Benson v. Board of Ed. of Mont. Co.

Orth, J., delivered the opinion of the Court. Teachers in the public schools of Montgomery County may receive benefits upon normal retirement from two sources, the Teachers’ Retirement System of the State of Maryland (the State Plan) and the Montgomery County Public Schools Employees’ Retirement System (the County Plan). Referred to as a “service retirement aJJowsaepf m the State Plan and as a “base pension” ia tfto Copsity Flap earn m ©«pitad on ³⁴⁰ a percentage of the teacher’s average, final compensation multiplied by the number of years of his credited service. Maryland Code (1957, 1975 Repl.

Vol.) Art. 77, § 195 (2); County Plan, § 8.1. The County Plan provides a higher percentage rate than the State Plan but sets off against the amount payable under it the amount payable under the State Plan. Thus, with respect to teachers, the County Plan merely provides a supplement to the State Plan. The litigation before us stems from the County Plan formula for computing the base pension.

The issue for decision is whether the Board of Education of Montgomery County (the Board), in amending the County Plan in 1969, froze the rate at which the offset was to be computed at the percentage then existing. If so, that rate could not thereafter be increased despite any increase in the rate of service retirement allowances under the State Plan. To put it another way, the rate of the County Plan supplement could not thereafter he diminished. The immediate question is whether, under the present status of both Plans, the rate of the supplement is .3333% or .1818% of average final compensation.

The issue is presented in a declaratory class action in which all teachers retiring at their normal retirement date entitled to service retirement payments under both Plans are represented. The action encompasses not only the teachers in that category who have retired but also those presently working who later retire. Thus, the issue has a substantial and far-reaching impact, I A perspective of the issue for decision is best attained by tracing the history of the County Plan. The General Assembly established the Teachers’ Retirement System of the State of Maryland as of 1 August 1927 for the purpose of providing retirement allowances and other benefits for teachers of this State. 1 Maryland Code (1957, 1975 Repl. ³⁴¹ Vol.) Art. 77, § 190 et seq.

It also established, effective 1 October 1941, the Employees’ Retirement System of the State of Maryland, but excluded therefrom any person who was a member of or eligible for membership in the State Plan. Maryland Code (1957, 1970 Repl. Vol.) Art. 73B, § 1 (3) and § 2. As of 1 August 1965 the County Council of Montgomery County, on recommendation of the County Personnel Board, withdrew its officers and employees who were members of the Employees’ Retirement System of the State of Maryland and who consented to such withdrawal and transferred them as authorized by Maryland Code (1957, 1970 Repl.

Vol.) Art. 73B, § 28, to a more favorable system which it established, the Employees’ Retirement System of Montgomery County. Montgomery County Code (1972) § 33-34 et seq. The Superintendent of Schools of Montgomery County informed the Board of Education of the County Council’s action. The Board requested the Superintendent to have a study made of the County government’s “very attractive” plan to determine the feasibility of providing similar retirement benefits for Board of Education employees.

A consulting actuary was employed to conduct the study. See Board Resolutions FS-66-6-8 and FS-66-8-12. On the strength of the study submitted, the Board resolved that a retirement system be established. Board Resolution FS-66-11-13 as amended by Resolution FS-67-7-11.

A plan was proposed which the Board approved “in principle.” Board Resolution No. 634-66. On 17 April 1967 the Board approved the County Plan to be effective 1 January 1968 and authorized the Superintendent of Schools to negotiate with Aetna Life Insurance Company, the agency administering the Employees’ Retirement System of Montgomery County, to administer it. Board Resolution No. 252-67. A group annuity contract with Aetna was negotiated and approved.

Board Resolution No. 431-67. The Board offered the Plan to its employees. All teachers and other persons employed by the Board on a full time ³⁴² basis or on a part-time basis on a regularly scheduled 20-hour work week, and members of either the Teachers’ or Employees’ Retirement System of the State were eligible for membership. County Plan, § 1.1 (e).

Membership commenced on 1 January 1968 for those who elected to become members on or before that date, and on the date of employment, as a condition of employment, for those employed after 1 January 1968. An eligible employee who elected not to become a member retained his existing retirement status. §§ 3.1 and 3.2. Supplemental retirement benefits were provided for the Plan’s members who were members of the Teachers’ Retirement System of the State of Maryland and full retirement benefits were payable to its members who were not eligible for membership in that State Plan. This was spelled out in § 8.1.

The formula for the amount of the yearly base pension payable at normal retirement date 2 was 1.75% of average final compensation 3 multiplied by years of credited service 4 to a maximum of 36 years less the yearly retirement benefit, if any, payable under the State Plan for such years of credited service. It is clear that under the County Plan formula each eligible employee of the Board, whether serving as a teacher or in some other capacity, who retired at his normal retirement date, received the same amount of base pension in the aggregate. The only difference in the case of a teacher was that the amount payable under the County Plan was ³⁴³ reduced by the amount paid under the State Plan. The total amount received, however, remained unchanged.

When the County Plan was adopted the yearly retirement benefit under the State Plan was as originally established at the rate of 1.4286% (1/70) of average final conpensation. 5 Maryland Code (1951) Art. 77, § 109 (2) (c). Therefore, the County Plan supplement was .3214%, calculated by deducting the 1.4286% under the State Plan from the 1.75% under the County Plan. By Acts 1969, ch. 168, approved 23 April 1969 and effective 1 July 1969, the rate under the State Plan was increased to 1.6667 % (1/60). The supplement under the County Plan thereby was reduced to .0833%.

The Montgomery County Superintendent of Schools brought this to the attention of the Board by a memorandum dated 16 April 1969. Pointing out that the net effect of the State’s action was to reduce the supplement from the County Plan unless action was taken to revise the County Plan formula to include the increase in the State Plan, and explaining how the increase could be properly financed, he suggested that the County Plan formula be revised to reflect the increase in the State Plan formula from 1/70 to 1/60. He recommended that the Montgomery County Public Schools Employees’ Retirement System formula be revised from 1.75% to 2.0% for each year of credited service to a maximum of 36 years minus retirement income received from the State. The Board accepted the recommendation.

The County Plan was amended merely by substituting “two percent (2%)” in lieu of “one and three-quarters percent (l 3 /4%)” in paragraph (a-1) of § 8.1. The section, unchanged except for the percentage amount, then read: 8.1 Amount of base pension at normal retirement date. The yearly amount of base pension for a member who retires from the service of the ³⁴⁴ Montgomery County Public Schools on his normal retirement date will equal (a) minus item (b): (a) item (a-1) multiplied by item (a-2): (a-1) two percent (2%) of his average final compensation; (a-2) his years of credited service, up to a maximum of thirty-six years of credited service; (b) the yearly retirement benefit, if any, payable to the member under the Teachers’ Retirement System with respect to the period of credited service considered in item (a-2). Years of credited service of less than a full year will be prorated and any days of credited service in excess of fifteen days shall be equal to one month.

Under the formula as amended the County Plan supplement was .3333 % — 2% under the County Plan less 1.6667 % under the State Plan. Base pensions to those entitled were paid accordingly, and all went well. In 1973 the rate under the State Plan was again increased. By Acts 1973, ch. 459 (House Bill 1264) and ch. 460 (Senate Bill 939), the provisions of which were identical, approved 21 May 1973 and effective 1 July 1973, the average final compensation under the State Plan was set at 1.8182% (1/55).

If the County Plan rate remained at 2%, the increased State Plan rate had the effect of reducing the County Plan supplement by .1515 % to .1818 %. Aetna, however, took the view that computation of the benefit level had to be made as of the date the member employee retired with no adjustment to be thereafter made. It continued to pay annuities to former Board employees who retired on pr before 30 June 1973 without reduction in the amount of the supplement under the County Plan. But the .1515% reduction in the supplement was applied to those ³⁴⁵ who had retired on or after 1 July 1973.

The result was that a retired employee of the Board who was entitled to benefits under both Plans and who had retired before 1 July 1973 received a total pension at the rate of 2.1515% —• 1.8182% under the State Plan plus .8333% under the County Plan. Such employees who had retired on or after 1 July 1973 received a total pension at the rate of 2% — 1.8182 under the State Plan plus .1818% under the County Plan. And, of course, those retired members who were not entitled to retirement benefits under the State Plan received a base pension at the rate of 2 %. The Superintendent of Schools brought all this to the attention of the Board in a memorandum dated 11 September 1973.

He recommended that the benefits which were being extended to members of the County Plan who retired after 1 July 1973 be passed on, to the extent the budget permitted, to those who retired before that date. He prepared and submitted an amendment to § 8.1 and a resolution for its adoption by the Board. The proposed amendment substituted “two and eighty-five thousandths percent (2.085%)” as the rate of average final compensation in place of “two percent (2%)” in paragraph (a-1) of § 8.1. No other change was suggested.

The Board did not adopt the proposed amendment. 6 It explained its position in Board Resolution No. 545-78. In a series of “whereas clauses” it set out the then existing provisions of § 8,1, noted what changes the General Assembly had made in the State Plan, and declared; WHEREAS, It was the intention of the Board of Education, in adopting Section 8.1 of the [County] ³⁴⁶ Plan, to provide a benefit which, when combined with a retiree’s benefit under the state system, would produce a total benefit of 2.0% of average final compensation multiplied by years of credited service, up to a maximum of 36 years of credited service, and not to provide, by giving effect to postretirement state benefit increases, a total exceeding such 2%, and WHEREAS, A question has arisen as to whether Section 8.1 of the [County] Plan provides that retired Montgomery County members of the State Retirement System who received as of July 1, 1973, increased benefits under that system have the right to continue to receive the same benefits under the [County] Plan as they received before July 1, 1973, and WHEREAS, The Board of Education believes that Section 8.1 of the [County] Plan requires that a retiree receiving an increase in state benefits after retirement should receive a corresponding decrease in benefits under the [County] Plan, so that the total benefits such employee receives under both plans continues to be based on 2% of average final compensation,.... Stating its belief that “its interpretation of § 8.1 was necessary to avoid inequities in benefits as between members who retired before 1 July 1973, and members who retired or will retire thereafter,” it resolved that the Superintendent of Schools “in the name of the Board, is authorized and directed to retain an attorney, approved by the Board, and to commence an appropriate proceeding in the Circuit Court [for] Montgomery County seeking a declaratory judgment to declare the rights of members of the [County] Plan under Section 8.1 thereof, as described above.” On 17 October 1973 the Board instituted a class action in the Circuit Court for Montgomery County against Aetna and Brian M. Benson, “individually and as a representative of ³⁴⁷ the class of persons” who retired under the State Plan and the County Plan on or before 30 June 1973. The action sought a judgment declaring that the rights of retirees who were members of the class represented by Benson were as interpreted by the Board in its Resolution No. 545-73.

The Bill of Complaint also prayed for an injunctive order directing Aetna to conform to such interpretation. John M. King, Marjorie L. Van Dien, Marvel B. Hess, Pete V. Treibley and Phyllis Robinson, all members of the County Plan, intervened. Under a consent order, King and Van Dien were “accepted as representatives of the class of persons formerly employed by the Board who retired under the State Plan and the [County] Plan on or after 1 July 1973----” Hess, Treibley and Robinson were deemed “to represent only the class of persons currently employed by the Board who are members of both the State Plan and the [County] Plan.” Thus, the action bound those who retired before 1 July 1973 (the Benson class), those who retired on or after 1 July 1973 (the King class), and those who had not yet retired (the Hess class). The chancellor was in accord with the view of the Board.

He adjudged that § 8.1 stood as amended in 1969. He declared that under its terms the amount to be deducted was to be “upon the benefit level under the State Plan” at the time each payment is made under the County Plan. Thus, “any post-retirement increase in the benefit level which a member receives under the State Plan shall have the effect, under the [County] Plan, of a post-retirement increase in the deduction for such benefits under Section 8.1 (b) of the [County] Plan, and shall cause an equivalent decrease in the supplemental benefits payable under the [County] Plan to such member.” In short, the total pension payable under both Plans was at the rate of 2% of average final compensation. He ordered Aetna henceforth to conform to the interpretation of § 8.1 as ³⁴⁸ declared and not to pay benefits to any members which, taken together with benefits under the State Plan, would produce aggregate benefits based on more than 2% of final average compensation.

Members of the County Plan, however, were not required to refund to Aetna or to the Board any amount theretofore paid under the County Plan in excess of the amounts provided in the court’s decree. Benson and the five intervenors appealed. 7 The Court of Special Appeals affirmed the judgment in a per curiam opinion. Hess v. The Board of Education of Montgomery County, No. 1095, September Term, 1975, filed 20 September 1976, unreported. Benson, representing the class of members who retired before 1 July 1973, and King and Van Dien, representing the class of members who retired thereafter, filed a petition for the issuance of a writ of certiorari.

We granted the