Opinion ID: 1203735
Heading Depth: 1
Heading Rank: 3

Heading: payment of retiree's health insurance premiums

Text: Enrolled Senate Bill No. 5, the 1988-89 budget bill, calls upon the Respondent Trustees to make monthly transfers from employees' contribution moneys, accumulated reserves or investment income funds sufficient to pay the Public Employees Insurance Agency (PEIA) for the accrued leave program established by West Virginia Code § 5-16-12 (Supp.1987 & 1988 Replacement Vol.). Under this program, retirants receive credit toward extended health insurance coverage in exchange for accumulated sick or annual leave days. Id. Apparently, however, no provision was made to fund this program independently and, given the poor financial condition of the PEIA, that agency could not absorb the costs of the accrued leave program. Rather than having the retirants' former employing units pay these costs out of their personnel budgets, the Legislature, using language in a budget bill, instructed the Respondent Trustees to transfer retirement funds sufficient to cover the program's costs. According to the amicus brief, between two and four million dollars was required to fund the program in fiscal year 1987-88. The payment of premiums for the extended health insurance benefits contemplated by Code § 5-16-12 are improper because they violate the retirement statute, because they are contrary to basic trust principles, and because they impair all PERS participants' contracts with the State. Additionally, we have already noted the fundamental impropriety of amending the general law with budgetary language. Hechler v. McCuskey, ___ W.Va.___, 365 S.E.2d 793; see O'Connor v. Margolin, ___ W.Va. ___, 296 S.E.2d 892. Thus, the payment of premiums from the PERS trust funds must cease. The retirement statute provides that [t]he moneys, investments and all other assets of the retirement system shall be used for the sole purpose of meeting the disbursements for annuities and other payments authorized by this article, and shall be used for no other purpose whatsoever. W.Va.Code § 5-10-40. This statutory provision is explicit, clear, and unambiguous. It is equally clear that the extended insurance benefits in question are neither annuities nor authorized by the retirement act as a pension benefit. The funding scheme contemplated by Senate Bill No. 5 violates the prohibition of Code § 5-10-40, as well as basic principles of trusts and the federal and State constitutions. Moneys earned by public employees and contributed to a public employees' retirement plan, including the employers' contribution which has been earned by the public employees, become part of the corpus of the trust and are not thereafter state funds available for expropriation or use for any purpose other than that for which the moneys were entrusted. Valdes, 139 Cal.App.3d at 788, 189 Cal.Rptr. at 224; see Fortson v. Commissioner, 98 Pa. Commw. 272, 512 A.2d 734 (1986); see also Navajo Tribe v. Arizona Department of Administration, 111 Ariz. 279, 528 P.2d 623 (1974). The funds in the PERS trust are an equitable estate, property held in common for the benefit of each member and retirant, and dedicated to private ends. The trust funds are not taxpayers' money. The trust funds have been earned by public employees for the benefit of the trust, thus, the funds are not public property. Any expropriation or use by the Legislature of the PERS trust funds for a purpose unrelated to that for which the contributions were earned and made is an adverse modification of vested rights of the PERS participants, for the reasons explained in part II C 3 of this opinion. See Valdes, 139 Cal.App.3d 773, 189 Cal.Rptr. 212; Sgaglione v. Levitt, 37 N.Y.2d 507, 337 N.E.2d 592, 375 N.Y.S.2d 79 (1975). The amounts expropriated from the retirement trust funds for purposes other than those for which the funds were collected constitute a public debt owed by the State to the trust funds, and such expropriation must be remedied by recompense through appropriation. This result is compelled by the West Virginia Constitution, in article III, section 9. It makes no difference that future retirants will benefit from the expenditure by having health insurance paid; this is not the purpose for which the funds were earned and contributed. See Giessel, 12 Wis.2d 5, 106 N.W.2d 301. As previously noted, public employees are mandated to participate in the PERS program, the benefits they receive are earned and are a form of deferred compensation, and the terms of the PERS trust are spelled out by statute, which forms a constitutionally protected contract. The essence of that contract is that upon retirement, an annuity will be paid equal to two percent of the retirants final average salary for his three highest years salary multiplied by the number of years service with which he has been credited. W.Va.Code § 5-10-22. This base contract, of course, may be modified by various elective options providing for deferred retirement and survivor's benefits. The extended health insurance premiums are improper, and they are but an example; any payout from the PERS trust can only be made for purposes defined at the time the money was earned and contributed and in the amounts and under the conditions stated at the time the public employee was a member of the program. Members, retirants, and other beneficiaries are only entitled to participate in the retirement system as defined by the statutory contract. If the Legislature modifies the contract so as to result in new or additional benefits, whether out of gratitude, compassion, or any other motivation, it must provide additional funding to pay for those benefits. See In re State Employee's Pension Plan, 364 A.2d 1228. We have already noted that the respondent Treasurer and Auditor do not object to this Court halting the payments to PEIA. The Governor and the Commissioner argue that the payments to the PEIA are acceptable under a contracts analysis because they were necessary to buy valuable time to solve the State's health insurance crisis, an important public purpose. [15] This plea of necessity fails, because the PERS funds are not state moneys available for appropriation. It may also be noted that the argument fails because the payments do not meet the five point test advocated by the Respondents and articulated in Allied Structural Steel, 438 U.S. at 242, 98 S.Ct. at 2721. The Legislature did not declare an emergency need for the transfers, and, although a basic societal interest is protected, it is for a favored group. We have no way of knowing if the transfers are the most narrowly tailored solution to the health insurance problem or if the transfers are for a limited duration. Certainly the transfers are not reasonable vis-a-vis the PERS, as they do not serve to keep the system sound and flexible. See Wagoner v. Gainer, 167 W.Va. 139, 279 S.E.2d 636.