                                                                                               09/28/2016


                                           DA 15-0554
                                                                                           Case Number: DA 15-0554

                  IN THE SUPREME COURT OF THE STATE OF MONTANA

                                           2016 MT 242



EDWARD D. WRZESIEN and LACEY VAN GRINSVEN,
individually and on behalf of all similarly situated
persons, and MEGAN ASHTON, individually,

              Plaintiffs and Appellants,

         v.

STATE OF MONTANA, and MONTANA PUBLIC
EMPLOYEE RETIREMENT ADMINISTRATION,

              Defendants and Appellees.


APPEAL FROM:            District Court of the First Judicial District,
                        In and For the County of Lewis and Clark, Cause No. DDV 2012-931
                        Honorable James P. Reynolds, Presiding Judge


COUNSEL OF RECORD:

                For Appellant:

                        Travis Dye, Kalkstein, Johnson & Dye, PC, Missoula, Montana

                For Appellee:

                        Timothy C. Fox, Montana Attorney General, J. Stuart Segrest, Assistant
                        Attorney General, Helena, Montana



                                                    Submitted on Briefs: July 20, 2016

                                                               Decided: September 28, 2016


Filed:

                        __________________________________________
                                          Clerk
Justice James Jeremiah Shea delivered the Opinion of the Court.

¶1    Edward Wrzesien, Lacey Van Grinsven, and Megan Ashton (collectively,

“Participants”) appeal an order of the First Judicial District Court, Lewis and Clark

County, granting summary judgment to the State of Montana and Montana Public

Employee Retirement Administration (collectively, “State”) on the grounds that:

(1) participants in the Defined Benefit Retirement Plan (DB Plan), Defined Contribution

Retirement Plan (DC Plan), and Montana University System Retirement Plan (University

Plan) are not members of similarly situated classes under an equal protection analysis;

and (2) employer contributions to the trust that funds the retirement benefits of all DB

Plan participants (DB Trust) that are calculated based on the salaries of DC and

University Plan participants do not violate substantive due process. We address:

      1. Whether the District Court correctly concluded that DB Plan, DC Plan, and
      University Plan participants are not members of similarly situated classes.

      2. Whether the District Court correctly concluded that employer contributions to
      the DB Trust that are calculated based on the salaries of DC Plan and University
      Plan participants do not violate substantive due process.

¶2    We affirm.

                 PROCEDURAL AND FACTUAL BACKGROUND

¶3    This case concerns three retirement plans established by the Montana Legislature

under the Montana Public Employee Retirement System (PERS).            All eligible state

employees must participate in a PERS retirement plan. For most employees, this means

choosing between the DB and DC Plans. Eligible employees of the Montana University

System also have a third option: the University Plan. All covered employees participate



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in the DB Plan unless, within one year of hire, they elect to join the DC Plan or, if

applicable, the University Plan. Sections 19-3-401(1), -2111(1), -2112(2), MCA. An

employee’s decision to participate in the DC or University Plan, or to remain in the

default DB Plan, is irrevocable. Sections 19-3-2111(2)(c), -2112(2)(d), MCA.

¶4       All employees contribute 7.9 percent1 of their earnings to their respective

retirement plan. Section 19-3-315(1), MCA. Under the DB Plan, each employee’s

contribution goes to the DB Trust. Sections 19-2-501, -3-315(1)(a), MCA. By contrast,

under the DC and University Plans, each employee’s contribution goes into an individual

account, which the employee chooses how to invest. See §§ 19-3-315, -2102, -2122,

19-21-214, MCA.

¶5       State employers are required to contribute an amount equal to 8.17 percent2 of

each employee’s earnings to the retirement system, regardless of which retirement plan

the employee chooses. Section 19-3-316(1), (3) MCA. For DB Plan participants, the

majority of this contribution goes to the DB Trust. Sections 19-3-108(5), -316, MCA.

After meeting age and service requirements, DB Plan participants may withdraw a

statutorily-prescribed benefit from the trust. Sections 19-3-901 through -904, MCA. For

DC Plan participants, the employer contribution is allocated between the participant’s

individual account and several other funds, including the DB Trust.               Section

19-3-2117(2), MCA. The portion of the DC Plan employer contribution that goes to the

1
  The Montana Public Employees’ Retirement Board annually reviews this contribution amount
and recommends adjustments to the Montana Legislature; thus, this percentage is subject to
change. Section 19-3-315(1), MCA.
2
    This amount is subject to change. See § 19-3-316(4), MCA.


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DB Trust is called the “Plan Choice Rate,” and is calculated to ensure that the DB Trust

is actuarially sound. Section 19-2-303(38), MCA. A DC Plan participant’s retirement

benefit consists of the accumulated funds in his or her individual account, along with any

investment gain or loss. Section 19-3-2116, MCA. DC Plan participants are not entitled

to any payments from the DB Trust. See § 19-3-909, MCA. University Plan employee

and employer contributions are allocated in a similar, though not identical, manner to the

DC Plan. See §§ 19-21-101 through -214, MCA. Because it has no effect on our legal

analysis, for purposes of this Opinion, the DC and University Plans will be treated as

though they were administered in the same way.

¶6    Participants all elected to participate in the DC and University Plans. In October

2012, Participants filed a complaint alleging that they are treated unequally from

similarly-situated DB Plan participants, violating the equal protection clause of the

Montana Constitution. Participants also alleged that requiring the State employers of DC

and University Plan participants to contribute to the DB Trust violates Participants’

substantive due process rights.   The parties cross-filed motions for summary judgment,

and the District Court granted summary judgment to the State, concluding that the

statutes creating the DC and University Plans did not violate equal protection or

substantive due process. The District Court reached this decision by concluding that the

classes at issue—members of the three retirement plans—were not similarly situated, that

maintaining the actuarial soundness of the DB Trust is a legitimate governmental

purpose, and that Participants were never entitled to the money allocated to the DB Trust.

Participants appealed.


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                               STANDARDS OF REVIEW

¶7     “We review summary judgment rulings de novo, applying the criteria set forth in

M. R. Civ. P. 56.”         Mont. Cannabis Indus. Ass’n v. State, 2016 MT 44, ¶ 11,

382 Mont. 256, 368 P.3d 1131. “Summary judgment is appropriate when the moving

party demonstrates an absence of a genuine issue of material fact and entitlement to

judgment as a matter of law.”        Arnone v. City of Bozeman, 2016 MT 184, ¶ 4,

384 Mont. 250, 376 P.3d 786 (citing M. R. Civ. P. 56(c)(3)). We exercise plenary review

of constitutional issues. Mont. Cannabis Indus. Ass’n, ¶ 12.

                                       DISCUSSION

¶8     1. Whether the District Court correctly concluded that DB Plan, DC Plan, and
       University Plan participants are not members of similarly situated classes.

¶9     Under the equal protection clause of the Montana Constitution, “[n]o person shall

be denied the equal protection of the laws.” Mont. Const. art. II, § 4. However, “[a]

statute does not violate the right to equal protection simply because it benefits a particular

class.” Bean v. State, 2008 MT 67, ¶ 13, 342 Mont. 85, 179 P.3d 524. Rather, “[e]qual

protection provides a check on governmental action that treats similarly situated persons

in an unlike manner.” Caldwell v. MACo Workers’ Comp. Trust, 2011 MT 162, ¶ 14,

361 Mont. 140, 256 P.3d 923. “Consequently, when addressing an equal protection

challenge, this Court must first identify the classes involved and determine whether they

are similarly situated.”     Powell v. State Comp. Ins. Fund, 2000 MT 321, ¶ 22,

302 Mont. 518, 15 P.3d 877.




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¶10   In reaching its conclusion that DB, DC, and University Plan participants are not

similarly situated, the District Court cited Bean and Gulbrandson v. Carey,

272 Mont. 494, 901 P.2d 573 (1995). In Bean and Gulbrandson, we held that laws

giving different retirement benefits to employees based on their date of hire or date of

retirement did not violate equal protection. Although the employees performed the same

duties, faced the same job hazards, and worked in the same positions regardless of when

they were hired, the challenged laws created two dissimilar classes and operated equally

with respect to all members within each class. See Bean, ¶¶ 17, 20; Gulbrandson,

272 Mont. at 504, 901 P.2d at 580.

¶11   Here, the Legislature chose to give State employees an option in choosing how

their retirement benefit will be calculated and invested. Pursuant to § 19-3-904, MCA, a

DB Plan participant’s benefit is calculated based on the participant’s highest average

compensation and length of service or the participant’s accumulated contributions to the

DB Trust. The statute does not provide for a retirement benefit based on the employer’s

contributions to the DB Trust. If a DB Plan participant leaves state employment after his

or her retirement benefit vests, the participant may immediately withdraw an amount

equal to his or her contribution to the DB Trust, but may not withdraw any employer

contribution. See § 19-2-602, MCA. By contrast, if a DC or University Plan participant

leaves state employment after his or her retirement benefit vests, the participant may

immediately withdraw the employer contribution in addition to his or her own

contribution. Sections 19-3-2116, -2123, MCA. Unlike DB Plan participants, DC and

University Plan participants may choose how to invest their retirement funds. As a


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trade-off, employers do not contribute as much to a DC Plan participant’s individual

account as they contribute to the DB Trust for DB Plan participants.

¶12    As the District Court recognized, the Legislature created dissimilar classes:

“risk-averse state employees who wish to forego any potential investment gain in favor of

a known, guaranteed retirement benefit, and risk-accepting state employees who wish to

maintain control over how their retirement funds are invested.” Participants are not

statutorily precluded from participating in either plan. Rather, while the State provides

options, employees make the choice and create the dissimilar classifications. As in Bean

and Gulbrandson, DC, DB, and University Plan participants are not similarly situated.

Participants’ ability to choose which dissimilar class they would like to join does not

violate their equal protection rights. See Bean, ¶ 13 (“An equal protection challenge fails

if the groups at issue do not constitute similarly situated classes.”).

¶13    2. Whether the District Court correctly concluded that employer contributions to
       the DB Trust that are calculated based on the salaries of DC Plan and University
       Plan participants do not violate substantive due process.

¶14    Pursuant to Article II, Section 17 of the Montana Constitution, “[n]o person shall

be denied life, liberty, or property without due process of law.” Substantive due process

requires that statutes enacted by the Legislature be reasonably related to legitimate state

interests. Powell, ¶ 29. Article VIII, Section 15 of the Montana Constitution requires

that “[p]ublic retirement systems shall be funded on an actuarially sound basis.” The

Legislature created the Plan Choice Rate “to actuarially fund the unfunded liabilities and

the normal cost rate changes in a defined benefit plan resulting from member selection of

the defined contribution plan.”       Section 19-2-303(38), MCA.          The District Court


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determined that the Plan Choice Rate was reasonably related to the legitimate state

interest of keeping the retirement system actuarially sound because DC and University

Plan participants do not contribute to the DB Trust and therefore, absent the Plan Choice

Rate, “the amount the [DB Trust] fund takes in would be proportionally less than it was”

before the DC and University Plans existed.

¶15    Participants agree that maintaining an actuarially sound DB Plan is a legitimate

state interest, but contend that the Plan Choice Rate is not reasonably related to that

interest because it directs a portion of DC Plan participants’ employer contributions to the

DB Plan and thus “deprive[s] Montanans of their hard earned money for no

consideration.” (Citing Hardy v. Progressive Specialty Ins. Co., 2003 MT 85, ¶ 37, 315

Mont. 107, 67 P.3d 892.) The District Court rejected this argument, finding that “DB

[P]lan members only have an interest in the employer contribution insofar as it helps

maintain the actuarial soundness of the fund that pays their retirement benefit.” In

reaching this conclusion, the District Court found that Participants’ assertion that all

PERS-eligible employees receive an employer-paid contribution equal to 8.17 percent of

their respective salaries was incorrect. Under the DB Plan, rather than going to the

employee, the majority of the employer contribution goes to the DB Trust. By contrast,

under the DC and University Plans, a portion of the employer contribution goes directly

into the employee’s individual account and a portion goes to various other funds,

including the DB Trust. DC and University Plan participants were promised an employer

contribution of 4.19 percent, not 8.17 percent.       In exchange for a lower employer

contribution, Participants have the flexibility to control their accounts. The State’s use of


                                              8
their earnings for purposes of calculating employer contributions to the DB Trust is

merely a variable for the calculation to maintain actuarial soundness of the DB Trust.

Contrary to Participants’ argument, the State is not depriving DC and University Plan

participants of their “hard earned money,” because the lower employer contribution is

simply the result of the choice that DC and University Plan participants made in

exchange for the flexibility to control their accounts and to have the employer

contribution go directly into their accounts instead of a separate trust. As far as the

employer contribution goes, DC and University Plan participants are getting precisely

what they bargained for when they voluntarily chose those plans. Therefore, employer

contributions to the DB Trust do not violate DC or University Plan participants’

substantive due process rights.

                                    CONCLUSION

¶16    We affirm the District Court’s Order.


                                                   /S/ JAMES JEREMIAH SHEA


We Concur:

/S/ MIKE McGRATH
/S/ LAURIE McKINNON
/S/ PATRICIA COTTER
/S/ BETH BAKER
/S/ MICHAEL E WHEAT
/S/ JIM RICE




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