No. 04-861
IN THE SUPREME COURT OF THE STATE OF MONTANA
2005 MT 199
JOSEPH A. BAUMGARDNER, on behalf of
himself and all others similarly situated,
Plaintiff and Respondent,
v.
PUBLIC EMPLOYEES’ RETIREMENT BOARD
OF THE STATE OF MONTANA,
Defendant and Appellant.
APPEAL FROM: The District Court of the First Judicial District,
In and For the County of Lewis and Clark, Cause No. ADV 2002-450,
Honorable Dorothy McCarter, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
James H. Goetz, Goetz, Gallik & Baldwin, Bozeman, Montana
Kelly Jenkins and Melanie Symons, Special Assistant Attorneys
General, Helena, Montana
For Respondent:
Ross W. Cannon, Cannon & Sheehy, Helena, Montana
Thomas C. Morrison, Attorney at Law, Helena, Montana
Submitted on Briefs: July 5, 2005
Decided: August 16, 2005
Filed:
__________________________________________
Clerk
Justice W. William Leaphart delivered the Opinion of the Court.
¶1 Joseph Baumgardner sued the Public Employees’ Retirement Board of the State of
Montana (the Board) alleging that House Bill 294, Act effective Mar. 29, 2001, ch. 149 § 1,
2001 Mont. Laws 696, 697 (H.B. 294), enacted by the 2001 Montana Legislature,
unconstitutionally delegated legislative power; impaired the obligation of contracts in
violation of Montana Constitution Article II, Section 31; and contained more than one subject
in violation of Montana Constitution Article V, Section 11(3). On cross-motions for
summary judgment, the District Court concluded that H.B. 294 unconstitutionally delegated
legislative power to the Board. The Board appeals. We reverse.
¶2 We restate the Board’s three issues as follows:
¶3 1. Is the District Court’s decision that H.B. 294 unconstitutionally delegated
legislative power to the Board a final decision from which the Board can appeal to this Court
under Rule 1(a)(1), M.R.App.P.?
¶4 2. If the District Court’s decision is not a final decision from which the Board can
appeal, will this Court consider the Board’s brief as a petition for a writ of supervisory
control under Rule 17, M.R.App.P.?
¶5 3. Did H.B. 294 unconstitutionally delegate legislative authority to the Board?
¶6 Because the first issue disposes of the second issue, we decline to address the second
issue.
2
BACKGROUND
¶7 Baumgardner worked for the State of Montana for over thirty-six years before he
retired in 2002. In 1994, the citizens of Montana passed Constitutional Amendment Number
25. 1995 Mont. Laws 3711. Now codified at Montana Constitution Article VIII, Section 15,
that amendment constitutionalized the public retirement systems. A year before
Baumgardner retired, the Legislature passed H.B. 294, which amended the definition of
“actuarial equivalent” in § 19-2-303(4), MCA (1999), and increased the guaranteed annual
benefit adjustment (GABA). H.B. 294 §§ 1, 3, 2001 Mont. Laws at 697, 705. Upon retiring,
Baumgardner began receiving retirement benefits of $2149.98 per month. Before the
amendment, Baumgardner would have received $2333.73 per month. By changing the
definition of “actuarial equivalent,” and increasing the GABA, the Legislature allowed the
Board to decrease Baumgardner’s benefits by $183.75. As a consequence, Baumgardner
sued the Board.
¶8 H.B. 294 made two changes in the statutory scheme relevant to this appeal. It changed
the definition of “actuarial equivalent” and increased the GABA from 1.5 percent to 3
percent. H.B. 294 §§ 1, 3, 2001 Mont. Laws at 697, 705. Before H.B. 294, § 19-2-303(4),
MCA (1999) (amended 2001), provided that “‘Actuarial equivalent’ means a benefit of equal
value when computed upon the basis of the 1971 Group Annuity Mortality Table, with ages
set back 4 years and an interest rate of 8% compounded annually.” H.B. 294 changed the
definition to “‘Actuarial equivalent’ means a benefit of equal value when computed upon the
basis of the mortality table and interest rate assumptions adopted by the board.”
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Baumgardner’s benefits decreased as a result of the new definition of “actuarial equivalent”
and the Board’s determinations under that definition.
¶9 Section 19-3-1501 (2001), MCA, allows a retiree to convert his retirement benefit
“into an optional retirement benefit that is the actuarial equivalent of the original benefit.”
Section 19-3-1501(1), MCA (2001); see also § 19-3-904, MCA (2001). By changing the
definition of “actuarial equivalent,” H.B. 294 changed the method by which the Board
ensures the benefits received under the different options are equal to the original benefit. See
§§ 19-2-303(4), 19-3-1501(1)(a) to (c), 19-3-904, MCA (2001). Baumgardner chose Option
2, which provides for benefit payments to another person, a beneficiary, during her lifetime
after the retiree’s death. Section 19-3-1501(1)(a), MCA (2001). Because it is more likely
that either the retiree or the beneficiary will be alive in a particular year (and receiving
benefit payments) than it is likely that only the retiree, himself, will be alive in a particular
year, an actuary expects the retiree and beneficiary to receive a larger number of benefit
payments under Option 2. Further, assuming that the retiree is entitled to a fixed amount of
money, to make up for those additional payments in the future, the benefit payments in the
present must be reduced.
¶10 The GABA, or guaranteed annual benefit adjustment, as it says, increases the benefit
payments every year by a fixed amount regardless of inflation or other factors. By increasing
the GABA from 1.5 percent to 3 percent, benefit payments in subsequent years will be
greater. Again, assuming that the retiree is entitled to a fixed amount of money, to make up
for those greater payments in the future, the benefit payments in the present must be lower.
4
This factor combines with the effect of the additional beneficiary. Thus, in the future, the
retiree and beneficiary will receive not only a larger number of benefit payments; but also,
with the increased GABA, larger benefit payments.
¶11 After the Legislature adopted H.B. 294, the Board began using an updated mortality
table to reflect more accurately the life-spans of retirees and beneficiaries, and a gender blend
to approximate, for every retiree and beneficiary, the aggregate effect of disparate gender
life-spans.1 Also, after H.B. 294, the Board began considering, for the first time, the ages of
the retiree and the beneficiary at retirement in calculating the benefit payments. The
combined effect of these changes decreased Baumgardner’s benefits by $183.75 per month.
¶12 In response to cross-motions for summary judgment, the District Court concluded that,
while H.B. 294 did not contain more than one subject in violation of Montana Constitution
Article V, Section 11(3); it, nevertheless, unconstitutionally delegated legislative power. The
Board petitioned this Court for a writ of supervisory control, which we denied.
1
Title VII of the Civil Rights Act of 1964 § 703(a)(1), 42 U. S. C. §§ 2000e-
2(a)(1) (2003) and the Equal Pay Act of 1963 § 3, 29 U. S. C. § 206 (d)(1) (2003),
prohibit treating individual retirement system members disparately based on sex. City of
L.A. Dep’t of Water & Power v. Manhart (1978), 435 U.S. 702, 717, 98 S.Ct. 1370, 1380,
55 L.Ed.2d 657, 671, overruled on other grounds by 461 U.S. 951, 103 S.Ct. 2420, 77
L.Ed.2d 1310 (1983). Nevertheless, actuaries may use the male to female ratio in the
entire force to determine the expected life span of a typical employee. City of L.A. Dep’t
of Water & Power, 435 U.S. at 718 n.34, 98 S.Ct. at 1380 n.34, 55 L.Ed.2d at 671 n.34.
For a grossly simplified hypothetical, if 75 percent of the employees were male, with men
expected to live 70 years, and with women expected to live 80 years, an actuary would
expect a typical employee to live 72.5 years (70 * 0.75 + 80 * 0.25 = 72.5). The expected
life span of a typical employee changes with the gender ratio. This method gives all
employees the same benefits and responsibilities regardless of gender.
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¶13 The Board then moved the District Court to certify the judgment as final pursuant to
Rule 54(b), M.R.Civ.P. The District Court granted the Rule 54(b) certification. The Board
appeals.
STANDARD OF REVIEW
¶14 This Court reviews a district court’s decision granting summary judgment de novo.
Montana Mountain Prods. v. Curl, 2005 MT 102, ¶ 8, 327 Mont. 7, ¶ 8, 112 P.3d 979, ¶ 8.
A district court properly grants summary judgment only when no genuine issues of material
fact exist, and the moving party is entitled to judgment as a matter of law. Montana Mountain
Prods., ¶ 8. We conduct a plenary review of constitutional law questions. Crismore v.
Montana Bd. of Outfitters, 2005 MT 109, ¶ 11, 327 Mont. 71, ¶ 11, 111 P.3d 681, ¶ 11.
DISCUSSION
I. Final Decision
¶15 Baumgardner argues that the Rule 54(b), M.R.Civ.P., certification was not proper
because the District Court did not resolve all of the issues pending in the District Court.
¶16 When the District Court declared H.B. 294 unconstitutional, the other challenges to
H.B. 294 were mooted and there was no further need for the court to decide whether H.B.
294 impaired the obligation of contracts in violation of Montana Constitution Article II,
Section 31, or whether H.B. 294 violated Montana Constitution Article V, Section 11(3), by
containing more than one subject.
¶17 We conclude that the Rule 54(b), M.R.Civ.P., certification was appropriate and the
Board’s appeal is properly before us.
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II. Unconstitutional Delegation
¶18 As shown earlier, the definition of “actuarial equivalent,” changes the method by
which the Board calculates the benefits under Option 2. The District Court decided that H.B.
294 gave the Board unconstrained discretion. It cited § 19-2-403(8), MCA (2001), which
provides that, “[u]pon the basis of the findings of the actuary pursuant to 19-2-405, the board
shall adopt actuarial rates and rates of regular interest it determines appropriate for the
administration of the retirement systems.” (Emphasis added.) Deciding that § 19-2-303(4),
MCA (2001), gave the Board unconstrained discretion, the District Court concluded it
violated the separation of powers in Montana Constitution Article III, Section 1.2 The Board
argues that Montana Constitution Article VIII, Section 15(2), gives the Board discretion to
adopt new actuarial determinations. It cites Duck Inn v. Montana State University-Northern
(1997), 285 Mont. 519, 526, 949 P.2d 1179, 1183, as an example of the Montana
Constitution delegating powers directly.
¶19 Montana Constitution Article III, Section 1, provides:
Separation of powers. The power of the government of this state is
divided into three distinct branches—legislative, executive, and judicial. No
person or persons charged with the exercise of power properly belonging to
one branch shall exercise any power properly belonging to either of the others,
except as in this constitution expressly directed or permitted.
Montana Constitution Article V, Section 1, provides:
2
Curiously, the District Court’s Decision and Order does not address Montana
Constitution Article VIII, Section 15(2), which the Board raised in its Memorandum in
Support of Motion to Dismiss.
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Power and structure. The legislative power is vested in a legislature
consisting of a senate and a house of representatives. The people reserve to
themselves the powers of initiative and referendum.
Montana Constitution Article VIII, Section 15, provides:
Public retirement system assets. (1) Public retirement systems shall
be funded on an actuarially sound basis. Public retirement system assets,
including income and actuarially required contributions, shall not be
encumbered, diverted, reduced, or terminated and shall be held in trust to
provide benefits to participants and their beneficiaries and to defray
administrative expenses.
(2) The governing boards of public retirement systems shall administer
the system, including actuarial determinations, as fiduciaries of system
participants and their beneficiaries.
¶20 In Bacus v. Lake County (1960), 138 Mont. 69, 77-82, 354 P.2d 1056, 1060-63, we
relied on 1889 Montana Constitution Article IV, Section 1, in striking down a delegation of
legislative power to an administrative agency. With minor stylistic changes, the current
Montana Constitution Article III, Section 1, is identical to that 1889 section. Section 1 of
Article III prohibits any branch from “exercis[ing] any power properly belonging to either
of the others, except as in this constitution expressly directed or permitted.” (Emphasis
added.) Generally, the Legislature has the legislative power, Mont. Const. Art. V, § 1, but
Section 1 of Article III specifically allows another branch to exercise the power properly
belonging to another branch if the Constitution expressly directs or permits.
¶21 In Duck Inn, we interpreted Montana Constitution Article X, Section 9(2)(a), which
states:
The government and control of the Montana university system is vested in a
board of regents of higher education which shall have full power,
responsibility, and authority to supervise, coordinate, manage and control the
8
Montana university system and shall supervise and coordinate other public
educational institutions assigned by law.
We decided that the Montana Constitution directly gave the Board of Regents
authority—independent of any Legislature delegation. Duck Inn, 285 Mont. at 526, 949 P.2d
at 1183. We concluded that that the phrase “full power, responsibility, and authority” gives
the Board of Regents the authority to “rent[] its facilities to private persons and organizations
for parties, reunions, conventions and receptions.” Duck Inn, 285 Mont. at 521, 526, 949
P.2d at 1180, 1183. Similarly, Montana Constitution Article VIII, Section 15(2), states that
the Board “shall administer the system, including actuarial determinations . . . .”
¶22 Baumgardner attempts to distinguish the powers allocated to the Board of Regents
from the powers allocated to the Board by arguing that the delegation in Article X, Section
9(2)(a), giving “full power, responsibility, and authority” is broader than the words in Article
VIII, Section 15(2), that only delegate the power to “administer the system.” While the
constitutional delegation to the Board of Regents may be broader, we hold that Article VIII,
Section 15(2), is sufficiently broad to allow the Board to define “actuarial equivalent.”
¶23 Baumgardner argues that the intent behind Montana Constitution Article VIII, Section
15, was to limit the retirement funds (1) to pay retirement benefits, (2) to pay to administer
the system, and (3) to require the systems to be funded in an actuarially sound manner. He
argues that the power to define “actuarial equivalent” does not fit any of these goals. This
analysis absolutely ignores the textual mandate of Montana Constitution Article VIII, Section
9
15(2), which requires the Board to “administer the system, including actuarial
determinations.”
¶24 Montana Constitution Article III, Section 1, specifically allows one branch to exercise
the power properly belonging to another branch if the Constitution expressly directs or
permits. The Constitution does so in Article VIII, Section 15(2). Under the principles of
Duck Inn, to the extent administering that system requires “actuarial determinations,”
Montana Constitution Article VIII, Section 15(2), gives the Board authority to make those
determinations. In this case, the Board had the power to determine the actuarial methods by
which to make Option 2 actuarially equivalent to the original retirement benefit in
§ 19-3-904, MCA (2001). Sections 19-2-303(4) and -1501, MCA (2001).
¶25 Because the Montana Constitution itself delegated the authority to the Board to make
actuarial determinations, the District Court erred in concluding that the Legislature and H.B.
294 unconstitutionally delegated authority to the Board to make those actuarial
determinations.
¶26 Reversed.
/S/ W. WILLIAM LEAPHART
We Concur:
/S/ KARLA M. GRAY
/S/ PATRICIA O. COTTER
/S/ JIM RICE
/S/ JOHN WARNER
/S/ BRIAN MORRIS
/S/ JAMES C. NELSON
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