76 Op. Att'y Gen. 299 (1987)

76 Op. Att'y Gen. 299, 304 (1987)
  (a)   The distributions shall be expressed as percentage increases in the amount of the monthly annuity in force, including prior distributions of surpluses but not including any amount paid from funds other than the fixed annuity reserve fund, preceding the effective date of the distribution. The percentage increase in any calendar year may not exceed the salary index for the previous calendar year. For purposes of this subsection, annuities in force include any disability annuity suspended because the earnings limitation had been exceeded by that annuitant in that year.

76 Op. Att'y Gen. 299, 304 (1987)
  (b)   Different percentages may be applied to annuities with different effective dates as may be determined to be equitable but no other distinction may be made among the various types of annuities payable from the fixed annuity reserve.

76 Op. Att'y Gen. 299, 304 (1987)
  (c)   The distributions shall not be offset against any other benefit being received but shall be paid in full, nor shall any other benefit being received be reduced by the distributions. The annuity reserve surplus distributions authorized under this subsection may be revoked by the board in part or in total as to future payments upon recommendation of the actuary if a deficit occurs in the fixed annuity reserves.

76 Op. Att'y Gen. 299, 304-305 (1987)
  Rights of the post-1974 annuitants established in section 40.27(2) could be impaired by the budget bill amendments since the special investment performance dividend is offset against and reduces the supplemental benefit. See sec. 684r of the 1987 budget bill. To the extent that the special performance dividend is used to offset supplemental benefits, less money is available to fund fixed annuity reserve surplus dividends under section 40.27(2). The only basis given in this statutory section for a lesser benefit is revocation "by the board in part or in total as to future payments upon recommendation of the actuary if a deficit occurs in the fixed annuity reserves." See sec. 40.27(2)(c), Stats. Do the post-1974 annuitants thus have a contractual right to the terms of section 40.27(2) distribution of surplus that cannot constitutionally be infringed by the special performance dividend provisions of the 1987 budget bill? Although the answer to this question is not entirely free from doubt, I find no indication of such contractual right in Wisconsin case law sufficient to hold the subject statute unconstitutional.

76 Op. Att'y Gen. 299, 305 (1987)
  Wisconsin common law holds that participants have no vested rights to retirement benefits absent a specific statutory or contractual provision creating vested rights. State ex rel. McCarty v. Gantter, 240 Wis. 548, 555, 4 N.W.2d 153 (1942). Whatever rights are established contractually or by statute are determined as they exist at the time of retirement. State ex rel. Smith v. Annuity & Pension Board, 241 Wis. 625, 629, 6 N.W.2d 676 (1942). State Teachers' Retirement Board v. Giessel, 12 Wis. 2d 5, 10, 106 N.W.2d 301 (1960), held that the contractual rights included the right to earnings (the teachers' retirement system was a money-purchase benefit system in 1960). Neither that case nor any later Wisconsin case negates the concept that the vested rights are fixed at retirement absent a statute giving greater or lesser rights.

76 Op. Att'y Gen. 299, 305 (1987)
  Section 40.19(1), effective January 1, 1982, appears to provide vesting during employment by stating that:

76 Op. Att'y Gen. 299, 305 (1987)
  Rights exercised and benefits accrued to an employe under this chapter for service rendered shall be due as a contractual right and shall not be abrogated by any subsequent legislative act. The right of the state to amend or repeal, by enactment of statutory changes, all or any part of this chapter at any time, however, is reserved by the state and there shall be no right to further accrual of benefits nor to future exercise of rights for service rendered after the effective date of any amendment or repeal deleting the statutory authorization for the benefits or rights. This section shall not be interpreted as preventing the state from requiring forfeiture of specific rights and benefits as a condition for receiving subsequently enacted rights and benefits of equal or greater value to the participant.

76 Op. Att'y Gen. 299, 305-306 (1987)
  Arguably then, one of the contractual rights accrued "for service rendered" by WRS participants is the right to fixed annuity reserve surplus distributions. Section 40.19(1) was enacted effective January 1, 1982. Ch. 96, Laws of 1981. Participants who retired since that date probably have a contractual right to annuity increases based on distribution of fixed annuity surpluses. Participants employed by WRS participating employers after January 1, 1982, and not yet retired, may also have a contractual right to future annuity increases based on "benefits accrued... for service rendered." That contractual right would continue until abrogated by the "special performance dividend" language in the 1987 budget bill.

76 Op. Att'y Gen. 299, 306 (1987)
  While section 40.19(1) authorizes "forfeiture of specific rights and benefits" that have vested, such forfeiture must under that statute be based upon the participant "receiving subsequently enacted rights and benefits of equal or greater value." The 1987 budget bill appears to contain no quid pro quo for those WRS participants who do not receive the special investment performance dividend so this method of requiring forfeiture of vested rights appears inapplicable.

76 Op. Att'y Gen. 299, 306 (1987)
  Section 40.19(2m) also specifically guarantees to a WRS participant, who was a participating employe during the period January 1, 1982 to March 9, 1984, the right to have his or her retirement benefit determined under the statutes in effect on his or her termination. Such section states as follows:

76 Op. Att'y Gen. 299, 306 (1987)
  Any person who is a participant in the Wisconsin retirement system before March 9, 1984, and who is not subsequently a participating employe in the Wisconsin retirement system shall continue to have the amount of, and eligibility for, the person's benefits determined in accordance with the statutes in effect on the date the person terminated as a participating employe.

76 Op. Att'y Gen. 299, 306 (1987)
  Fixed annuity reserve distribution as mandated in section 40.27(2) is an element of "benefits determined in accordance with the statutes in effect on the date the person terminated as a participating employe." Section 40.19(1) precludes abrogation of that contractual right "by any subsequent legislative act."

76 Op. Att'y Gen. 299, 306 (1987)
  Even those WRS participants who were not participating employes after January 1, 1982, and thus not covered by the vesting language of section 40.19(1), may be held to have vested rights abrogated by the special investment performance distribution method mandated in the 1987 budget bill. Section 40.19(3), applying to WRS participants who were not participating employes after January 1, 1982 (the date of merger of the retirement systems), limits the benefit vesting to "the statutes in effect on the date the person terminated." Such section states:

76 Op. Att'y Gen. 299, 306-307 (1987)
  Any person who is a participant in the Wisconsin retirement fund or a member of either the state teachers retirement system or the Milwaukee teachers retirement fund prior to January 1, 1982, and who does not subsequently become a participating employe in the Wisconsin retirement system, shall continue... to have the amount of and eligibility for the person's benefits determined in accord with the statutes in effect on the date the person terminated as a participating employe.

76 Op. Att'y Gen. 299, 307 (1987)
The statutory benefits which vested on termination of employment prior to January 1, 1982, also included annuity improvements from distribution of annuity reserve surpluses. See secs. 41.20(1)(a) and 42.37(5), Stats. (1979). Statutes in effect prior to January 1, 1982, further provided that annuity reserve surplus distributions "shall not be offset against any other benefit received but shall be paid in full, nor shall any other benefit being received be reduced by any such distribution." See sec. 40.70(3), Stats. (1979). It therefore appears that pre-1982 annuitants may have vested rights to annuity increases from annuity reserve surpluses that are infringed by the special investment performance dividend portions of the 1987 budget bill. Since it appears that there exists the potential of various degrees of impairment of the vested contracts of WRS participants, I must now consider whether this impairment is unconstitutional beyond a reasonable doubt.

76 Op. Att'y Gen. 299, 307 (1987)
  As the court stated in Cannon, 111 Wis. 2d at 558:

76 Op. Att'y Gen. 299, 307 (1987)
The degree of impairment determines the level of scrutiny to which the legislation in question will be subjected. In Allied Structural Steel Co. v. Spannaus, 438 U.S. at 244-45, the court stated:

76 Op. Att'y Gen. 299, 307 (1987)
"[T]he first inquiry must be whether the state law has, in fact, operated as a substantial impairment of a contractual relationship. The severity of the impairment measures the height of the hurdle the state legislation must clear. Minimal alteration of contractual obligations may end the inquiry at its first stage. Severe impairment, on the other hand, will push the inquiry to a careful examination of the nature and purpose of the state legislation." (Footnotes omitted.)

76 Op. Att'y Gen. 299, 307 (1987)
  In finding that an impairment was severe, the Spannaus court relied upon those "factors that reflect the high value the Framers placed on the protection of private contracts." Id. at 245. In particular, the court noted that the legislation in question nullified an express term of the contract which was bargained for and reasonably relied upon by the parties, resulting in a completely unexpected liability to the plaintiff.

76 Op. Att'y Gen. 299, 308 (1987)
  The impairment does not appear to be severe in terms of the effect on an individual retiree's benefit. You have informed my office that the special investment dividend if distributed to all annuitants, based on the present pre-budget bill statutes, would result in an annuity increase of approximately two percent. This does not appear to be a significant impairment in light of the authority of the Employe Trust Funds Board to equitably allocate the surplus distributions. That Board has specific authority to provide higher increases to annuitants who retired at earlier dates thus limiting or completely denying increases to later annuitants. Sec. 40.27(2)(b), Stats. In Cannon the impairment, held to be severe, consisted of loss of the plaintiffs' entire benefit from the Milwaukee County Retirement System. Cannon, 111 Wis. 2d at 558. Contrast this with Chappy v. LIRC, 136 Wis. 2d 172, 188-89, 401 N.W.2d 568 (1987), in which the court held that a de minimus loss shown was not a severe loss. The Chappy court refused to speculate as to whether the loss could be shown to be severe, absent the plaintiffs' failure to satisfy their burden of showing that the contract impairment was severe. I also decline to speculate whether the facts relating to specific individual retirees would show a severe loss.

76 Op. Att'y Gen. 299, 308 (1987)
  The court indicated in Cannon, 111 Wis. 2d at 558, that the basis for a determination as to whether there is a "substantial impairment" is not limited to the amount of money involved but must also take into consideration whether "the legislation in question nullified an express term of the contract which was bargained for and reasonably relied upon by the parties."

76 Op. Att'y Gen. 299, 308-309 (1987)
  As previously shown, a substantial number of the post-1974 annuitants were employed during a period during which express statutory contract terms vested in them the general right to annuity improvements based on surpluses in the fixed annuity account. In Chappy v. LIRC, 136 Wis. 2d at 187, the court stated that "In determining the extent of the impairment, a court should look to the reasonableness of the parties' reliance upon the contract affected.... The severity of the impairment is then used to measure the thoroughness of the scrutiny to which the legislation is subjected." It appears that it was not reasonable for participants to expect a surplus in the fixed annuity reserve to be distributed as an annuity increase. The "assumed benefit rate" (of increase from investment) "used for calculating reserve transfers at time of retirement" is established by statute as a "rate of 5%." Sec. 40.02(6), Stats. The "assumed rate," defined by statute as "the probable average effective rate expected to be earned for the fixed annuity division on a long-term basis," is set initially by statute at "a rate of 7.5%." Sec. 40.02(7), Stats. Participants could therefore expect that the built-in 2 1/2 percent initial difference between the "assumed benefit rate" and the "assumed rate" would provide surplus monies in the annuity reserve, which would be used to increase annuities when the actual rate of return exceeded 5%. There is, however, no clear indication in the facts before me that there was substantial reliance on surplus distribution from the fixed annuity reserve. I therefore consider the impairment not to be severe and not proscribed by the constitutions.

76 Op. Att'y Gen. 299, 309 (1987)
  While the subject 1987 budget bill sections thus do not have to be based upon a significant and legitimate public purpose to survive a constitutional challenge, it is my opinion that the legislation would pass such higher test. As stated in Chappy, 136 Wis. 2d at 187-88, that public purpose "should be directed towards remedying a broad and general social or economic problem."

76 Op. Att'y Gen. 299, 309 (1987)
  There is no legislative statement of the public purpose served by creating the special performance dividend method of payment of pre-1974 supplemental benefits rather than continuing payment from general fund monies. You have, however, informed my office that the amount of money available from the "special performance dividend" would fund the supplemental benefits into perpetuity with little necessity for future general purpose revenue funds. The pre-1979 annuitants never had a vested right to continued payment of the supplements since such supplements were, as stated in section 40.27, "subject to the continuation of the [general purpose revenue] appropriation." Making these supplements permanent appears to provide a final remedy for a broad and general economic problem without subjecting the pre-1974 annuitants to the uncertainty of the biennial budget process. Present statutes allow "equitable" distribution of annuity reserve surpluses. Sec. 40.27(2)(b), Stats. The subject budget bill amendments can be considered to be an extension of that concept and a legitimate basis for enactment.

76 Op. Att'y Gen. 299, 309 (1987)
  As the Wisconsin Supreme Court stated in North Side Bank v. Gentile, 129 Wis. 2d 208, 220, 385 N.W.2d 133 (1986):

76 Op. Att'y Gen. 299, 309-310 (1987)
  This court's review of a legislative enactment is limited in scope. All statutes are presumed to be constitutional, and the party attacking a statute must prove it unconstitutional beyond a reasonable doubt. [Case cites omitted.] "The cardinal rule of statutory construction is to preserve a statute and find it constitutional if it is at all possible to do so." [Case cite omitted.] We must uphold the constitutionality of a statute if there is any reasonable basis for it.

76 Op. Att'y Gen. 299, 310 (1987)
"[T]he task of this court in passing upon the constitutionality of laws is limited and restrained. This court does not sit as a superlegislature debating and deciding upon the relative merits of legislation. It looks for a reasonable basis upon which the legislature might have acted, and assumes that the legislature had such a purpose in mind when it enacted the law in question." [Case cite omitted.]

76 Op. Att'y Gen. 299, 310 (1987)
  I therefore conclude that, given the presumption of constitutionality, section 684r of the 1987 budget bill, which limits the distribution from the special performance dividend to only those annuitants receiving a supplemental benefit, does not violate the contract clauses of the United States or Wisconsin Constitutions.

76 Op. Att'y Gen. 299, 310 (1987)
DJH:WMS

76 Op. Att'y Gen. 299, 300 (1987) - Revisor's WisLaw Note

Destination-145   * Revisor's Wislaw Note: Vetoed words are shown in bold italics.
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