Harnett Cnty. Bd. of Educ. v. Ret. Sys. Div. ( 2023 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA22-750
Filed 17 October 2023
Harnett County, No. 21 CVS 2156
HARNETT COUNTY BOARD OF EDUCATION, Petitioner,
v.
RETIREMENT SYSTEMS DIVISION, DEPARTMENT OF STATE TREASURER,
Respondent.
Appeal by Petitioner from Order entered 30 June 2022 by Judge James M.
Webb in Harnett County Superior Court. Heard in the Court of Appeals 13 February
2023.
Tharrington Smith, L.L.P., by Deborah R. Stagner and Patricia R. Robinson,
for Petitioner-Appellant.
Attorney General Joshua H. Stein, by Solicitor General Ryan Y. Park and
Special Deputy Attorney General Olga E. Vysotskaya de Brito, for Respondent-
Appellee.
HAMPSON, Judge.
Factual and Procedural Background
Harnett County Board of Education (Harnett BOE) appeals from an Order
entered by the Superior Court on judicial review affirming the Final Decision of the
Administrative Law Judge (ALJ) granting Summary Judgment in favor of the
Retirement Systems Division, Department of State Treasurer (Retirement System).
The Retirement System manages the Teachers’ and State Employees’ Retirement
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System (TSERS), which pays eligible retired teachers and state employees a fixed
monthly pension calculated by a statutory formula which includes the retiree’s four
highest-earning consecutive years of state employment. The Final Decision in this
case upheld an assessment against Harnett BOE for an additional contribution to the
Retirement System to fund a pension for one of Harnett BOE’s retired employees
pursuant to anti-pension-spiking legislation (Contribution-Based Benefit Cap Act or
the Act) applicable to TSERS.
The backdrop of this case is the Opinion of the Supreme Court of North
Carolina—and preceding litigation—in Cabarrus Cnty. Bd. of Educ. v. Dep’t of State
Treasurer, 374 N.C. 3, 839 S.E.2d 814 (2020) (the Cabarrus County litigation). There,
our Supreme Court described the Contribution-Based Benefit Cap Act:
In 2014, the General Assembly enacted An Act to Enact Anti-
Pension-Spiking Legislation by Establishing a Contribution-
Based Benefit Cap, S.L. 2014-88, § 1, 2014 N.C. Sess. Laws 291,
which is codified, in pertinent part, at N.C.G.S. § 135-5(a3). The
Act establishes a retirement benefit cap applicable to certain
employees with an average final compensation of $100,000 or
more per year whose retirement benefit payment would otherwise
be significantly greater than the contributions made by that
retiree during the course of his or her employment with the State.
Id. In order to calculate the benefit cap applicable to each retiree,
the Act directs the Retirement System’s Board of Trustees to
“adopt a contribution-based benefit cap factor recommended by
the actuary, based upon actual experience, such that no more
than three-quarters of one percent (0.75%) of retirement
allowances are expected to be capped” and to calculate the
contribution-based benefit cap for each retiring employee by
converting the employee’s total contributions to the Retirement
System to a single life annuity and multiplying the cost of such
an annuity by the cap factor. Id. In the event that the retiree’s
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expected pension benefit exceeds the calculated contribution-
based benefit cap, the Retirement System is required to “notify
the [retiree] and the [retiree’s] employer of the total additional
amount the [retiree] would need to contribute in order to make
the [retiree] not subject to the contribution-based benefit cap.”
N.C.G.S. § 135-4(jj) (2019). At that point, the retiree is afforded
ninety days from the date upon which he or she received notice of
the additional payment amount or the date of his or her
retirement, “whichever is later, to submit a lump sum payment to
the annuity savings fund in order for the [R]etirement [S]ystem
to restore the retirement allowance to the uncapped amount.” Id.
The retiree’s employer is entitled to “pay[ ] all or part of the . . .
amount necessary to restore the [retiree’s] retirement allowance
to the pre-cap amount.” Id.
Id. at 4-5, 839 S.E.2d at 815-16. While the Act applies to retirements occurring on or
after 1 January 2015, relevant to this appeal, the Act further provides that for
retirees who became members of TSERS prior to 1 January 2015, however, the
retiree’s pension will not be capped; instead, the retiree’s last employer must
contribute the amount “that would have been necessary in order for the retirement
system to restore the member’s retirement allowance to the pre cap amount.” N.C.
Gen. Stat. §§ 135-5(a3); 135-8(f)(2)(f).
Here, Harnett BOE’s employee retired in February 2017 and had become a
member of TSERS prior to January 2015. There appears to be no dispute in the
Record that the Act applies to this retirement. At the time, the Retirement System
was using a cap factor of 4.5 to calculate the contribution-based benefit cap, which in
turn was used to calculate the additional contribution assessed to Harnett BOE. On
19 April 2017, the Retirement System sent a notice to Harnett BOE requiring
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payment of $197,805.61 as the additional contribution required to fund Harnett
BOE’s employee’s pension. Harnett BOE paid the assessment in full.
The Cabarrus County litigation began in 2016 when Cabarrus County Board
of Education along with several other Boards of Education filed administrative
challenges to the validity of cap factors adopted in 2014 and 2015, including the 4.5
cap factor utilized to calculate the 2017 assessment to Harnett BOE. The Boards
argued the cap factors were invalid because they had not been adopted through the
rule-making process required by the North Carolina Administrative Procedure Act
(APA). After a final agency decision against the Cabarrus County Board, the Board
petitioned for judicial review, and in May 2017, a Superior Court declared the cap
factors invalidly adopted. See id.In the wake of the Superior Court decision, the Retirement System initiated
the formal rule-making process to adopt a cap factor in December 2017. After holding
a public hearing in January 2018 and receiving written comments on the proposed
cap-factor rule, at a 7 March 2018 meeting, the Retirement System’s Board of
Trustees adopted the cap-factor rule, again setting the cap factor at 4.5. The
administrative rule was codified at 20 NCAC 02B .0405 (Cap-Factor Rule).1
1 Shortly after adoption of the Cap-Factor Rule, the General Assembly amended the statute to
expressly make clear the cap-factor calculation was not subject to the rule-making provisions of the
APA. See 2021 N.C. Sess. Laws ch. 70 § 3.2. However, for purposes of this appeal, the parties appear
in agreement that amendment does not apply to this case and that the Supreme Court’s decision in
the Cabarrus County litigation remains controlling. The Cap-Factor Rule itself has been repealed.
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Meanwhile, the Cabarrus County litigation continued. On 18 September 2018,
this Court issued its Opinion affirming the Superior Court holding that the rule-
making provisions of the APA applied to the adoption of cap factors and, thus,
assessments made using a cap factor adopted outside of the rule-making process were
invalid. Cabarrus Cnty. Bd. of Educ. v. Dep’t of State Treasurer, 261 N.C. App. 325,
345, 821 S.E.2d 196, 210 (2018). The Supreme Court of North Carolina subsequently
affirmed our Court and the trial court in 2020. Cabarrus Cnty. Bd., 374 N.C. 3, 839
S.E.2d 814.
Following this Court’s decision in the Cabarrus County litigation, Harnett
BOE sought a refund of the 2017 assessment. In October 2020, a Wake County
Superior Court ordered the Retirement System to issue a refund to Harnett BOE. On
16 December 2020, however, the Retirement System sent a new invoice notifying
Harnett BOE that it again owed $197,805.61 to fund the retirement of its employee.
This time the Retirement Division relied on the 4.5 cap factor it had adopted in 2018.
Harnett BOE submitted a request to the Retirement System demanding withdrawal
of the new assessment, contending it constituted improper retroactive application of
the 2018 Cap-Factor Rule to the 2017 retirement. In February 2021, the Retirement
System issued a Final Agency Decision rejecting Harnett BOE’s demand.
Harnett BOE then filed a Contested Case Petition in the Office of
Administrative Hearings. On 10 September 2021, an ALJ denied the Board’s Motion
for Summary Judgment and granted Summary Judgment to the Retirement System.
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The ALJ concluded the 2018 Cap-Factor Rule was properly applied retroactively to
retirements occurring after 1 January 2015 consistent with the purpose of the
Contribution-Based Benefit Cap Act and specifically N.C. Gen. Stat. § 135-5(a). The
ALJ also concluded the 2018 Cap-Factor Rule was adopted in substantial compliance
with the requirements for adopting a rule under the APA.
On 11 October 2021, Harnett BOE filed a Petition for Judicial Review in
Harnett County Superior Court, seeking a declaratory ruling that (1) “20 NCAC 02B
.0405 is void and of no effect because of the failure of the . . . [Retirement System]
Board of Trustees to comply with the requirement of Chapter 150B of the North
Carolina General Statutes”; (2) “[Retirement System]’s assessment against the Board
in the amount of $197,805.61 is void and unenforceable because 20 NCAC 02B .0405
was not lawfully adopted”; (3) 20 NCAC 02B .0405 may not be applied retroactively
to assess additional amounts for retirements that occurred prior to March 21, 2019”;
and (4) [Retirement System]’s assessment against the Board in the amount of
$197,805.61 is void and unenforceable because [Retirement System] improperly
applied 20 NCAC 02B .0405 retroactively.”
On 13 June 2022, the Superior Court heard arguments by both parties on the
Petition for Judicial Review. On 30 June 2022, the Superior Court entered an Order
affirming the final decision of the ALJ. Petitioner timely filed Notice of Appeal on 28
July 2022.
Issues
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The issues on appeal are whether: (I) the Retirement System substantially
complied with the rule-making requirements of the APA in adopting the Cap-Factor
Rule; and (II) the Cap-Factor Rule was properly applied to retroactively calculate the
amount Harnett BOE owed to fund its employee’s retirement under the Contribution-
Based Benefit Cap Act.
Analysis
“The North Carolina Administrative Procedure Act (APA), codified at Chapter
150B of the General Statutes, governs trial and appellate court review of
administrative agency decisions.” Amanini v. N.C. Dep’t of Hum. Res., 114 N.C. App.
668, 673, 443 S.E.2d 114, 117 (1994). The APA provides a party aggrieved by a final
decision of an ALJ in a contested case a right to judicial review by the superior court.
N.C. Gen. Stat. § 150B-43 (2021). A party to the review proceeding in superior court
may then appeal from the superior court’s final judgment to the appellate division.
N.C. Gen. Stat. § 150B-52 (2021). The APA sets forth the scope and standard of
review for each court.
The APA limits the scope of the superior court’s judicial review as follows:
(b) The court reviewing a final decision may affirm the decision or
remand the case for further proceedings. It may also reverse or
modify the decision if the substantial rights of the petitioners may
have been prejudiced because the findings, inferences,
conclusions, or decisions are:
(1) In violation of constitutional provisions;
(2) In excess of the statutory authority or jurisdiction of the
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agency or administrative law judge;
(3) Made upon unlawful procedure;
(4) Affected by other error of law;
(5) Unsupported by substantial evidence admissible under
G.S. 150B-29(a), 150B-30, or 150B-31 in view of the entire
record as submitted; or
(6) Arbitrary, capricious, or an abuse of discretion.
N.C. Gen. Stat. § 150B-51(b) (2021). The APA also sets forth the standard of review
to be applied by the superior court as follows:
(c) In reviewing a final decision in a contested case, the court shall
determine whether the petitioner is entitled to the relief sought
in the petition based upon its review of the final decision and the
official record. With regard to asserted errors pursuant to
subdivisions (1) through (4) of subsection (b) of this section, the
court shall conduct its review of the final decision using the de
novo standard of review. With regard to asserted errors pursuant
to subdivisions (5) and (6) of subsection (b) of this section, the
court shall conduct its review of the final decision using the whole
record standard of review.
N.C. Gen. Stat. § 150B-51(c) (2021).
“The scope of review to be applied by the appellate court under [the APA] is
the same as it is for other civil cases.” N.C. Gen. Stat. § 150B-52 (2021). “Thus, our
appellate courts have recognized that ‘[t]he proper appellate standard for reviewing
a superior court order examining a final agency decision is to examine the order for
errors of law.’ ” EnvironmentaLEE v. N.C. Dep’t of Env’t & Nat. Res., 258 N.C. App.
590, 595, 813 S.E.2d 673, 677 (2018) (quoting Shackleford-Moten v. Lenoir Cnty. Dep’t
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of Soc. Servs., 155 N.C. App. 568, 572, 573 S.E.2d 767, 770 (2002)). “Our appellate
courts have further explained that ‘this “twofold task” involves: (1) determining
whether the trial court exercised the appropriate scope of review and, if appropriate,
(2) deciding whether the court did so properly.’ ” Id. (quoting Hardee v. N.C. Bd. of
Chiropractic Exam’rs, 164 N.C. App. 628, 633, 596 S.E.2d 324, 328 (2004) (citations
and quotation marks omitted)). “As in other civil cases, we review errors of law de
novo.” Hilliard v. N.C. Dep’t of Corr., 173 N.C. App. 594, 596, 620 S.E.2d 14, 17
(2005).
In this case, consistent with N.C. Gen. Stat. § 150B-34(e), the ALJ granted
Summary Judgment for the Retirement System. See N.C. Gen. Stat. § 150B-34(e)
(2021). The superior court, in turn, reviewing the ALJ’s decision to grant Summary
Judgment applied a de novo standard of review and determined Summary Judgment
was properly entered for the Retirement System. See N.C. Gen. Stat. § 150B-51(d)
(2021).
Summary judgment is properly granted “if the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that any party is entitled
to a judgment as a matter of law.” N.C. Gen. Stat. § 1A-1, Rule 56(c) (2021). “On
appeal, this Court reviews an order granting summary judgment de novo.” Cabarrus
Cnty., 261 N.C. App. at 329, 821 S.E.2d at 200 (citation and quotation marks omitted).
Findings of fact and conclusions of law are not required in an order granting summary
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judgment, and “ ‘[i]f the granting of summary judgment can be sustained on any
grounds, it should be affirmed on appeal. If the correct result has been reached, the
judgment will not be disturbed even though the trial court may not have assigned the
correct reason for the judgment entered.’ ” Id. (quoting Save Our Schs. of Bladen
Cnty. v. Bladen Cnty. Bd. of Educ., 140 N.C. App. 233, 237-38, 535 S.E.2d 906, 910
(2000)).
I. Substantial Compliance with Rule-Making Requirements.
Harnett BOE argues the Superior Court erred in affirming the ALJ’s grant of
Summary Judgment on the question of whether the Retirement System validly
adopted the Cap-Factor Rule as required by our Supreme Court in the Cabarrus
County litigation. Specifically, Harnett BOE contends the Retirement System—in
adopting the Cap-Factor Rule—failed to substantially comply with the rule-making
provisions of the APA.
The purpose of the APA is to establish “a uniform system of administrative
rule making and adjudicatory procedures for agencies.” N.C. Gen. Stat. § 150B-1(a)
(2021). Article 2A of the APA governs the requirements for agency rule-making. See
N.C. Gen. Stat. § 150B-18, et seq. “A rule is not valid unless it is adopted in
substantial compliance with this Article [2A].” N.C. Gen. Stat. § 150B-18 (2021).
“The necessary procedures for substantial compliance are outlined in G.S. § 150B-
21.2[.]” Jackson v. N.C. Dep’t of Hum. Res., 131 N.C. App. 179, 184, 505 S.E.2d 899,
902 (1998).
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N.C. Gen. Stat. § 150B-21.2(a) provides:
Before an agency adopts a permanent rule, the agency must
comply with the requirements of G.S. 150B-19.1, and it must take
the following actions:
(1) Publish a notice of text in the North Carolina Register.
(2) When required by G.S. 150B-21.4, prepare or obtain a fiscal
note for the proposed rule.
(3) Repealed by S.L. 2003-229, § 4, eff. July 1, 2003.
(4) When required by subsection (e) of this section, hold a public
hearing on the proposed rule after publication of the proposed text
of the rule.
(5) Accept oral or written comments on the proposed rule as
required by subsection (f) of this section.
N.C. Gen. Stat. § 150B-21.2(a) (2021). In this case, Harnett BOE asserts the
Retirement System acted contrary to these statutory mandates by: (A) failing to
comply with Section 150B-21.2(a)(2) by, in turn, failing to comply with the
requirements of Section 150B-21.4 concerning the fiscal note; and (B) failing to
comply with the requirements of Section 150B-19.1 related to consideration of the
burdens imposed by the proposed rule and alternatives to the proposed rule.
A. Fiscal Note Requirements
Relevant to this case, N.C. Gen. Stat. § 150B-21.4 provides:
Before an agency publishes in the North Carolina Register the
proposed text of a permanent rule change that would have a
substantial economic impact and that is not identical to a federal
regulation that the agency is required to adopt, the agency shall
prepare a fiscal note for the proposed rule change and have the
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note approved by the Office of State Budget and Management.
N.C. Gen. Stat. Ann. § 150B-21.4 (2021). A substantial economic impact is an
“aggregate financial impact on all persons affected of at least one million dollars . . .
in a 12-month period.” N.C. Gen. Stat. § 150B-21.4(b1) (2021). N.C. Gen. Stat. §
150B-21.4(b1) further provides:
In analyzing substantial economic impact, an agency shall do the
following:
(1) Determine and identify the appropriate time frame of the
analysis.
(2) Assess the baseline conditions against which the proposed
rule is to be measured.
(3) Describe the persons who would be subject to the proposed
rule and the type of expenditures these persons would be
required to make.
(4) Estimate any additional costs that would be created by
implementation of the proposed rule by measuring the
incremental difference between the baseline and the future
condition expected after implementation of the rule. The
analysis should include direct costs as well as opportunity
costs. Cost estimates must be monetized to the greatest extent
possible. Where costs are not monetized, they must be listed
and described.
(5) For costs that occur in the future, the agency shall
determine the net present value of the costs by using a
discount factor of seven percent (7%).
N.C. Gen. Stat. § 150B-21.4(b1) (2021).
Here, there is no dispute that during the rule-making process the Retirement
System determined the proposed Cap-Factor Rule would have a substantial economic
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impact. There is also no dispute the Retirement System did, in fact, prepare a Fiscal
Note in accordance with Section 150B-21.4. Likewise, there is no dispute the Fiscal
Note was, in fact, approved by the Office of State Budget and Management.
Harnett BOE, however, specifically argues the Retirement System failed to
substantially comply with Section 150B-21.4(b1)(3) by failing to identify “the persons
who would be subject to the proposed rule and the type of expenditures these persons
were required to make.” Harnett BOE asserts the Retirement System failed to
consider the impact of the proposed Cap-Factor Rule on individual school systems or,
indeed, any individual employer. Harnett BOE, however, cites no authority in
specific support of its argument.
Indeed, to the contrary, the Fiscal Note prepared by the Retirement System—
and approved by the Office of State Budget and Management—acknowledges the
contribution-based benefit cap requirement of the anti-pension spiking statute
impacts—and protects—all employing public agencies participating in TSERS. The
Note “estimates spiking employers will pay $73.6 [million] to the Retirement Systems
over 15 years in additional employer contributions . . . while all employers that do not
incur additional contributions . . . will avoid bearing a pro-rata share in present value
terms of the unforeseen liabilities that these additional contributions serve to offset.”
Moreover, the Fiscal Note further expressly acknowledges types of employing
agencies subject to the cap including school systems, the UNC system, local
governments, community colleges, and state agencies. The Note further recognizes
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“school systems had incurred $2.8 million by the end of 2016, or 41% of all CBBC
liabilities, the largest share among agencies affected by the legislation.” Indeed, the
Note also recognizes the Cabarrus County litigation and that, specifically, the four
school boards involved in the litigation had been invoiced for a total of $1.8 million
incurred from five retirements. Additionally, the Note contemplates the potential
impact, not just on the employers, but member-employees, including identifying
specific types of employees covered by the Retirement System. As such, we conclude
the Retirement System’s Fiscal Note is in substantial compliance with N.C. Gen. Stat.
§ 150B-21.4(b1)(3).
B. Burden Imposed and Consideration of Alternatives
Harnett BOE also contends the Retirement System’s rule-making process for
the Cap-Factor Rule was contrary to two requirements of N.C. Gen. Stat. § 150B-19.1.
This Section sets forth a number of requirements an agency must follow when
drafting and adopting a proposed administrative rule. N.C. Gen. Stat. § 150B-19.1(a)
provides:
(a) In developing and drafting rules for adoption in accordance
with this Article, agencies shall adhere to the following principles:
(1) An agency may adopt only rules that are expressly
authorized by federal or State law and that are necessary to
serve the public interest.
(2) An agency shall seek to reduce the burden upon those
persons or entities who must comply with the rule.
(3) Rules shall be written in a clear and unambiguous manner
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and must be reasonably necessary to implement or interpret
federal or State law.
(4) An agency shall consider the cumulative effect of all rules
adopted by the agency related to the specific purpose for which
the rule is proposed. The agency shall not adopt a rule that is
unnecessary or redundant.
(5) When appropriate, rules shall be based on sound,
reasonably available scientific, technical, economic, and other
relevant information. Agencies shall include a reference to this
information in the notice of text required by G.S. 150B-21.2(c).
(6) Rules shall be designed to achieve the regulatory objective
in a cost-effective and timely manner.
N.C. Gen. Stat. § 150B-19.1(a) (2021). Further relevant to this case, N.C. Gen. Stat.
§ 150B-19.1(f) requires: “If the agency determines that a proposed rule will have a
substantial economic impact as defined in G.S.[§] 150B-21.4(b1), the agency shall
consider at least two alternatives to the proposed rule. The alternatives may have
been identified by the agency or by members of the public.” N.C. Gen. Stat. § 150B-
19.1(f) (2021).
First, Harnett BOE argues the Retirement System acted contrary to Section
150B-19.1(a)(2) by failing to seek to reduce the burden on those entities who must
comply with the Cap-Factor Rule. Specifically, Harnett BOE asserts the Retirement
System failed to consider the burden imposed on individual school systems. Harnett
BOE cites no specific authority to support its contention that the Retirement System
was required to consider the particular impact to every individual school system or
entity impacted by the proposed Cap-Factor Rule.
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However, the Fiscal Note itself illustrates the Retirement System was
grappling with its duty to carry out a statutory mandate, reduce system-wide costs
caused by alleged pension-spiking, thus, reducing costs across all impacted agencies
and retirees (particularly those not engaged in alleged pension-spiking), and striking
a balance by adopting a cap-factor that resulted in a Contribution-Based-Benefit Cap
was neither underinclusive nor overinclusive. Again, the Retirement System did
acknowledge the anti-pension-spiking legislation had had a greater impact on school
systems compared to other agencies. Indeed, as the Retirement System explained
through affidavits submitted below and in briefing to this Court, there is simply a
tension in adopting a cap-factor between maximizing the effectiveness of the
Contribution-Based Benefit Cap Act—with the goal of decreasing the likelihood of
higher system-wide employer contributions—and minimizing the burden on specific
employers subject to the Act.2 The Retirement System’s analysis, as demonstrated
throughout the Fiscal Note, attempts to balance its obligation to reduce the burdens
on all agencies and members system-wide with its obligation to fulfill the statutory
mandates of the Act. In so doing, the Retirement System relied on the same actuarial
information and presentations from consultants used to determine the original 2015
2 As a general proposition, adoption of a higher value for the cap factor results in fewer pensions being
subject to capping—with the commensurate potential increase in system-wide employer contributions
being required—while a lower cap factor would result in more pensions being subject to the cap
increasing the burden on individual employers and/or retirees.
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cap-factor prior to the Cabarrus County litigation. Harnett BOE cites no authority
for the proposition this information was improperly considered or that this data was
erroneous or invalid. As such, we conclude the Retirement System substantially
complied with Section 150B-19.1(a)(2).
Second, and relatedly, Harnett BOE argues the Retirement System failed to
comply with Section 150B-19.1(f) by failing to consider at least two alternatives to
the cap factor of 4.5. However, the Retirement System—as evidenced both in the data
and presentations it considered along with the Fiscal Note—plainly did consider the
potential impacts of different values for the cap-factor. The Retirement System
considered cap-factors ranging from 4.1 to 5.0. Thus, the Retirement System
substantially complied with N.C. Gen. Stat. § 150B-19.1(f).
II. Application of the Cap-Factor Rule
Harnett BOE further contends the 2018 Cap-Factor Rule was impermissibly
applied retroactively to the 2017 retirement of its employee. Harnett BOE argues
the intent of the Contribution-Based Benefit Cap Act was not to apply to all applicable
retirements occurring after 1 January 2015 but only those occurring after a validly-
adopted Cap-Factor Rule became effective. Thus, Harnett BOE asserts—because of
the Cabarrus County litigation—there was no validly-adopted cap factor in 2017
when its employee retired. Therefore, Harnett BOE argues it should not be subject
to the additional contribution for its retired employee in this case at all.
“A statute will not be construed to have retroactive effect unless that intent is
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clearly expressed or arises by necessary implication from its terms.” In re Mitchell’s
Will, 285 N.C. 77, 79-80, 203 S.E.2d 48, 50 (1974). “A statute is not necessarily
unconstitutionally retroactive where its application depends in part upon a fact that
antedates its effective date. The proper question for consideration is whether the act
as applied will interfere with rights which had vested or liabilities which had accrued
at the time it took effect.” State ex rel. Lee v. Penland-Bailey Co., Inc., 50 N.C. App.
498, 503, 274 S.E.2d 348, 352 (1981).
This Court, in a related matter, recently held:
Here, the Act provides that “every service retirement
allowance . . . for members who retire on or after January 1, 2015,
is subject to adjustment pursuant to a contribution-based benefit
cap[.]” N.C. Gen. Stat. § 135-5(a3). The Act further provides that
“the retirement allowance of a member who became a member
before January 1, 2015 . . . shall not be reduced; however, the
member's last employer . . . shall be required to make an
additional contribution[.]” Id. The plain language of the Act
indicates that it applies to any retirement allowance for a member
who retires on or after 1 January 2015.
Wilson Cnty. Bd. of Educ. v. Ret. Sys. Div., ___ N.C. App. ___, ___, ___ S.E.2d ___, ___
(COA22-1027, filed Aug. 15, 2023). There, we concluded: “Because the employee in
this case retired on 1 January 2018, three years after Act took effect, the statute was
not retroactively applied to Petitioner.” Id.In this case, Harnett BOE’s employee retired in 2017, after the 1 January 2015
effective date of the Act. Therefore, by its plain language, the Act applied to the
retirement at issue in this case. Thus, there was no retroactive application of the
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Contribution-Based Benefit Cap Act in this case.
Nevertheless, Harnett BOE contends even if the Act theoretically applies to all
retirements occurring after 1 January 2015, the Cap-Factor Rule itself cannot be
applied to retirements occurring before its effective date in 2019. Harnett BOE posits
this is so because retroactive application of the Cap-Factor Rule would impair
Harnett BOE’s vested right by interfering with liabilities which had accrued at the
time the Cap-Factor Rule took effect. See Penland-Bailey, 50 N.C. App. at 503, 274
S.E.2d at 352. Specifically, Harnett BOE asserts that in the absence of a valid cap
factor at the time of the 2017 retirement, it could not have known, at that time, either
whether its employee’s retirement would be subject to the cap or, if so, the amount of
its liability.
Harnett BOE’s argument fails. Here, again, by its plain language, the
Contribution-Based Benefit Cap Act applies to “every service retirement
allowance . . . for members who retire on or after January 1, 2015,” and makes plain
those retirement allowances are “subject to adjustment pursuant to a contribution-
based benefit cap[.]” N.C. Gen. Stat. § 135-5(a3) (2021). It further provides that upon
the retirement of any employee who became a TSERS member prior to 2015, the
employer would be liable for the additional contribution. Id.Here, the Retirement System—by adopting the Cap-Factor Rule and
calculating the additional contribution owed by Harnett County BOE for the 2017
retirement—was simply carrying out the statutory mandate of the Contribution-
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Opinion of the Court
Based Benefit Cap Act. Harnett County BOE was on notice of the Act and on notice
that it would apply to determine whether the retirement of its employee in 2017
would be subject to a cap. Harnett BOE’s argument that the Retirement System’s
calculation of the assessment of the additional contribution following adoption of the
Cap-Factor Rule interfered with an already accrued liability does not follow. No
liability accrued until the Retirement System—applying a valid cap factor—
calculated and invoiced the additional contribution owed as required under the
statute.3
This Court’s prior decision in State ex rel. Commissioner of Insurance v. North
Carolina Rate Bureau is instructive here. There, after this Court had previously
vacated an order setting new vehicle insurance rates effective 1 January 1995 and
remanded the matter to the Commissioner to set new rates, the Commissioner did so
by an order entered in 1997 but made effective 1 January 1995. State ex rel. Comm’r
of Ins. v. N.C. Rate Bureau, 131 N.C. App. 874, 875-76, 508 S.E.2d 836, 836-37 (1998),
review allowed in part and remanded, 350 N.C. 850, 539 S.E.2d 10 (1999), and review
allowed in part and remanded, 543 S.E.2d 482 (1999).
In that case, we acknowledged “the general principle that retroactive rate
making is improper.” Id. at 876, 508 S.E.2d at 837. Nevertheless, we further
3 Harnett BOE contends this leads to an absurd result in which the Retirement System may simply
and continuously retroactively change the cap factor to apply to post-2015 retirements. However, now
that a cap factor has been adopted and applied to those retirements, particularly the one at issue here,
the liability has accrued.
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concluded: “The recalculation of rates, however, pursuant to a remand order of an
appellate court and the application of those rates back to the effective date of the
Order reversed on appeal does not constitute unlawful retroactive rate making.” Id.
We further observed:
To hold otherwise essentially would bind the parties, for a period
of time between the entry of the appealed Order and the
rehearing on remand pursuant to the appellate court, to a rate
declared invalid by the appellate court. This cannot represent
sound public policy, and, furthermore, is inconsistent with the
purpose of the remand order, which is to correct the error
requiring the remand.
Id.
Likewise, here, given the statutory mandate that the contribution-based
benefit cap apply to every retirement after 1 January 2015, the Retirement System
was required to calculate and apply a contribution-based benefit cap to those
retirements occurring after that effective date. Following the Cabarrus County
litigation which declared the cap factor invalid, the Retirement System was required
to validly adopt a cap-factor through rule-making and apply it as required by statute
to those retirements occurring after 1 January 2015—including the one at issue here.
To conclude otherwise would not represent sound public policy—as it would
undermine the purpose and express language of the statute to exclude retirements
between 2015 and the 2019 effective date of the Cap-Factor Rule from application of
the statute. Likewise, applying an invalidly adopted cap factor would be inconsistent
with the judicial mandates from the Cabarrus County litigation, including from our
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Supreme Court. See id. As such, we conclude application of the Cap-Factor Rule to
calculate the additional contribution owed by Harnett BOE in this case does not
constitute an impermissible retroactive application of the cap-factor in this case.
Thus, the Retirement System substantially complied with the rule-making
requirements of the APA in adopting the Cap-Factor Rule, and the Rule is properly
applied to the retirement of Harnett County’s employee in this case. Therefore, the
ALJ properly granted Summary Judgment to the Retirement System. Consequently,
the Superior Court, correctly applying a de novo review, did not err by affirming the
ALJ’s Final Decision.
Conclusion
Accordingly, for the foregoing reasons, we affirm the Superior Court’s Order
entered 30 June 2022 affirming the Final Decision of the ALJ.
AFFIRMED.
Judges MURPHY and STADING concur.
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