Michael Paul Valde v. Employment Appeal Board and Iowa Public Employees' Retirement System

IN THE COURT OF APPEALS OF IOWA

No. 17-0266
Filed September 13, 2017

MICHAEL PAUL VALDE,
Plaintiff-Appellant,

vs.

EMPLOYMENT APPEAL BOARD and
IOWA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM,
Defendants-Appellees.
________________________________________________________________

Appeal from the Iowa District Court for Johnson County, Mitchell E.

Turner, Judge.

An Iowa Public Employees’ Retirement System recipient appeals from an

adverse benefits calculation. AFFIRMED.

Michael Paul Valde, Coralville, pro se.

Thomas J. Miller, Attorney General, and Lucas W. Dawson and David L.D.

Faith II, Assistant Attorneys General, for appellees.

Considered by Vogel, P.J., and Potterfield and Mullins, JJ.
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MULLINS, Judge.

Michael Valde appeals from the district court’s denial of his request for

relief on judicial review. Valde asserts that his contract and property rights in his

Iowa Public Employees’ Retirement System (IPERS) public pension benefits

were contravened in violation of the Iowa Constitution and the United States

Constitution.

I. Facts and Background

The facts in this case are undisputed. Valde was employed with the State

in an IPERS-covered position from 1977 through 1981, 1991 through 1996, and

1999 through most of 2002. Combining these periods, Valde had a total of

thirteen-and-a-half years of IPERS-covered service. When Valde left IPERS-

covered employment in 2002, he was not yet eligible to retire.

In 2015, Valde filed an application for IPERS retirement benefits. IPERS

sent Valde a letter of award notifying him of a monthly retirement benefit of

$1,667.49 based on a final average salary of $86,752.27. IPERS used Valde’s

salary from 2000 through 2002 (the “calendar method”) to calculate this figure.

The calendar method was set out in the governing statute in 2015. Valde

appealed to IPERS claiming the formula used was incorrect and that the agency

should have used the average of his highest twelve consecutive quarters of

service (the “quarter method”) for a final average of salary of $89,755.47. Valde

claimed that he was entitled to the quarter method since a statute in effect in

2002—when he left IPERS-covered employment—arguably provided for such a

formula. Valde claimed a constitutional property and contract interest in the 2002

level of benefits.
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In 2016, IPERS made a final agency determination in favor of the calendar

method. The determination was based on two rationales. First, under Iowa

Code chapter 97B (2016) and the surrounding administrative rules, IPERS was

required to apply the law and formula in effect on the date of the member’s

retirement. These rules were all in place prior to 2002. Second, while the Iowa

General Assembly enacted legislation in 2000 to implement the quarter method

at a future date, that legislation was repealed before such a future date ever

occurred. Therefore, the quarter method was never actually used in calculating

awarded benefits.

Valde appealed the final agency determination. A hearing on the matter

occurred before an administrative law judge (ALJ). The ALJ entered a proposed

decision in favor of IPERS. Valde appealed to the Employment Appeal Board,

which adopted the proposed decision. Finally, Valde filed a petition for judicial

review pursuant to Iowa Code section 17A.19 arguing IPERS violated his

constitutionally protected contract and property rights. In January 2017, the

district court denied the request for relief concluding there is “no property or

contract right in a retirement payment system.” Valde appeals.

II. Standard of Review

Typically, appeals from administrative decisions are reviewed for

substantial evidence. See Titan Tire Corp. v. Emp’t Appeal Bd., 641 N.W.2d

752, 754 (Iowa 2003). However, we review constitutional law challenges de

novo. Adair Benev. Soc. v. State, 489 N.W.2d 1, 3 (Iowa 1992) (“Usually when

fact questions in a contested case are involved, we apply the substantial
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evidence standard under section 17A.19(8)(f). But because constitutional issues

are raised here, our review is de novo.”).

III. Analysis

Valde contends his constitutional contract and property interests in his

pension were violated when the calendar method was applied to his benefit

calculation. In Iowa, “allowances paid to public employees from retirement

funds, in part maintained by them, is that such allowances are not pure pensions,

gratuities, or bounties, but are given in consideration of services which were not

fully recompensed when rendered.” Talbott v. Indep. Sch. Dist. of Des Moines,

299 N.W. 556, 563 (Iowa 1941). “[T]he fact that these retirement or disability

payments are not gratuities, is not, in our judgment, sufficient to give to them the

character of a property, or a vested, right, or a contract right, which can not be

adversely affected by subsequent legislation . . . .” Id.; see also City of Iowa City

v. White, 111 N.W.2d 266, 270 (Iowa 1961) (reaffirming Talbott and holding it is

“the statutes in force when a pensioner’s application is filed” and not the date of

injury that controls the pension benefits in the case of disability); Nelson v. Bd. of

Dirs. of Indep. Sch. Dist. of Sioux City, 70 N.W.2d 555, 560 (Iowa 1955) (holding

“plaintiffs had no such vested or contract rights in the local system or in pensions

thereunder as to make invalid the acts of the Board”). Simply put, public pension

benefits in Iowa are not vested property or contract rights.

Valde also argues IPERS newsletters created a constitutionally protected

contractual interest. He cites the following statements from newsletters issued

during the time IPERS was anticipating a change from the calendar method to

the quarter method:
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VI. Benefit Calculations
Average Salary Definition
IPERS received an extension of the implementation date for the
scheduled change to the final average salary calculation to July 1,
2005. The scheduled change eliminates “computed years” in favor
of a highest 12 consecutive quarters calculation. In order to
minimize risk to the system due to possible implementation
problems, additional time for design and testing was requested and
granted by the General Assembly.

Reduce benefits. The BAC and Investment Board did not
recommend this option because it would not be effective. Benefits
already earned cannot be reduced. This liability is already in place.
Future benefits, including all benefits for new employees, can be
reduced. However, there would not be a positive funding impact for
15 to 20 years.

However, Valde provides no authority in support of this language creating a

vested contract right. The very passages he cites mention delayed

implementation and uncertainty as to the quarter method. Further, newsletter

and employee manual statements do not have force and effect of law. See

Anderson v. Iowa Dep’t of Human Servs., 368 N.W.2d 104, 108 (Iowa 1985)

(recognizing a statement in an employment manual was not a validly adopted

agency rule with the force of law); see also Cal Fire Loc. 2881 v. Cal. Pub.

Emp’rs Ret. Sys., 212 Cal. Rptr. 3d 471, 480 (Cal. App. 2016) (“[W]e

acknowledge plaintiffs’ reliance on statements made in CalPERS’s ‘widely-read’

publication, Vested Rights of CalPERS Members: Protecting the Pension

Promises Made to Public Employees, to try to show the existence of a vested

contract right to purchase airtime service credit . . . . Nonetheless, the fact

remains that, notwithstanding any statements or suggestions by CalPERS to the

contrary (published or otherwise), California law is quite clear that the Legislature

may indeed modify or eliminate vested pension rights in certain cases.”).
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Valde urges this court to reverse Talbott in favor of a more modern

contractual rights approach. He identifies several states that have adopted this

approach towards public pensions. However, this is not the approach Iowa has

taken. See Talbott, 299 N.W. at 563. Additionally, this court is not at liberty to

overturn controlling supreme court precedent. State v. Beck, 854 N.W.2d 56, 64

(Iowa Ct. App. 2014); State v. Hastings, 466 N.W.2d 697, 700 (Iowa Ct. App.

1990).

It is also worth noting Valde has been unable to establish even under the

2002 law he would be entitled to a quarter method benefit calculation. IPERS

chief benefits officer testified at the administrative hearing that the quarter

method was never implemented, no one ever retired under the quarter method,

and if Valde were to have his benefits calculated under this method, he would be

the “first person.” Under the law of 2002, Valde would still not be entitled to a

quarter method calculation. Even absent the Talbott case, Valde lacks a

cognizable claim for government interference with his constitutional rights.

Consequently, we affirm the district court’s denial of Valde’s request for

relief on judicial review.

AFFIRMED.