Kentucky Retirement System

OAG 00-7 October 17, 2000 Subject: Kentucky Retirement System Requested by: Board of the Kentucky Retirement System Written by: Scott White, Assistant Deputy Attorney General Syllabus: Trustees of the Kentucky Retirement System are holding a “State Office” Statutes construed: KRS 61.080, 61.645, 61.650, Const. §165 OAGs cited: 66-586, 72-458, 72-594, and 91-208 Opinion of the Attorney General We have been asked by the Board of the Kentucky Retirement Systems (KRS) whether the position of Trustee is a “State Office.” We have directly addressed this issue in two prior published opinions: OAG 72-458 and OAG 72-594. In analyzing this question, we invited a number of potentially interested entities to provide their legal opinions and comments. We received responses from the Office of the Governor, the Jefferson County Attorney, and the Legislative Research Commission. Based upon our analysis of the pertinent facts and law, we see no reason to depart from our opinion that the position of Trustee of the Kentucky Retirement Systems Board is a “State Office.” As a result, then, Section 165 of our Constitution and KRS 61.080 apply in determining the qualifications of potential Board members. LEGAL ANALYSIS The Kentucky Retirement System (KRS) was created by our Legislature in 1956 to manage a secure retirement plan for certain government employees. The KRS is composed of three separate systems: county employees, state employees, and state police. KRS 61.645 (1). Each of these systems is represented on the governing board. Other members include, in an ex officio capacity, the Secretary of the Personnel Cabinet, and three gubernatorial appointments. The Board oversees the combined system in a fiduciary capacity, and administers the plan “solely in the interest of the members and beneficiaries . . . .” KRS 61.650 (1); and, Jones v. Board of Trustees of Kentucky Retirement Systems, 910 S.W.2d 710, 712 (Ky. 1995). The governing statutes precisely and specifically set forth the powers, duties, and obligations of the Board, its Trustees, and employees. KRS 61.645 et seq. This even includes an express assertion of sovereign immunity that encompasses a partial waiver of immunity for intentional or reckless misconduct by a Trustee. KRS 61.645 (15)(d) and (e)1, 2. The KRS is not some private entity or quasi-governmental agency. The KRS is a state agency with appropriately delegated powers. Jones, 910 S.W.2d at 713-714. In fact, our Supreme Court affirmed the supreme power of the Legislature to determine how to fund its contractual obligations with its employees vis a vis the retirement plan. The Court held that the Legislature through the Budget Bill can modify the funding requests submitted to it by the Board -- thus, affirming the ultimate authority of the Legislature over the Board as well as underscoring the Legislature’s oversight control. The Court clearly affirmed the ultimate authority of the Legislature, and reeled in the Board’s attempt to place itself beyond that control. Id. at 715-716. It is quite conclusive that the Board of the KRS is a State agency. See, Withers v. University of Kentucky, 939 S.W.2d 344, 344 (Ky. 1997). It would be difficult to postulate, we think, that the operation of a retirement system for state employees is not “ . . . [an] integral part[] of state government as to come within regular patterns of organization and structure.” Id. We are now able to turn to the real issue presented by this request: are the Trustees of the Board, themselves, holding a state office? The case law in Kentucky has developed a five-part test to make this determination. The criteria are: 1. The office must be created by the Constitution, the Legislature, or a municipality with conferred legislative authority; 2. The office must possess a delegation of a portion of the sovereign power of the government to be exercised by the office holder for the benefit of the public; 3. The powers and duties of the office must be defined by the authority creating it; 4. The duties of the office must be performed independently and without control of any “superior” public power other than that contained in the law creating it; and, 5. The office itself is one of permanency and continuity until the law creating it is repealed or in some other manner dispensed with by the creating authority. Lexington v. Thompson, 250 Ky. 96, 61 S.W.2d 1092, 1093-1094 (1933). And, Lasher v. Commonwealth, 418 S.W.2d 416 (Ky. 1967); Commonwealth v. Howard, 379 S.W.2d 475 (Ky. 1964); and, Howard v. Saylor, 305 Ky. 504, 204 S.W.2d 815 (1947). Applying this to the office of Trustee we quickly see that it is a “State Office.” The first criteria is met because the office was created by the General Assembly. KRS 61.645. The second criteria is met in that the Legislature delegated a portion of its power to the Trustees to act as a Board to control and manage the retirement plan. This is clearly a power vested in the legislative branch. See, LRC v. Brown, 664 S.W.2d 907 (Ky. 1984); and, Armstrong v. Collins, 709 S.W.2d 437 (Ky. 1986). It is argued, though, that the Board is not acting “for the benefit of the public,” since its duty is to administer the plan “solely in the interest of the members and beneficiaries. KRS 61.550(1); and, Jones, 910 S.W.2d at 711-712. We disagree. Although it is the obligation of the Board to act within its fiduciary obligations and this most directly affects beneficiaries, it cannot be said that by acting solely in the interest of them it solely benefits just them. Rather, by acting within their fiduciary duty and maintaining an actuarially sound system that pays out as it is supposed, maintains an appropriate balance between assets and liabilities, and is otherwise professionally and appropriately operated within the scope of the applicable fiduciary duties, the Board is benefiting the whole public by providing such a retirement benefit to its employees. The public is served by: the State being able to use a tool that is a prerequisite to attracting and keeping quality employees dedicated to public service; and, protecting general fund dollars from becoming a source for claims should the retirement plan become financially inadequate or insolvent. In other words, if the Board mismanages the fund which leads to losses to beneficiaries, or places those obligations at risk, then the Board will by necessity turn to the Legislature for additional appropriations of taxpayer dollars. The third criteria is met in that the Legislature has plainly defined the duties and obligations of the Board in KRS 61.645 et seq. The fourth criteria is met in that the Board is the “supreme” authority over the affairs of the retirement plan subject only to the limits placed in the statutory scheme itself, and the generally superior and non-delegable powers of the Legislature. See, generally, Jones v. Board of Trustees, supra. Last, the fifth criteria is met in that the office of Trustee is permanent and continual. The office has a specific term, and specific types of people serve. There is nothing that abolishes the office itself. Indeed, absent an amendment or repeal, the office of Trustee will continue indefinitely. The office of Trustee of the Board of KRS is a State Office. CONCLUSION The Legislature, as it can do, has devised a retirement plan for the public servants of this Commonwealth. In so doing, it also provided for an appropriate and responsible governing structure to best insure the responsible operation of that plan. We think it a simple matter to conclude that the persons governing those funds and managing that system are holding a “State Office.” Moreover, the law plainly and unequivocally dictates that result. Albert B. Chandler, III Attorney General Scott White Assistant Deputy Attorney General As a threshold matter, we need to dispose of the request of the Office of the Governor and Jefferson County Attorney to reverse an opinion set out in a miscellaneous letter sent to KRS on August 16, 2000, which apparently initiated this request. In that letter, we opined on whether various board members were properly serving, or if their service was incompatible under Kentucky Constitution Section 165. Given our opinion here, we see no need to revisit the issues dealt with in the August 16, 2000 letter opinion. OAG 66-586 and OAG 91-208 deal with the issue of “dual office holding.” That is a situation in which the General Assembly creates some board or commission, and provides that a particular official or class of officials serve on its governing board. The issue is whether that official can serve or if an impermissible incompatibility arises. Those opinions followed the well accepted general rule that no incompatibility exists if the duties discharged relate to the discharge of the other offices’ obligations. In other words, the official is discharging the duties of the primary office by service in the other, new office. Ergo, the use of the phrase ex officio — service in “an official capacity.” In that context there is no “dual office holding,” or incompatibility to guard against since the offices are compatible. Here, though, those opinions have no application. KRS 61.645 (1)(b) provides that two trustees of the KRS be a member of, or retired from, the County Employees Retirement System (CERS). The statute does not provide any more specific direction. It is clear from the plain language of the statute that current county employment is not a prerequisite to service on the Board. The Legislative policy underpinning the doctrine of ex officio is simply not present in KRS 61.645(1). If the Legislature wanted a County employee or officer it could well have said so (as it did in specifically requiring the Secretary of the Personnel Cabinet). Since these opinions and arguments have no application here, then there is no reason to reconsider our opinion on incompatibility contained in the letter of August 16, 2000. As a final matter, then, it is the position of the Attorney General that those persons identified as holding incompatible dual positions in the letter of August 16, 2000, either resign or face an ouster action in the Franklin Circuit Court. OAG 00-7 Page 5