Court of Appeals Calls Out Milwaukee County Pension Board for Inventing Eligibility Criteria to Deny Retirement Benefits

By September 10, 2020News

In 1965, the state legislature gave Milwaukee County home rule authority to amend the 1937 Retirement Act (i.e., state legislation in Laws of 1937, chapter 201 governing pension benefits to employees of large counties) by County Board action following a rigorous process set forth in the legislation.  The County exercised that authority in 1967 when it enacted Chapter 201.24 of the Milwaukee County General Ordinances (MCGOs).  In recent years, the Milwaukee County Pension Board has circumvented the statutory amendment process under the guise of exercising its power to make the provisions of Chapter 201.24 effective and resolve eligibility questions.  It has done so by fabricating eligibility criteria using arbitrary interpretations that rely on the Pension Board’s own rules and preferences with no basis in the actual text of the pension ordinances.

The court of appeals cried foul on a particularly offensive contrivance known as the “gap” theory in Dietscher v. Pension Board of the Employees’ Retirement System of the County of Milwaukee, 2019 WI App 37, 388 Wis. 2d 225, 932 N.W.2d 446.  It also rejected the Board’s attempt to apply “deferred vested status” to disqualify employees from receiving normal pensions where the employee otherwise qualifies for normal retirement and elects to begin drawing pension benefits immediately.

In Dietscher, the Pension Board relied on its “gap” theory to revoke pension benefits and demanded that Dennis Dietscher repay the benefits he had received over the past two years.  Dietscher had previously been allowed to retire under the Rule of 75, one of three ways in which an employee qualifies for a normal pension under MCGO § 201.24(4.1).  Under that rule, an employee’s age and years of service must equal at least 75.  Dietscher had also received an enhanced pension benefit known as the “backdrop.”  Under the “gap” theory, a delay or “gap” between an employee’s last date of employment and submission of his retirement application forfeits his eligibility for these benefits.  The Board claimed a “gap” was fatal because an employee must retire “directly from active service,” citing a Pension Board rule.

Based on the “gap” theory, the Pension Board further claimed Dietscher was in “deferred vested status.”  Individuals with this status can still qualify for a “deferred vested pension” under MCGO § 201.24(4.5), but eligibility under that section disqualifies them from receiving benefits under the Rule of 75 and the backdrop ordinance.  See MCGO § 201.24(4.1)(2) (Rule of 75); MCGO § 201.24(5.16) (backdrop).  The Board schizophrenically claimed both that Dietscher’s “deferred vested status” (i.e., eligibility for a deferred vested pension) meant the “Rule of 75 no longer applied” and that Dietscher’s felony conviction for misconduct relating to his employment constituted “fault or delinquency” made him ineligible for a deferred vested pension.  See Dietscher, 388 Wis. 2d 225, ¶¶ 17, 33-34; MCGO § 201.24(4.5) (employees terminated for fault or delinquency not eligible).

The court of appeals affirmed the circuit court’s reversal of the Pension Board’s decision on certiorari review.  Id., ¶¶ 6, 59.  It concluded the Board’s decision was arbitrary and unreasonable, representing its will and not its judgment because it was an outcome-oriented response to the County Executive’s “impassioned plea to find any avenue available to terminate Dietscher’s pension” and was contradictory, lacking in rational analysis, and contrary to the plain language of the pension ordinances.  See id., ¶¶ 6, 18-19, 51, 59.

The court characterized the “gap” theory as “merely an attempt to find a way to force Dietscher into a DVP [deferred vested pension]” status so it could invoke “fault or delinquency” to revoke his pension.  Id., ¶ 51.  As the court observed, the Pension Board could identify nothing in the text of § 201.24(4.1), the ordinance containing the Rule of 75, referring to a “gap” or containing the phrase “directly from active service.”  See Dietscher, 388 Wis. 2d 225, ¶ 43.  Furthermore, nothing in the ordinance suggests an employee is not retired until his retirement application is complete, and such a position is contrary to the ordinances, which provide that an employee is retired as long as he is terminated after meeting the requirements for a pension.  Id., ¶ 44.  MCGO section 201.24(2.19) expressly defines “retirement” to mean “termination of employment after a member has fulfilled all requirements for a pension” and provides that retirement begins “on the day immediately following the last day of employment.”  Dietscher, 388 Wis. 2d 225, ¶ 44.  To the extent any Pension Board rule was to the contrary, it was out of harmony with the ordinance and a legal nullity.  See id., ¶ 45.

The court concluded Dietscher was eligible to retire under the Rule of 75.  Id., ¶¶ 50-51.  The only requirements under that rule are that the employee’s years of service and age equal 75, and Dietscher fulfilled those requirements at the time his employment ended.  Id., ¶ 50.  Thus, he was retired the next day.  There was not (and could not be) any “gap” between his active service and retirement.  Any delay in filing a retirement application was legally irrelevant to eligibility.  At best, it might delay his receipt of benefits.  See id., ¶¶ 44, 47.

The court of appeals also rejected the Pension Board’s attempt to expand “deferred vested status” to retirement system members like Dietscher who applied for immediate pension benefits.  See id., ¶¶ 30-32.  Quoting MCGO § 201.24(4.5)(1), the court noted there were three requirements for a deferred vested pension.  Dietscher, 388 Wis. 2d 225, ¶¶ 30-32.  Among them, “the employee ‘elects not to withdraw any part of his membership account.’”  Id., ¶ 31.  The court also quoted MCGO § 201.24(4.5)(4), providing that “[p]ayment of a deferred vested pension shall commence as of the member’s normal retirement date,” which, for most County employees, is age 60.  Dietscher, 388 Wis. 2d 225, ¶ 31; MCGO § 201.24(2.18)(1) (defining “normal retirement age”).  The court concluded the plain language clearly provided MCGO § 201.24(4.5) was inapplicable when a member elected to receive immediate pension benefits instead of waiting until his normal retirement date.  Dietscher, 388 Wis. 2d 225, ¶¶ 31-32.  Unlike the Board’s interpretation, Dietscher gave effect to the concept of deferral in the “deferred vested retirement” provision of MCGO § 201.24(4.5).

Accordingly, the Pension Board can no longer shoehorn employees it considers undeserving based on a “for cause” termination into a “deferred vested status” to deprive them of pension benefits when they otherwise qualify for normal retirement and elect to begin receiving their pensions right away.  Without the Board’s twisted interpretation of MCGO § 201.24(4.5), there are no “for cause” disqualifications from pension eligibility.  The court specifically noted the Rule of 75 provision has no forfeiture language where a member’s employment is terminated for cause—including fault or delinquency.  See Dietscher, 388 Wis. 2d 225, ¶ 34.

Unfortunately, court intervention appears to be necessary to ensure faithful application of the pension ordinances.  The County Board has apparently acquiesced in the Pension Board hijacking the County’s home rule authority.  The County’s buyer’s remorse over the enhanced pension enhancement benefits it enacted in 2000—particularly the politically unpopular backdrop—is well known.  Not only has the Pension Board’s denial of backdrop benefits to County employees under manufactured “interpretations” of the ordinances allowed the County to avoid paying these benefits while circumventing the statutorily prescribed amendment process, it has allowed the County to change the eligibility criteria retroactively for involuntarily terminated employees—a result the Retirement Act categorically proscribes.

Our firm is committed to assisting County employees in securing their hard-earned pension benefits.  If you believe the Pension Board has denied your retirement benefits without justification, under the “gap theory” or otherwise, please contact us.