Opinion ID: 1264034
Heading Depth: 1
Heading Rank: 2

Heading: HB 4702 Substantially Impairs the Contractual Rights of PERS Beneficiaries and Members

Text: The initial inquiry is whether the statute has substantially impaired the contractual rights of the parties. The majority opinion concedes that [t]here is no doubt that a contract exists between PERS members and beneficiaries and the State. (Opinion, at 418, 508 S.E.2d at 135.) The majority opinion also has concluded that HB 4702 does, in fact, impair the contract between the parties; but, that the impairment is not substantial. I disagree. Affidavits were submitted on behalf of two eminently qualified actuaries, both of whom cautioned that the proposed withdrawal of $150,000,000 from PERS assets would cause a funding shortfall. The affidavit of actuary Thomas J. Cavanaugh provided succinctly: The transfer of funds contemplated by House Bill 4702 ... constitutes, in actuarial effect, a shortfall in the required contributions equal to the amount of any funds so transferred, because the transfer is not for investment purposes, but rather constitutes a diversion of fund assets to meet obligations other than those of the Retirement System. Any such transfer would... render the System actuarially unsound. The affidavit of actuary Scott L. Dennison stated the following: The term actuarially sound when used to describe a retirement system or plan may be best defined to mean that the operation of the retirement plan is being conducted and may reasonably be expected to continue to be conducted in such a manner that the fund's current assets, plus anticipated contributions and investment earnings, are expected to be sufficient to provide all benefit payments and expenses of the fund at all future points in time.... Under this definition of actuarial soundness, it is my opinion that with the passage of House Bill 4702 the West Virginia Public Retirement System has been rendered actuarially unsound. Mr. Dennison's affidavit also exposed the critical flaw in the proposed rate of return on the money removed from PERS. The net result of this error is that no one knows the actual rate of return. [3] Finally, it was clearly articulated by the respondent and amicus that the transfer of PERS assets in this instance will cause the exact same problem that resulted from the improper transfer of PERS assets in Dadisman v. Moore, 181 W.Va. 779, 384 S.E.2d 816 (1988). Presently, the improper funding and the improper transferring of pension funds in the Dadisman case is currently in litigation in federal court in the matter styled State of West Virginia v. United States Dep't of Health and Human Services, No. 2:97-0295 (S.D.W.Va.). The subsequent litigation involves a claim by the federal government that its contribution to PERS was improperly transferred for a use that was not permitted. That is the federal funds were to be used for PERS members and beneficiaries only. In the instant case it has been proffered without challenge, that the federal government will also challenge the transfer of its PERS contributions for use in building jails. It has been estimated that the diversion of funds in the instant case would expose the State to a similar federal liability in the amount of $30 million. (Amicus Brief of the Attorney General, at 21.) In view of the above evidence, the majority, using the incorrect standard for analyzing substantial impairment, concluded that there was no substantial impairment because [t]he investment is of a limited amount, for a limited time, and to be repaid at an interest rate essentially equal to the rate on other already authorized investments. That conclusion by the majority is disingenuous. By utilizing the more stringent standard for substantial impairment that is required by Allied Structural, it is patently obvious that no person or entity knows the actual rate of return that a funding shortfall will create from the transfer; that the transfer is actuarially unsound so as to threaten future beneficiaries; and that a minimum unfunded liability of $30 million will most likely be due the federal government. In the final analysis, I believe the overwhelming evidence clearly demonstrated HB 4702 substantially impaired the contract between the State and PERS members and beneficiaries.