August 8, 1977
The Honorable O. L. Anderson
South Dakota House of Representatives
Rural Route 1
Hudson, South Dakota 57034
Official Opinion No. 77-69
Cement plant administrative rules
Dear Representative Anderson:
You have requested an opinion from this office based upon the following factual situation:
FACTS:
The 1976 Legislature enacted chapter 39 of the Session Laws of 1976 which set forth retirement benefits allowable to Cement Plant employees. This bill basically allowed the Cement Plant employees to be outside of the South Dakota Retirement System that was established by the 1974 Legislature provided that the benefits that were granted to the Cement Plant employees would not exceed the benefits that are provided in SDCL 3-12. Section 1 of that act provides that the Cement Plant employees employees shall have a benefit no greater than that provided in chapter 3-12 but does give latitude to the fact that the Cement Plant employees are presently under a plan which entitles them to one and four tenths percent per year of credited service. It can be assumed that this language was placed in the bill to grandfather in the current employees to one and four tenths percent benefit level for normal retirement benefit calculations.
There are many other benefit provisions, however, that a retirement system has. In some instances the Cement Plant plan has up to now been greater than the South Dakota Retirement System (SDRS) and in other instances the benefit level has been lesser than the SDRS plan. The Legislature, in my opinion, attempted to provide consistency between the retirement benefits of the Cement Plant employees and the employees covered under SDRS and as early as 1974 in the passage of section 22 of chapter 35 of the Session Laws of 1974 envisioned the need to equalize the benefits between the two groups of employees. It is clear in my mind that the intent of the Legislature has been consistent in attempting to provide a reasonable uniform level of retirement benefits and that the amendment of 1976 was merely a further clarification of the method to be used to make the retirement benefits of employees covered by SDRS and Cement Plant employees on a more uniform basis.
One way to assure the consistency in the benefit levels is by use of an actuary that is familiar with public pension plans. Thus, the Legislature in section 2 of chapter 39 of the Session Laws of 1976 required that an actuary be used in determining that the retirement benefits of the State Cement Plant Retirement Plan are no greater than those benefits provided in chapter 3-12. Professional qualifications need to be met as well. I would assume that the Cement Plant employees retirement plan can be quantified and evaluated based on the actuarial science that is consistent with the actuarial profession's standards.
The State Cement Plant Commission promulgated rules affecting the retirement benefits of the State Cement Plant employees and pursuant to SDCL 1-26 promulgated such rules with an effective date of February 1, 1977. These rules were filed with the Secretary of State and it is assumed have the effect of law. However, the specification, as required in section 2 of chapter 39 was not met in that the South Dakota Retirement System Board of Trustees did not name the actuary used in calculating the benefit levels to be provided. Thus, no calculation was made pursuant to section 2 of chapter 39 of the Session Laws of 1976 ascertaining that the benefits levels provided by the Cement Plant Commission are within the scope of South Dakota statute as provided in chapter 3-12.
Based upon the above facts, you ask the following questions:
QUESTIONS:
1. Are the administrative rules promulgated by the State Cement Plant Commission valid and if not valid, what are the benefit provisions in which the employees are not subject to?
2. If they are valid, are they valid for employees who are hired after February 1, 1977, or only for employees hired prior to February 1, 1977?
3. Also, if they are valid for employees hired prior to February 1, 1977, are they valid for employees who are hired after July 1, 1977?
IN RE QUESTION NO. 1:
Section 1 of chapter 39 of the Session Laws of 1976 (SDCL 5-17-5.2) provides:
The retirement plan benefits for state cement plant employees shall be no greater than the retirement benefits provided in chapter 3-12; provided, however, that normal retirement benefits for those employed prior to July 1, 1977 shall be equal to one and four-tenths per cent times the final compensation times the number of years of credited service. Retirement benefits for employees whose date of first employment is after July 1, 1977 shall be no greater than the benefits provided in chapter 3-12. If benefits outlined in § 3-12-91 exceed one and four-tenths per cent times the final compensation times the number of years of credited service, then the benefits of § 3-12-91, when applicable, shall supersede the provisions of this section.
Section 2 of chapter 39 of the Session Laws of 1976 (SDCL 5-17-5.3) provides:
An actuary shall be used in determining that the retirement benefits of the state cement plant retirement plan are no greater than those benefits provided in chapter 3-12, and such actuary shall be named by the board of trustees of the South Dakota retirement system as provided in chapter 3-12; provided, however, that such actuary shall meet the professional requirements as defined in chapter 3-12 and further that such costs of the actuarial evaluation shall be paid from the funds of the state cement plant commission. Actuarial evaluations shall be made no less than every two years, shall be of the same scope as provided in § 3-12-120, and the actuarial reports presented to the commission, board of trustees, and the Legislature. When calculating the benefits of the state cement plant plan are no greater than the benefits of chapter 3-12, the actuary shall allow for reasonable variations that are necessary, justified, or insignificant as determined by the actuary.
In response to your first question, for the reasons following, it is my opinion that the rules of the State Cement Plant which were filed and were to be effective on February 1, 1977, have not complied with the prerequisites of chapter 39 of the Session Laws of 1976, and therefore cannot be valid rules with the force and effect of law.
In rendering this opinion, I recognize fully that Attorney General's opinions are not the most desirable forum for determining possible rights of citizens in regard to specific factual situations. It is my opinion, however, that the provisions of SDCL 5-17-5.2 and SDCL 5-17-5.3 are procedural prerequisites for the Cement Plant retirement plan there being authorized. These procedural requirements are in addition to the normal rule-making requirements under chapter 1-26. It is my view that until such time as all of these requirements have been met, there is no statutory authority present for the Cement Plant to implement its retirement system pursuant to chapter 39 of the Session Laws of 1976.
In discussing this matter with interested persons, it appears that there has been some difference of interpretation as to when the actuary report by the retirement board's approved actuary should be submitted. It is my opinion in this regard that such actuary approval must come prior to the time the retirement plan benefits would be going into effect. Certainly, the Legislature did not intend in the above-cited statutes to have the Cement Plant retirement plan be in effect for a period of time before the retirement board's actuary made a comparison of the two plans to insure that the benefits of the State Cement Plant plan are in accordance with SDCL 5-17-5.3 and chapter 3-12.
An additional point of consideration in this regard is that the Legislature had been confronted with previous problems over changing retirement benefits that had been the subject of negotiation between the Cement Plant and the union. Once such benefits become subject to such a bargaining contract, there are additional legal problems presented in the Legislature changing those benefits during the term of that contract. To avoid this situation in the future, I believe the Legislature attempted in chapter 39 of the Session Laws of 1976 to provide that an analysis of benefits and comparison of benefits should be done prior to the time that the State Cement Plant retirement plan would be going into effect. The establishment of February 1, 1977, as the effective date of the new legislation was specifically done with the purpose in mind of correlating the new legislation with the new contract between the Cement Plant Commission and the employees of the Cement Plant.
It is a basic principle of administrative law that an agency cannot promulgate rules which are in excess of the statutory authority granted to them or by a procedure which is inconsistent from the legislation which authorizes them to promulgate the rules. If an agency attempts to promulgate rules inconsistent with either of these general principles, the purported rule making on the part of the agency cannot in my view properly and legally have the status of valid administrative rules. Any position to the contrary would effectively stand for the proposition that agencies can ignore statutory restrictions in terms of substance or procedure in their rule-making procedures. Such has never been the law in the State of South Dakota.
Accordingly, it is my view that the limitations imposed by chapter 39 of the Session Laws of 1976 are a procedural prerequisite to the State Cement Plant Commission in passing retirement rules pursuant to that act of the Legislature. Until these procedural prerequisites, such as approval by an actuary approved by the State Retirement Board, are met, I do not believe that the State Cement Plant Commission has the authority to pass rules on the retirement issue which have the force and effect of law.
IN RE QUESTIONS NO. 2 AND 3:
In view of the response to your first question, it is not necessary to further respond to your second and third questions.
Respectfully submitted,
William J. Janklow
Attorney General
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