Mayor of Baltimore v. Quam

Murphy, C. J., delivered the opinion of the Court. Shortly after her 1970 retirement from teaching in the Baltimore City school system, appellee, Louise G. Quam (Quam) protested to the Employees’ Retirement System of the City of Baltimore (Retirement System) that there were “serious errors and even injustices” in the calculation of her service retirement allowance. Unvindicated in this claim at the administrative level, Quam sought a declaratory judgment in the Baltimore City court against the Mayor and City Council of Baltimore, its Comptroller, and the Board of Trustees of the Retirement System (the City). During those proceedings, the alleged “errors and injustices” resolved into the single legal issue whether Quam was entitled to benefits provided by the supplemental pension provisions of Baltimore City Code (1966 Ed.), Article 22, § 6 (b) (6) with respect to her services for the years 1926-1937.

From the judgment of the court (Harris, J.) declaring Quam’s right to such supplemental pension benefits the City appealed. The undisputed factual background is well summarized in Judge Harris’s opinion as follows: “. . . Quam was employed as a Public School teacher by the Mayor and City Council of Baltimore City in 1924 and continued in that position for approximately thirteen years until 1937, when she resigned. Thereafter, in 1948, Mrs. Quam returned to the Public Schools and remained a teacher until her retirement on August 15,1970. “When . . . [Quam] wag appointed to her teaching position in 1924, Baltimore City had no retirement system.

However, when the Employees’ Retirement System of the City of Baltimore became effective January 1, 1926 (Ordinance 553, 1925-26), . . . [Quam] took advantage of the opportunity then extended to City employees to join the System and began ³⁶⁴ to make payments by salary deduction on account of the annuity portion of her retirement benefits. By joining the System at its inception . . . [Quam] received, at no cost to her, credit for one year and four months of service between her hiring date and January 1, 1926, the original pension ordinance having provided that the City would give employees, on the payroll on January 1, 1926, paid up pensions and annuities for their periods of service before the System went into effect. . . [Quam] continued to make payments on her annuity until she resigned from the School System in 1937, and left her contributions on deposit with the Retirement System until required by the pension ordinance to withdraw them. Upon her return to the School System in 1948, . . . [Quam] again became a member of the Employees’ Retirement System and continued to make the prescribed contributions for her annuity until she retired in 1970. “In 1953 the City Council of Baltimore City adopted Ordinance 819 and, in 1954, Ordinance 1039, both of which permitted eligible members of the Employees’ Retirement System to obtain ‘credit’ for services performed by them before ‘last becoming a member’ of the System. It is not clear from the pleadings as to which of these two ordinances . . . [Quam] utilized to obtain such credit for her eleven years and ten months of service prior to her resignation in 1937.

She was issued a ‘Special Certificate of Service Credit’ by the Employees’ Retirement System following a meeting of the Board of Trustees on June 6, 1955, which states that she is ‘entitled to all the rights and privileges accorded to members’ by both ordinances. As these ordinances differ only as to the periods for filing claims and the categories of members eligible for ser ³⁶⁵ vice credits thereunder, . . . [Quam’s] benefits would be the same under both ordinances. Both contain the same provisions directing that eligible employees be given credit for previously rendered service, provided that they pay into the Retirement System, with interest, the contributions which they would have paid had they been members of the System while such previous service was rendered. “In October 1970, the City Solicitor of Baltimore City . . . issued an opinion . . . [which] questioned the method used by the Retirement System for many years, of determining the eligibility of employees with credit for previously rendered service for supplemental pensions under Article 22, Section 6 (b) (6) of the Baltimore City Code. When this ruling was applied to the determination of . . . [Quam’s] benefits, it had the effect of disqualifying her for any supplemental pension and thereby materially diminishing her retirement benefits. “Since her retirement in 1970, . . .

Quam has accepted the retirement checks issued to her but has endorsed them ‘under protest’, it being her contention that the Retirement System has not allowed her the full amount of benefits to which she is entitled under Article 22 of the Baltimore City Code.” The City’s retirement system is, basically, a mandatory contribution plan designed to provide an allowance to those members qualified for retirement by age and years of service, consisting of a pension (provided by City funds) and a matching annuity (provided by the member’s mandatory contributions). City Code, Article 22, §§ 6 (b) (1) and (2), 8 (a) (1). A complex maze of ordinances has been enacted to implement and supplement the basic scheme; the provisions of Article 22 necessary for decision in this case are as follows: ³⁶⁶ “§ 1. Definitions. “The following words and phrases as used in this subtitle, unless a different meaning is plainly required by the context, shall have the following meanings: * * * § 1 (7). ‘Prior Service’. “ ‘Prior Service’ shall mean service rendered prior to the first day of January nineteen hundred and twenty-six—. § 1 (8). ‘Membership Service’. [Ordinance 553 (1925-1926) defined “Membership Service” as] “. . . service as an employee rendered since last becoming a member. [Ordinance 1864 (1959) added the words] “or credited as ‘Membership Service’ under any other section of this subtitle. § 1 (9). ‘Creditable Service’. “ ‘Creditable Service’ shall mean ‘Prior Service’, plus ‘Membership Service’ for which credit is allowable as provided in Section 4, Subsection (e) of this Article. * * * § 4.

Service Creditable. “(e) Creditable Service at retirement on which the retirement allowance of a member shall be based shall consist of the membership service rendered by him since he last became a member, and also if he has a prior service certificate which is in full force and effect, the amount of the service certified on his prior service certificate. * * * § 6. Benefits. * * * “(b) Allowance on service retirement. Upon retirement from service a member shall receive a service retirement allowance which shall consist of: ³⁶⁷ “(1) An annuity which shall be the actuarial equivalent of his accumulated contributions at the time of his retirement; and “(2) A pension, in addition to his annuity, which shall be equal to . . . one one-hundred-thirtieth of his average final compensation in the case of Class B members, multiplied by the number of years of his service since he last became a member; and “(3) If he has a prior service certificate in full force and effect, an additional pension which shall be equal ... to one-sixty-fifth [of his average final compensation] in the case of Class B members, multiplied by the number of years of service certified on his prior service certificate; and “ (4) If the member has credit for membership service rendered prior to January 1, 1954, an additional pension equal to the difference between the pension allowable under paragraph (2) above for such service and one one-hundred-fortieth of average final compensation multiplied by the number of years of such service ; * * * “(6) * * * “Notwithstanding anything in this Article to the contrary, if at the time of retirement on or after April 1, 1959, a member is age sixty or older, or has 35 years of service and the retirement allowance consisting of the annuity resulting from the member’s contributions for membership service and the pension determined in accordance with paragraphs (2), (3), and (4) above . . . for a Class B member is less than one-sixty-fifth of average final compensation for each year of creditable service, a supplemental pension equal to such difference shall be payable. ³⁶⁸ “The annuity provided as the result of voluntary contributions permitted under the Pension Ordinance and its amendments shall be payable and shall not be used in determining the supplemental pension, if any, payable under this subdivision, nor in determining the disability pension under Section 6, subsection (d) As heretofore indicated, prior to the passage of Ordinances 819 and 1039, now codified, respectively, as Article 22, § 16 (c) and (d), 1 a member of the Retire ³⁶⁹ ment System (such as Quam) with “interrupted service,” i.e., one who resigned, withdrew accumulated contributions, and subsequently returned to City employment and membership in the Retirement System, had no right to “repurchase” or “buy-back” previously rendered service. 2 Ordinances 819 and 1039 permitted persons who were members of the Retirement System in 1954, but who were “not credited in the Retirement System for any service previously rendered” to be “credited with such service as of January 1, 1954,” provided the requisite contributions for repurchased service were made. While neither ordinance delineated the retirement benefits the repurchased previous service would be entitled to receive, the Retirement System interpreted such previous service “credit” to include the annuity contributions previously paid and to restore to the member the corresponding pension; the Retirement System reasoned that “as a matter of simple equity ... if a member paid back to the System under Ordinance No. 819 [or Ordinance No. 1039] his required contributions for his annuity, that this, in turn, restored the corresponding pension which the City provided.” In determining the service retirement allowance due Quam upon her retirement, the City calculated that she had accumulated a total of thirty-five years and two months of membership service, of which twenty-two years was service “rendered since last becoming a member” (1948-1970) and thirteen years and two months was service credited as membership service “under any other section of this subtitle” (eleven years, ten months (1926-1937) repurchased under Ordinances 819/1039, and one year, four months “prior service” credit (pre 1926)).

The City calculated that under the mandate of ³⁷⁰ § 6 (b)(1), Quam’s annuity was required to be the actuarial equivalent of all her accumulated contributions at the time of her retirement (a monthly annuity totaling $116.09) ; that under § 6 (b) (2) Quam was entitled to a pension equal to l/130th of her average final compensation, multiplied by the number of years of service “since . . . [she] last became a member” (twenty-two years, from 1948-1970)—a pension totaling $105.28 monthly; that under § 6 (b) (3) Quam was entitled to an additional pension for her one year, four months “prior service” (pre 1926) of $12.76 monthly; that under § 6 (b) (4) Quam was entitled to an additional pension of $5.86 monthly based on membership service rendered prior to January 1, 1954 calculated in accordance with the formula therein set forth; that under Ordinances 819/1039 (Article 22, § 16 (c) and (d)) Quam was entitled to an additional pension of $56.62 monthly based on her repurchased service credit of eleven years and ten months (1926-1937) corresponding to the contributions made by her for that period. 3 In reliance upon the 1970 opinion of the City Solicitor, Quam’s claim for a supplemental pension under the provisions of §6(b) (6) was denied. In that opinion, it was stated that “the formula for determining whether an employee is entitled to a supplemental pension is clearly and unambiguously set forth in Section 6(bi-le).” He outlined the formula in these words: “It is simply a matter of determining ‘the annuity resulting from the member’s contributions for membership service and the pension determined in connection with paragraphs (2), (3) and (4)’ [of § 6 (b) ], and then determining the ‘average final compensation for each year of creditable’ service and if, when compared, the former is . . . [with respect to Class B employees] less than l/65th of average final ³⁷¹ compensation, the supplemental pension is payable. “. . . [The] problem revolves around the definition of certain terms used in Section 6 (b) (6) rather than the basic concept of the section. For the purposes of the section, the ‘retirement allowance’ consists of two elements. The first element is the annuity resulting from the member’s contributions for ‘membership service.’ ‘Membership service’ is defined in Section 1 of Article 22 as service rendered since last becoming a member or credited as service under any other section, including Section 16 (d) [or Section 16 (c)].

The second element of the retirement allowance is the applicable basic pension benefits contained in Section 6 (b) (2), (3) and (4), as set forth above. The retirement allowance consisting of the total of the two elements as defined above is to be compared with the sum represented by . . . [l/65th of average final compensation for each year of creditable service in the case of Class B employees]. ‘Creditable Service’ is defined in Section 1 (9) as ‘prior service,’ (which is elsewhere defined as service rendered prior to January 1, 1926), plus ‘membership service’ for which credit is allowable as provided in Section 4, subsection (e). Section 4, subsection (e), limits ‘creditable service’ to service rendered since last becoming a member and service certified on a prior service certificate. This definition makes it clear that creditable service does not include the service which in effect may be ‘repurchased’ under Section 16 (d) [or Section 16 (c)].

The definition appears to be designedly drawn to exclude Section 16 (d) service [or Section 16 (c) service].” In denying Quam’s claim for a supplemental pension ³⁷² the City based its calculations on the formula outlined in the City Solicitor’s opinion; it added the total of Quam’s annuity under § 6 (b) (1) to the amount of her pensions under § 6 (b)(2), (3), and (4) (a total of $239.99), and since that figure was greater than the amount represented by l/65th of Quam’s average final compensation for each year of creditable service ($223.-32), 4 no supplemental pension was deemed payable. By this method of calculation—combining Quam’s annuity for previously rendered service (1926-1937) with her annuity for service since last becoming a member (1948-1970), and “balancing” it against only her pension for service since last becoming a member (1948-1970), the annuity side of the scale was weighted so as to eliminate any supplemental pension for Quam, and for members of the Retirement System who, like Quam, had repurchased interrupted service. As heretofore indicated (but worthy of repetition), the City Solicitor’s opinion centered on the definitions of terms used in § 6 (b)(6). The annuity, he maintained, was based upon a member’s contributions for “membership service,” defined in Article 22, § 1 as service rendered since last becoming a member, or credited as service under any other section, which included service repurchased under Ordinances 819 and 1039 (§ 16 (c) and (d)).

The corresponding pension was to be computed according to the mandate of § 6 (b) (2), (3) and (4) ; in computing the supplemental pension under § 6 (b) (6), the total of these annuities and pensions was to be compared with the sum representing “l/65th of average final compensation for each year of creditable service.” The definition of “creditable service”, according to the City Solicitor’s opinion, excludes from the latter calculation the repurchased previously rendered service, for Article 22, §§ 1 (9) and 4 (e) limit creditable service to prior service (pre 1926) and membership service since last becoming a member. ³⁷³ The record discloses that for seventeen years (from the passage of Ordinance 819 (1953) to the filing of the City Solicitor’s 1970 opinion declaring the practice improper) the Retirement System had been paying to members having credit for previously rendered service supplemental pensions based upon only the members’ service “since last becoming a member.” As noted by the lower court, “[t]he formula used ignored the member’s annuity and pension for previous service, and attempted to apply the concept of equalization between the member’s annuity and pension to only that part of his service ‘since he last became a member.’ ” For example, 'in Quam’s case, this formula would have ignored both the annuity and the pension for her 1926-1937 service and her eligibility for a supplemental pension would have been based on calculations limited to her 1948-1970 service. It was against this background that Judge Harris, in a painstaking and erudite opinion, decided that neither T¿he Retirement System’s formula, in use prior to 1970, nor The formula utilized since 1970 in view of the City Solicitor’s opinion, was in accordance with the intent underlying enactment of Ordinances 819 and 1039. After observing that these ordinances failed to specify exactly how members repurchasing previously rendered service thereunder were to be “credited for such service,” Judge Harris said: “. . . the Court’s independent research discloses an obvious intent on the part of the City Council to give the employees claiming under these ordinances [819/1039] more than a mere opportunity to pay in money for years of previous service, to increase their annuities. Section 8 (a) (4), in effect in 1953, already provided a means by which members could pay additional funds into the Employees’ Retirement System to obtain higher annuities, and Ordinances 819/1039 would have been meaningless unless greater benefits to the qualified ³⁷⁴ employees were contemplated by the City Council. “(b) Ordinances 819/1039 were adopted under the subtitle ‘Additional Opportunities to Obtain Credit for Prior Service’.

This subtitle was added to the pension law in 1943 by Ordinance 912 which, like Ordinances 819/1039, credited qualified members with previously rendered service upon the payment by them of their annuity