Title: Mary E. Fazio v. Department of Employee Trust Funds
Citation: 2006 WI 7
Docket Number: 2004AP000064
State: Wisconsin
Issuer: Wisconsin Supreme Court
Date: January 26, 2006

2006 WI 7 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2004AP64 
 
 
COMPLETE TITLE: 
 
 
Mary E. Fazio, 
          Plaintiff-Respondent-Petitioner, 
     v. 
Department of Employee Trust Funds, 
          Defendant-Appellant. 
 
 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
2005 WI App 87 
Reported at: 280 Wis. 2d 837, 696 N.W.2d 563 
(Ct. App. 2005 – Published) 
 
 
OPINION FILED: 
January 26, 2006   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
November 16, 2005   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Dane   
 
JUDGE: 
Patrick J. Fiedler   
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
        
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
For the plaintiff-respondent-petitioner there were briefs 
and oral argument by Robert L. Elliott, Milwaukee. 
 
For the defendant-appellant the cause was argued by L. Jane 
Hamblen, assistant attorney general, with whom on the brief was 
Peggy A. Lautenschlager, attorney general. 
 
 
2006 WI 7
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No. 2004AP64 
(L.C. No. 
2001CV94) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Mary E. Fazio,  
 
 
Plaintiff-Respondent-Petitioner, 
 
              v. 
 
Department of Employee Trust Funds,  
 
 
Defendant-Appellant. 
 
FILED 
 
JAN 26, 2006 
 
Cornelia G. Clark 
Clerk of Supreme Court 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Affirmed.   
 
¶1 
SHIRLEY S. ABRAHAMSON, C.J.   This is a review of a 
published decision of the court of appeals.1  The court of 
appeals reversed the order of the circuit court for Dane County, 
Patrick J. Fiedler, Judge, granting summary judgment in favor of 
Mary Fazio, individually and on behalf of other beneficiaries of 
deceased participants of the Wisconsin Retirement Fund, against 
the Department of Employee Trust Funds.2   
                                                 
1 Fazio v. Dep't of Employee Trust Funds, 2005 WI App 87, 
280 Wis. 2d 837, 696 N.W.2d 563. 
2 We refer to the class and Fazio collectively as "Fazio" 
and treat the facts of Fazio's case as illustrative of the facts 
of the other members of the class. 
No. 
2004AP64   
 
2 
 
¶2 
The circuit court concluded that the Department of 
Employee Trust Funds had taken property for public use without 
just compensation in violation of Article I, Section 13 of the 
Wisconsin Constitution3 by failing to include interest or 
earnings accrued from the date of the participant's death until 
payments 
were 
made 
to 
the 
beneficiary 
under 
Wis. 
Stat. 
§ 40.73(1)(c) (2003-04).4  
¶3 
The court of appeals reversed the order of the circuit 
court, holding that there was no taking because Fazio did not 
acquire a property interest in a single cash sum death benefit 
under Wis. Stat. § 40.73(1)(c) until she applied for a death 
benefit as required by § 40.71(3).  We granted Fazio's petition 
for review. 
¶4 
The court of appeals set forth the relevant facts, and 
the parties do not dispute them.5  The essential facts are as 
follows:  Fazio is the widow of Anthony Fazio.  Anthony Fazio 
was a Wisconsin Retirement System (WRS) participant and was 
actively employed as a professor at the University of Wisconsin-
Milwaukee upon his death on January 2, 1999.  Fazio did not file 
for the death benefits until November 2000.  On December 1, 
                                                 
3 Article I, Section 13 states:  "The property of no person 
shall be taken for public use without just compensation 
therefor." 
4 All references to the Wisconsin Statutes are to the 2003-
2004 version unless otherwise noted. 
5 While some facts in this matter may be disputed, the 
material facts related to the distribution of death benefits to 
Fazio are subject to a May 15, 2005 stipulation by the parties. 
No. 
2004AP64   
 
3 
 
2000, a $507,395.35 death benefit was paid to Fazio.  This 
amount was calculated under Wis. Stat. § 40.73(1)(c) based on 
the amount in Anthony Fazio's account as of January 3, 1999, one 
day after his death, as provided for by § 40.73(1)(c).6  Between 
January 3, 1999 and December 1, 2000, the death benefit was held 
in the fixed retirement investment trust account and, although 
interest was earned on the funds in the account, the Department 
paid no interest on the death benefit when it was paid to Fazio 
on December 1, 2000. 
¶5 
Fazio then filed suit in the circuit court, demanding 
that the interest be paid.  The circuit court dismissed the 
original complaint on the ground that Fazio had failed to 
exhaust her administrative remedies.  She appealed and the court 
of appeals determined that Fazio was not required to seek relief 
with the Department and directed the circuit court to reinstate 
her complaint.7 
¶6 
On January 27, 2003, the circuit court certified the 
matter as a class action.  The class was defined as "all persons 
having an interest as a beneficiary in a single cash sum death 
benefit paid or payable out of the funds of the Employe Trust 
Funds pursuant to Section 40.73(1)(c) Stats., from and after 
January 11, 1995."  Fazio was designated class representative 
                                                 
6 The benefit was paid under § 40.73(1)(c) because that 
amount was greater than the standard benefit payment provided 
for by Wis. Stat. § 40.73(1)(am). 
7 Fazio v. Dep't of Employee Trust Funds, 2002 WI App 127, 
¶1, 255 Wis. 2d 801, 645 N.W.2d 618. 
No. 
2004AP64   
 
4 
 
and her counsel, class counsel.  The order granting partial 
summary judgment issued on July 30, 2003 and the order for 
judgment granting damages issued on November 24, 2003.  
¶7 
Fazio 
argues that 
because 
the department 
earned 
interest on her death benefit until the time she applied for the 
benefit and then distributed the benefit but kept the interest 
for its own purposes, an unconstitutional taking occurred.  The 
parties agree that the statutes neither explicitly allow nor 
explicitly disallow the payment of interest to a beneficiary 
under these circumstances.   
¶8 
We 
agree 
with 
the 
court 
of 
appeals 
that 
no 
unconstitutional taking occurred because a beneficiary does not 
acquire a property interest in a single cash sum death benefit 
under Wis. Stat. § 40.73(1)(c) until the beneficiary applies for 
a death benefit as required by Wis. Stat. § 40.71(3). 
¶9 
For the reasons set forth by the court of appeals we 
conclude 
that 
nothing 
in 
Wis. 
Stat. 
§ 40.73 
creates 
an 
entitlement in the beneficiary to the annuity-value single cash 
sum benefit as of the date of death even though the value of the 
single cash sum benefit is calculated as of the date of death.  
Until the Department received Fazio's written application, the 
Department could not determine the annuity-value single cash sum 
to which Fazio might be entitled because Fazio was entitled to 
the higher single cash sum payment calculated under either Wis. 
Stat. § 40.73(1) (am) or § 40.73(1)(c).  The amount payable to 
Fazio under paragraph 
(am) 
(account-value 
death 
benefits) 
continued to increase each month after death by the addition of 
No. 
2004AP64   
 
5 
 
interest credited to the account through "the first day of the 
month in which the death benefit is approved."  Wis. Stat. 
§ 40.73(1)(am). 
¶10 Fazio 
was 
thus 
entitled 
to 
the 
larger 
sum 
as 
determined by the account-value death benefits calculated with 
interest from death through the first day of the month in which 
the death benefit is approved and the annuity value as of the 
date of death.  Accordingly, the total amount the beneficiary 
receives will always be at least as much as the account value at 
the participant's death plus the interest credited to the 
account through the first day of the month in which the death 
benefit is approved. 
¶11 We are not persuaded by Fazio's arguments to reverse 
the decision of the court of appeals.  First, Fazio argues that 
Wis. Stat. § 40.71 grants her an entitlement to a death benefit 
at the time of the participant's death.  Wisconsin Stat. § 40.71 
states, in relevant parts: 
40.71  Death benefit eligibility.  The following 
described persons are entitled to death benefits from 
the Wisconsin retirement system, in the form and at 
the times specified: 
(1) The beneficiary of any participant or of any 
annuitant on the date of death of the participant or 
annuitant. . . .  
(2) Any death benefit may be paid as a beneficiary 
annuity, subject to s. 40.73 (3), or as a single cash 
sum as specified by the beneficiary in the application 
for 
the 
death 
benefit 
unless 
the 
participant 
prohibited payment of a single cash sum in a written 
notice received by the department prior to the 
participant's death. . . .   
No. 
2004AP64   
 
6 
 
(3) Whenever any death benefit is payable in a single 
cash sum, it shall be paid only after receipt by the 
department of the following: 
(a) A copy of the death certificate of the participant 
or annuitant; 
(b) A written application of the beneficiary for the 
benefit; and 
(c) 
Any 
additional 
evidence 
deemed necessary or 
desirable by the department. 
¶12 Fazio reads Wis. Stat. § 40.71 to mean that a 
beneficiary is entitled to the death benefits from the Wisconsin 
retirement system on the date of the death of the participant.  
We conclude, as did the court of appeals, that a beneficiary is 
not entitled to——that is, a beneficiary does not have a property 
right in——a single cash sum payment of death benefits until he 
or she has filed the proper application as required by 
§ 40.71(3).  The introductory language of § 40.71 applies to all 
three subsections.  Subsection (1) of § 40.71 identifies the 
persons who are entitled to death benefits, subsection (2) 
spells out the form in which a beneficiary receives the benefit, 
and subsection (3) identifies the time at which the beneficiary 
is entitled to those benefits.   
¶13 Second, 
Fazio 
argues 
that 
the 
Department's 
interpretation 
of 
the 
statutes 
contravenes 
the 
stated 
legislative purpose of protecting public employees and their 
beneficiaries.8  However, our decision does not interfere with 
                                                 
8 See Wis. Stat. § 40.01(1): 
(1) Creation.  A "public employee trust fund" is 
created 
to 
aid 
public 
employees 
in 
protecting 
themselves 
and 
their 
beneficiaries 
against 
the 
No. 
2004AP64   
 
7 
 
this purpose.  Beneficiaries receive the full value of the 
deceased participant's retirement fund.  Because § 40.73(1)(c) 
provides that the benefit under that section is paid only if it 
is greater than the benefit provided by § 40.73(1)(am), the 
total amount the beneficiary receives will always be at least as 
much as the account value at the participant's death plus the 
interest earned prior to application.   
¶14 Third, Fazio contends that if the beneficiary does not 
have a property interest between the time of death and the time 
the beneficiary applies for the death benefit, a gap exists in 
the ownership interest of the death benefit and the Department 
may use the interest earned on Fazio's death benefit for its own 
purposes. 
¶15 WRS participants have property rights in the fund as a 
whole, Wis. Stat. § 40.04(3)(b), and no vacuum in ownership 
exists.  Furthermore, the Department is obligated to use 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. 
No. 
2004AP64   
 
8 
 
money only for the benefit of the fund consistent with the 
purposes set forth in § 40.01(2).9 
¶16 Fourth, Fazio contends that Wis. Stat. § 40.02(8), the 
statute that defines "beneficiary" for the purpose of ch. 40, 
supports the argument that she has an entitlement to the death 
benefit at the time of her husband's death.  We agree with the 
court of appeals that this interpretation contradicts the 
language of the statute.  By not allowing the benefit to pass 
through the beneficiary prior to filing the application, 
§ 40.02(8)(b) supports the conclusion that a beneficiary is not 
entitled to the death benefit until the application is filed 
pursuant to § 40.71(3).  As the Department argues, if the named 
beneficiary had a property interest prior to submitting the 
beneficiary designation or the application, it would pass to her 
heirs, not the participant's heirs, upon her death.10   
                                                 
9 See, e.g., State Teachers' Ret. Bd. v. Giessel, 12 Wis. 2d 
5, 10, 106 N.W.2d 301 (1960) (under predecessor to ch. 40, "the 
legislature and the plaintiff board are not free to spend or 
appropriate the earnings of the fund except in a manner 
authorized by statute relating to the state teachers' retirement 
system."). 
10 Wisconsin Stat. § 40.02(8)(b) provides: 
"Beneficiary" does not include a person who dies 
before filing with the department either a beneficiary 
designation applicable to that death benefit or an 
application for any death benefit payable to the 
person . . . . If a person dies after filing a 
beneficiary application but before the date on which 
the benefit check . . . is issued . . . any benefit 
payable shall be paid in accord with the written 
designation of [the] beneficiary, if any, filed with 
the department in connection with the application or, 
if 
none, 
in 
accord 
with 
the 
last 
designation 
No. 
2004AP64   
 
9 
 
¶17 Fifth, Fazio argues that Wis. Stat. § 40.1911 creates a 
contract between the Department and the participant requiring 
the Department to pay the designated beneficiary.12  As the court 
of appeals explained, the provisions of ch. 40 constitute the 
contractual agreement between a participant and the Department.  
Thus, concluding that § 40.19 creates a contract does not answer 
the question of when a beneficiary is entitled to a death 
benefit.   
¶18 Sixth and finally, relying on Wisconsin Professional 
Police Ass'n, Inc. v. Lightbourn, 2001 WI 59, 243 Wis. 2d 512, 
627 N.W.2d 807, and Wisconsin Retired Teachers Ass'n, Inc. v. 
Employe Trust Funds Board, 207 Wis. 2d 1, 558 N.W.2d 83 (1997), 
Fazio claims that beneficiaries of participants have a protected 
property right in the WRS funds.  However, as the court of 
appeals explained, Lightbourn and Wisconsin Retired Teachers 
Ass'n address whether participants have a property right.  
                                                                                                                                                             
previously filed by the person, or otherwise to the 
person's estate. 
11 Wisconsin Stat. § 40.19 provides in relevant part: 
(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.  
12 See Wis. Retired Teachers Ass'n, Inc. v. Employee Trust 
Funds Bd., 207 Wis. 2d 1, 19, 558 N.W.2d 83 (1997) (under ch. 
40, "WRS annuitants have a contract right to have dividends 
distributed 
consistent 
with 
s. 
40.27(2)"); 
Giessel, 
12 
Wis. 2d at 9-10 (under predecessor to ch. 40, "the teachers have 
a contractual relationship with the state and a vested right in 
the state teachers' retirement system"). 
No. 
2004AP64   
 
10 
 
Neither this court nor the court of appeals has held that 
beneficiaries have a property right in the fund itself.  
¶19 We agree with the court of appeals' discussion of the 
legal principles applicable to the present case and do not 
repeat that discussion here.  Rather, we adopt ¶¶3-18 of the 
opinion of the court of appeals, 2005 WI App 87, 280 
Wis. 2d 837, 696 N.W.2d 563, as the opinion of this court. 
Accordingly we affirm the decision of the court of appeals.    
By the Court.—The decision of the court of appeals is 
affirmed. 
 
No. 
2004AP64   
 
 
 
1