May 18, 1981

Mr. Dale Strasser 
City Attorney 
Post Office Box 308 
311 South Main Street 
Freeman, South Dakota 57029

Official Opinion No. 81-19

Withdrawal From South Dakota Municipal Retirement System

Dear Mr. Strasser:

You have requested an official opinion from this office in regard to the following facts:

FACTS: 

By way of background, the city council of Freeman adopted by resolution dated June 21, 1974, participation in the Municipal Retirement System.  The ordinance provided that all policemen in the employment of the city and all persons who should thereafter become in employment of the city shall be employed in the membership by the retirement system.  Further, all general employees of the city on the date of the ordinance as well as all general employees of the city after that date shall be included in the membership program. Five per cent contribution is to be taken from the salaries of the employees and five per cent to be contributed by the city.  A copy of the ordinance is attached herewith for your records. 

After reviewing the participation program, the city council has expressed a desire to terminate participation in this municipal retirement fund.  They city council wishes to either terminate any further participation in the program completely or in the alternative to revise the resolution to allow participation to be an elective item for each individual employee.

Based on the foregoing facts, you have asked the following questions:

QUESTION: 

1.  May the city council terminate further participation in SDMRS by repealing the resolution? 

2.  May the city council amend its prior resolution to restrict the class of covered employees under SDCL 9-16-5 to elective future employees? 

3.  If participation may be terminated, would contributions paid by current employees be lost, held in suspense, or paid out?

IN RE QUESTION NO. 1:

The city of Freeman on June 21, 1974, joined the South Dakota Municipal Retirement System pursuant to SDCL 9-15-24.  Under 9-15-25, membership for all of Freeman's employees was mandatory.

Effective July 1, 1974, the whole of Chapter 9-15 was repealed (SL 1974, Ch. 35, §  80).  Chapter 3-12, providing for the current consolidated system, replaced Chapter 9-15.  Under SDCL 3-12-62, participation remained mandatory for all permanent full-time employees of the city of Freeman.

Neither Chapter 9-15 nor Chapter 3-12 contains any provision allowing a participating municipality to withdraw.  The funding mechanism of a retirement system is such that a rather elaborate procedure would be necessary if withdrawal were to be permitted.  It would be necessary to identify all service  credit earned by all employees of the withdrawing unit during the unit's participation, and to provide for full funding of all benefits which might result from that service.  An actuarial study would be required for that purpose.  The fact that no such provision exists in either Chapter 9-15 or Chapter 3-12 leads directly to the conclusion that the Legislature did not intend to permit withdrawal.  This opinion is consistent with an opinion issued by one of my predecessors (1963-1964 A.G.R. 22).  The answer to your first question therefore is no.  See Ill. Mun. Retirement Fund v. City of Barry, 367 N.E.2d 1048 (Ill. 1977) and People v. Illinois Municipal Retirement Fund, 128 N.E.2d 923 (Ill. 1955).

IN RE QUESTION NO. 2:

With respect to your assertion that the city has the authority to specify which employees may participate, you are incorrect.  Both the old Municipal Retirement System under Chapter 9-15 and its successor, the consolidated system under Chapter 3-12, are mandatory systems.  By joining the statewide system, the city gave up the rights it would have had if it had chosen to set up its own separate system under Chapter 9-16.  The provisions of that chapter apply only to the separate municipal systems which continue to exist under the permission granted in SDCL 3-12-65.  Participation in the  South Dakota Retirement System is governed by the provisions of Chapter 3-12. In addition, it is noteworthy that Chapter 9-16 applies to first class municipalities only.

IN RE QUESTION NO. 3:

Since the answer to Question No. 1 was no, it is unnecessary to address this question.

In summary, the city of Freeman does not have either the right to withdraw from the South Dakota Retirement System or the right to specify what classes of employees may participate in the system.

Respectfully submitted,

Mark V. Meierhenry
Attorney General