MURPHY, C.J.
This case concerns retirement system assets, formulas, allocations, and funding, and it involves a constitutional and statutory challenge by plaintiffs Wayne County Employees Retirement System (the Retirement System) and Wayne County Retirement Commission (the Retirement Commission) in regard to a county ordinance enacted in 2010 by defendant Charter County of Wayne (the County) through a vote of defendant Wayne County Board of Commissioners (the County Board). Plaintiffs argue that the ordinance violates Const. 1963, art. 9, § 24, and the Public Employee Retirement System Investment Act (PERSIA), MCL 38.1132 et seq. The trial court granted defendants' motion for summary disposition, rejecting plaintiffs' constitutional and statutory objections to the ordinance. Plaintiffs appeal this ruling as of right. We hold that, while some of the language is safe from challenge, multiple provisions of the ordinance violate PERSIA, most importantly a provision requiring an offset of certain inflation reserve assets against the County's annual contribution to the pension fund. The offset provision improperly authorized the County to take excess Retirement System inflation reserve assets and use them for the County's benefit. The benefit of the offset to the County was that it greatly reduced the amount of money needed to be paid from the County's own coffers to satisfy constitutionally mandated pension funding obligations. We find it unnecessary, for the most part, to analyze this case under Const. 1963, art. 9, § 24. Furthermore, the trial court granted summary disposition in favor of plaintiffs relative to count III of the County's counterclaim, which alleged that the Retirement Commission mismanaged the assets of the Retirement System, violating certain fiduciary duties. The County has cross-appealed that ruling. We hold that the trial court did not err in summarily dismissing the fiduciary-duty claims, given that the County lacked standing to raise such claims and/or failed to establish the existence of a genuine issue of material fact with respect to the claims. We also reject a couple of additional cursory arguments posed by the County regarding attorney fees and costs and Const. 1963, art. 9, § 24, which the trial court did not address. In sum, we affirm in part and reverse in part.
The ordinance at issue placed a $12 million limit on the balance of a reserve for inflation equity, referred to as the Inflation Equity Fund (IEF), which previously had no particular dollar cap, and which is funded by investment earnings, exceeding a certain threshold rate of return, on pension assets pursuant to an actuarially based formula. The ordinance additionally placed a $5 million limit on the distribution of monies from the IEF to eligible retirees and survivor beneficiaries, commonly referred to as the "13th check" distribution, which also had no prior dollar cap, and which, although discretionary, had been made annually in varying amounts without fail since the inception of the IEF in the mid-1980s. Twelve regular monthly pension distributions, paid from assets of the defined benefit plan — which include contributions by the County and its employees, and the investment earnings thereon — are
The challenged ordinance further required that the amount in the IEF in excess of the $12 million dollar cap, which excess was approximately $32 million given that the IEF's balance had grown to around $44 million at the time of the ordinance's enactment, be debited from the IEF and credited to the defined benefit plan assets. In turn, the ordinance mandated use of the excess, the $32 million, to offset or reduce the County's defined benefit annual required contribution (ARC), with the credited amount thereafter being deemed part of the defined benefit plan assets. IEF and defined benefit plan assets are all held together in trust, but accounting records provide for a distinct allocation or crediting of the assets.
The Michigan Constitution provides in relevant part:
Plaintiffs argued that the ordinance violated both clauses of Const. 1963, art. 9, § 24, by diminishing or impairing accrued financial benefits, and by effectively abrogating the County's annual funding obligation or ARC. The trial court disagreed,
Plaintiffs also contended that the ordinance violated various provisions of PERSIA by taking a credit against the Retirement System's trust assets for the County's benefit during a period of underfunding, by overriding the Retirement Commission's discretion in taking such a credit, by treating trust assets as assets of the County, and by the imposition of amortization periods and caps in derogation of the Retirement Commission's discretion. The trial court again disagreed, ruling on cross-motions for summary disposition that § 20m of PERSIA, MCL 38.1140m, "does not address or prohibit the transfer of funds from the IEF ... to meet the County's [ARC][o]bligation." With respect to additional PERSIA provisions relied on by plaintiffs in support of their arguments, the trial court rejected them for the many reasons set forth in defendants' summary disposition brief. Plaintiffs appeal the rulings on their constitutional and statutory challenges as of right.
The County cross-appeals the trial court's ruling granting summary disposition in favor of plaintiffs with respect to count III of the County's counterclaim, which sought declaratory and injunctive relief on the basis that the Retirement Commission violated various fiduciary duties in managing the assets of the Retirement System. The County alleged a number of improprieties by the Retirement Commission in count III, including allocating investment losses to defined benefit plan assets but not to the IEF, electing to make 13th-check distributions when defined benefit plans were underfunded, directing the Retirement System's assets to the IEF and away from the defined benefit plan assets despite the fact that the plans were underfunded, making 13th-check payments to all members of the various retirement plans despite the ineligibility of members who participated solely in the defined contribution plan, failing to establish written policies and objectives for determining when IEF distributions should be made, and in bringing an untenable lawsuit. On cross-motions for summary disposition, the trial court granted summary disposition in favor of plaintiffs, ruling that plaintiffs had submitted evidence showing compliance with the Retirement Commission's fiduciary duties and other legal obligations and that the County had failed to present evidence sufficient to create a genuine issue of material fact on its claims, thereby entitling plaintiffs to judgment as a matter of law.
Under the authority of Const. 1963, art. 7, § 2, "[a]ny county may ... adopt ... a county charter in a manner and with powers and limitations to be provided by general
The CCA contains certain mandates for county charters adopted under the act. Specifically, under MCL 45.514(1)(e), a charter must provide for "[t]he continuation and implementation of a system of pensions and retirement for county officers and employees in those counties having a system in effect at the time of the adoption of the charter."
Article VI of the Wayne County Charter addresses the subject of retirement and, consistently with the requirements of MCL 45.514(1)(e), § 6.111 provides:
See also Wayne Co. v. Wayne Co. Retirement Comm., 267 Mich.App. 230, 234, 704 N.W.2d 117 (2005). Wayne County Charter, § 6.112, provides that the Retirement Commission is composed of eight members, including "[t]he [chief executive officer (CEO)] or the designee of the CEO, the chairperson of the County Commission, and 6 elected members," four of whom must be active employees and two of whom must be retired employees. "The Retirement Commission shall administer and manage the Retirement System," and "[t]he costs of administration and management of the Retirement System shall be paid from the investment earnings of the Retirement System." Id. "The financial objective of the Retirement System is to establish and receive contributions each fiscal year which, as a percentage of active member payroll, are designed to remain approximately level from year to year." Id. at § 6.113. Wayne County Charter, § 6.113, further provides that "contributions shall be sufficient to (i) cover fully costs allocated to the current year by the actuarial funding method, and (ii) liquidate over a period of years the unfunded costs allocated to prior years by the actuarial funding method."
Chapter 141 of the Wayne County Code of Ordinances (WCCO) governs the
WCCO, § 141-35, addresses various aspects of the Retirement Commission, and in regard to the Retirement Commission's investment authority, subsection (h) provides:
With respect to parameters governing the Retirement Commission's handling of assets, WCCO, § 141-35(i)(1), provides that "[t]he assets of the retirement system shall be held and invested for the sole purpose of meeting the obligations of the retirement system and shall be used for no other purpose."
WCCO, § 141-37, addresses "reserve accounting" with respect to reserves for accumulated member contributions, for member accounts, for pension payments, for defined benefit employer contributions, for defined contribution employer contributions, and for undistributed investment income and administrative expenses. WCCO, § 141-37(a) through (f). WCCO, § 141-37(g), provides that "[t]he descriptions of the reserve accounts shall be interpreted to refer to the accounting records of the retirement system and not to the segregation of assets by reserve account," although "[t]he retirement commission may segregate assets attributable to defined contribution benefits." We note that
There is no dispute that, before the creation of the IEF, the County used COLAs at times to address the effects of inflation on the buying power of pension income. Wayne County Enrolled Ordinance No. 86-284, adopted and made effective July 24, 1986, provided for and recognized the establishment of the IEF as of November 30, 1985, and set forth the formula by which to calculate the amount required to be credited or allocated to the IEF at the end of a fiscal year
In relationship to the pertinent language in the 1986 enrolled ordinance, Wayne County Enrolled Ordinance No. 94-747, adopted and made effective November 17, 1994, replaced the term "board of trustees" with "retirement commission," but was otherwise substantively unchanged from the 1986 version, including the language that made the IEF distribution discretionary.
In relationship to the relevant language in the 1994 enrolled ordinance, Wayne
In the various versions of the IEF ordinance discussed earlier, while there was a formula used to calculate the amount to credit to the IEF in a fiscal year, no particular dollar limitations on the IEF's balance were ever set forth. Additionally, in the various versions of the IEF ordinance, while initially employing a 20 to 50 percent range in determining the percentage of the IEF subject to possible distribution before subsequently leaving it entirely up to the Retirement Commission's discretion, there were no particular dollar limitations on a distribution in a given year. This all changed with Wayne County Enrolled Ordinance No.2010-514, adopted and made effective September 30, 2010, the last day before fiscal year 2011. The current version of WCCO, § 141-32, embodies changes made in the 2010 enrolled ordinance, and it provides in full as follows:
As reflected above, WCCO, § 141-32(b)(3), refers to WCCO, § 141-36, which, as with WCCO, § 141-32, was also modified by Wayne County Enrolled Ordinance No.2010-514. WCCO, § 141-36, which addresses the County's ARC, provides in part that the "[c]ontribution requirements for defined benefits shall be determined by annual actuarial valuation; provided that the contribution requirement may be reduced or eliminated for a fiscal year pursuant to the procedures in section 141-32." WCCO, § 141-36(a)(2). Accordingly, Wayne County Enrolled Ordinance No.2010-514, as codified in WCCO, §§ 141-32 and 141-36, effectively granted defendants the authority to take the excess between the newly imposed $12 million IEF limit and the preexisting $44 million in the IEF,
Records of the Retirement System indicated that 13th-check distributions have been made without fail since the inception of the IEF and that the amount annually disbursed fluctuated from year to year, at times decreasing from the previous year. In chronological order, from 1986 through 2009, the following amounts represent the average individual 13th checks that were distributed by the Retirement Commission to retirees and survivor beneficiaries: $677; $843; $823; $1,281; $1,842; $972; $1,361; $1,984; $2,045; $1,440; $1,538; $1,836; $2,382; $2,355; $2,603; $2,907; $2,938; $2,953; $2,380; $2,361; $2,030; $1,685; $1,703; and $1,699.
Pursuant to the second clause of Const. 1963, art. 9, § 24, "[f]inancial benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be used for financing unfunded accrued liabilities." "[T]he purpose of the provision was to prevent the shifting of the burden for pensions from the taxpayers who derived benefit from the services rendered to future taxpayers by `back door' spending, i.e., by diverting current funding to finance unfunded accrued liability." Jurva v. Attorney General, 419 Mich. 209, 224-225, 351 N.W.2d 813 (1984).
Section 20m of PERSIA, MCL 38.1140m,
"[T]he statutory language is unequivocal that the Board [here, the Retirement Commission] determines the amount the employer... contributes annually to the retirement system and that the employer, in turn, is `required' to make the contribution." Bd. of Trustees of the Policemen & Firemen Retirement Sys. of Detroit v. Detroit, 270 Mich.App. 74, 80-81, 714 N.W.2d 658 (2006). It is the Retirement Commission's responsibility to ensure that the Retirement System is adequately funded. Id. at 75, 714 N.W.2d 658.
Returning to our discussion of WCCO, § 141-36, which was amended by Wayne County Enrolled Ordinance No.2010-514 relative to the ARC and amortization caps, the section previously provided in pertinent part:
WCCO, § 141-36, as amended by the 2010 enrolled ordinance, now provides in relevant part:
As can be gleaned from reading the two versions of WCCO, § 141-36, with the amendment, the County Board imposed specific caps on amortization periods where previously there were no identified caps and such matters were determined by the Retirement Commission on the basis of consultation with an actuary and the approval of the County Board. Both versions of WCCO, § 141-36, provided for an annual actuarial valuation for purposes of determining the ARC, but, as indicated earlier, the amended version provided for a reduction or elimination of the ARC on the basis of the IEF excess and credit to the defined benefit plan assets upon application of the $12 million IEF balance limitation under WCCO, § 141-32.
In an affidavit supplied by Judith Kermans, who was employed by the Retirement System's actuary as a senior consultant and regional director, she averred
Plaintiffs filed suit against defendants, arguing that WCCO, §§ 141-32 and 141-36, as amended by Wayne County Enrolled Ordinance No.2010-514, violated various constitutional and statutory provisions, and plaintiffs sought relief in the form of mandamus, a declaratory judgment, an injunction, and attorney fees on the basis of the violations. The County filed a counterclaim, alleging, in count III, that the Retirement Commission violated its fiduciary duties in myriad ways relative to administering the IEF and making 13th-check distributions over the years. The parties filed competing motions for summary disposition with respect to plaintiffs' complaint and count III of the County's counterclaim. The trial court granted summary disposition in favor of defendants in regard to the constitutional and statutory challenges presented by plaintiffs in their complaint. The trial court granted summary disposition in favor of plaintiffs as to count III of the County's counterclaim. The parties appeal and cross-appeal the summary disposition rulings. Details with respect to the complaint, counterclaim, the cross-motions for summary disposition, the documentary evidence submitted by the parties in connection with the summary disposition motions, and the trial court's ruling will be discussed when relevant to our analysis of the issues on appeal.
This Court reviews de novo rulings on motions for summary disposition, issues of statutory construction, matters concerning the interpretation and application of municipal ordinances, and questions of constitutional law. Midland Cogeneration Venture Ltd. Partnership v. Naftaly,
Finally, we review de novo the question of law whether to recognize a claim for breach of fiduciary duty. Calhoun Co. v. Blue Cross Blue Shield of Mich., 297 Mich.App. 1, 20, 824 N.W.2d 202 (2012).
Although the trial court did not specify the particular subrule under MCR 2.116(C) that it was invoking when ruling on the motions for summary disposition, it is clear from the language used in its opinions and orders and its reliance on documentary evidence, going outside the confines of the pleadings, that the court was relying on MCR 2.116(C)(10), which dictates the analysis that we will apply. Spiek v. Dep't of Transp., 456 Mich. 331, 338, 572 N.W.2d 201 (1998). In general, MCR 2.116(C)(10) provides for summary disposition where there is no genuine issue regarding any material fact, and the moving party is entitled to judgment or partial judgment as a matter of law. A motion brought under MCR 2.116(C)(10) tests the factual support for a party's claim. Skinner v. Square D Co., 445 Mich. 153, 161, 516 N.W.2d 475 (1994). A trial court may grant a motion for summary disposition under MCR 2.116(C)(10) if the pleadings, affidavits, and other documentary evidence, when viewed in a light most favorable to the nonmovant, show that there is no genuine issue with respect to any material fact. Quinto v. Cross & Peters Co., 451 Mich. 358, 362, 547 N.W.2d 314 (1996); MCR 2.116(G)(5). "A genuine issue of material fact exists when the record, giving the benefit of reasonable doubt to the opposing party, leaves open an issue upon which reasonable minds might differ." West v. Gen. Motors Corp., 469 Mich. 177, 183, 665 N.W.2d 468 (2003). The trial court is not permitted to assess credibility, to weigh the evidence, or to resolve factual disputes, and if material evidence conflicts, it is not appropriate to grant a motion for summary disposition under MCR 2.116(C)(10). Skinner, 445 Mich. at 161, 516 N.W.2d 475; Hines v. Volkswagen of America, Inc., 265 Mich.App. 432, 437, 695 N.W.2d 84 (2005). A court may only consider substantively admissible evidence actually proffered relative to a motion for summary disposition under MCR 2.116(C)(10). Maiden v. Rozwood, 461 Mich. 109, 121, 597 N.W.2d 817 (1999).
With respect to the interpretation of ordinances and statutes, in Bonner v. City of Brighton, 298 Mich.App. 693, 704-705, 828 N.W.2d 408 (2012), this Court observed:
In regard to construing the Michigan Constitution, "[o]ur goal ... is to discern the original meaning attributed to the words of a constitutional provision by its ratifiers." People v. Nutt, 469 Mich. 565, 573, 677 N.W.2d 1 (2004). The rule of "common understanding" is applied in the analysis. Id. "In applying this principle of construction, the people are understood to have accepted the words employed in a constitutional provision in the sense most obvious to the common understanding and to have `ratified the instrument in the belief that that was the sense designed to be conveyed.'" Id. at 573-574, 677 N.W.2d 1 (citation omitted). Debates during the Constitutional Convention, as well as the Address to the People, can serve as aids in determining the ratifiers' intent. Id. at 574, 677 N.W.2d 1.
"In a case of actual controversy within its jurisdiction, a Michigan court of record may declare the rights and other legal relations of an interested party seeking a declaratory judgment, whether or not other relief is or could be sought or granted." MCR 2.605(A)(1). "An `actual controversy' under MCR 2.605(A)(1) exists when a declaratory judgment is necessary to guide a plaintiff's future conduct in order to preserve legal rights," but "courts are not precluded from reaching issues before actual injuries or losses have occurred." Int'l Union, United Auto., Aerospace & Agricultural Implement Workers of America v. Central Mich. Univ. Trustees, 295 Mich.App. 486, 495, 815 N.W.2d 132 (2012).
"A writ of mandamus is an extraordinary remedy that will only be issued if `(1) the party seeking the writ has a clear legal right to the performance of the specific duty sought, (2) the defendant has the clear legal duty to perform the act requested, (3) the act is ministerial, and (4) no other remedy exists that might achieve the same result.'" Detroit City Clerk, 295 Mich.App. at 366-367, 820 N.W.2d 208 (citation omitted).
With respect to whether a permanent injunction should issue, in Kernen v.
Courts balance the benefit of an injunction to a requesting plaintiff against the damage and inconvenience to the defendant, granting an injunction as appears most consistent with justice and equity under all the surrounding circumstances of the particular case. Id. at 514, 591 N.W.2d 369.
With respect to plaintiffs' arguments under PERSIA, they contend that WCCO, §§ 141-32 and 141-36, as amended by Wayne County Enrolled Ordinance No.2010-514,
We hold that the offset provision in the 2010 ordinance directly conflicts with and violates the exclusive-benefit rule embodied in MCL 38.1133(6). A municipal ordinance that is in direct conflict with a state statute is preempted by state law. Rental Prop. Owners Ass'n of Kent Co. v. Grand Rapids, 455 Mich. 246, 257, 566 N.W.2d 514 (1997). MCL 38.1133
The "system" here is the Wayne County Employees Retirement System,
"The Legislature's use of the word `shall' in a statute generally `indicates a mandatory and imperative directive.'" Costa v. Community Emergency Med. Servs., Inc., 475 Mich. 403, 409, 716 N.W.2d 236 (2006), quoting Burton v. Reed City Hosp. Corp., 471 Mich. 745, 752, 691 N.W.2d 424 (2005). The term "`exclusive' is defined as `not divided or shared with others [or] single or independent; sole.'" Northville Charter Twp. v. Northville Pub. Schs., 469 Mich. 285, 292, 666 N.W.2d 213 (2003), quoting The American Heritage Dictionary of the English Language (1981). A "benefit" is "`something that is advantageous or good; an advantage.'" Ottawa Co. v. Police Officers Ass'n of Mich., 281 Mich.App. 668, 673, 760 N.W.2d 845 (2008), quoting Random House Webster's College Dictionary (1992). Thus, for purposes of complying with MCL 38.1133(6), it was imperative and mandatory that assets in the IEF be held solely for the good of participants and beneficiaries, who alone could use those assets to their advantage — not the County, the County Board, or anyone else for that matter.
There can be no dispute that, before the 2010 ordinance went into effect, the IEF assets were held and used for the exclusive benefit of participants and their beneficiaries. With the enactment of the 2010 ordinance, the "excess" IEF assets in the amount of $32 million, as created by the newly imposed $12 million IEF cap on a preexisting $44 million IEF balance, absolutely had to retain their status as assets "for the exclusive benefit of the participants and their beneficiaries" to comply with MCL 38.1133(6). We conclude, however, that as a result of the 2010 ordinance, the County obtained the authority to use the excess IEF assets advantageously and for its own financial good and benefit. Regardless of the fact that, by operation of the 2010 ordinance, the excess assets — once part of the IEF and now part of the defined benefit plan assets on the accounting records — were still to be used for the benefit of participants and their beneficiaries in the form of regular pension payments, the County also enjoyed an
The 2010 ordinance required that the amount in the IEF in excess of the $12 million dollar limit be debited from the IEF and credited to the defined benefit plan assets, with the ordinance mandating use of the $32 million excess to offset or reduce the County's ARC. Therefore, the 2010 ordinance resulted in a $32 million reduction, not directly in the actuarially based ARC calculation itself, but in the amount of money that the County had to take directly from its own coffers in order to satisfy the ARC obligation. The $32 million savings, which we decline to characterize as a minor or an incidental benefit, freed up County funds for other uses. To describe the effect of the 2010 ordinance as not being beneficial to the County is to wholly ignore the motive behind enacting the ordinance in the first place and the resulting fiscal reality.
Had the 2010 ordinance not been enacted, $32 million would have been added to the defined benefit plan assets by the County in the ARC, and the IEF would have retained its $44 million balance. With the enactment of the 2010 ordinance, $32 million still ended up being added to the defined benefit plan assets, so the enactment made no difference on that matter, but the IEF balance was decreased by $32 million down to $12 million. We find it difficult, therefore, to conclude that Retirement System members truly remained benefited in relationship to the $32 million after the 2010 ordinance's enactment, considering that the Retirement System unquestionably lost $32 million, and we find it impossible to conclude that the County was not benefited, as if the $32 million simply evaporated to no one's advantage.
We find it important to emphasize the nature and operational effect of the 2010 ordinance. From the sole perspective of an individual retiree or survivor beneficiary, payment of a 13th check cannot be viewed as an accrued financial benefit because there is no vested or enforceable right to a 13th check, given the discretionary distribution language that has always been part of the IEF ordinance and the lack of any CBA language requiring disbursement of a 13th check. See In re Request for Advisory Opinion Regarding Constitutionality of 2011 PA
Instead of honoring and protecting the IEF in connection with its designed purpose, the County Board improperly invaded the assets of the IEF to lessen its financial burden with respect to the ARC. The 2010 ordinance dipped into assets that had already been set aside for a particular purpose pursuant to the requirements of previous versions of the IEF ordinance. The 2010 ordinance essentially authorized retroactive application of the $12 million IEF cap, capturing and diverting assets pledged for a different use. Aside from providing for minimum permanent pensions and inflation equity, the IEF ordinance had never previously authorized any other use, nor did it contain any language suggesting that existing IEF assets could be tapped or diverted by defendants after allocation to the IEF. Defendants had no legal basis to exercise dominion and control over IEF assets for its own benefit once they were in the IEF and under the control of the Retirement Commission.
Our characterization of the 2010 ordinance, the IEF, and their relationship to
Next, we deem it necessary to distinguish the offset under the 2010 ordinance from the typical offset referred to in MCL 38.1140m. As part of PERSIA, MCL 38.1140m provides that, "[i]n a plan year, any current service cost payment may be offset by a credit for amortization of accrued assets, if any, in excess of actuarial accrued liability." Here, there is no dispute that the amortized accrued assets of the defined benefit plans did not exceed the actuarial accrued liability of the plans, that the plans were underfunded when the 2010 ordinance was enacted and had been for several years, and that the offset employed under the 2010 ordinance was not based on the offset language in MCL 38.1140m. The statutory offset concerns healthy pension plans that are overfunded and enjoy a surplus — that is, the accrued assets exceed accrued liabilities. Examined within the context of MCL 38.1140m, the IEF assets were simply not surplus assets. With respect to a legally sound offset under MCL 38.1140m, excess pension assets, which are designated to be used to cover pension payments and are already part of a retirement system's trust fund, could be viewed as being used for the benefit of the public employer by effectively diminishing the employer's ARC. Such an offset, therefore, has attributes and operates in a manner suggesting a violation of the exclusive — benefit rule in MCL 38.1133(6). However, the Legislature directly and specifically authorized the offset in MCL 38.1140m in regard to true surplus situations, and "[i]t is ... axiomatic that `where a statute contains a general provision and a specific provision, the specific provision controls.'" Duffy v. Dep't of Natural Resources, 490 Mich. 198, 215, 805 N.W.2d 399 (2011) (citation omitted). The apparent protection against invalidation under the exclusive-benefit rule that is accorded to offsets pursuant to MCL 38.1140m is simply not implicated with respect to the offset in the 2010 ordinance.
In sum, the 2010 ordinance violated the exclusive-benefit rule of MCL 38.1133(6) by authorizing the County to take advantage of and benefit from the use of assets of the Retirement System, IEF assets, instead of leaving those assets in place for the exclusive benefit of the participants and their beneficiaries. The County, in raiding the IEF for its own benefit, depleted and redirected IEF assets that had been designated for a purpose other than payment of regular pension benefits, i.e.,
Defendants argue in their appellate brief, and insisted at oral argument, that the 2010 ordinance does not violate or conflict with the exclusive-benefit rule in MCL 38.1133(6) under the analysis in Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 119 S.Ct. 755, 142 L.Ed.2d 881 (1999), and Claypool v. Wilson, 4 Cal.App.4th 646, 6 Cal.Rptr.2d 77 (1992), because retirement assets in the IEF continued to be used for the exclusive benefit of members and not for the County's own benefit. Any incidental benefit enjoyed by the County, according to defendants, is insufficient to constitute a violation of PERSIA.
We initially note that, even if the cases cited by defendants can be deemed analogous, they are not binding on us in relationship to our interpretation of PERSIA and we decline to apply their holdings. The plain and unambiguous language of MCL 38.1133(6) supports our analysis and conclusion. However, because much of defendants' argument on the issue is devoted to Hughes and Claypool, we will engage in an examination of both cases.
In Hughes, retired beneficiaries of a defined benefit plan sued, in a class action, their former employer Hughes and the company's retirement plan itself, claiming they had violated the Employee Retirement Income Security Act of 1974 (ERISA), 29 USC 1001 et seq., by amending the plan to provide for an early retirement program and a noncontributory benefit structure. As a result of employee and employer contributions over the years and investment growth, the assets of the plan had come to substantially exceed the amount necessary to fund all current and future defined benefits. Because of the surplus, Hughes suspended its employer contributions in 1987. In 1989, Hughes amended the plan to establish an early retirement program pursuant to which significant additional retirement benefits were offered to particular active eligible employees. The plan was then amended again two years later in 1991, with new participants not being permitted to contribute to the plan and thereby receiving fewer benefits. Existing members had the option to continue making contributions or be treated as new participants. Hughes, 525 U.S. at 435-436, 119 S.Ct. 755.
The retirees argued, in part, that Hughes violated 29 USC 1103(c)(1), ERISA'a anti-inurement prohibition, "by benefiting itself at the expense of the [p]lan's surplus." Id. at 437, 119 S.Ct. 755. More particularly, they contended that "the creation of the new contributory structure permitted Hughes to use assets from the surplus attributable to employer and employee contributions for its sole and exclusive benefit, in violation of ERISA's anti-inurement provision." Id. at 441, 119 S.Ct. 755. ERISA's anti-inurement provision stated that a plan's assets "`shall never inure to the benefit of any employer and shall be held for the exclusive purposes of providing benefits to participants in the plan and their beneficiaries and defraying reasonable expenses of administering the plan.'" Id. at 442, 119 S.Ct. 755, quoting 29 USC 1103(c)(1).
The United States Supreme Court initially noted that "[s]ince a decline in the value of a [defined benefit] plan's assets does not alter accrued benefits[,] members similarly have no entitlement to share in a plan's surplus — even if it is partially attributable to the investment growth of their
Consistently with our earlier discussion, we conclude that the $32 million in the IEF that was shifted to the defined benefit plan assets simply did not constitute true "surplus" assets. Rather than having a surplus of assets, the defined benefit plans were severely underfunded. And while we appreciate that IEF assets and defined benefit plan assets were pooled together in a single trust fund, the IEF assets were indeed segregated in terms of accounting records. Although the redirected IEF assets would still ultimately go to retirees and survivor beneficiaries under the 2010 ordinance, the IEF was created as a distinct and separate reserve that was never devoted to the payment of standard accrued pension benefits, but was instead primarily intended and designed for the payment of 13th checks. As opposed to the facts in Hughes, under the directives of the 2010 ordinance, the pension payment obligations did not genuinely continue to draw from the same single unsegregated fund of assets, given that the excess IEF assets would now be used to help cover regular pension payments. And, although their assets were pooled and invested together, the IEF received individualized treatment that was distinguishable from that given to the fund of defined benefit plan assets, effectively resulting in fund segregation.
Another relevant aspect of Hughes was the argument by the retired beneficiaries that Hughes breached its fiduciary duties under ERISA by amending the plan in 1991 to create the noncontributory structure in violation of 29 USC 1106(a)(1)(D). Hughes, 525 U.S. at 437, 119 S.Ct. 755. ERISA prohibits a fiduciary from, with actual or constructive knowledge, causing the retirement plan to engage in a transaction that "constitutes a direct or indirect... transfer to, or use by or for the benefit of a party in interest, of any assets of the plan[.]" 29 USC 1106(a)(1)(D).
Again, we cannot conclude that saving $32 million was "incidental" in any sense of the word. To the extent that Hughes supports a contrary conclusion, we again decline to apply Hughes. The term "incidental" is defined as "happening or likely to happen in an unplanned or subordinate conjunction with something else," or "incurred casually and in addition to the regular or main amount[.]" Random House Webster's College Dictionary (2001). It cannot honestly and reasonably be disputed that the main purpose of the 2010 ordinance was to benefit the County by reducing the amount of money that the County had to directly pay to satisfy the ARC. The benefit was certainly not unplanned or incurred casually.
An aspect of Hughes that differs entirely from the case at bar is that the plan amendments made by Hughes in adding the noncontributory structure to the plan was clearly not motivated by financial desperation and the need for a quick fix. To a great extent, Hughes stands for the unremarkable proposition that an employer, for purposes of ERISA,
In Claypool, a California statute repealed three different supplemental COLA programs and diverted funds from those programs for use by employers of public employees as an offset to contributions the employers were otherwise required to make to fund public employee pensions. The petitioners argued "that the use of the former supplemental COLA funds to reduce employer contributions violate[d][the] California Constitution," which stated that public pension assets were trust funds to "`be held for the exclusive purposes of providing benefits to participants in the pension ... system and their beneficiaries
Here, the IEF did not have the limiting or restrictive language used in the former COLA programs at issue in Claypool.
Under the applicable version of MCL 38.1133(6)(c), and comparable to the ERISA provision discussed in Hughes, "an investment fiduciary shall not cause the system to engage in a transaction if he or she knows or should know that the transaction is ..., either directly or indirectly[,]... [a] transfer to, or use by or for the benefit of, the political subdivision sponsoring the system of any assets of the system for less than adequate consideration." The plain and unambiguous language of the statute absolutely prohibits the Retirement Commission, an investment fiduciary, MCL 38.1132c(1), from, with actual or constructive knowledge, causing the Retirement System to engage in a transaction that directly or indirectly allows assets of the Retirement System to be used by or for the benefit of the County, a political subdivision sponsoring the system, for less than adequate consideration. We conclude that, in violation of MCL 38.1133(6)(c), the 2010 ordinance effectively forced the Retirement Commission to knowingly cause the Retirement System to engage in a transaction that directly or indirectly permitted or authorized the County to use or
The reallocation or transfer of IEF assets certainly constituted a "transaction" for purposes of MCL 38.1133(6)(c). Even defendants acknowledge in their appellate brief that the 2010 ordinance "authorize[d] the transfer of funds from the IEF to the Defined Benefit Plans." Furthermore, the 2010 ordinance required a debiting and crediting of assets to and from the IEF and defined benefit plan, which would qualify as an administrative task performed by the Retirement Commission. See MCL 38.1133(2); Wayne County Charter, § 6.112; Detroit Policemen & Firemen Retirement Sys. Bd. of Trustees, 270 Mich.App. at 75, 714 N.W.2d 658 (board of trustees has the responsibility for administering, managing, and operating retirement system); Wayne Co. Retirement Comm., 267 Mich.App. at 234, 704 N.W.2d 117 ("The Retirement Commission is the administrative body responsible for overseeing the operational and administrative functions of the Retirement System.").
We hold that, for the reasons stated, the offset provision in the 2010 ordinance violates PERSIA, particularly the exclusive-benefit rule in MCL 38.1133(6) and the prohibited-transaction rule in MCL 38.1133(6)(c). That said, we deem it necessary to carefully spell out the effect of our ruling on the various paragraphs in WCCO, §§ 141-32 and 141-36, which sections we are not invalidating in their entirety, and to also engage in some additional analysis on arguments not framed in terms of the offset issue. Notably, WCCO, § 1-17, provides that "[e]ach chapter, article, division or section or, whenever divisible, subsection of this Code is hereby declared to be severable; and the invalidity of any chapter, article, division, section or divisible subsection shall not be construed to affect the validity of any other chapter, article, division, section or subsection of this Code."
We next address WCCO, § 141-32(e), which was added by the 2010 ordinance, and which provides that nothing in the IEF ordinance "preclude[s] the County from reducing or eliminating its contribution for a fiscal year in which defined benefit assets exceed defined benefit liabilities." (Emphasis added.) As noted earlier, this is a surplus provision that allows for an offset when a defined benefit plan is overfunded. We conclude, on the basis of a concession by defendants, that this provision is invalid under MCL 38.1140m, but only to the extent that it makes the exercise of an offset a decision for the County and not the Retirement Commission. We find no reason to void the remaining language in WCCO, § 141-32(e), which is indisputably legally sound. MCL 38.1140m sets forth the Retirement Commission's authority to determine an ARC through an actuary, and, once again, it also provides that, "[i]n a plan year, any current service cost payment may be offset by a credit for amortization of accrued assets, if any, in excess of actuarial accrued liability." Defendants' main contention in regard to MCL 38.1140m is that it only concerns defined benefit plan assets and associated ARCs, not a reserve such as the IEF, for which there is no ARC; therefore, the statute neither addresses nor bars the offset provided for in the 2010 ordinance. Defendants state that, with respect to the offset language in MCL 38.1140m, it is defined benefit plan assets "that may be used, in the Retirement Commission's discretion, to offset the County's ARC when the Defined Benefit Plans are overfunded." (Initial emphasis added.) Accordingly, with respect to WCCO, § 141-32(e), we must conclude that defendants would agree that the reference to "the County" being able to reduce or eliminate its ARC for a fiscal year when there is a surplus in defined benefit plan assets is inconsistent with MCL 38.1140m's offset provision, as the decision to allow an offset, according to defendants, is for the Retirement Commission. Given defendants' statement, we decline to independently determine whether MCL 38.1140m solely leaves an offset decision to the Retirement Commission at times of surplus relative to defined benefit plan assets and liabilities. We take no position on the matter, and this opinion is not to be construed as endorsing defendants' position.
In regard to WCCO, § 141-32(b)(3), which sets forth the debit from the IEF, the credit to the defined benefit plan assets, and the offset, it is invalidated as being in violation of and in direct conflict with PERSIA.
Although we have not invalidated the offset pursuant to MCL 38.1140m, we agree that the IEF dollar caps are generally sustainable with one important restriction. The $12 million cap on the IEF's balance absolutely cannot be employed in relationship to the approximately $44 million that was in the IEF, as previously allocated, at the time the 2010 ordinance was enacted. This conclusion must be reached given our holding regarding the offset and our determination that the excess $32 million could not legally be transferred to the defined benefit plan assets or elsewhere and should have remained part of the IEF until disposed of by the Retirement Commission according to the 13th-check program. Our holding today effectively results in the $32 million that was offset against the County's ARC being returned, restored, or credited to the IEF, with the County being required to satisfy its ARC obligations absent consideration of that $32 million. However, we conclude that the $12 million IEF limitation can operate prospectively and in a manner that does not infringe on the Retirement Commission's right to use the preexisting $44 million in the IEF for 13th-check distributions as intended and envisioned. A proper prospective application of the $12 million IEF limitation would entail limiting future funding of the IEF until it dropped below $12 million, which is exactly how WCCO, § 141-32(b)(1), operates and is presently structured, where it provides the formula for annual funding of the IEF, subject to the $12 million IEF balance limit. Accordingly, WCCO, § 141-32(b)(1), remains wholly intact and WCCO, § 141-32(a) — the provision setting forth the $12 million IEF limit — also remains in effect, but with the caveat that the limit is inapplicable in regard to the previously
With regard to any arguments that might conflict with our position on the $5 million and $12 million IEF caps, plaintiffs have not focused on challenging those limitations in and of themselves, instead building their arguments more around the offset and the $32 million reduction in the IEF. To the extent that plaintiffs' constitutional and statutory arguments can be construed to challenge the IEF dollar restrictions, absent contemplation of any offset, we remain of the view that the caps are legally sound. From the inception of the IEF, there have always been restrictions on the funding of the IEF with investment earnings, considering that a formula controlled the amount of monies that flowed into it. And with respect to IEF distributions by way of 13th checks, up until the enactment of Wayne County Enrolled Ordinance No. 2000-536 when it was left entirely to the Retirement Commission's discretion, the Retirement Commission was restricted in doling out 13th checks to 20 to 50 percent of the IEF balance. The current restrictions, although in different form, are comparable.
Application of the $5 million prospective limitation on IEF disbursements, as well as the $12 million prospective limitation on the IEF's balance, simply does not result in any impairment or diminishment of accrued financial benefits for purposes of Const. 1963, art. 9, § 24. Individual retirees and survivor beneficiaries have never been legally or contractually entitled to a 13th check under the IEF ordinance, let alone a particular amount, so the $5 million IEF distribution cap is not constitutionally offensive. And while we have indicated that the IEF can be viewed as a vested reserve belonging and in relationship to the Retirement System's participants as a whole for purposes of 13th checks, the $5 million cap honors that status by still allowing the payment of 13th checks from the IEF, controlling the flow but only to a limited degree. And as long as the $12 million IEF balance cap is applied prospectively as directed in this opinion, there would likewise be no unconstitutional impairment or diminishment.
With respect to PERSIA, MCL 38.1140m appears to only address ARCs relative to defined benefit plans, along with the Retirement Commission's role in determining ARCs, which matters have no relevance to the IEF caps. Next, MCL 38.1133(2) empowers the investment fiduciary to invest, reinvest, hold in nominee form, and manage assets of a system. And as we previously acknowledged, the Retirement Commission oversees the operational and administrative functions of the Retirement System. Detroit Policemen & Firemen Retirement Sys. Bd. of Trustees, 270 Mich.App. at 75, 714 N.W.2d 658; Wayne Co. Retirement Comm., 267 Mich. App. at 234, 704 N.W.2d 117. We conclude that the placement of a prospective $12 million cap on the balance of the IEF and $5 million restriction on IEF disbursements to retirees and survivor beneficiaries concerns retirement plan parameters and structural aspects of the plan that are legislative in nature and within the purview
Although we have held that the $5 million and $12 million IEF-related caps, as confined by our opinion, survive plaintiffs' challenge, the County Board is of course free to vote to repeal or amend those provisions should the County Board feel that the invalidation of the offset circumvents the intent or purpose behind the surviving provisions.
Another aspect of plaintiffs' appeal concerns that component of the 2010 ordinance that modified WCCO, § 141-36, in regard to the actuarial formula and amortization periods used to determine the defined benefit ARC. We hold that the language in WCCO, § 141-36, that was added to the section pursuant to the 2010 ordinance is invalid under MCL 38.1140m, which provides in relevant part:
As to WCCO, § 141-36(a)(1)(A), the 35-year cap on the amortization period directly conflicts with the statutory language providing for a 30-year cap. Moreover, with respect to the remaining amortization caps added to WCCO, § 141-36, through enactment of the 2010 ordinance, they conflict with the Retirement Commission's sole discretion in calculating the ARC through employment of an actuary and consideration of actuarial standards of practice. Detroit Policemen & Firemen Retirement Sys. Bd. of Trustees, 270 Mich. App. at 82-85, 714 N.W.2d 658 (amortization periods in Detroit City Code conflicted with MCL 38.1140m, thereby directly interfering with the governing board's authority to decide the annual contribution, including a determination of amortization periods). As this Court explained:
Accordingly, the County Board here acted outside of its authority by involving itself in actuarial ARC matters and the setting of amortization caps.
On cross-appeal, the County argues that the trial court erred by denying its motion for summary disposition and granting plaintiffs' motion for summary disposition with respect to count III of the County's counterclaim alleging breach of fiduciary duties. The County contends that the Retirement Commission owes fiduciary duties under state law and the WCCO. The County maintains that the Retirement Commission breached its fiduciary duties by holding the IEF harmless from investment losses, by making 13th-check distributions to ineligible defined contribution plan retirees, and by failing to maintain and implement written policies related to the management of the IEF. The County further argues that the Retirement Commission breached its fiduciary duties by, without any regard to the underfunded status of the defined benefit plans, setting the IEF investment return threshold rate at an unacceptable level, over-allocating funds to the IEF, and making large 13th-check distributions. The trial court ruled that there was no genuine issue of material fact that the Retirement Commission had discharged its duties in a manner consistent with MCL 38.1133(3). The trial court indicated that, although the County may disagree with the decisions made by the Retirement Commission, the County failed to present evidence indicating that the Retirement Commission breached its fiduciary duties.
We note that plaintiffs raise an unpreserved argument that the County lacked standing to present claims concerning the fiduciary duties of the Retirement Commission, because those duties are owed to members and plan participants and not the County. MCL 38.1133(3) does provide that "[a]n investment fiduciary shall discharge his or her duties solely in the interest of the participants and the beneficiaries[.]" We shall address the standing issue in the context of each of the fiduciary-duty claims. With respect to the preservation failure, we may overlook preservation requirements when an issue of law is raised and the facts necessary for its resolution have been presented, as is the case here. Steward v. Panek, 251 Mich.App. 546, 554, 652 N.W.2d 232 (2002).
With respect to the issue of fiduciary duties under PERSIA, MCL 38.1133(3) provides in relevant part, that an investment fiduciary shall:
Similarly, WCCO, § 141-35(h), provides that, "[i]n exercising its discretionary authority with respect to the management of the assets of the retirement system, the retirement commission shall exercise the care, skill, prudence, and diligence, under the circumstances then prevailing, that an individual of prudence acting in a like capacity and familiar with such matters
In analyzing the arguments raised by the County, we must, under MCL 38.1133(3), view the arguments in the context of whether the Retirement Commission discharged its duties and acted with the appropriate level of care, skill, prudence, and diligence relative to the best interests of the participants and beneficiaries, not defendants. The underlying premise of the County's fiduciary-duty claims is that priority had to be given to the care, viability, funding, and sustainability of the defined benefit plans over the IEF, given that payment of defined benefit pensions is obligatory, guaranteed, and constitutionally safeguarded, as opposed to the discretionary IEF distributions, which are bonus-like in nature. For the sake of argument, we shall assume the validity of that premise and proceed with our analysis.
There is no dispute that IEF and defined benefit plan assets are pooled and invested together. The County points out that in some years there were large investment losses, such as $155 million in 2008 and $22 million in 2009.
For purposes of this particular argument, we shall assume that the County has standing. As plaintiffs alluded, we note
We are not prepared to hold that the Retirement Commission had a fiduciary duty to allocate investment losses to the IEF. The IEF ordinance, which governs all the aspects or components of the IEF, has always been silent in regard to investment losses, except in the sense that if there were investment losses, no funds could be allocated to the IEF for the given year. The IEF ordinance, in its various versions, contemplated funding of the IEF only where the actual rate of return on investments exceeded the threshold rate set by the Retirement Commission. With a focus on the interests of the participants and beneficiaries, and assuming the preeminence of defined benefit plan assets in comparison to IEF assets, there perhaps is a logical argument that a fiduciary duty would entail proportionally allocating investment losses to the IEF. The problem with that position, in our view, is that were the Retirement Commission to allocate investment losses to the IEF, a disgruntled retiree who received a diminished 13th check could reasonably argue that the Retirement Commission violated the IEF ordinance, when it simply does not provide for depletion of the IEF on the basis of investment losses. A rational construction of the IEF ordinance is that it already takes into account a poor investment year by prohibiting a credit to the IEF if the threshold rate of return is not met and that, therefore, the intent of the County Board with regard to bad investment years was to go no further in harming the IEF than simply denying it funding for the year. And again, the IEF does not always enjoy an influx of assets even if there is a positive rate of return, despite IEF assets being part of the investment pool. It would have been quite simple for the County Board to include language in the IEF ordinance requiring an allocation of investment losses to the IEF, but this was never done. The County argues that the IEF ordinance is not the end-all and does not expressly prohibit allocation of investment losses to the IEF. We, however, conclude that a loss allocation could reasonably be construed as a violation of the IEF ordinance, such that we cannot conclude that the Retirement Commission had a fiduciary duty to make IEF loss allocations. Accordingly, we conclude that this particular fiduciary duty claim fails as a matter of law.
The County next argues that the Retirement Commission breached its fiduciary duties by failing to use reasonable care and prudence in setting the threshold investment rates of return for purposes of funding the IEF during years when the defined benefit plans were underfunded. The premise of this argument is that if the Retirement Commission set a higher threshold rate in a given year, a smaller amount of funds, if any, would have been credited to the IEF, thereby leaving more money for the defined benefit plans, which were in need of the money considering their underfunded status. The County also maintains that the Retirement Commission
For purposes of the threshold-rate and portion-of-the-excess arguments, we shall assume that the County had standing. With respect to the substance of the two arguments, the County focuses on those years after 2002 when the funded status of the defined benefit plans decreased steadily. In 2002, the defined benefit plans were 103.22 percent funded, and the percentage fell to 98.90 percent in 2003, decreasing a little bit more each year thereafter until reaching 67.23 percent in 2009. From 2002 through 2005, the Retirement Commission set the threshold rate of return at 8 percent each year. From 2002 through 2005, no money whatsoever was credited to the IEF, as the actual rate of investment return on the funding value of assets each of those years was below 8 percent. The setting of a higher threshold rate of return would therefore have been irrelevant during this period. Also, because of this fact, there was no need to exercise any discretion with respect to limiting the IEF allocation to only a portion of the excess investment earnings; there was no excess. Accordingly, if the County's argument is any way predicated on the years 2002 through 2005, it must fail.
After four straight years in which no money was added to the IEF, the Retirement Commission bumped up the threshold rate of return to 9 percent in 2006, which did produce a $10.6 million allocation to the IEF, where the actual rate of return was 10.35 percent, the excess rate was 1.35 percent, and the actuarial pension value was $789.5 million. In 2007, the Retirement Commission retained the 9 percent threshold rate, which produced a $23.2 million allocation to the IEF, where the actual rate of return was 11.74 percent, the excess rate was 2.74 percent, and the actuarial pension value was $848.7 million. As reflected in the numbers, in 2006 and 2007, the Retirement Commission did not exercise its discretion by way of limiting the excess investment earnings credited to the IEF to only a "portion of the excess." In 2008, the threshold rate of return was kept at 9 percent, but the actual rate of return was 5.51 percent, so there was no allocation of assets to the IEF. In 2009, the threshold rate of return was once again set at 9 percent by the Retirement Commission. Because the actual rate of return was 1.59 percent, there was again no money credited to the IEF. Given these circumstances, the only possible years in which the Retirement Commission may have breached its fiduciary duties were 2006 and 2007, years in which the defined benefit plans were funded, respectively, at 89.43 percent and 81.05 percent.
We hold, as a matter of law, that reasonable minds would not differ in concluding that the Retirement Commission did not breach its fiduciary duties as argued by the County. There is no genuine issue of material fact, and the Retirement Commission
Next, the County contends that the Retirement Commission breached its fiduciary duties by issuing 13th checks from the IEF without regard to the underfunded status of the defined benefit plans. As reflected earlier in this opinion, millions of dollars in IEF disbursements were made by the Retirement Commission every single year for the life of the IEF program, including years when the defined benefit plans were underfunded. We initially conclude that the County lacks standing with respect to this particular claim. Standing can exist when a "litigant has a special injury or right, or substantial interest, that will be detrimentally affected in a manner different from the citizenry at large[.]" Lansing Schs. Ed. Ass'n v. Lansing Bd. of Ed., 487 Mich. 349, 372, 792 N.W.2d 686 (2010). This issue is different from the ones pertaining to the threshold rate of return and the discretion to limit excess investment earnings from being allocated to the IEF, which directly affected
Moreover, a review of the total annual 13th-check distributions made over the years in conjunction with examination and consideration of the amount of available assets in the IEF in a given year plainly shows that, as a matter of law, the County acted prudently and exercised reasonable care in maintaining the fiscal soundness of the IEF. The Retirement Commission never disbursed unreasonable percentages of existing IEF balances.
The County next argues that the Retirement Commission breached its fiduciary duties by making 13th-check distributions to ineligible defined contribution plan retirees. Under WCCO, § 141-21(c), which addresses the defined contribution plan, "[t]he retirement commission may pay the pension from the retirement system or purchase an annuity." The focus of the parties' arguments here is on whether a defined contribution plan retiree who has annuitized his or her benefits can properly receive 13th-check distributions, when the IEF program is designed solely for those participating in a defined benefit plan. We decline to address the substance of this issue because the County has no standing to make its argument. Consistent with our standing ruling in regard to total 13th-check distributions in years where the defined benefit plans were underfunded, there is no special injury, nor is a substantial County interest at stake. Assuming 13th-check disbursements should not have been made to certain retirees because they had only participated in the defined contribution plan, it would either have increased the amount of available assets in the IEF or perhaps slightly increased the disbursements to eligible retirees and survivor beneficiaries with no change in the total disbursements and IEF balance. Any assumed savings would have been enjoyed by the IEF itself or eligible retirees and survivor beneficiaries and would not have been passed on to the defined benefit plans. Absent an effect on the defined benefit plan assets, there would be no correlative effect on the County's contributions. The proper party to pursue a fiduciary duty claim on the basis of 13th-check payments to ineligible retirees would be eligible retirees or survivor beneficiaries whose 13th-check payments were threatened or diluted by the
The County argues that the Retirement Commission breached its fiduciary duties by failing to maintain and implement written policies related to the management of the IEF. The County essentially takes all the other fiduciary-duty claims addressed earlier and contends that the Retirement Commission should have had written policies in place in relationship to the subject matter of the claims, e.g., "holding the IEF harmless from investment losses[.]"
Again, MCL 38.1133(3)(f) provides that the investment fiduciary shall "[p]repare and maintain written objectives, policies, and strategies with clearly defined accountability and responsibility for implementing and executing the system's investments." This provision governs investment activities, and we question whether the IEF-related arguments posed by the County actually concern investment decision-making. The County, recognizing this in part, claims that there should nonetheless be a fiduciary duty to implement written policies concerning the IEF because it would be generally prudent for an investment fiduciary to do so. We decline the County's invitation to demand more than PERSIA in the context of the particular matters about which the County claims a written policy should exist. A written policy on how to address and allocate investment losses with respect to the IEF seems nonsensical, as the only question is whether such allocation should occur and a reasonable construction of the IEF ordinance would prohibit it. The County is demanding written policies on IEF discretionary matters that do not tend to lend themselves to written policies or that do not require written policies. A more appropriate course would be for the County Board to amend the IEF ordinance to address the concerns raised by the County. On those matters upon which we found a lack of County standing, e.g., complaints about the amount of total annual IEF disbursements, the same standing holding would equally apply in regard to written policies on the matter. On those matter's not previously rejected on a standing analysis, we do find a lack of standing with respect to the County's argument that written policies in relationship to those matters should have been implemented, e.g., a written policy with respect to the threshold rate of return. Because we could only speculate in regard to what the Retirement Commission would have
The County has failed to convince us that a fiduciary duty exists relative to written policies, that there was any breach of a presumed fiduciary duty, or that the County has standing on the issue.
The County argues that the trial court erred by failing to address its argument that the Retirement Commission violated the first clause of Const. 1963, art. 9, § 24, by diminishing and impairing accrued financial benefits through the mismanagement of the Retirement System's assets. The County asserts that the failure by the Retirement System to prioritize the funding of the defined benefit plans as opposed to the IEF resulted in fewer defined benefit plan assets, which are designated to pay accrued financial benefits. The alleged mismanagement alluded to by the County consists of the acts or omissions addressed earlier in connection with the breach of fiduciary-duty claims, which now serve as the predicate for the County's assertions under Const. 1963, art. 9, § 24. We first note that, even though the County raised this issue for purposes of summary disposition, count III of the counterclaim makes no mention of a constitutional violation. Regardless, the constitutional claim fails as a matter of law. With respect to the constitutional claim based on the fiduciary duty arguments for which we found a lack of standing, the same analysis and conclusion applies. In regard to the remaining arguments underlying the constitutional claim, we hold that there was no actual diminishment or impairment of defined benefit assets where the Retirement System, acting under a construct created by the County Board in the IEF ordinance, merely allowed certain investment earnings to flow into the IEF instead of cutting the flow and permitting those earnings to be stockpiled with existing defined benefit plan assets. If one were to take the County's rationale to its logical end, the whole IEF program itself would be unconstitutional.
Finally, the County argues that the trial court erred by failing to order plaintiffs to pay their attorney fees and costs with IEF assets as opposed to defined benefit plan assets. The County maintains that, win or lose on appeal, the attorney fees and costs incurred by plaintiffs must come from the IEF, as the lawsuit primarily concerned the IEF. The trial court did not directly address this issue, instead simply ruling that no party was entitled to the payment of attorney fees by the opposition. We find the County's argument to be factually and legally undeveloped, and we decline to address the issue. The County provides no legal authority or analysis in support of its cursory single-page argument that the payment of plaintiffs' attorney fees and costs should come from the IEF. As stated by our Supreme Court in Mudge v. Macomb Co., 458 Mich. 87, 105, 580 N.W.2d 845 (1998):
We hold that plaintiffs established, as a matter of law, violations of PERSIA'S exclusive-benefit
Affirmed in part, reversed in part, and remanded for proceedings and entry of judgment consistent with this opinion. We do not retain jurisdiction. As a public question was involved in this appeal, we decline to award taxable costs pursuant to our discretion under MCR 7.219(A).
O'CONNELL and BECKERING, JJ., concurred with MURPHY, C.J.
Here is an example of the formula at work for the years 1998 and 2008. The actuarial present value of the pensions was $611,233,276 in 1998. The actual rate of investment return on the actuarial value of retirement system defined benefit assets was 10.09 percent. The threshold rate of investment return set by the Retirement Commission was 8 percent. The excess rate of return was therefore 2.09 percent, which is multiplied by the actuarial present value of the pensions ($611,233,276). The product is $12,774,775, which was the amount credited to the IEF in 1998. The actuarial present value of the pensions was $883,852,759 in 2008. The actual rate of investment return on the actuarial value of retirement system defined benefit assets was 5.51 percent. The threshold rate of investment return set by the Retirement Commission was 9 percent. Because there was no excess rate of return, zero percent is multiplied by the $883,852,759, resulting, of course, in a product of zero. Accordingly, no money was credited to the IEF in 2008, although $9.2 million in 13th checks was paid out that year from an IEF existing balance of $65.7 million.
