Each of you has requested that I advise whether the supplemental retirement plan adopted by the Board of Regents for the Medical College of Georgia ("MCG") satisfies constitutional and statutory authority.

In brief terms the plan is available to Medical College employees who satisfy one of two criteria and elect to participate. An employee must have twenty-five years of creditable service for retirement purposes or be at least fifty-five years old and have completed ten years of service (generally equivalent to being fully vested). The plan also requires electing employees to stay in their positions for a certain period of time as MCG goes through a time of potentially unsettling change. For employees who elect to take early retirement within the forty-five day election period, the plan supplements their benefit from the Teachers Retirement System as if they were five years older and had five years more service. Regents' staff has explained its purpose in terms of two goals. By inducing early retirements, Regents intends to reduce payroll costs to help overcome projected operating deficits. By inducing employee promises not to retire or leave before a certain date without Regents' permission, Regents intends to prevent a disruption in Medical College functions as MCG implements cost-savings measures.

The statutory basis for the plan is in these Code Sections, quoted as pertinent:

The Board of Regents of the University System of Georgia is authorized to establish pension and retirement allowances to supplement the allowances provided for teachers under the Teachers Retirement System of Georgia.

O.C.G.A. § 20-1-4.

[N]othing in this chapter [Code Chapter 47-3, creating the Teachers Retirement System] shall prevent . . . the Board of Regents . . . from making provision for supplementing the retirement and pension allowances of members of the retirement system.

O.C.G.A. § 47-3-140. For these purposes, "member" and "teacher" mean "[a]ny . . . person employed not less than on a half-time basis and paid by the Board of Regents." O.C.G.A. § 47-3-1(28)(M); O.C.G.A. § 47-3-1(15).

These Code Sections must be read together with Code Chapter 47-20, the "Public Retirement Systems Standards Law," in this case particularly Article 2, and that Law must be read in turn with the retirement clauses in the Georgia Constitution, to which it relates. Thus, the Constitution first provides, "Public funds may be expended for the purpose of paying benefits and other costs of retirement and pension systems for public officers and employees and their beneficiaries." Ga. Const., Art. III, Sec. X, Para. I. Next, the Constitution also provides:

It shall be the duty of the General Assembly to enact legislation to define funding standards which will assure the actuarial soundness of any retirement or pension system supported wholly or partially from public funds and to control legislative procedures so that no bill or resolution creating or amending any such retirement or pension system shall be passed by the General Assembly without concurrent provisions for funding in accordance with the defined funding standards.

Ga. Const., Art. III, Sec. X, Para. V.

Here we are concerned not with the passage of new law but with the implementation of existing law under "funding standards which will assure . . . actuarial soundness." Establishing those funding standards is the purpose of Chapter 47-20. Summarizing the matter in essential terms, Chapter 47-20 requires that Regents "assure the actuarial soundness" of the plan by making "minimum annual employer contributions" needed to satisfy Code Section 47-20-10. Early in its development of the plan, Regents was advised of the necessity to comply with this requirement. It and its professional actuary have prepared a program for funding all plan benefits over a ten year amortization period.

Regents' power to promise the benefit, without committing present funds in the full amount of the payments promised, derives uniquely from the fact that it is establishing a retirement plan authorized by law. Even prior to the express provisions of the current Constitution regarding retirement, the Georgia Supreme Court held that legislation requiring withdrawals from future treasuries for public retirement systems does not violate the pledge of credit prohibition and that no express provision of the Constitution is necessary. City of Atlanta v. Anglin, 209 Ga. 170(2), 174 (1952); West v. Trotzier, 185 Ga. 794(8)(9), 798 (1938). See also Bender v. Anglin, 207 Ga. 108, 114-15 (1950); Trotzier v. McElroy, 182 Ga. 719, 723 (1936). Today's Constitution expressly authorizes the payment of public funds to honor pension promises while requiring that the pension plans be actuarially sound under legislative standards. Ga. Const., Art. III, Sec. X, Para. I, V. These express provisions in the 1983 Constitution must be read as having concurrent and pre-eminent power in their sphere over the pledge of credit prohibition, Art. VII, Sec. IV, Para. VIII. Cf. Sheffield v. State Sch. Bldg. Auth., 208 Ga. 575(1)(2), 579 (1952) (intergovernmental contract clause concurrently adopted in 1945 Constitution no longer controlled by pledge of credit clause) (distinguishing DeJarnette v. Hospital Auth., 195 Ga. 189(7), 203 (1942)).

Regents' plan to amortize the obligation over ten years depends upon actuarial assumptions, which, in turn, require plan funds to be invested at least in part in equity securities. As the plan is structured a trustee will make those investments and will have legal ownership of the assets. Under one trust Regents will have no interest in the assets; under the other trust, the assets would be available to Regents creditors in the event of Regents’ insolvency, but Regents will otherwise have fully paid out and parted with the assets. Therefore, the Regents will not be a "stockholder" or "joint owner" in violation of Article VII, Section IV, Paragraph VIII of the Constitution. Cf. McLucas v. State Bridge Bldg. Auth., 210 Ga. 1(1), 5-6 (1953) (bonds of authority not debt of State); State v. Regents of the Univ. Sys., 179 Ga. 210(1), 216-23 (1934) (when in corporate form, Regents not "State"). See generally 1989 Op. Att'y Gen. 89-16.

One purpose of the plan is to give Regents control over the timing and order in which specific personnel positions phase out at the Medical College, as it undergoes a crucial transition. Thus, it is a condition of the plan that the employees honor a promise to remain at work for a fixed period, in return for a new benefit. This goes beyond the minimal requirement under the gratuities clause that an employee work some tenure before taking a promised benefit. Ga. Const., Art. III, Sec. VI, Para. VI. See 1996 Op. Att'y Gen. U96-21.

It is, therefore, my unofficial opinion that the Board of Regents is within its statutory and constitutional authority in establishing a supplemental retirement plan at the Medical College of Georgia in consideration of continued service by employees during significant institutional change. This plan is, of course, in its election period, and its final administrative arrangements are being completed. My staff has received information about the management and policy reasons for the plan and found them legally sufficient. However, we have not undertaken to advise or express a view as to the merits or wisdom of the plan. For that reason, while I am happy to provide you with any information I have and to answer any further questions, I defer to Regents and to its professional pension consultants in regard to your question about the "effectiveness of the plan in accomplishing its stated goals."

Prepared by:

JOHN B. BALLARD, JR.
Senior Assistant Attorney General