Aaron J. Cryer v. City of Dyersburg

03/02/2021

IN THE COURT OF APPEALS OF TENNESSEE

AT JACKSON

January 19, 2021 Session

AARON J. CRYER, ET AL. v. CITY OF DYERSBURG, ET AL.

Appeal from the Circuit Court for Dyer County

No. 16-CV-38 R. Lee Moore, Jr., Judge

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No. W2020-00045-COA-R3-CV

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City employees brought action against the city upon its amendment of the pension plan.

The trial court ruled in favor of the city. The employees appeal. We affirm.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court

Affirmed; Case Remanded

JOHN W. MCCLARTY, J., delivered the opinion of the court, in which Arnold B. Goldin and

Kenny W. Armstrong, JJ., joined.

Deborah Godwin, John F. Canale, Memphis, Tennessee, and Megan K. Mechak,

Washington, D.C. for the appellants, Jason M. Alexander, and Aaron J. Cryer.

Scott K. Haight, Christine A. Coronado, and Becky Dykes Bartell, Dyersburg, Tennessee,

for the appellees, City of Dyersburg, Tennessee, John Holden, Bob Jones, and Steve

Anderson.

OPINION

I. BACKGROUND

The City of Dyersburg (“City”), a municipal corporation in the State of Tennessee,

is governed by an elected mayor and an eight-member Board of Aldermen (collectively,

the “Board”). At the time of the action, John Holden was the mayor and had served in that

position since 2007.

In 1979, the City established a “defined benefit pension plan.” It was amended

effective July 1, 2001 (“2001 Pension Plan”) and then again on December 7, 2015 (“2015

Pension Plan”). Employees contributed 5% of their salary to the plan. Pursuant to the 2001

Pension Plan, employees who provided 30 years of service to the City received a benefit

equal to 2% multiplied by their years of service multiplied by the monthly average of their

highest 36 months of salary, regardless of age. Retirees also received an annual Cost-of-

Living Adjustment (“COLA”) of 2% or the amount of the Consumer Price Index,

whichever is less. Prior to the 2015 amendment, there were 283 participants in the plan. As

of July 1, 2013, the present value of the benefits in the plan was $23,580,225; the unfunded

accrued actuarial liability was $14,215,667. In 2006, the City’s prior administration did not

make an annual contribution to the plan. When Mayor Holden came into office in 2007, he

made the contribution due for 2007, as well as the 2006 contribution. From 2008 to 2010,

however, the City lost over 1,000 jobs. No salary increases occurred during the five years

following 2008. A significantly unfunded pension liability arose.

In approximately 2012, the plan was evaluated for potential cost-saving revisions.

Mayor Holden formed a retirement committee, joining with himself as members Bob

Jones, City Recorder; Sue Teague, Human Resources Director; and Steve Anderson, City

Treasurer. Around February 2014, the City became aware of potential changes in

Tennessee law that would, at a minimum, mandate municipalities to make 100% of the

annual required contribution toward pension plans within five years. Mayor Holden and

other City officials met with the State Treasurer and State Senate Majority Leader to seek

guidance regarding what would become the “Public Employee Defined Benefit Financial

Security Act (“Act”) of 2014.”1

The Act

The Act established a required set of procedures to help state political subdivisions,

like the City, which had existing but underfunded pension funds, achieve sustainability. It

required any political subdivision with a defined benefit plan not administered by the

Tennessee Consolidated Retirement System (“TCRS”) to develop a funding policy for

financing the obligations under its pension plan. Tenn. Code Ann. § 9-3-504(b). The

funding policy must be “legally adopted and approved through a resolution by the political

subdivision’s chief legislative body or governing body.” Tenn. Code Ann. § 9-3-504(b). It

also must, in pertinent part, include a statement that the political subdivision’s budget will

include funding of at least 100% of its actuarially determined contribution (“ADC”). Tenn.

Code Ann. § 9-3-504(c)(3).2 If a political subdivision is not paying at least 100% of its

ADC, the Act requires a “Plan of Correction,” in which the entity must explain how it will

do so, subject to a five-year phase-in period. Tenn. Code Ann. § 9-3-505(b). The Plan of

Correction must be submitted to the State Treasurer and approved by the State Funding

1

Public Chapter 990, codified at Tennessee Code Annotated §§ 9-3-501 – 9-3-507. Signed into law

on May 22, 2014.

2

The ADC means “the actuarially determined annual required contribution that incorporates both

the normal cost of benefits and the amortization of the pension plan’s unfunded accrued liability.” Tenn.

Code Ann. § 9-3-503(a)(1).

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Board. If a political subdivision fails to fund its ADC at 100%, the Commission of Finance

and Administration is authorized to withhold such amount or part of such amount from any

state-shared taxes that are otherwise apportioned to the political subdivision, and such

money shall be paid to the political subdivision’s pension plan. Tenn. Code Ann. § 9-3-

507(a). Significantly, the deduction is made as a first charge against any moneys payable

to the political subdivision, regardless of the source of such payments and the purpose or

contemplated use of such funds. Tenn. Code Ann. § 9-3-507.

At the time the Act was enacted, the City was using the 2001 Pension Plan, under

which it was not required to make any contribution to its plan. However, the City was

contributing 6.5% of its payroll amount to its plan, generating a yearly contribution of

approximately $800,000. The City has always paid every benefit due pursuant to the plan,

but the parties agree that the plan was substantially underfunded before the 2015 Pension

Plan amendment. As of 2014-2015, the City’s plan had an unfunded accrued liability of

about $22.4 million.

Faced with the new law and a funding crisis, the City’s Retirement Committee

issued a request for proposals for a new actuary. The request was comprised of two parts:

(1) an “analysis of the plan to assess the annual funding requirements that will be required

with this new legislation and analysis of the means by which such funding requirements

can be achieved,” and (2) “provision of ongoing actuarial services.” Alan Pennington was

selected to serve as the City’s new actuary.

The City desired to continue its plan and to provide meaningful benefits that were

properly funded and sustainable. It did not want to freeze the plan, which would have

prevented participants from earning any additional benefits. Further, notwithstanding that

the 2001 Pension Plan allows for its termination, the City did not want to end it.

According to the City Defendants, as part of the review process, Mr. Pennington

conducted an “Experience Study” of the plan (reviewed the last five years of the plan to

see if the experience was consistent with the assumptions being made in the valuation to

determine the City’s ADC). Mr. Pennington also completed a “Valuation Report,” which

he used to determine the ADC for the plan’s funding purposes in order to ensure that the

future investment return plus contributions will be sufficient to pay the future expected

benefits. Under the Act’s more conservative actuarial assumptions, Mr. Pennington

concluded that the City’s ADC increased to $2.15 million, almost triple the budgeted

amount of approximately $800,000, which constituted a substantial increase from the

historic 6.5% of payroll to 26.8% of payroll. According to Mr. Pennington, unless the City

made changes to its plan, it likely would become insolvent by July 2019. Mr. Pennington

testified that even if the City doubled its existing contribution level to 13% of payroll, the

plan would become insolvent by 2021.

Accordingly, the 2001 Pension Plan was reviewed to determine what changes the

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City could make to it. Mr. Pennington testified that he looked at what were the most

actuarially unsound provisions of the plan and tried to find a way to modify it to achieve

an ADC the City could maintain without reducing the vested or accrued benefits.

According to Mr. Pennington, he considered modifications to the ancillary benefits, many

of which were the least used benefits by the plan participants. He was not asked by the City

to make certain specific changes to the plan; instead, the City relied upon his advice to

ascertain the required adjustments:

[He] put forward a number of potential changes. Sat down with retirement

committee, discussed those changes. Got their feedback. Made some

modifications to some of those changes based on their feedback. And then,

came up with an ultimate set of recommendations after a back and forth

process to determine . . . what would make the objectives that they had put

forward and that they were comfortable with.

The City considered Mr. Pennington’s suggestions and further discussed other

possible changes. One option the City reviewed was increasing employee contributions.

However, in order to meet the necessary contribution for 2014, the City would have been

required to increase plan participant contributions from 5% to 32% of payroll, which was

not financially feasible. The City also reviewed whether there were additional funding

sources other than property taxes, which the City had already increased five times in a

thirteen-year period, beginning in 2007. None were readily found.

After due consideration, the City, through the actions of the Retirement Committee,

concluded that it was reasonable and necessary to revise the 2001 Pension Plan to reduce

the total liability of the plan. The City determined that it had to reduce the ADC to an

amount that could be reasonably reached within the five-year period mandated by the Act

while, at the same time, avoiding major cuts to essential City services or impossible tax

increases.3 The changes proposed by Mr. Pennington and the Retirement Committee were

as follows:

1. To close the plan to non-vested plan participants and new entrants; Non-

vested plan participants will no longer be eligible to participate in the plan.

2. To sponsor a new TCRS 401(k) plan to non-vested participants, non-

participants and new hires. In the TCRS 401(k) plan, the employer matches

employee contributions up to 3% of pay. The matching portion will be 100%

vested after five years – 20% per year for five years. Employee contributions

are always 100% vested.

3

All the members of the Retirement Committee were participants in the plan when they considered

the changes to it. Thus, any changes the Committee elected to make to the plan affected them individually.

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3. To no longer allow a participant who voluntarily leaves the plan to restart

contributions in the future. (However, non-contributing participants in the

plan will, at any time, be permitted to elect to participate in the new City

TCRS 401(k) plan).

4. To eliminate the annual COLA for retirees under age 70 and reduce to 1%

for retirees between ages of 70 and 74. Retirees age 75 or older should

continue to receive a 2% annual increase.

5. To modify the present value percentage used to calculate lump sum

distributions. The new present value percentage for lump sums will reduce

lump sum payments by approximately 15% for plan participants receiving

unreduced retirement benefits.

6. To pay out lump sum distributions in excess of $100,000 over five years.

7. To phase out the ability to retire early after 30 years of service with

unreduced benefits based on plan participants’ service as of December 7,

2015. Specifically, if an employee has served at least 25 years the unreduced

benefits will still be available after 30 years. If an employee served at least

15 years but less than 25, unreduced benefits are available after 35 years. For

employees who have served less than 15 years, unreduced benefits are no

longer available.

8. To eliminate the opportunity to purchase prior service.

9. To eliminate hardship withdrawals.

10. To change the vesting schedule for partially vested plan participants so

that the vesting percent will not change until the member completes 10 years

of service, at which time the vesting percent will go to 100%.

11. To implement a one-time service sell back plan whereby plan participants

will be permitted to sell back all or a portion of their accumulated service

years for an immediate lump sum payment.

On December 7, 2015, the City’s Finance Committee considered the proposed

changes to the plan. It adopted the “Pension Funding Policy of the City of Dyersburg” as

required by Tennessee Code Annotated section 9-3-504(b), the “Plan of Correction” as

required by Tennessee Code Annotated section 9-3-504(c)(3) and Tennessee Code

Annotated section 9-3-504(b), the Amended and Restated City of Dyersburg Pension Plan,

and a new 401(k) plan to be administered by TCRS. The changes approved by the Finance

Committee reduced the City’s projected ADC from $2.15 million to $1.7 million.

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Following the Finance Committee meeting, the Board met and unanimously approved and

adopted the same changes.

The Plan of Correction was subsequently tendered to the State Treasurer, who

forwarded it to the Tennessee State Funding Board and recommended approval. The State

Treasurer’s Recommendation Memo provides:

Treasury staff has reviewed the plan of correction and has determined that it

meets the requirements of applicable law. I recommend that the State

Funding Board approve the plan of correction submitted by the City of

Dyersburg. The actions by the city to close the [Defined Benefit] plan, start

a 401(k) plan, make structural changes to the now closed [Defined Benefit

Plan], and establish a service sell back program are steps that support

allowing the city greater flexibility to reach 100% funding of the ADC.

The State Funding Board approved the City’s Plan of Correction on December 21, 2015.

On January 6, 2016, the Comptroller of the Treasury advised Mayor Holden by letter of

the approval.

Aaron “Jay” Cryer and Jason M. Alexander (“Plaintiffs”) are City employees. Both

are 100% vested in the 2001 Pension Plan. They believe that this status means that their

benefits are guaranteed and not subject to change. They argue that because they have given

at least ten years of service to the City and contributed five percent of their annual salary

to the plan, their vested interests cannot change. They filed this action on June 2, 2016,

challenging the amendments to the City’s plan. The Plaintiffs seek a declaratory judgment

that the 2015 amendments were void because they violated the principles set forth by the

Tennessee Supreme Court in Blackwell v. Quarterly County Court of Shelby County, 622

S.W. 2d 535 (1981), and its progeny. They request injunctive relief preventing the City

from implementing the 2015 amendments, asserting that they relied upon the promises

found in the City’s plan and that the 2015 amendments interfere with those promises and

their vested pension rights.

In a memorandum opinion and order filed on November 1, 2017, the trial court held

as follows:

The court is convinced that necessary changes in public employee pension

plans may be made by the governing body. It appears from the case of

Blackwell v. The Quarterly Court of Shelby County, Tennessee, 622 S.W.2d

535 (1981) that the rights of employees are subject to the terms and

conditions of the pension plan rather than a contractual right. The employees

under the Blackwell case seem to have no contractual rights other than those

conferred by the plan. Blackwell also indicates that public opinion demands

that there be a right of the public employer to make reasonable modifications

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in an existing plan if necessary to create or safeguard actuarial stability,

provided that no then accrued or vested rights of members or beneficiaries

are thereby impaired. Our Supreme Court in Blackwell, stated, “we are not

convinced that a plan is frozen against detrimental changes or modifications

the moment an employee begins to participate in it, where such changes are

necessary to preserve the fiscal and actuarial integrity of the plan as a whole.”

It is also clear that our Supreme Court adopted the so-called Pennsylvania

Rule which permits reasonable modifications when necessary to protect or

enhance its actuarial soundness of the plan provided that no such

modification can adversely affect an employee who has complied with all

conditions necessary to be eligible for a retirement allowance. Blackwell also

states that modifications cannot be applied detrimentally under the

Pennsylvania Rule to any employee[s] who at the time of the amendment

were eligible to receive an allowance from the plan.

The court refrained from granting judgment on the issue of whether “the amended plan

detrimentally affected vested and accrued rights.” The court also concluded:

There is no evidence before the Court as to the reason for the amendment or

whether or not the changes made in December of 2015 were necessary to

preserve the fiscal and actuarial integrity of the plan as a whole. It is the

position of the defendants that this situation is not applicable to the plaintiffs

because they do not meet the definitions of having accrued and vested

benefits. The Court finds that there could be a question of fact in this area,

and the motion of the defendants for summary judgment of the entire case is,

therefore, denied.

A bench trial was held on July 29 and 30, 2019, and the final memorandum and

order was issued on December 12, 2019. The trial court determined that the modifications

made by the City in 2015 were permitted by the 2001 Pension Plan and state law, and that

the modifications were not arbitrarily done, but done with consideration from the City to

keep a pension plan for its employees that was actuarially and fiscally sound. The court

specifically concluded:

The Court finds that the 2001 Pension Plan provided for amendments to be

made. The Court also finds that under the case of Blackwell v. Quarterly

Court of Shelby County, 622 S.W.2d 53, that public policy demands that

necessary changes in public employee pension plans may be made by the

governing body to the extent and under the conditions discussed in the

Blackwell case. Public policy demands that there be a right on the part of the

public employer to make reasonable modifications in an existing plan if

necessary to create or safeguard actuarial stability, provided that no then

accrued or vested rights of members or beneficiaries are thereby impaired.

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The Court finds that the City modified the plan. The modification was not

arbitrarily done or done without consideration from the City to keep a

pension plan for the city employees that was fair and reasonable. The issue,

however, for this Court to determine is whether or not in modifying the 2001

Pension Plan there were accrued and vested rights of the plaintiffs impaired

by the modifications. Blackwell finds “vested interest” [means] that the

employee had interest in the assets of the retirement system, so as to render

the same immutable and beyond necessary amendment by the governing

body. Blackwell permits reasonable modification when necessary to protect

or enhance the actuarial soundness of the plan provided that no such

modifications can adversely affect an employee who has complied with all

conditions necessary to be eligible for a retirement allowance.

It is the position of the plaintiffs that modifications did, in fact, impair their

rights under the 2001 Pension Plan. It is the position of the City that the

modifications were allowable and that the modifications did not affect rights

that were both vested and accrued. The City argues that vested and accrued

benefits are defined specifically in the 2001 City of Dyersburg Pension Plan.

The defendants argue that Section 1.1 finds accrued benefit as meaning the

benefit amount earned by a participant as of a specified date as determined

by Section 4.1. Section 4.1 provides that each participant will be entitled to

retire at normal retirement date and to receive accrued benefit payable as a

formal form of retirement benefit equal to the amount determined in

accordance with the provisions of that section. The City argues that the

benefits are not vested and accrued until the retirement age. Section 1.32

finds normal retirement age being age 60 for participants hired prior to

February 1, 1989, and age 65 for participants hired on or after February 1,

1989. Although both plaintiffs certainly felt that they had vested benefits

prior to the amendment, under the terms and conditions of the 2001 Pension

Plan, benefits are not both fully accrued and vested until normal retirement

age. Both plaintiffs were employed by the City of Dyersburg after 1989. The

normal retirement age for both plaintiffs would be age 65. Section 4.1 of the

2001 Pension Plan provides that each participant will be entitled to retire at

normal retirement age and receive an accrued benefit payable as a normal

form of retirement benefit equal to the amount determined in accordance with

the provisions of this section. It appears to the Court, that the benefits became

accrued and vested as of age 65.

Section 4.7 of the 2001 Pension Plan provides that a participant shall have a

100% vested interest in his or her accrued benefit upon reaching normal (if

applicable early) retirement age prior to termination of employment, death

or disability.

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It appears also to the Court that the cost of living adjustment; the phase out

30-and-out provision; the disability benefit provisions; the rate of interest and

the rate of employee contribution are all ancillary benefits subject to

modification. The actuaries for both plaintiffs and defendant seem to indicate

that some of these type benefits are ancillary benefits. The actuary hired by

the City to help prepare the 2015 amendment testified specifically that they

were all ancillary benefits. His testimony was more persuasive than the

testimony of the plaintiffs’ actuary. The Court also finds that the City Pension

Plan was not prohibited by ERISA4 from making the amendments. The

Court, therefore, finds that the modifications made by the City in 2015 were

permitted under the 2001 Pension Plan and that they did not affect the

plaintiffs’ accrued and vested benefits. The Court finds that the modifications

were reasonable and necessary to preserve the actuarial integrity of the

pension plan and to comply with State law. The complaint is, therefore,

dismissed. Costs are assessed against the plaintiffs.

II. ISSUES

We restate the following issues raised by the Plaintiffs in their appeal as follows:

1. Whether the trial court erred by applying the wrong legal standard and

concluding that the City could amend the pension plan because doing so did

not affect the Plaintiffs’ “vested and accrued” benefits.

2. Whether the trial court erred by concluding that the 2015 amendments to

the City’s plan did not violate the principles found in Blackwell.

3. Whether the trial court erred by concluding that the COLA, early

retirement, disability retirement, and rate of interest earned on employee

contributions in the City’s plan were ancillary benefits, as that term is defined

by ERISA, and could be altered even if it harmed plan participants like the

Plaintiffs.

III. STANDARD OF REVIEW

The standard of review in this action for declaratory judgment and injunctive relief

is limited to determining whether the City acted illegally, arbitrarily, or capriciously in

enacting the 2015 Pension Plan. McCallen v. City of Memphis, 786 S.W.2d 633, 639 (Tenn.

1990). In reviewing legislative acts of local governments, we must review the local

government’s actions deferentially and should refrain from substituting our judgment for

4

Employee Retirement Income Security Act of 1974 (“ERISA”).

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the broad discretionary authority of the local governmental body. Id. at 641-42.

IV. DISCUSSION

The City has consistently explained that it revised the 2001 Pension Plan in 2015

for three reasons: (1) to comply with the Act, Tennessee Code Annotated section 9-3-501,

et. seq.; (2) to help preserve the actuarial and fiscal integrity of the plan; and (3) to create

a sustainable plan and to avoid its complete termination. The City asserts that because the

Plaintiffs were not eligible for retirement, their rights in the plan were not vested and

accrued.

The Plaintiffs argue that the City Defendants did not discuss or consult with the

employees that there were plans to amend the pension plan before the amendments were

enacted. They contend that if they had been consulted, they would have urged consideration

of other alternatives to reducing the plan benefits, such as increasing employee

contributions.

According to the Plaintiffs, the early retirement benefit which was eliminated was

an important inducement for continued employment. Mr. Alexander claims that he had

planned to retire at the age of 57, relying on the 30-year service requirement. He asserts

that he will now be required to work five additional years to receive unreduced retirement

benefits. He contends that the present value of his retirement benefit was reduced by

approximately $141,000 (from $411,000 to $270,000). Mr. Cryer argues that he will have

to work until he is 65 and provide approximately 40 years of service before he is eligible

to retire with an unreduced pension. According to Cryer, if he were to work 40 years, his

retirement benefit will only be based on 35 years of service—he will have to render five

years of service without accruing any additional benefit. He claims his retirement benefit

was reduced by approximately $97,000 (from $197,000 to $100,00).

The Plaintiffs additionally argue that the elimination of the COLA will negatively

impact those employees who retire at a younger age because those retirees will not

experience its compounding effect. They further contend that they relied upon the promise

of a COLA because an annual increase would ensure that their pension grew as the COLA

did, without the need to supplement their retirement benefits. The Plaintiffs also argue that

the lump sum payments negatively impact the present value calculation.

A.

In Blackwell, the Tennessee Supreme Court adopted the “Pennsylvania rule, which

permits reasonable modifications when necessary to protect or enhance actuarial soundness

of the plan, provided that no such modification can adversely affect an employee who has

complied with all conditions necessary to be eligible for a retirement allowance.” Id. at

543. The Blackwell Court explained, “We are of the opinion that the Pennsylvania rule is

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preferable. It is more in accord with the public interest requiring a reasonable amount of

flexibility on the part of the public employer. . . .” Id. As the Court determined in Blackwell:

[W]e are not convinced that a plan is “frozen” against detrimental changes

or modifications the moment an employee begins to participate in it, where

such changes are necessary to preserve the fiscal and actuarial integrity of

the plan as a whole. It seems to us that public policy demands that there be a

right on the part of the public employer to make reasonable modifications in

an existing plan if necessary to create or safeguard actuarial stability,

provided that no then accrued or vested rights of members or beneficiaries

are there by impaired.

Id. at 540-41. The Blackwell Court found that “the modification cannot be applied

detrimentally under the Pennsylvania rule to any employees who . . . were eligible to

receive an allowance from the plan” as of a date certain. Id. at 543.

Thus, the Blackwell holding provides that a public employer must be allowed to

make changes to improve the health of a pension plan. In the instant case, had the City not

made the necessary changes to the plan, it would have become insolvent and/or been

terminated, to the detriment of all the plan participants.

The 2001 Pension Plan provides on its first page: “in accordance with the terms of

the Plan, the Sponsor has the ability at any time, and from time to time, to amend the

plan[.]” Section 9.1 of the plan allows that the City has the right and authority to amend it

at any time, subject to certain conditions:

The Sponsor, or if there is no Sponsor, the Trustee, will have the right to

amend the Plan at any time subject to the following provisions:

(a) General Requirements: Amendments (including a change

in the actuarial basis for determining optional or early

retirement benefits) must be in writing and cannot

(1) increase the responsibilities of the Trustee or

Administrator without written consent; (2) deprive any

Participant or Beneficiary of Plan benefits to which he

or she is entitled; (3) decrease the amount of any

Participant’s Accrued Benefit except as permitted under

Code § 412(c)(8); (4) permit any part of the Trust Fund

to be used for or diverted to purposes other than the

exclusive benefit of the Participants or their

Beneficiaries except as required to pay taxes and

administration expenses, or cause or permit any portion

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of the Trust Fund to revert to or become the property of

the Employer; or (5) eliminate or reduce a retirement-

type subsidy, or an early retirement benefit, or an

optional form of benefit with respect to benefits

attributable to service before the amendment. In the case

of a retirement-type subsidy, this provision will apply

only to a Participant who satisfies the pre-amendment

conditions for the subsidy either before or after the

amendment. In general, a retirement-type subsidy is a

subsidy that continues after retirement, but does not

include a qualified disability benefit, a medical benefit,

a social security supplement, or a death benefit

(including life insurance).

The trial court determined that none of the conditions in Section 9.1(a) apply to the

2015 amendments. The Plaintiffs had not met the requirements to be eligible for any of the

claimed benefits. Further, the amendments did not decrease the amount of their accrued

benefits under the 2001 Pension Plan. A plan is “not set in stone the moment [one’s] right

to some future benefits vested upon reaching [a certain number of] years of service.” Dodd

v. City of Chattanooga, Tenn., 846 F.3d 180, 186 (6th Cir. 2017). Therefore, the 2015

amendments were permissible under the 2001 Pension Plan document and Blackwell.

B.

Vested and Accrued

A public employee’s rights in a pension plan are a matter of contract. They “are

subject to the terms and conditions of the pension plan,” and any contractual rights of the

employee are “those conferred by the plan.” Blackwell, 622 S.W.2d at 540. The 2001

Pension Plan contains several provisions relevant to determining what benefits are “vested”

or “accrued.” Section 1.1 of the plan defines an accrued benefit as follows:

The term Accrued Benefit means the benefit amount earned by a Participant

as of a specified date as determined under Section 4.1. A Participant’s

Accrued Benefit in a given year will never be less than the Actuarial

Equivalent of his or her Accrued Benefit as of the end of the prior Plan Year

except as otherwise permitted by law or applicable regulation or ruling. . . .

Therefore, a benefit does not become “accrued” until and unless the Participant reaches the

relevant “specified date” as determined under Section 4.1. The specified date is defined as

“Normal Retirement Age” in Section 1.32, which “means Age 60 for Participants hired

prior to February 1, 1989 and Age 65 for Participants hired on or after February 1, 1989.”

Section 4.1 provides guidance regarding the calculation of benefits at retirement:

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[E]ach Participant will be entitled to retire at Normal Retirement Date and to

receive an Accrued Benefit payable as a Normal Form of Retirement Benefit

equal to the amount determined in accordance with the provisions of this

Section.

Each Participant’s monthly Accrued Benefit will be an amount equal to

1/12th of the following:

(a) Benefit Formula: 2% of the Participant’s Average

Compensation multiplied by his or her completed years and

months of Benefit Service as Participant at Normal Retirement

Date or earlier Termination of Employment to a maximum of

35 years. . . .

Thus, Sections 1.1 and 4.1 of the 2001 Pension Plan reveal that a benefit does not become

“accrued” until a participant reaches the “specified date” of “Normal Retirement Age,”

which would be 65 for both of the plaintiff participants.

In Frazier v. City of Chattanooga, 841 F.3d 433 (6th Cir. 2016), the court defined

“accrued” to mean “‘[t]o come into existence as a claim that is legally enforceable.’” Id. at

437. The benefit did not become legally enforceable until the employee reached the

retirement age. In the instant matter, because neither of the plaintiffs had reached the

Normal Retirement Age when the 2015 Pension Plan was enacted, they had no “accrued”

interest in any of the Claimed Benefits.

Additionally, the Plaintiffs had no “vested” interest in any of the claimed benefits.

Section 1.54 of the 2001 Pension Plan states:

The term Vested Interest means a Participant’s non-forfeitable percentage in

the Participant’s Accrued Benefit which is derived from Employer

contributions, and the Participant’s non-forfeitable percentage in any account

or Accrued Benefit attributable to the Participant’s own Plan contributions.

A Participant’s Vested Interest in the Accrued Benefit derived from

Employer contributions will be determined in accordance with Section 4.7.

Section 4.7 provides that “A Participant shall have a 100% Vested Interest in his or her

Accrued Benefit upon reaching Normal (or if applicable Early) Retirement Age prior to

Termination of Employment, death or disability. . . .”

The Plaintiffs assert that because they had more than ten years of service, they were

vested in the plan and that their rights could not be reduced.

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Under Tennessee law, “[a]n employee has a ‘vested’ retirement right when the

employee has completed the requisite term of employment necessary to be entitled to

receive retirement benefits at some future time.” Cohen v. Cohen, 937 S.W.2d 823, 826

(Tenn. 1996). See also Miles v. Tennessee Consol. Ret. Sys., 548 S.W.2d 299, 305 (Tenn.

1976) (“[A]n offer of a pension, the acceptance of same, and the completion of the service

of the employee, creates a vested interest in said pension”) (emphasis added). Thus, in order

to be vested in the right to receive a benefit, the Plaintiffs “must have completed the

requisite amount of years of service to be entitled to receive such benefit.” Dodd v. City of

Chattanooga, 215 F. Supp. 3d 608, 622 (E.D. Tenn. 2016).

It is uncontested that neither of the Plaintiffs had reached the Normal or Early

Retirement Age when the 2015 Pension Plan was adopted. Accordingly, despite

completing the ten years of service to become vested in plan benefits, they had not yet

“completed the requisite term of employment necessary to be entitled to receive” the

benefits prior to the 2015 amendments. Thus, the Plaintiffs had not vested in those rights.

See Cohen, 937 S.W.2d at 826.

C.

Prior to making the amendments to the 2001 Pension Plan, the City considered

whether there were additional sources of funding available to it. Unfortunately, the City

determined that the only available options other than amending or terminating the plan5

were to substantially increase property taxes or to cut essential municipal services. The

record reveals that the City gave due consideration to determine the changes that could

legally be made to the plan. Based upon the analysis from the actuary, the requirements of

the Act, and its own deliberations, the City concluded that it was necessary to revise the

2001 Pension Plan in order to: (i) reduce the total liability of the plan; and (ii) reduce the

ADC to a number that could be reasonably reached within the five years mandated by the

Act. By adopting all the recommended actions, the City’s projected ADC was reduced to

approximately $1.7 million in the first year following the adoption of the 2015

amendments. To further reduce its outstanding liability and the ADC, the City also

implemented a service sell-back, which allowed participants in the plan to voluntarily sell

back service years to the City that would further reduce the total unfunded liability.

The Plaintiffs have failed to present sufficient probative evidence that the 2015

amendments were not “reasonable [and] necessary to create or safeguard actuarial

stability.” Blackwell, 622 S.W.2d at 541. The trial court correctly concluded that the

modifications made by the City were “not arbitrarily done or done without consideration

from the City to keep a pension plan for the city employees that was fair and reasonable.”

The court properly found “that the modifications were reasonable and necessary to preserve

5

The City considered terminating the plan, which was an available option under the terms of the

2001 Pension Plan.

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the actuarial integrity of the pension plan and to comply with State law.”

D.

Despite the Plaintiffs’ assertions that the City’s plan is subject to ERISA’s

requirements, ERISA does not apply to government plans. 29 U.S.C. § 1003(b)(1). ERISA

explicitly exempts “governmental plans” from its coverage:

(b) The provisions of this subchapter shall not apply to any employee benefit

plan if –

(1) such plan is a governmental plan (as defined in section 1002(32) of this

title); 29 U.S.C. § 1003(b)(1).

Section 1002(32) defines “governmental plan” as follows:

The term “governmental plan” means a plan established or maintained for its

employees by the Government of the United States, by the government of

any State or political subdivision thereof, or by any agency or instrumentality

of any of the foregoing. . . .

The clear and unambiguous definition of a governmental plan contained in ERISA

establishes that the City’s Pension Plan is a “governmental plan” exempt from ERISA.

Further, courts have not permitted a governmental entity to “opt-in” to ERISA.

Despite reference to ERISA in a plan’s terms, a governmental employer cannot “opt in” to

ERISA coverage for its pension plan. See Krystyniak v. Lake Zurich Cmty. Unit Dist, No.

95, 783 F. Supp. 354, 356 (N.D. Ill. 1991). 29 U.S.C. § 1002(32) makes no provision for

such option; it merely describes which plans are governmental plans and (by implication)

which are not. See Hall v. Maine Mun. Employees Health Trust, 93 F. Supp. 2d 73, 75 (D.

Maine 2000) (stating “[D]esire and compliance do not an ERISA plan make. A benefit plan

does not choose whether to opt in or opt out of ERISA.”). See also Michel v. United

Healthcare of Louisiana, No. Civ. A. 03-0649, 2003 WL 1790846 (E.D. La. 2003)

(concluding “Congress deliberately excluded governmental plans from the broad sweep of

ERISA preemption of state laws” and finding that ERISA did not apply to the plan at issue,

despite numerous references to ERISA in the plan document).

E.

The Plaintiffs have challenged the finding of the trial court that “the cost of living

adjustment; the phase out 30-and-out provision; the disability provisions; the rate of

interest and the rate of employee contribution are all ancillary benefits subject to

modification.” They claim that Mr. Pennington “testified only that the disability benefit

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was an ancillary benefit” and therefore, the finding by the trial court was not supported by

Mr. Pennington’s testimony.

The plaintiffs misstate Mr. Pennington’s testimony:

Q: Did you say that the disability benefit in this 2001 plan document was an

ancillary?

A: Yes, that’s an ancillary benefit.

Q: Why did you conclude it was an ancillary benefit as opposed to a vested

and accrued benefit?

A: Although the word ancillary is not defined in the plan document, in

general, the accrued benefit, the monthly benefit at age 65 based on salary

and service, you know, that’s the accrued benefit. Other benefits that are not

the accrued benefits, like the disability, life and death and so forth would be

considered ancillary, not the primary benefit.

In contrast, the expert for the Plaintiffs testified that the 30-and-out provision, the COLA,

and the lump sum option were vested, accrued benefits such that they could not be reduced

by amendment.

The record clearly reveals that Mr. Pennington’s position at trial, relied upon by the

trial court, was that all benefits that were not the primary accrued benefit were ancillary

benefits. Thus, the COLA, the 30-and-out provision, the disability provision, the rate of

interest and the rate of employee contributions were not vested and accrued, and therefore

were modifiable.

The Plaintiffs challenge the trial court’s reliance on the testimony of the City’s

expert, Mr. Pennington. The court ultimately agreed with the position of Mr. Pennington

and found in favor of the City. Findings that are related to the issue of credibility will not

be disturbed by this court, absent other concrete evidence to the contrary showing that the

trial court erred in its judgment of the veracity of the witnesses. Farmers & Merchants

Bank v. Dyersburg Prod. Credit Ass’n, 728 S.W.2d 10, 18 (Tenn. Ct. App. 1986). Where

the trial court’s factual determinations are based upon its assessment of witness credibility,

we will only overturn the rulings if clear and convincing evidence to the contrary is shown.

Franklin Cnty. Bd. of Educ. v. Crabtree, 337 S.W.3d 808, 811 (Tenn. Ct. App. 2010). In

the record before us, the Plaintiffs failed to identify any facts found by the trial court that

show the court erred in finding that the City’s expert was more credible than the Plaintiffs’

expert. Accordingly, the Plaintiffs’ argument is without merit.

Pursuant to Blackwell and the plan document, the court properly found that there

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was no legal prohibition to amending the 2001 Pension Plan. Thus, the trial court’s

determination regarding the 2015 Pension Plan amendments was not illegal, arbitrary or

capricious.

V. CONCLUSION

The judgment of the trial court is affirmed, and this cause is remanded for the

collection of the costs below. Costs on appeal are taxed to the appellants, Aaron Jay Cryer

and Jason M. Alexander.

_________________________________

JOHN W. MCCLARTY, JUDGE

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