Opinion ID: 1796635
Heading Depth: 2
Heading Rank: 1

Heading: The Shelby County Retirement and Pension System

Text: By Chapter 72 of the Private Acts of 1945 the Quarterly County Court of Shelby County was authorized to promulgate a plan of retirement and pension benefits for disabled or superannuated employees. That body was authorized by proper resolution to establish a retirement or pension system or systems to cover such public employees as might be designated, except those affiliated with the county Board of Education, which had a separate system already in existence. The Act authorized partial benefits for employees who were also covered by a municipal plan. The County Court was authorized to determine whether membership should be compulsory or optional and whether the plan should be contributory or noncontributory. The statute provided: The Quarterly County Courts may determine how the said contributions will be calculated and accumulated, the method of payment and who shall be the beneficiaries of said retirement or pension system or systems. The County Court was authorized to provide for the administration and operation of the system and to obtain actuarial assistance in establishing it. In 1949 the County Court adopted a resolution implementing this statute and creating a retirement system for county employees, to be administered by a Board of Administration. In 1951 the governing statute was amended to authorize the inclusion of public officials who were either popularly elected or appointed by the County Court. Tenn. Private Acts, 1951, ch. 488. Between the inception of the plan in 1949 and the enactment of the change now under consideration, the plan was amended on thirty-six separate occasions by appropriate resolutions of the County Court. Generally its coverage and benefits were broadened; it was changed from a voluntary to a compulsory system. Beneficiaries were required to contribute from the beginning, but the amounts of their contributions were increased so that by 1977 they were double the original requirements. Insofar as the record reveals, none of the amendments prior to the one now in question was ever challenged. The amendments could probably be considered favorable to employees and beneficiaries, although, as stated, the amounts of contributions required by participating employees were greatly increased. The plan was not confined strictly to deferred compensation. [2] It included death and disability benefits as well as retirement pensions. As with any such plan, it was composed of three basic elements: (1) the benefit base, or final average compensation upon which benefits were to be calculated; (2) number of years of creditable service for retirement or disability benefits; and (3) percentage of pay for each annual period of service. During the years between 1949 and 1977 each of these elements of the plan was changed on more than one occasion. By 1977 the years of creditable service for a retirement pension had been reduced from thirty to twenty-five, with no minimum age specified. The original plan required attainment of age sixty. Alternatively, if an employee had ten years of creditable service and had not yet reached age sixty, he was entitled to benefits under the plan when he did attain that age if his contributions were permitted to be retained in the system. Any employee who was discharged or who resigned from the system was permitted to withdraw his contributions if desired. Further, after twenty-five years of service, an employee could continue to accrue benefits for an additional ten years at a lower annual rate. Retirement was mandatory at age seventy. The percentage of final average compensation, or benefit rate, was increased from 1.67 percent for each year of creditable service to 2.7 percent for each year up to twenty-five years; thereafter an employee could accrue benefits at the rate of one percent per annum for the next ten years, allowing a total of thirty-five years creditable service with maximum pension benefits being 77.5 percent of the final average compensation. Final average compensation, or the benefit base, originally was computed upon the average of the highest compensation paid during five consecutive years. In 1967 an optional base was authorized, permitting an employee to use the last twelve months' salary prior to retirement, if higher than the five-year average previously authorized. It was a change in this provision, effective September 1, 1977, that occasioned the present litigation. At that time the Quarterly County Court changed the benefit base to an average of the three highest consecutive years' salary paid to an employee, rather than the two options previously referred to. This thirty-seventh amendment to the plan resulted in a potential reduction of benefits for most employees, apparently for the first time in the twenty-eight year history of the plan. At trial, the reasonableness of this change was not challenged by the beneficiaries of the system. The reasons for the change were explained by an independent consulting actuary for the County. He stated that a benefit base computed upon the average of three years' compensation has become increasingly customary with respect to both public and private pension plans. In his opinion the one-year benefit base previously authorized was too volatile and was actuarily unsound for this system. [3] There was no contrary testimony offered, the position of the plaintiffs being that no detrimental change whatever, regardless of how reasonable or necessary for the financial integrity of the plan, could legally be made without unanimous consent of all affected beneficiaries. In his opening statement counsel for the employees said: We maintain, in reliance upon the Miles case which is cited in our brief and which we'll certainly argue later, that upon the employment the employee has a vested contractual right with the County and that no matter how reasonable any subsequent change might be to that plan, it's unconstitutional to change it as to those present employees. Under the legal principles applied by the Chancellor and by the Court of Appeals, the testimony of the actuary was not relevant. Since it was uncontradicted and unimpeached, however, and since there was ample opportunity for the beneficiaries to challenge it or to offer countervailing testimony, in our opinion the testimony of the actuary should be accepted. Under the circumstances the facts testified to by him should be deemed established, if relevant under applicable legal principles.