¶131 WPPA contends that there has been a taking of 
property180 because the $4 billion distribution will fund benefit 
                     
180 WPPA relies on the state and federal constitution for 
its taking claims: 
The Fifth Amendment to the United States Constitution 
provides: 
No person shall be held to answer for a capital, 
or otherwise infamous crime, unless on a presentment 
or indictment of a Grand Jury, except in cases arising 
in the land or naval forces, or in the Militia, when 
in actual service in time of War or public danger; nor 
shall any person be subject for the same offence to be 
twice put in jeopardy of life or limb; nor shall be 
compelled in any criminal case to be a witness against 
himself, 
nor 
be 
deprived 
of 
life, 
liberty, 
or 
No. 99-3297  
 
 
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improvements that not all participants will enjoy equally.  They 
point in particular to 51,000 inactive participants who (1) are 
credited with interest at the assumed rate of 5 percent 
annually, rather than the effective rate, and (2) are expected 
to retire and take a WRS annuity instead of electing to take a 
separation benefit or dying before they reach retirement age.  
WPPA asserts that these particular inactive employees do not 
receive credit for past service (as active participating 
employees do) and do not receive the full benefit of a 
distribution because the distribution to them is capped at 5 
percent. 
 
This 
argument 
requires 
a 
conventional 
takings 
analysis. 
 
1. Taking of Property 
 
¶132 Our first step in analyzing an alleged taking is to 
determine whether a property interest exists.  Retired Teachers, 
207 Wis. 2d at 18.  There is no dispute that participants have a 
general property interest in all the money in the TAA.  Ass'n of 
State Prosecutors, 199 Wis. 2d at 558-59; Retired Teachers, 207 
Wis. 2d at 19 (acknowledging Ass'n of State Prosecutors).  This 
                                                                  
property, without due process of law; nor shall 
private property be taken for public use, without just 
compensation. 
 
Article I, Section 13 of the Wisconsin Constitution provides: 
The property of no person shall be taken for public 
use without just compensation therefor.  
No. 99-3297  
 
 
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broad interest in the TAA as a whole provides participants with 
standing to protect the whole.  It does not, however, afford 
participants an accrued property interest in every part of the 
whole.  For instance, an annuitant cannot claim earnings from 
the employee accumulation reserve, and an active participating 
employee cannot claim earnings from the annuity reserve, even 
though both kinds of earnings are recorded in the TAA.  
Nonetheless, participants in the WRS do have a general property 
interest in the $4 billion transferred from the TAA. 
¶133 Our second inquiry in a takings analysis is to 
determine whether the property has been taken.  Retired 
Teachers, 207 Wis. 2d at 20 (citing Zinn v. State, 112 Wis. 2d 
417, 424, 334 N.W.2d 67 (1983)).  To determine whether the 
property has been taken, we must examine the nature of the 
distributions and how Act 11 changes the way funds are 
distributed from the TAA.   
¶134 Wisconsin 
Stat. 
§ 40.04(3)(a) 
compels 
a 
yearly 
distribution of 20 percent from the TAA to the accounts of the 
fixed trust: 
 
(a) All earnings, profits or losses of the fixed 
retirement investment trust and the net gain or loss 
of the variable retirement investment trust shall be 
distributed 
annually 
on 
December 
31 
to 
each 
participating account in the same ratio as each 
account's average daily balance within the respective 
trust bears to the total average daily balance of all 
participating accounts in that trust.  For the fixed 
retirement 
investment 
trust 
the 
amount 
to 
be 
distributed shall be the then balance of the current 
income account plus 20% of the then balance of the 
transaction amortization account.  
No. 99-3297  
 
 
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Wis. Stat. § 40.04(3)(a). 
¶135 On December 31, 1999, the TAA was valued at $17.3877 
billion before 20 percent of that balance ($3.4775 billion) was 
distributed to the other accounts and reserves in the fixed 
trust.181  When WPPA objects that the additional $4 billion 
distribution will fund benefit improvements that not all 
participants will enjoy equally, it is making an attack that 
could be leveled at the 20 percent annual distribution as well. 
¶136 To illustrate, the 20 percent annual distribution 
always 
has 
the 
potential 
of 
treating 
some 
"inactive 
participants" different from other "inactive participants."182  
The 20 percent annual distribution will treat participants 
unequally whenever the amount of money being distributed is 
                     
181 Stipulation of Facts at ¶24.  
182 As ¶42 of the Stipulation of Facts explains: 
 
 
There 
are 
two 
categories 
of 
"inactive 
participants" . . . .  In one group are those who 
first became covered by the WRS . . . on or before 
January 1, 1982 or who first became covered by the WRS 
after 
January 
1, 
1982 
but 
left 
participating 
employment before March 9, 1984 ( . . . the "effective 
rate inactive participants").  The effective rate 
inactive 
participants' 
accounts 
in 
the 
employee 
reserve are credited each year with interest at the 
"effective rate" as defined in § 40.02(23).  The other 
group of inactive participants are those who first 
became covered by the WRS on or after January 1, 1982 
and who were still participating employes on March 9, 
1984 ( . . . the "5% rate inactive participants").  
The 5% rate inactive participants' accounts in the 
employee reserve are credited each with interest at 
the rate of 5%.  §§ 40.04(4)(a)(2) and 40.02(6). 
 
No. 99-3297  
 
 
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large enough to give effective rate inactive participants a 
higher payment than 5 percent rate inactive participants. 
 
¶137 An estimated 60,000 inactive WRS participants are 
credited with interest at the capped rate of 5 percent annually 
rather than at the effective rate.183  This means that the 
remaining 
44,000 
inactive 
participants 
are 
credited 
with 
interest 
at the effective 
rate. 
 
The fact 
that 
60,000 
participants may be comparatively disadvantaged in the annual 
distribution from the TAA and in any other large distribution 
from the TAA does not make these distributions unconstitutional. 
 
¶138 There are subcategories within each of the two classes 
of non-annuitants.  Both active participants and inactive 
participants include persons who are receiving interest from the 
TAA 
at 
the 
assumed 
rate 
of 
5 
percent. 
 
There 
is 
no 
discrimination by class. 
 
¶139 Benefit 
disparities 
and 
disparities 
in 
treatment 
reflect the complexity of the WRS.184  They speak to a condition 
that is endemic in this large pension system, with many 
categories and subcategories of participants who have worked for 
nearly 1,200 different employers at different times in different 
places for different benefits.  Participant interests are not 
identical.  It would be nearly impossible for policymakers to 
                     
183 Wis. Stat. § 40.02(23).  The "effective rate" is not 
statutorily capped. 
 Consequently, 
it 
reflects 
investment 
earnings more closely than the fixed 5 percent rate.  
184 Stipulation of Facts at ¶¶45-48.  
No. 99-3297  
 
 
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accommodate and satisfy all participant interests at the same 
time. 
 
¶140 The 
issue 
in 
this 
taking 
claim 
is 
whether 
a 
participant has been deprived of some accrued benefit.  Here, 
all active and inactive employees eligible to receive part of 
the $4 billion distribution, including the estimated 51,000 
inactive employees, received interest in the employee reserve 
according to a pre-existing statutory formula.  They were not 
deprived of any accrued benefit.  Moreover, inactive employees 
have no right to a formula enhancement for past service simply 
because active employees received such an enhancement.  The 
formula enhancement for the past service of current employees 
must be viewed as an encouragement to these employees to remain 
in public service.  That objective does not apply to inactive 
employees who have left WRS-covered employment.185 
 
¶141 WPPA 
quotes 
WRS 
actuaries 
to 
the 
effect 
that 
"[c]hanging the flow of funds from the TAA to the various fixed 
reserves 
affects 
the 
distribution 
of 
WRS 
benefits 
among 
individual participants."186  This statement is true.  But it 
does not establish that the $4 billion distribution "takes" any 
accrued benefit "due" for service rendered.  To block the $4 
billion distribution on grounds that not all participants enjoy 
                     
185 Providing improvements in the formula multiplier and 
interest rate or increases in the benefit caps to inactive 
employees who have left WRS-covered employment would trigger the 
provisions 
of 
Article 
IV, 
Section 
26 
of 
the 
Wisconsin 
Constitution.  
186 Petitioner WPPA's brief at 40.  
No. 99-3297  
 
 
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the distribution equally would paralyze the TAA and prevent the 
legislature from adjusting the draw from the TAA to reflect 
successful investment performance. 
 
¶142 The 
$4 
billion 
distribution 
is 
a 
legitimate 
recognition of gains in the TAA, properly dispersed to those who 
are entitled to receive them.  The annuity reserve receives its 
full share of the TAA distribution.  The employee reserve 
receives its full share of the TAA distribution.  The employer 
reserve receives its full share of the TAA distribution.  No 
participant's 
accrued benefits are 
abrogated, 
damaged, or 
threatened.  Most participants will receive substantial benefit 
improvements. 
 
¶143 We conclude that WPPA has failed to show beyond a 
reasonable doubt any taking of property because of the $4 
billion distribution from the TAA. 
 
2. Impairment of Contract 
 
 
¶144 WPPA also asserts that the $4 billion distribution in 
Act 11 constitutes an impairment of contract, in violation of 
Article I, Section 10 of the United States Constitution and 
Article I, Section 12 of the Wisconsin Constitution.187  Here 
                     
187 Article I, Section 10 of the United States Constitution 
reads: 
No state shall enter into any treaty, alliance, 
or 
confederation; 
grant 
letters 
of 
marque 
and 
reprisal; coin money; emit bills of credit; make any 
thing but gold and silver coin a tender in payment of 
No. 99-3297  
 
 
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again, petitioners must prove beyond a reasonable doubt that Act 
11 is an unconstitutional impairment of contract. 
¶145 WPPA argues that participants have a contract for 
retirement benefits and that the terms of that contract are 
embodied in Chapter 40 of the statutes.188  Wisconsin Stat. 
§ 40.19(1) provides in part that "[r]ights exercised and 
benefits accrued to an employee under [Wis. Stat. ch. 40] for 
service rendered shall be due as a contractual right and shall 
not be abrogated by any subsequent legislative act" (emphasis 
added). 
¶146 The United States Supreme Court has developed a three-
step methodology for analyzing impairment-of-contract claims.  
                                                                  
debts; pass any bill of attainder, ex post facto law, 
or law impairing the obligation of contracts, or grant 
any title of nobility. 
 
Article I, Section 12 of the Wisconsin Constitution 
reads: 
 
No bill of attainder, ex post facto law, nor any 
law impairing the obligation of contracts, shall ever 
be passed, and no conviction shall work corruption of 
blood or forfeiture of estate. 
  
188 In general, a statute is itself treated as a 
contract when the language and circumstances evince a 
legislative intent to create private rights of a 
contractual 
nature 
enforceable 
against 
the 
State. . . . In 
addition, 
statutes 
governing 
the 
interpretation and enforcement of contracts may be 
regarded 
as 
forming 
part 
of 
the 
obligation 
of 
contracts made under their aegis.  
 
United States Trust Co. v. New Jersey, 431 U.S. 1, 17 n.14 
(1977). 
No. 99-3297  
 
 
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Chappy v. LIRC, 136 Wis. 2d 172, 187, 401 N.W.2d 568 (1987) 
(citing Energy Reserves Group, Inc. v. Kansas Power & Light Co., 
459 U.S. 400, 411 (1983)).  This court usually follows these 
steps in evaluating such claims. 
¶147 "The first step is to inquire whether the challenged 
statute 
has 
'operated 
as 
a 
substantial 
impairment 
of 
a 
contractual relationship.'"  Id. (quoting Allied Structural 
Steel Co. v. Spannaus, 438 U.S. 234, 244 (1978); Energy Reserves 
Group, 459 U.S. at 411).  "Minimal alteration of contractual 
obligations may end the inquiry at its first stage."  Allied 
Structural Steel, 438 U.S. at 245.  Hence, if we determine that 
there has been no impairment or only minimal impairment, that is 
the end of the analysis. 
¶148 If the legislation substantially impairs a contractual 
relationship, "there must exist a significant and legitimate 
public purpose behind the legislation."  Chappy, 136 Wis. 2d at 
187 (citing Energy Reserves Group, 459 U.S. at 411).  If such a 
purpose exists for the legislation, "the inquiry is whether the 
challenged legislation is based upon reasonable conditions and 
is of a character appropriate to the public purpose justifying 
the legislation's adoption."  Id. at 188 (quoting in part Allied 
Structural Steel, 438 U.S. at 244) (quotation marks and brackets 
omitted). 
¶149 Both the state and federal contracts clauses limit the 
power of a state to modify its own contracts.  United States 
Trust Co. v. New Jersey, 431 U.S. 1, 17 (1977).  But these 
clauses are not an absolute bar to subsequent modification of a 
No. 99-3297  
 
 
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state's financial obligations.  When a state is accused of 
impairing the obligations of its own contract, courts will 
scrutinize "the ability of the State to enter into an agreement 
that limits its power to act in the future."  Id. at 23.  If the 
legislative contract is not invalid ab initio under the reserved 
powers 
doctrine, 
id., 
the 
question 
becomes 
whether 
the 
legislature's impairment of the contract is reasonable and 
necessary to serve an important public purpose.  Id. at 25.  In 
reviewing that question, courts do not give the legislature the 
same deference they would give it if it were acting on a subject 
at arm's length.  Rather, they factor in the state's self-
interest in acting as it did. 
¶150 We conclude that WPPA is unable to complete the first 
step 
in 
an 
impairment 
analysis, 
because 
the 
$4 
billion 
distribution does not operate as an impairment of any property 
right or benefit in Chapter 40.  It does not impair the 
contractual relationship between the state and participants. 
 
¶151 According to WPPA, the $4 billion transfer deprives 
participants of the contractual right to have the gains of the 
trust fund distributed in a manner consistent with the TAA's 
primary purpose——smoothing the losses and gains of the fixed 
trust.  WPPA complains that transferring $4 billion from the TAA 
for the alternative purpose of funding "new benefits" is not 
lawful unless all participants, including inactives, receive 
"equitable" benefit increases.  "The purpose of the TAA [is] not 
to create a fund to hold investment earnings until the 
No. 99-3297  
 
 
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legislature [decides] how to use them," WPPA declares.189  "If 
the legislature wants to create new benefits for some, but not 
all, participants, it can do so by funding those benefits with 
state funds or through increased contributions——not with Fund 
earnings."190 
 
¶152 This argument misses the point.  The TAA is an 
accounting mechanism, holding the investment gains of the 
various accounts in the fixed trust.  The TAA, like every 
mechanism and procedure in Chapter 40, is designed to facilitate 
the primary purpose of the trust set out in Wis. Stat. § 40.01. 
 Reducing annual fluctuations in contribution and benefit rates 
is a worthy purpose, but this purpose does not supersede the 
purpose articulated in § 40.01.  Funding benefit increases by 
recognizing gains in the TAA is fully consistent with Wis. Stat. 
§ 40.01. 
¶153 Chapter 40 creates a hybrid plan with characteristics 
of both a defined benefit plan and a defined contribution 
plan.191 The $4 billion distribution funds the increases in 
benefits for most active participating employees.  It increases 
annuities for 103,000 annuitants.  It provides substantial 
account enhancements for "effective rate inactive participants." 
 Other inactives receive precisely what the pre-Act 11 statute 
requires.  No accrued benefits are put in jeopardy. 
                     
189 Petitioner WPPA's brief at 45.  
190 Petitioner WPPA's brief at 44-45.  
191 Stipulation of Facts at ¶7.  
No. 99-3297  
 
 
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¶154 WPPA tries to suggest otherwise.  It contends that 
"the WRS's ability to meet its obligations [is] likely to be 
jeopardized where Trust Fund earnings are used for a purpose 
other than what is intended under Wis. Stat. Chap. 40," 
referring to the smoothing mechanism of the TAA.192  This 
contention is not supported in the record.  WPPA stipulated that 
Act 11 will not put the trust fund in financial trouble.193 
¶155 We 
have 
said 
that 
legislation 
that 
alters 
the 
"contractual expectations of the parties impairs the obligation 
of contract."  State ex rel. Cannon v. Moran, 111 Wis. 2d 544, 
555, 331 N.W.2d 369 (1983) (citing Allied Structural Steel, 438 
U.S. at 245-46). 
¶156 In Cannon, the legislature reduced the salaries of 
certain Milwaukee County circuit judges by the amount of pension 
benefits they received from the Milwaukee County Employees' 
Retirement System.  Although the legislation did not take the 
judges' pension benefits per se, it nullified them by depriving 
them of their full judicial salary.  We struck down the 
legislation as an impairment of contract.  Cannon, 111 Wis. 2d 
at 563.  The legislature had authorized the judges to terminate 
irrevocably their membership in the Milwaukee retirement system 
in order to join the state system, then "pulled the rug out" 
from under them by passing a law that reduced their salaries.  
                     
192 Petitioner WPPA's brief at 42.  
193 Stipulation of Facts at ¶54.  
No. 99-3297  
 
 
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Id. at 559.  The legislation was "completely unexpected" and 
thus altered the judges' contractual expectations.  Id. 
¶157 In Retired Teachers, the legislature authorized a 
special investment performance dividend as part of a $230 
million distribution from the TAA.  Only 25 percent of 
annuitants received the dividend.  The court analyzed the SIPD 
as a "taking" from the 75 percent of annuitants who received no 
dividends, not as an impairment of contract.  Retired Teachers, 
207 Wis. 2d at 17.  Nevertheless, it would be hard to deny that 
the SIPD had altered the "contractual expectations" of the 75 
percent who received nothing.  Id. at 19-20, 23-24. 
¶158 These cases offer a sharp contrast to the facts here. 
 Chapter 40 provides no basis for the 5 percent rate inactive 
participants to expect dividends of more than 5 percent from the 
TAA.  It provides no basis for participants to expect that all 
benefit caps will be raised if any benefit caps are raised.  It 
provides no basis for participants to expect that periodic 
benefit improvements will satisfy all participants equally. 
¶159 Participants do expect that benefits will be improved 
when investment gains justify and permit increases.  They do 
understand that the legislature has reserved the right to amend 
or repeal "all or any part of this chapter at any time" so long 
as the legislature does not abrogate "benefits accrued to an 
employee . . . for service rendered."  Wis. Stat. § 40.19(1).  
They understand that amending the statutes is the only way the 
formula multiplier can be improved or the TAA distributions can 
be increased, and they likely consider such legislation as 
No. 99-3297  
 
 
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having a significant and legitimate public purpose.  The $4 
billion distribution does not constitute an impairment of 
contract. 
¶160 We conclude that the $4 billion distribution is 
consistent with the purpose of Chapter 40, the provisions of 
Wis. Stat. § 40.19(1), and the integrity and solvency of the 
trust fund.  The parties have stipulated that the trust fund is 
not financially troubled and the $4 billion distribution will 
not make it so.194    We conclude that the $4 billion 
distribution does not constitute a taking of property or an 
impairment of contract and is not unconstitutional beyond a 
reasonable doubt. 
 
D. $200 Million Credit 
 
 
¶161 WPPA and SEA contend that the $200 million portion of 
the total funds distributed to the employer reserve and 
earmarked as a credit for employers against unfunded liability 
violates Wis. Stat. § 40.19(1) and is an unconstitutional taking 
of property and an unconstitutional impairment of contract. 
 
¶162 The $4 billion distribution from the TAA will send an 
estimated $1.064 billion into the employee reserve, $1.236 
                     
194 Stipulation of Facts at ¶54.  
No. 99-3297  
 
 
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billion into the employer reserve, and $1.608 billion into the 
annuity reserve.195 
 
¶163 Section 27(1)(b) of Act 11196 directs that $200 million 
of the estimated $1.236 billion sent to the employer reserve be 
                     
195 Joint Survey Committee on Retirement Systems, Wisconsin 
Retirement System Actuarial Valuations of Benefit and Financing 
Provisions 8 (Nov. 1999).  
196 1999 Wis. Act 11, § 27(1)(b)1 provides: 
The employee trust funds board shall determine 
each participating employer's share of the increase in 
the employer accumulation reserve that results from 
the 
distribution 
under 
paragraph 
(a) 
and 
shall 
establish for each employer a credit balance in the 
employer 
accumulation 
reserve 
that 
equals 
the 
employer's share of the increase in the employer 
accumulation 
reserve 
that 
results 
from 
the 
distribution under paragraph (a), 
based 
on 
each 
employer's share of covered payroll in 1998.  The 
total amount that shall be reserved for credit 
balances under this subdivision shall be $200,000,000. 
 In lieu of requiring that an employer make required 
employer contributions under section 40.05 (2) (b) of 
the 
statutes, 
the 
employee 
trust 
funds 
board, 
beginning no later than March 1, 2000, shall deduct 
from the employer's credit balance in the employer 
accumulation reserve, on a monthly basis, an amount 
that the employer would otherwise have been required 
to contribute under section 40.05 (2) (b) of the 
statutes had there been no establishment of the credit 
balance from the distribution under paragraph (a).  
For any employer that is not required to make 
contributions under section 40.05 (2) (b) of the 
statutes, the employee trust funds board, beginning no 
later than March 1, 2000, shall deduct from the 
employer's credit balance in the employer accumulation 
reserve, on a monthly basis, an amount that the 
employer 
would 
otherwise 
have 
been 
required 
to 
contribute under section 40.05 (2) (a) of the statutes 
had there been no establishment of the credit balance 
from the distribution under paragraph (a).  The 
employee trust funds board shall make such deductions 
No. 99-3297  
 
 
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used as employer contribution credits.  These credits will serve 
in lieu of payments for employers that have unfunded liability 
under the WRS.  Employers that do not have unfunded liability 
will 
receive 
credits 
for 
payments 
of 
employer 
required 
contributions.  The employer contribution credits will permit 
each employer to suspend actual cash payments to the employer 
reserve until the individual employer's share of the credits has 
been exhausted.197 
 
¶164 WPPA 
and 
SEA 
contend 
that 
section 
27(1)(b) 
is 
unconstitutional as an unlawful taking and an impairment of 
contract.  They also argue that it violates Wis. Stat. 
§ 40.19(1) and trust principles.  On the facts presented, we 
disagree. 
 
¶165 The sole purpose of the employer reserve is to ensure 
the fulfillment of benefit commitments to participants at the 
lowest possible cost.  Put differently, the sole purpose of the 
employer reserve is to fund the future payment of accrued 
benefits through a reasonable and prudent contribution system. 
                                                                  
until the credit balance is exhausted, at which time 
the employer shall resume making all required employer 
contributions. 
 
197 Currently, 
contribution 
rates 
for 
the 
payment 
of 
unfunded prior service liability are amortized over 40 years and 
the unfunded prior service liability balance may not be adjusted 
to reflect any change in the actuarial assumptions that are used 
to evaluate the liabilities of the WRS.  Stipulation of Facts at 
¶¶32-34.  Consequently, the unfunded prior service liability 
balance may exceed or be less than the amount that is 
actuarially required to fund the prior service incurred by 
employers under the WRS.  Id. at ¶32. 
No. 99-3297  
 
 
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¶166 To achieve this objective, each year every employer is 
required to make contributions sufficient to fund the net costs 
of the current discounted value of future retirement benefits 
likely to be paid for employees' service rendered in the current 
year.198  Each employer also is required to make steady 
contributions to erase any unfunded liability that the employer 
has for employees' prior service.199 
 
¶167 These employer required contributions are credited to 
the employer reserve.200  Benefit adjustment contributions are 
treated as employer contributions, and they too are credited to 
the employer reserve, even though they are classified as 
employee contributions.  In addition, Wis. Stat. § 40.04(5) 
provides that the employer reserve shall be: 
 
    (b) Credited, as of each December 31, all fixed 
annuity division 
interest 
not 
credited 
to 
other 
accounts and reserves under this section. 
 
. . .  
 
    (d) Credited as of the date of termination of any 
annuity under s. 40.26 or 40.63 (9) (c) with the 
excess of the then present value of the terminated 
annuity 
over 
the 
aggregate 
amount 
of 
credits 
reestablished in the accounts of the participant. 
 
    (e) Credited all amounts waived, released or 
forfeited under any provision of this chapter. 
                     
198 Wis. Stat. § 40.05(2)(a); Wisconsin Retirement System, 
supra, at 38.  
199 Wis. Stat. § 40.05(2)(b) and (bm). 
200 Wis. Stat. § 40.04(5)(a).  
No. 99-3297  
 
 
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¶168 The other source of funds for the employer reserve is 
earnings.  Some of the money in the employer reserve is 
invested.  The gains and losses from these investments are 
reflected in the TAA. 
 
¶169 When earnings in the TAA are distributed to the 
various reserves and accounts in the fixed trust, the amount 
distributed to each account is a close approximation of the 
earnings derived from that account.  There may not be a perfect 
correlation between the distribution of earnings in the TAA and 
the original source of investment funds because of the dynamic, 
ever-changing nature of each reserve; but the correlation is 
close.  For the most part, the employer reserve is not receiving 
earnings on money derived from other accounts. 
 
¶170 To summarize, most of the non-earnings dollars going 
into the employer reserve come directly from employers; and most 
of the earnings distributed to the employer reserve are earnings 
on employer reserve funds.  To the extent that any non-employer 
money ends up in the employer reserve, it is directed there by 
longstanding provisions of Chapter 40 to help underwrite the 
ultimate payment of benefits, without impairing the property  
interests of any participant. 
 
¶171 Some of the money in the employer reserve is not 
invested.  It is held so that it can be paid over to the annuity 
reserve when active participating employees retire or when 
inactive employees become eligible to receive a benefit.  
Whenever an active participating employee retires or an inactive 
employee becomes eligible to receive a benefit, the provisions 
No. 99-3297  
 
 
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of Chapter 40 dictate exactly how much money is transferred out 
of the employer reserve.201   
¶172 The balance in the employer reserve is not relevant to 
a participant's accrued retirement benefit.  The size of the 
employer reserve balance does not increase or in any way 
determine 
the 
contractual 
benefit 
to 
be 
received 
by 
participants.202  At best, the balance in the employer reserve 
may heighten the possibility of an increase in the formula 
multiplier or the benefit caps in a future vote by the state 
legislature. 
 
¶173 Respondents 
postulate 
that 
the 
employer 
reserve 
functions as a "sum sufficient" to fund accrued benefits.203  
WEAC observes that the employer reserve "is tapped to pay 
whatever amount is necessary, in addition to the individual 
account balance, to fund the annuity."204  We agree.   
 
¶174 The estimated unfunded liability in the employer 
reserve on December 31, 1998, was $2.2 billion.205  Even if 
employers were to completely pay off every penny of this 
liability, they would still be responsible for future unfunded 
liability resulting from (1) future benefit increases voted by 
                     
201 Wis. Stat. § 40.04(6).  
202 Respondent WEAC's brief at 54. 
203 Respondents Lightbourn and Voight's brief at 42, 45, 55; 
Respondent WEAC's brief at 54. 
204 Respondent WEAC's brief at 54.  
205 Stipulation of Facts at ¶¶32, 58. 
No. 99-3297  
 
 
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the legislature, (2) new recognitions of past service, and (3) 
actuarially-based 
recalculations 
of 
liability 
by 
the 
ETF 
Board.206  Even if employers were to pay off every penny of this 
liability, they would not be assuring increased employee 
benefits. 
 
¶175 No one in this litigation suggests that Act 11 
abrogates 
the 
statutory 
and 
constitutional 
obligation 
of 
employers to fulfill benefit commitments to participants.  These 
"benefits accrued" for "service rendered" are the essence of the 
property right enjoyed by participants.  There is no taking of 
property or impairment of contract when everyone concedes that 
accrued benefits must be paid.   
¶176 Nothing in Act 11 permits employers to back away from 
their obligation to pay accrued benefits.  What SEA and WPPA 
claim instead is that participants in the WRS have a property 
right in the employer reserve and a contract right in a 
particular regimen of employer funding that entitles them to 
block legislation that affects the amount of employee required 
contributions, or timing of employer required contributions, 
even though they do not allege that Act 11 threatens the 
security of the trust fund.  Alternatively, petitioners claim 
that it is unconstitutional for the legislature to provide 1,200 
government employers (and the taxpayers who support them) 
respite from employer required contributions——even though the 
money is not needed now, may not be needed in the future, and 
                     
206 See 1999 Wis. Act 11, § 27; Stipulation of Facts at ¶33.  
No. 99-3297  
 
 
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absolutely will have to be paid if ever it is needed——because, 
they claim, contribution relief for employers is a non-trust 
purpose. 
 
¶177 In making these arguments, WPPA and SEA shift the 
discussion 
from 
the 
fulfillment 
of 
accrued 
benefits——the 
participant property interest——to the relative security of 
accrued benefits.  They also claim a right to maximize the 
chance for additional benefits in the future. 
 
¶178 SEA reasons that the trust fund "is more secure with 
cash reserves than it is when such reserves are replaced with a 
promise of repayment."207  This may be true.  The fact is, 
however, 
Chapter 40 explicitly recognizes 
"unfunded 
prior 
service liability."  Wis. Stat. § 40.05(2)(b).  It authorizes 
the gradual liquidation of that liability over a 40-year period. 
 Id.  It allows advance payment of the liability, permitting 
employers to avoid annual interest on their debt, Wis. Stat. 
§ 40.05(2)(b) and (bg), but it does not require advance payment. 
 Chapter 40 creates absolute liability for accrued benefits.  It 
does not demand absolute security for that liability.  There is 
no property right in absolute security because that would 
require cash in advance. 
 
¶179 Chapter 
40 
does 
not 
give 
active 
participating 
employees a property right to determine exactly how employers 
fulfill their benefit commitments.  It gives them a property 
right 
in 
having 
their 
benefit 
commitments 
fulfilled.  
                     
207 Petitioner SEA's brief at 37.  
No. 99-3297  
 
 
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Participants do not have a legal right to veto legislative 
decisions about benefit funding without showing some tangible 
injury.  In this, petitioners have failed. 
 
¶180 Petitioners argue that there could be a shortfall in 
the employer reserve at some point in the future.  Such a 
shortfall is more likely, they say, because $200 million will 
not be contributed to the reserve as a result of the 
contribution credits.  They note that if a shortfall were to 
occur and it required an increase in contribution rates, the 
rate increase would be apportioned equally between employer 
required contributions and benefit adjustment contributions 
ostensibly paid by employees.  Even if employers were to pick up 
all employee contributions associated with such a rate increase, 
they argue, the additional employer burden would leave less 
money for employee wage increases. 
 
¶181 The court is not faced with these facts.  We note that 
a 
temporary 
respite 
in 
employer 
contributions 
may 
make 
additional money available in the short term for employee wage 
increases.  For some employees, such increases could affect 
"final average earnings."  Should employees as a class ever have 
to make contributions to the employer reserve, they may renew 
the argument that the balance in the fund would have been 
greater if there had been no employer credits. 
 
¶182 Finally, petitioners argue that they are entitled to 
all money in the employer reserve.  WPPA asserts that when the 
legislature authorized the $200 million in employer credits, it 
took money "owned by the participants and put [it] into the 
No. 99-3297  
 
 
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pockets of employers."208  "[T]he $200,000,000 transfer from the 
TAA is tantamount to theft."209  "After Act 11's compelled gift 
[to employers], $200,000,000 is gone from the Trust Fund.  It is 
no longer available to beneficiaries of the trust."210  "There is 
no legitimate trust purpose being served by the employer credit 
account."211 
 
¶183 In fact, no money is removed from the employer 
reserve.  The $200 million credit reduces the amount of unfunded 
liability in the employer reserve without requiring employers to 
make equivalent cash contributions, but this is different from 
removing money from the reserve for a non-trust purpose.  Money 
cannot be removed from the employer reserve for a non-trust 
purpose. 
 
¶184 Every distribution from the TAA to the employer 
reserve 
has 
the 
potential 
to 
affect 
employer 
required 
contribution rates.  When the balance in the employer reserve is 
large, the chances are good that the ETF Board will respond by 
reducing 
employer 
required 
contributions under 
Wis. 
Stat. 
§ 40.05(2)(a).  In the past, because of good investment 
performance and other factors, the ETF Board has reduced 
employer required contributions on several occasions.  These 
                     
208 Petitioner WPPA's brief at 15.  
209 Petitioner WPPA's brief at 16.  
210 Petitioner WPPA's brief at 24.  
211 Petitioner SEA's brief at 28. 
No. 99-3297  
 
 
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rate adjustments have influenced the balance in the employer 
reserve. 
 
¶185 The $200 million employer credit is a new departure 
because it will reduce employer required contributions under 
§ 40.05(2)(b) instead of § 40.05(2)(a), although it will reduce 
contributions under § 40.05(2)(a) for employers who have no 
unfunded liability. 
 
¶186 We see no legal reason why slowing the stream of funds 
into the employer reserve under § 40.05(2)(a) does not violate 
the participants' property interests but temporarily suspending 
the flow of funds into the employer reserve under § 40.05(2)(b) 
does.  The former action assists employers with liabilities for 
current service while the latter action assists employers with 
liabilities for past service.  Neither action relieves employers 
of their absolute obligation to fulfill all benefit commitments 
as they come due.  Both actions hold down costs.  The legitimacy 
of this objective is specifically acknowledged in Wis. Stat. 
§ 40.01(2) ("fulfillment at the lowest possible cost").  This 
objective is reaffirmed in Wis. Stat. § 40.04(5)(e), which 
credits the employer reserve with "all amounts waived, released 
or forfeited under any provision of this chapter" to help 
employers fulfill benefit commitments. 
 
¶187 In maintaining that employees are entitled to all 
money in the employer reserve, WPPA and SEA are really claiming 
a contractual right to benefit increases that might be, but have 
not yet been, approved.  They reason that the greater the 
balance in the employer reserve, the more likely it is that the 
No. 99-3297  
 
 
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legislature will vote to increase retirement benefits, inasmuch 
as the legislature will be able to fund most or all of the 
increases out of the earnings of the fixed trust. 
¶188 This court cannot invalidate a legislative act on 
grounds that it may reduce the possibilities for an increase in 
retirement benefits sometime in the future.  Our responsibility 
is to uphold legislation whenever we reasonably can.  These 
speculative claims do not provide a basis for finding Act 11 
unconstitutional beyond a reasonable doubt. 
 
1. Taking of Property 
 
¶189 Both WPPA and SEA view the $200 million credit as a 
taking.  This requires us to determine, first, whether a 
property interest exists, and, second, whether the property has 
been taken. 
¶190 Non-annuitant participants in the WRS have a general 
property interest in the employer reserve because it is one of 
the 
funding 
sources 
for 
their 
future 
benefits. 
 
Once 
contributions enter the employer reserve, they no longer belong 
to employers and may not be reclaimed by employers.  They are 
assigned to participants.  Non-annuitant participants have the 
right to block improper diversions from the employer reserve and 
to protect the integrity and security of the employer reserve so 
that benefit commitments will be fulfilled.  Non-annuitants have 
an individual property interest to the full extent of their 
benefit commitments. 
No. 99-3297  
 
 
93
¶191 Conversely, participants do not have a right to 
require a balance in the employer reserve that is greater than 
an amount prudently necessary to fulfill statutorily-determined 
benefit commitments over an actuarially-determined period of 
time.  The ETF Board has long had the authority to set 
contribution rates to achieve this objective.  Wis. Stat. 
§ 40.03(1)(e).  The legislature buttresses this authority in Act 
11: "the employee trust funds board shall retain authority to 
maintain proper actuarial funding of the Wisconsin retirement 
system."  1999 Wis. Act 11, § 27(3).  This affirmation of the 
ETF Board's authority represents a fail-safe for the WRS that 
overrides all other provisions of Act 11. 
¶192 While the $200 million employer credit is likely to 
affect the balance in the employer reserve, we see no evidence 
that the credit here will damage the property interests of non-
annuitant participants.  It does not "take" their property.  All 
money in the employer reserve remains in the reserve and will go 
toward funding future benefits.  No non-annuitant participant 
will receive less from the employer reserve than Chapter 40 
requires.  Speculation about how benefits might be increased in 
the future does not outweigh the legislature's right to amend 
the provisions of Chapter 40 to reduce employer costs on a 
temporary basis, provided the WRS remains secure. 
 
2. Impairment of Contract 
 
No. 99-3297  
 
 
94
¶193 WPPA and SEA also contend that the $200 million credit 
constitutes an impairment of contract.  This claim fails because 
petitioners cannot show an impairment of the contractual 
relationship.  Chappy, 136 Wis. 2d at 187. 
¶194 WPPA suggests that the employer credit here is 
analogous to the transfer of funds from one retirement fund to 
another.  The credit, it argues, "permanently reduces the 
dollars available to participants from the Fund."212  It quotes 
Association of State Prosecutors to the effect that: "Any 
pension 
plan's 
ability 
to 
meet 
its 
obligations 
can 
be 
jeopardized when funds are taken from it, since every dime is 
arguably part of a management strategy dependent upon spreading 
the fund's monies as broadly as possible . . . ."213 
¶195 That argument overlooks the distinction between taking 
money out of a fund held in trust for participants, and 
suspending payment of money into a fund before the employers' 
property interest has transferred.  Moreover, in Association of 
State Prosecutors, the money leaving the Milwaukee County fund 
was never going to be replaced by the WRS.  Here the money not 
sent into the employer reserve must be replaced if it is ever 
needed. 
¶196 Petitioners' contract claim also skirts the fact that 
Chapter 40 preserves the state's right "to amend or repeal, by 
                     
212 Petitioner WPPA's brief at 28.  
213 Petitioner WPPA's brief at 29 (quoting Ass'n of State 
Prosecutors, 199 Wis. 2d at 560).  
No. 99-3297  
 
 
95
enactment of statutory changes, all or any part of this chapter 
at any time . . . and there shall be no right to further accrual 
of benefits nor to future exercise of rights for service 
rendered after the effective date of any amendment or repeal."  
Wis. Stat. § 40.19(1).  This language is just as much a part of 
the contract as any other provision in Chapter 40.  When the 
legislature acts to amend the chapter to hold down employer 
costs, it is acting in conformity with Wis. Stat. § 40.01(2), so 
long as it is not attempting to abrogate benefit commitments or 
compromise the security of the fund. 
¶197 SEA admits that the provisions of Act 11, in and of 
themselves, do not leave the trust fund in a financially 
troubled condition.  It suggests instead that Act 11 poses a 
"systematic threat to the Trust Fund" that will serve as a 
dangerous precedent "for future legislative conversions that 
could threaten the solvency and actuarial soundness of the Trust 
Fund."214 
¶198 During oral argument, the court explored the question 
whether the legislature could recognize sufficient money from 
the TAA to wipe out all unfunded liability in the employer 
reserve.  This hypothetical would present a very different set 
of facts and circumstances from the present case.  We think the 
checks and balances within the legislative process, bolstered by 
the requirements of Article IV, Section 26, and Joint Rule 12, 
make it unlikely such a scenario will develop.  Moreover, the 
                     
214 Petitioner SEA's brief at 42. 
No. 99-3297  
 
 
96
ETF Board would stand as a bulwark of fiduciary responsibility 
to protect the security of the fund.  Critics of such a move 
would focus on the cumulative effect of liability reductions in 
relation to other legitimate objectives of the employer reserve 
and suggest an impermissible loss of balance.  In any event, the 
specter of an extreme situation is no substitute for the facts 
at hand. 
¶199 We 
conclude 
that 
the 
$200 
million 
employer 
contribution credit is not an unconstitutional taking or an 
impairment of contract.  It does not conflict with Wis. Stat. 
§ 40.19(1) or trust principles.  The $200 million credit is not 
unconstitutional beyond a reasonable doubt. 
 
E. Amendments Changing the Assumed Rate and the Across-the-Board 
Salary Increase Rate 
 
 
¶200 WPPA 
and 
SEA 
contend 
that 
the 
legislative 
modifications to the statutory assumed rate and the statutory 
across-the-board salary increase rate usurp the ETF Board's 
authority, thereby impairing their contract rights under Wis. 
Stat. § 40.19(1), and that the rate changes are otherwise 
unconstitutional. 
¶201 Employer required contribution rates are not set by 
statute.  They are set by the ETF Board upon recommendation of 
the actuary as part of an annual actuarial evaluation of the 
No. 99-3297  
 
 
97
WRS.215  Each year the WRS consulting actuary evaluates the 
funding requirements of the system, then makes recommendations 
of the contributions necessary to pay the costs of future 
retirement benefits.216 
¶202 As noted above, the actuary incorporates two key 
actuarial assumptions into the recommendations for employer 
required contributions.  One is the "assumed rate," defined as 
"the probable average effective rate expected to be earned for 
the fixed annuity division on a long-term basis."  Wis. Stat. 
§ 40.02(7).  Another is the across-the-board salary increase 
rate.  Id. 
¶203 Prior to Act 11, Wis. Stat. § 40.02(7) read as 
follows: 
 
"Assumed rate" means the probable average effective 
rate expected to be earned for the fixed annuity 
division on a long-term basis.  The assumed rate shall 
be a rate of 7.5% and the actuarial assumption for 
across-the-board salary increases for the purpose of 
valuing the liabilities of the Wisconsin retirement 
system shall be 1.9% less than the assumed rate unless 
due to changed economic circumstances the actuary 
recommends and the board approves a different rate.  
The assumed rate for a calendar year shall be used for 
all 
calculations 
of 
required 
contributions 
and 
reserves for participants, except as provided in s. 
40.04(4)(a)2. and 2m., and the amount of any lump sum 
benefit paid instead of an annuity, except it shall 
not be used for any purpose for which the assumed 
benefit rate is to be used under sub. (6). 
                     
215 Stipulation of Facts at ¶28.  
216 Stipulation of Facts at ¶28.  
No. 99-3297  
 
 
98
¶204 Act 11 amended Wis. Stat. § 40.02(7), changing the 
assumed rate in the statute from 7.5 percent to 8 percent.217  It 
also changed the across-the-board salary increase rate from 1.9 
percent less than the statutory assumed rate to 3.4 percent less 
than the statutory assumed rate.218 
¶205 The impact of these statutory changes is somewhat 
illusory.  The ETF Board exercised its authority to revise the 
assumed rate twice, including 1992 (when it set the rate at 8 
percent for 1993).  The Board exercised its authority to revise 
the across-the-board salary increase rate in 1988, 1994, and 
1997 (when the rate was set at 4.8 percent, that is, 8 percent 
less 3.2 percent).  Hence, the real effect of Act 11 is to 
change the across-the-board salary increase rate from 4.8 
percent to 4.6 percent. 
¶206 Act 11 maintains the authority of the Board to alter 
the actuarial rates "due to changed economic circumstances" when 
the actuary recommends different rates.  Wis. Stat. § 40.02(7); 
1999 Wis. Act 11, § 4.  It also vests the ETF Board with clear 
"authority to maintain proper actuarial funding of the Wisconsin 
retirement system."  1999 Wis. Act 11, § 27(3). 
¶207 WPPA and SEA challenge the legality of the changed 
statutory assumptions.  They argue that the changes usurp the 
exclusive authority of the ETF Board to set these two actuarial 
rates.  According to WPPA, "the legislature unilaterally imposes 
                     
217 1999 Wis. Act 11, § 4.  
218 1999 Wis. Act 11, § 4.  
No. 99-3297  
 
 
99
a new 'assumed rate' on WRS participants.  This interferes with 
the statutory and fiduciary responsibility of the DETF and the 
Board."219  The rate changes, SEA declares, "were not recommended 
by 
the 
actuary, 
were 
not 
based 
on 
changed 
economic 
circumstances, and were not approved by the ETF Board."220 
¶208 This argument would be compelling if the legislature 
had stripped the ETF Board of its broad discretion to change the 
rates, irrespective of the statute.  It did just the opposite.  
Hence, the ETF Board may change actuarial rates in response to 
changed economic conditions upon recommendation of the actuary, 
or if necessary to maintain proper actuarial funding of the 
system. 
¶209 The changes in the assumed rate and the across-the-
board salary increase rate do not violate Wis. Stat. § 40.19(1). 
 WPPA insists 
that 
"one 
of 
the 
contract 
rights of the 
participants in the WRS is that it be insulated from politics, 
and that the Board acting as fiduciary, not the legislature 
acting like politicians, be in charge of the day-to-day 
decision-making."221 
¶210 WPPA ignores the fact that benefit increases must be 
approved by the legislature, acting in a policy-making capacity. 
 Wisconsin Stat. § 40.19(1) gives that same legislature the 
                     
219 Petitioner WPPA's brief at 30-31.  The assumed rate is 
also the rate of interest on unfunded liability.  Wis. Stat. 
§ 40.05(2)(b).  
220 Petitioner SEA's brief at 44.  
221 Petitioner WPPA's brief at 36.  
No. 99-3297  
 
 
100 
right to change the terms of the WRS contract, so long as 
modifications do not abrogate benefits accrued to participants 
for service rendered. 
¶211 In the past, the ETF Board has repeatedly adjusted 
employer required contributions and unfunded liability after 
making adjustments in the assumed rate and the across-the-board 
salary increase rate.  We do not understand why the legislature 
may not also make adjustments in statutory rates, provided the 
ETF Board has the final word so that the WRS is always 
protected. 
¶212 No point would be served by further analysis of the 
contention that the changes to the actuarial assumptions are a 
taking of property and an impairment of contract, as these 
contentions have already been discussed twice.  The same 
reasoning applied in our constitutional discussion of the $4 
billion transfer and the $200 million credit applies here.  
Nothing the legislature has done relieves employers of their 
absolute 
liability 
to 
fulfill 
the 
benefit 
commitments 
contemplated in Wis. Stat. § 40.19(1).  These accrued benefits 
are the essence of the participants' property interest.  There 
is no taking of that interest.  Participants do not have a 
property interest in a particular actuarial assumption set in 
the statute.  They have an interest in the integrity and 
security of the trust fund, and this legislation does not put 
that in jeopardy. 
 
F. Benefit Caps 
No. 99-3297  
 
 
101 
 
 
¶213 WPPA contends that raising the 65 percent benefit cap 
by 5 percent for all employees except protective occupation 
employees violates the equal protection clause of the United 
States Constitution and Article I, Section 1 of the Wisconsin 
Constitution. 
 
¶214 Active participating employees who retire when they 
are entitled to receive a benefit and inactive participating 
employees who become eligible to receive a benefit may choose 
between a "normal form annuity" (the formula benefit) or the 
money purchase annuity provided in Wis. Stat. § 40.23(3).  The 
money 
purchase 
annuity 
is 
based 
upon 
"the 
sum 
of 
the 
participant's accumulated additional and required contributions 
plus an amount from the employer accumulation reserve equal to 
the participant's accumulated required contributions."  Wis. 
Stat. § 40.23(3). 
¶215 A normal form annuity or formula benefit is capped.  A 
money purchase annuity is not. 
¶216 Prior to Act 11, the maximum amount of the initial 
annuity for a participant in the WRS (including a protective 
occupation participant with social security) who receives a 
formula benefit, was an amount equal to 65 percent of the 
participant's 
final 
average 
earnings. 
 
Wis. 
Stat. 
§ 40.23(2m)(b).  The notable exception to the 65 percent cap was 
for protectives without social security whose formula benefit 
was capped at 85 percent of final average earnings. 
No. 99-3297  
 
 
102 
¶217 Act 
11 
raises 
the 
benefit 
cap 
for 
all 
active 
participating employees who are capped at 65 percent except 
protectives with social security.  The formula benefit for these 
protectives remains capped at 65 percent, while the formula 
benefit for the remaining protectives remains capped at 85 
percent. 
¶218 WPPA contends that the failure to raise the benefit 
cap for the "65 percent" protective occupation participants 
denies them equal protection of the law, in violation of the 
federal and state constitutions.222  We are not persuaded. 
¶219 WPPA asserts that there is no rationale in the 
legislative history of Act 11 explaining why the Act increased 
the cap for general, executive, and elective participants to 70 
percent of final average earnings but maintained the 65 percent 
cap for law enforcement participants.223  "There is no rational 
                     
222 The 
Fourteenth 
Amendment 
to 
the 
United 
States 
Constitution reads, in part: 
No 
State 
shall 
make 
or 
enforce 
any 
law 
which 
shall . . . deny to any person within its jurisdiction 
the equal protection of the laws. 
 
Article I, Section 1 of the Wisconsin Constitution provides: 
All people are born equally free and independent, and 
have certain inherent rights; among these are life, 
liberty and the pursuit of happiness; to secure these 
rights, governments are instituted, deriving their 
just powers from the consent of the governed. 
 
223 Petitioner WPPA's brief at 53.  
No. 99-3297  
 
 
103 
basis for denying protective occupation participants with social 
security the increase in the cap," WPPA declares.224 
¶220 The practical effect of the law is that protectives 
with social security are capped with a formula benefit when they 
have 32.5 years or more of creditable service.  The law caps the 
formula benefit of the other protectives when they have 34 years 
or more of creditable service.225 There are currently 12 
protectives with social security and 29 protectives without 
social security who have at least 32.5 years and 34 years of 
creditable service, respectively, who will not be eligible to 
receive an increase in their formula-based annuity when Act 11 
is implemented.226  However, according to DETF, because the trust 
fund's assets have enjoyed good investment performance in recent 
years, each of the 41 protectives, "if they retired in the 
foreseeable future, will receive a money purchase annuity, 
rather than a formula-based annuity.  The benefits of a money 
purchase-based annuity are not subject to the maximum annuity 
limitations."227 
¶221 When a party seeks to challenge the constitutionality 
of a statute on equal protection grounds, it must demonstrate 
that the statute treats members of a similarly situated class 
differently.  Tomczak v. Bailey, 218 Wis. 2d 245, 261, 578 
                     
224 Petitioner WPPA's brief at 54.  
225 Stipulation of Facts at ¶62.  
226 Stipulation of Facts at ¶64.  
227 Stipulation of Facts at ¶64.  
No. 99-3297  
 
 
104 
N.W.2d 166 (1998) (citing State v. Post, 197 Wis. 2d 279, 318, 
541 N.W.2d 115 (1995)).  Usually, this court will uphold a 
statute under an equal protection challenge if we find that a 
rational basis supports the legislative classification.  Aicher 
v. Wis. Patients Comp. Fund, 2000 WI 98, ¶56, 237 Wis. 2d 99, 
613 N.W.2d 849.  A statute not subject to strict scrutiny 
analysis, as is conceded by WPPA here, enjoys a strong 
presumption of constitutionality; and we employ a rational basis 
test to examine Act 11's constitutionality. 
¶222 Under 
a 
rational 
basis 
test, 
a 
statute 
is 
unconstitutional if the legislature applied an irrational or 
arbitrary classification when it enacted the statute.  Omernik 
v. State, 64 Wis. 2d 6, 18-19, 218 N.W.2d 734 (1974).  But the 
court must sustain a statute using this analysis unless we find 
that it is patently arbitrary and bears no relationship to a 
legitimate government interest.  Tomczak, 218 Wis. 2d at 264.  
As we said in Aicher: "Recognizing that classifications often 
are imperfect and can produce inequities, our goal is to 
determine whether a classification scheme rationally advances a 
legislative objective. . . . In so doing, we are obligated to 
locate or . . . construct a rationale that might have influenced 
the legislative determination."  Aicher, 237 Wis. 2d at ¶57. 
¶223 A legislative classification satisfies the rational 
basis test if it meets five criteria: 
 
(1) All 
classification[s] 
must 
be 
based 
upon 
substantial distinctions which make one class really 
different from another. 
 
No. 99-3297  
 
 
105 
(2) The classification adopted must be germane to the 
purpose of the law. 
 
(3) The 
classification 
must 
not 
be 
based 
upon 
existing circumstances only.  [ . . . It must not be 
so constituted as to preclude addition to the numbers 
included within a class.] 
 
(4) To whatever class a law may apply, it must apply 
equally to each member thereof. 
 
(5) That the characteristics of each class should be 
so far different from those of other classes as to 
reasonably suggest at least the propriety, having 
regard to the public good, of substantially different 
legislation. 
Tomczak, 218 Wis. 2d at 272-73 (quoting Dane County v. McManus, 
55 Wis. 2d 413, 423, 198 N.W.2d 667 (1972)).  Act 11 meets these 
criteria. 
¶224 The legislature has differentiated between protective 
occupation participants and other WRS participants in several 
respects.  Traditionally, protectives have been given higher 
formula multipliers than most other WRS participants, especially 
the protectives without social security.  The normal retirement 
age of protectives is 54, or 53 with 25 years of service, 
whereas the normal retirement age of general employees is 65, or 
57 with 30 years of service.228  The minimum retirement age (for 
early retirement with reduced benefits) is 50 for protectives, 
but 55 for all other categories.229 
¶225 Because of the costs associated with these benefits, 
the total contribution rates for protectives are higher than for 
                     
228 Wis. Stat. § 40.02(42); Stipulation of Facts at ¶47.  
229 Wis. Stat. § 40.23(1)(a); Stipulation of Facts at ¶48.  
No. 99-3297  
 
 
106 
other categories of employees——16.6 percent for protectives with 
social security, 23.4 percent for protectives without social 
security.230 
¶226 Plainly, protectives are among the most expensive 
employees to maintain.  Thus, there are not only policy reasons 
(related to the demanding nature of the work) but also economic 
reasons (related to cost) for the legislature to encourage 
protective occupation participants to retire at the normal 
retirement age.  Protectives with social security will not 
become capped under the law until 7.5 years after the normal 
retirement age if they have 25 years of service.  Protectives 
without social security will not become capped under the law 
until 9 years after the normal retirement age if they have 25 
years of service. 
¶227 We believe this analysis provides a rational basis for 
the 
classifications 
drawn 
by 
the 
legislature. 
 
The 
classifications are long standing and germane to the law.  
Moreover, 
the 
legislature 
did 
not 
discriminate 
against 
protectives when it increased the formula multiplier.  It 
increased the multiplier for past service for all protectives 
who were active participating employees on January 1, 2000.  
Because of the money purchase annuity, WPPA is unable to point 
to a single protective that will be hurt by continuation of the 
benefit caps if the protective retires at any time in the 
foreseeable future.  WPPA has provided no credible basis to 
                     
230 Stipulation of Facts at ¶49.  
No. 99-3297  
 
 
107 
invalidate the law on equal protection grounds.  They have 
failed 
to 
show 
that 
this 
component 
of 
the 
statute 
is 
unconstitutional beyond a reasonable doubt. 
 
G. Sufficient State Funds 
 
 
¶228 SEA contends that Act 11 is unconstitutional because 
it fails to provide sufficient state funds to cover the cost of 
increased benefits as required by Article IV, Section 26 of the 
Wisconsin Constitution.231 
 
¶229 SEA observes that the benefit improvements in Act 11 
are funded, at least in part, with assets of the trust fund.  
Assets of the trust fund, it argues, cannot be considered "state 
funds." 
 
Therefore, 
the 
Act 
does 
not 
comply 
with 
the 
constitution. 
 
¶230 Earlier in this opinion, we carefully avoided a 
determination whether Article IV, Section 26 applies to Act 11. 
 We held instead that if the three-fourths vote provision of 
Section 26 did apply, the Act had been passed by "a three-
fourths vote of all the members elected to both houses of the 
legislature." 
¶231 One effect of the 1974 constitutional amendment is to 
authorize "increased benefits for persons who have been or shall 
be granted benefits of any kind under a retirement system."  The 
two prerequisites for increased benefits using the authority 
                     
231 Petitioner SEA's brief at 47.  
No. 99-3297  
 
 
108 
under the amendment, are (1) "a three-fourths vote" and (2) 
"sufficient state funds to cover the costs of the increased 
benefits." 
¶232 Act 11 does not appropriate tax dollars to cover the 
costs of increased benefits for either state or local employees. 
 Consequently, if we were to determine that Article IV, Section 
26 applies to Act 11, we might have to invalidate all benefit 
enhancements in the Act, or, in the alternative, hold that 
monies in the trust fund are "state funds."  On the other hand, 
if we were to hold that the provisions of Article IV, Section 26 
do 
not 
apply 
to 
Act 
11——an 
act 
with 
multiple 
benefit 
enhancements for both past and present employees——we would be 
holding that Assembly Bill 495 could have been passed by a 
simple majority vote in each house of the legislature.  The 
latter holding would establish an important precedent for future 
pension enhancement legislation. 
¶233 There may be ways to interpret the constitutional 
language to avoid these stark and difficult choices.  In this 
case, however, SEA has failed to argue its point with sufficient 
clarity or conviction that we feel bound to address the 
question.  One and one-half pages of indifferent argument are 
inadequate to inform the court on an issue of this magnitude.  
As we noted recently in Wisconsin Conference Board of Trustees 
of the United Methodist Church v. Culver, 2001 WI 55, ¶38, ___ 
Wis. 2d ___, ___ N.W.2d ___ (quoting Cemetery Services, Inc. v. 
Department of Regulation & Licensing, 221 Wis. 2d 817, 831, 586 
N.W.2d 191 (Ct. App. 1998)): "[W]e generally choose not to 
No. 99-3297  
 
 
109 
decide issues that are not adequately developed by the parties 
in their briefs." 
¶234 We respectfully suggest that the legislature examine 
the implications of the "state funds" language in Article IV, 
Section 26, which was adopted as a floor amendment to 1971 
Senate Joint 
Resolution 
3 
on February 11, 
1971. 
 
This 
legislative action predated by several years the creation of the 
TAA and it may not have contemplated the dynamic evolution of 
the WRS. 
 
V. CONCLUSION 
 
 
¶235 To sum up, this court concludes that Act 11 is 
constitutional, having been approved by the requisite number of 
votes, namely, "a three-fourths vote of all the members elected 
to both houses of the legislature."  The Act does not take the 
petitioners' property without just compensation, nor does it 
impair the obligations of their contract with the State of 
Wisconsin.  It does not violate the fundamental principles of 
Chapter 40 or any right preserved in Wis. Stat. § 40.19(1).  It 
does not violate trust principles.  Rather, it strengthens the 
hand of the ETF Board.  Consequently, the relief requested by 
petitioners is denied and the injunction issued by this court is 
lifted. 
 
By the Court.Rights declared and declaratory relief 
denied. 
 
No. 99-3297  
 
 
110 
 
 
 
No. 99-3297.wab 
 
1 
 
 
¶236 WILLIAM 
A. 
BABLITCH, 
J. 
(concurring 
in 
part, 
dissenting in part).  I join the majority opinion with the 
exception of part IV.D. regarding the $200,000,000 credit given 
to employers.  This credit is a forgiveness of a debt owed by 
employers to the Wisconsin retirement system (WRS).  It is not 
the state's to forgive.  The state is not the owner of this 
debt; the employees are.  Accordingly, I respectfully dissent to 
this part of the majority opinion.  My reasoning follows. 
¶237 The thrust of my dissent can be easily illustrated by 
a hypothetical.  "A" owes "B" $200.  "C" tells "A," "Don't pay 
'B.'  I forgive that debt."  "B" then says, "Hey, that debt 
belongs to me.  You can't forgive it."  "C" then replies, "I 
just have."  "A" is, of course, all of the employers in the 
Wisconsin Retirement System.  "B" is all of the employees.  "C" 
is the legislature.  That, in effect, is precisely what happened 
in this part of the legislation.   
¶238 Prior 
to 
the 
legislation, 
state 
and 
municipal 
employers either owed or will owe $200,000,000 into the WRS.  
This 
legislation 
forgives 
this 
past 
and 
future 
debt.  
Accordingly, the WRS will have $200,000,000 fewer assets 
available to it when future employee benefits or contributions 
are considered. 
¶239 This $200,000,000 of debt, past or future, is not the 
legislature's money to use to balance their budget, relieve 
No. 99-3297.wab 
 
2 
property taxes, or the like.  This money belongs to the 
employees. 
¶240 Is this an unconstitutional taking?  Of course. 
¶241 In a takings analysis, we must first determine whether 
the affected parties have a property interest.  Wis. Retired 
Teachers Ass'n v. Employe Trust Funds Bd., 207 Wis. 2d 1, 18, 
558 
N.W.2d 
83 
(1997). 
 
In 
this 
case, 
the 
employees 
unquestionably have a property interest in this debt.  The debt 
is to the system.  This money is not largesse from the 
employers; it is their obligation to pay.   
¶242 We have consistently held that employees have a 
property interest in their retirement system.  See Association 
of State Prosecutors v. Milwaukee County, 199 Wis. 2d 549, 558, 
563, 544 N.W.2d 888 (1996); State Teachers' Ret. Bd. v. Giessel, 
12 Wis. 2d 5, 9-10, 106 N.W.2d 301 (1960).  Here, the debt 
(present and future) is in essence an asset of that system which 
the employees are the beneficiaries.  
¶243 Once we determine that a property interest exists, the 
next step is to examine whether this interest has been taken.  
Wis. Retired Teachers Ass'n, 207 Wis. 2d at 20.  Again, it seems 
clear beyond a reasonable doubt that an asset of the system, the 
present and future debt of the employers to the system, has been 
taken because the obligation has been relieved.  There is now 
$200,000,000 less in the system than there would have been.  
That seems to be a taking under anybody's definition. 
¶244 This is woefully bad precedent.  To allow the 
legislature to take assets from the retirement system which 
No. 99-3297.wab 
 
3 
belongs to the employees and use it for a purpose other than the 
employees without so much as a "by your leave," which is of 
course what happened here, potentially opens the floodgates to 
great mischief.  We have previously warned of the dangerousness 
of such precedent.  Association of State Prosecutors, 199 
Wis. 2d at 562. 
¶245 What if the legislature needs to plug a $25,000,000 
hole in the state budget?  What is to stop the legislature from 
"forgiving" the state $25,000,000 in future payments into the 
employer reserve account?   
¶246 What if the counties, in their demand for property tax 
relief, are willing to cut a deal with the legislature for 
forgiveness of whatever amount, both past and future debt, in 
lieu of state aids?   
¶247 No amount of words can paper over the end result here. 
 The employers are $200,000,000 richer because they no longer 
have a $200,000,000 obligation; the employees are $200,000,000 
poorer because they no longer have available to them, either now 
or in the future, that money for potential benefits.  I 
respectfully dissent.  
¶248 I 
would 
sever 
that 
portion 
of 
the 
legislation 
regarding the $200,000,000 credit and leave the rest of the 
legislation intact. 
 
No. 99-3297.ssa 
 
1 
 
¶249 SHIRLEY S. ABRAHAMSON, CHIEF JUSTICE (dissenting).  It 
is the province of this court to decide the constitutionality of 
legislation, not the wisdom of the legislature.  I conclude that 
Act 11 is an unconstitutional intrusion on the state pension 
fund.232 
¶250 The challenge to Act 11 is multifaceted.  Unlike the 
majority 
opinion, 
a 
dissent 
need 
not 
resolve 
the 
constitutionality of each provision.  I shall touch upon only 
two of the challenges, but my silence about the others should 
not be interpreted as agreement with the majority opinion about 
them.  
¶251 First, the majority opinion upholds the $200 million 
contribution credit given employers, which the legislative 
drafting file baldly refers to as a "contribution holiday" for 
employers.  The monies held in the Employe Trust Fund (ETF) have 
been irrevocably placed in trust for the benefit of the 
retirement system participants, and the State cannot direct that 
                     
232 This original action to declare Act 11 unconstitutional 
was initiated by the Employe Trust Fund Board and Eric O. 
Stanchfield, Secretary of the Employe Trust Fund.  This court 
denied the Board's and the Secretary's petition for leave to 
commence the action on the ground that they lack standing to 
challenge the constitutionality of the legislation.  See Supreme 
Court Order filed February 10, 2000; see also Fulton Found. v. 
Dep't. of Taxation, 13 Wis. 2d 1, 11, 108 N.W.2d 312 (1961); 
Columbia County v. Bd. of Trustees of the Wis. Ret. Fund, 17 
Wis. 2d 310, 316-17, 116 N.W.2d 142 (1962); State v. City of Oak 
Creek, 2000 WI 9, 232 Wis. 2d 612, 605 N.W.2d 526.  While I 
dissented in City of Oak Creek and continue to disagree with the 
decision, I am bound by it and therefore concurred in the order 
dismissing these parties.  
No. 99-3297.ssa 
 
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such monies be used for non-ETF purposes.  The $200 million 
employer contribution credit, as Justice Bablitch also explains, 
is a diversion of $200 million of ETF monies in which retirement 
system participants have a protected property and contract 
right. 
¶252 This diversion is an unlawful taking and an impairment 
of contract, as well as a violation of trust principles.  The 
Wisconsin and federal constitutions do not allow the legislature 
to 
balance 
the 
state 
budget 
or 
shift 
resources 
among 
governmental entities by using assets belonging to the ETF.  
Promises to contribute to the fund are assets belonging to the 
ETF.  As a result of the majority opinion, Wisconsin now 
unfortunately joins other states that have viewed their once-
burgeoning pension funds as sources of budget relief.233  
¶253 Second, 
although 
Act 
11 
has 
multiple 
benefit 
enhancements for both past and present employees, the majority 
opinion carefully avoids determining a constitutional "issue of 
magnitude":234 Does Act 11 violate the extra compensation clause 
of Article IV, Section 26 of the Wisconsin Constitution?235 
                     
233 See Ridgeley A. Scott, A Skunk at a Garden Party: 
Remedies for Participants in State and Local Pension Plans, 75 
Denv. U. L. Rev. 507, 507 (1998) ("Legislators who want to spend 
more money than is available prefer to obtain the difference by 
a method other than raising taxes.  Pension trusts for public 
employees are especially inviting because they frequently have 
substantial assets.") (citations omitted). 
234 See majority op. at ¶233. 
235 Article IV, Section 26, provides: 
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3 
¶254 The 
majority 
opinion 
explains 
its 
dilemma 
in 
addressing this constitutional question: If Article IV, Section 
26 does not apply to Act 11, the majority opinion would be 
holding that a simple majority vote, not a three-fourths vote, 
is needed to adopt a law such as Act 11.  The majority opinion 
does not want to establish the precedent that this Act does not 
grant extra compensation because it wants Section 26 to remain a 
viable check on the legislature.236  
¶255 But if Section 26 does apply to Act 11,237 then the 
majority opinion would have to hold that the monies in the ETF 
                                                                  
(1) The 
legislature 
may 
not 
grant 
any 
extra 
compensation to a public officer, agent, servant 
or contractor after 
the 
services 
have 
been 
rendered or the contract has been entered into. 
 . . .  
(3) Subsection (1) shall not apply to increased 
benefits for persons who have been or shall be 
granted benefits of any kind under a retirement 
system when such increased benefits are provided 
by a legislative act passed on a call of ayes and 
noes by a three-fourths vote of all the members 
elected to both houses of the legislature and 
such act provides for sufficient state funds to 
cover the costs of the increased benefits.  
(4)  
236 See majority op. at ¶¶88, 232.  I am troubled by the 
majority opinion's assertion that Section 26 will serve as an 
adequate check on the legislature in the future.  See majority 
op. at ¶198.  In my view, the majority opinion has undermined 
the effectiveness of this check by declining to enforce it in 
this instance.  The majority opinion also relies on Joint Rule 
12 even though it concludes that the rule does not correctly 
interpret the constitution.  See majority op. at ¶¶91-97. 
237 See majority op. at ¶87, indicating that Article IV, 
Section 26 applies to Act 11. 
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4 
are "state funds" to satisfy Article IV, Section 26, because Act 
11 uses assets of the ETF to fund part of the benefits.  Act 11 
does not appropriate any non-ETF monies to cover the costs of 
increased benefits.  The majority opinion apparently does not 
want to establish the precedent that assets of the ETF are 
"state funds" either.238 
¶256 To avoid this dilemma, the majority opinion explains 
that the State Engineering Association failed to argue this 
point with sufficient clarity or conviction to make the majority 
feel bound to address the question.239  The State Engineering 
Association has requested that the court determine what "state 
funds" means in the Wisconsin Constitution, in the context of 
this case.240  Its argument is sufficient. 
¶257 Furthermore, the focus in the majority opinion on 
whether Act 11 provides state funds ignores the fact that the 
legislature has not provided sufficient state funds to finance 
these benefit improvements, as Article IV, Section 26 requires. 
 With the $200 million credit to employers and the $4 billion 
                     
238 See majority op. at ¶232. 
239 See majority op. at ¶233. 
240 It is problematic to suggest that the legislature 
revisit the meaning of "state funds" in Article IV, Section 26, 
unless the majority opinion is referring to a constitutional 
amendment.  See majority op. at ¶234. 
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5 
transfer from the TAA, Act 11 funds only a portion of the cost 
of the increased benefits for prior service.241   
¶258 I see no other conclusion than that the increased 
benefits 
for 
past 
service 
provided 
in 
Act 
11 
are 
unconstitutional.  
¶259 As to the severability of unconstitutional portions of 
Act 11, I agree with the respondents (the defenders of the 
constitutionality of Act 11) that the funding and benefit 
provisions are not severable.  In other words, if any funding 
provisions are unconstitutional, the benefit provisions relating 
thereto cannot stand. 
¶260 Despite my disagreement with the majority opinion 
about the constitutionality of Act 11, I think the majority 
opinion sets forth important precedent that helps to limit the 
possibility of future intrusions on the state pension fund. 
¶261 In particular, two facets of the majority opinion bear 
repeating.  One, the majority upholds the statutory adjustment 
to actuarial assumptions only to the extent that the legislature 
does not interfere with the ETF Board's discretion.242  In 
concluding that the ETF Board must always have the final word 
regarding actuarial assumptions, the majority implicitly sides 
                     
241 For this fact, we need look no further than the subject 
line of the Legislative Reference Bureau's fiscal estimate form, 
which accompanied Assembly Bill 495.  The subject line states 
that the act "make[s] several benefit improvements to the WRS 
and fund[s] them partially by recognizing $4 billion from the 
TAA."  (Emphasis added.) 
242 See majority op. at ¶211. 
No. 99-3297.ssa 
 
6 
with the petitioners on this issue.  The petitioners expressed 
fear that Act 11 might pave the way for future changes to the 
actuarial assumptions that could interfere with the ETF Board's 
authority.  The majority opinion does not allow for this 
possibility. 
¶262 Two, the majority opinion leaves open the possibility 
that employees as a class may have a viable cause of action 
should they have to make contributions to the employee reserve 
as a result of the $200 million credit to employers.  See 
majority op. at ¶¶180-81.  The majority has simply concluded 
that under the facts of this case, the possibility of a future 
employee contribution increase is too speculative a basis for 
deeming Act 11 unconstitutional.  However, were the legislature 
to authorize a larger employer credit, or were the legislature 
to authorize employer credits on a regular basis, this court 
might view the potential for employee contributions as more than 
mere speculation and as a viable basis for challenging the 
constitutionality of such future credits. 
¶263 For the reasons set forth, I dissent. 
¶264 I am authorized to state that Justice ANN WALSH 
BRADLEY joins this opinion. 
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