Source: https://www.azag.gov/node/2405
Timestamp: 2018-01-20 22:52:40
Document Index: 181393762

Matched Legal Cases: ['§ 18', '§ 1', '§ 1', '§ 24', '§ 1', '§1', '§ 25', '§1', '§ 25']

Management of the State's Defined Contribution Retirement System | Arizona Attorney General
Management of the State's Defined Contribution Retirement System
I09-009 (R08-059)
When it created the System, the Legislature provided a method whereby any trust fund “surplus”(1) (the value of the fund minus the total future retirement liabilities of the fund) could be distributed to retirees by increasing annuity payments. 1953 Ariz. Sess. Laws ch. 128, § 18(c). However, that enactment also gave ASRS the power to reduce or eliminate the enhanced annuity payments if “subsequent experience determines that the fund is inadequate to maintain reserves and to pay such benefits.” Id. In 1960, the Legislature gave ASRS the authority to distribute a prorated portion of any surplus to non-retired members by increasing their retirement accounts. 1960 Ariz. Sess. Laws ch. 90, § 1. The 1960 enactment also preserved the right to reduce or eliminate the increases to annuities and retirement accounts in the event that there were insufficient reserves to pay the benefits deriving from the surplus.
Commencing in 1970, the Legislature embarked on a series of efforts to transition public employees into the State’s newly created defined benefit Plan. All State employees who were System members were allowed to elect to participate in the Plan, and all new State employees were required to participate in the Plan starting July 1, 1971.(2) 1970 Ariz. Sess. Laws ch. 134. In 1975, the Legislature required that all political subdivisions participating in the System begin participating in the Plan and give their existing employees the right to elect to participate in the Plan, and that all of their new employees hired on and after July 1, 1976, be members of the Plan. 1975 Ariz. Sess. Laws ch. 44. In 1980, the Legislature directed that all non-retired members of the System and their accounts were to be transferred to the Plan effective July 1, 1981.(3) 1980 Ariz. Sess. Laws ch. 238. The 1980 enactment included the following proviso in § 1(B):
Although the Arizona Legislature has made numerous amendments to the System over the more than 50 years of its existence, the Legislature never eliminated ASRS’ express right to reduce members’ accounts and annuity payments that were derived from surplus funds. Even in 1995, when the Legislature repealed the System statutes entirely, it preserved both System members’ rights to surplus and the State’s right to reduce accounts and annuity payments that were based on surplus allotments. 1995 Ariz. Sess. Laws ch. 32, § 24.
In 1998, the Legislature approved Senate Concurrent Resolution 1009, 43d Leg., 2d Reg. Sess. (Ariz. 1998), which referred a constitutional amendment on public retirement systems to Arizona voters as Proposition 100. At the 1998 General Election, the voters approved Proposition 100, which is now Article 29 of the Arizona Constitution. Article 29 provides the following:
Article 29 requires that public retirement systems be “funded with contributions and investment earning using actuarial methods and assumptions that are consistent with generally accepted actuarial standards.” Ariz. Const. Art. XXIX, § 1(A). It also requires that “[t]he assets of public retirement systems . . . be invested, administered and distributed as determined by law solely in the interests of the members and beneficiaries of the public retirement systems.” Id.§1(B). Finally, it establishes that “[m]embership in a public retirement system is a contractual relationship that is subject to article II, § 25, and public retirement system benefits shall not be diminished or impaired.” Id.§1(C) (emphasis added). The question is whether the language in Paragraph C stating that benefits “shall not be diminished or impaired” precludes ASRS from reducing benefits that were provided for in the legislation governing the System.
Fundamental principles of constitutional construction guide the analysis. Jett v. City of Tucson, 180 Ariz. 115, 119, 882 P.2d 426, 430 (1994). The principal purpose is to effectuate the intent of the framers of the provision and, in the case of a constitutional amendment, the intent of the electorate. Id.;Hernandez v. Lynch, 216 Ariz. 469, 472, ¶8, 167 P.3d 1264, 1267 (App. 2007). Intent is first to be determined from the provision’s language; if that language is plain and unambiguous leading to only one meaning, then the text of the provision is followed as written, and no extrinsic matter is considered. Kimu P. v. Arizona Dep’t of Economic Sec., 218 Ariz. 39, 43, ¶16, 178 P.3d 511, 515 (App. 2008); see also Jett, 180 Ariz. at 119, 882 P.2d at 430. However, if the language is ambiguous, other principles of construction are utilized to determine intent. Bentley v. Building Our Future, 217 Ariz. 265, 270, ¶13, 172 P.3d 860, 865 (App. 2007). Language is ambiguous if there is more than one rational or reasonable interpretation. Id.
Determining whether Article 29 prohibits the reduction of System annuity payments requires analysis of the phrase “public retirement benefits shall not be diminished or impaired.” Article 29 does not define “benefit”, “diminish”, or “impaired”. Nor are these terms defined in Article 2 of Title 38 of the Arizona Revised Statutes, the statutory section addressing the state retirement system and the operations of ASRS.
The American Heritage Dictionary defines “benefit” in one denotation as “[s]omething that promotes or enhances well-being; advantage” and in another, more specific denotation as “[p]ayments made or entitlements available in accordance with a wage agreement, insurance contract, or public assistance program.” The American Heritage Dictionary 171 (2d Coll. ed. 1976); Simpson v. Owens, 207 Ariz. 261, 273, ¶35, 85 P.3d 478, 490 (App. 2004) (noting that, in construing statutes, courts may reference well-known and reputable dictionaries). Thus, “benefit” has a common meaning of “financial benefit” or a specific payment of money. Downs v. Sulphur Springs Valley Elec. Coop., 80 Ariz. 286, 293, 297 P.2d 339, 343 (1956) (when construing language contained in constitutional provision adopted by a vote of the people, words “should be given the meaning most common to the ordinary individual”). Likewise, “impair” has a common meaning of “[t]o diminish in strength, value, quantity, or quality.” The American Heritage Dictionary 644 (2d Coll. ed. 1976). And “diminish” is defined as “mak[ing] smaller or less or caus[ing] to appear smaller or less.” Id. at 397. As a result, this constitutional language prohibits the reduction of the annuity payments to System members. But, even if the term “benefit” were ambiguous, application of other principles of construction would yield the same result.
Courts construe language in a provision as a whole, giving effect to each word and phrase, so that no part is rendered void, superfluous, contradictory or insignificant. Pinal Vista Props., L.L.C. v. Turnbull, 208 Ariz. 188, 190, ¶10, 91 P.3d 1031, 1033 (App. 2004); see also Mejak v. Granville, 212 Ariz. 555, 557, ¶9, 136 P.3d 874, 876 (2006) (“We must interpret the statute so that no provision is rendered meaningless, insignificant, or void.”). As noted above, subsection C of Article 29 states that, “[m]embership in a public retirement system is a contractual relationship that is subject to Article II, § 25, and public retirement system benefits shall not be diminished or impaired.” Article 2, section 25, of the Arizona Constitution states that “[n]o . . . law impairing the obligation of a contract[] shall ever be enacted.” Thus, the first clause in Article 29 protects public employees’ contractual rights in their public retirement plans. The rule that each phrase in a provision is to be given meaning so that it is not rendered superfluous compels the conclusion that the second clause—“public retirement system benefits shall not be diminished or impaired”—provides additional, substantive protection in the form of a prohibition against reduction of benefit payments.
The common definition of the terms discussed above and the placement of the phrase “benefits shall not be diminished or impaired” in the second clause of subsection C support the conclusion that Article 29 not only preserves the contractual rights that public employees hold in the terms of their retirement plans, but also prohibits ASRS from reducing the actual benefit payments to System members.(4)
II. The Plan Trust Fund Is Liable for Shortfalls for Monthly Benefit Payments for Those Who Retired on or after July 1, 1981, and Legislative Appropriations Are Necessary for Shortfalls in Benefits for Those Who Retired Before July 1, 1981.
The 1980 legislation which transferred to the Plan all former System members who were not retired as of July 1, 1981, also directed that their accounts be transferred from the System to the Plan. 1980 Ariz. Sess. Laws ch. 238. As a result of this legislation, these individuals became Plan members and their funds were effectively comingled with the Plan trust fund. It follows that their annuities are payable from the Plan trust fund. Therefore, the Plan trust fund is responsible to make all their annuity payments, even if at retirement they elected a System benefit.