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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)



STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL


Opinion No. 6242

August 9, 1984

CIVIL SERVICE:

Responsibility of the Department of Civil Service to prepare reports listing names of early retirants drawing remuneration for services under state contracts authorized or preauthorized by the department

CONSTITUTIONAL LAW:

Suspension of supplemental retirement benefits due early retirant receiving remuneration for services provided to the state under contract not a denial of equal protection of the laws

RETIREMENT AND PENSIONS:

Suspension of supplemental retirement benefits payable to early retirants of State Employees' Retirement System who are drawing remuneration for services performed under state contracts

An early retirant of the State Employees' Retirement System drawing supplemental retirement benefits shall not receive the supplemental retirement benefit for any month in which such retirant is receiving remuneration for services performed upon any state contract, authorized or preauthorized by the Department of Civil Service, whether as a special service employee of a state agency or as an employee of an independent contractor under contract with the state agency, including contracts for consulting services, building contracts, and highway construction contracts.

The Department of Civil Service is required to prepare monthly reports listing the names of all early retirants who are receiving remuneration for services performed under contracts with the state which have been authorized or preauthorized by the Department of Civil Service.

No cessation of supplemental retirement benefits is required in the case of an early retirant employed by an independent contractor providing services under a state contract where the early retirant is employed on projects of the contractor which do not relate to the state contract.

It is the responsibility of the Department of Civil Service to make the determination whether early retirants receiving supplemental retirement benefits are also receiving remuneration for services provided under a contract with the state.

An early retirant drawing supplemental retirement benefit is not denied equal protection of the laws when his or her supplemental retirement benefit is suspended for any month in which the retirant is also receiving remuneration for services provided under a state contract.

Honorable Francis R. Spaniola

State Representative

The Capitol

Lansing, Michigan

Honorable Joe Conroy

State Senator

The Capitol

Lansing, Michigan

You have requested my opinion on five questions relating to the early retirement program for certain state employee members of the State Employees' Retirement System. 1984 PA 3 amended the State Employees' Retirement Act, 1943 PA 240; MCLA 38.1 et seq; MSA 3.981(1) et seq. The amendment added section 19a in order to provide supplemental retirement payments to qualified state employee members electing early retirement, hereafter designated as early retirants. Tie-barred to the enactment of 1984 PA 3 was the enactment of 1984 PA 2, which, in pertinent part, amended 1981 PA 18, Sec. 18; MCLA 21.518; MSA 3.584(18), to add subsection (d) thereto for the purpose of imposing a duty upon the Department of Civil Service to report, on a monthly basis, the name of any such early retirant providing contractual servides to the state and receiving remuneration therefor, either as a special personal service employee or as an employee of an independent contractor.

Your first question is:

'Are the 'contractual services' that lose the supplemental benefit limited to those which provide a 'special personal service,' such as those performed by a consultant or a consulting firm, or do they include other kinds of contractual services, such as building contractors, etc.?' 1943 PA 240, Sec. 19a, supra, provides, in pertinent part:

'(1) Notwithstanding section 19, a member who is employed by the state on the effective date of this section may retire and receive a retirement allowance computed according to section 20 if the member satisfies all of the following requirements:

'(a) On the effective date of his or her retirement, 1 of the following applies:

'(i) The member has attained age 60 and has 10 or more years of credited service.

'(ii) The member's combined age and length of credited service is equal to or greater than 80 years, and the member has attained age 50.

'(b) The member is not a supplemental member as defined in section 45.

'(c) The member was employed by the state for the 6-month period immediately preceding the effective date of this section. This subdivision shall not apply to a member who had been restored to active service during that 6-month period pursuant to section 33.

'(d) The member files a written application with the retirement board, on or after May 1, 1984 but not later than June 1, 1984, stating a date, which date shall be on or after June 2, 1984 but not later than September 30, 1984, on which he or she desires to retire.

'(e) The member agrees to the conditions stated in subsection (3).

'(2) A member who retires under this section, and who at the time of his or her retirement has not attained age 62 years, shall receive a monthly retirement allowance supplement for each month, including any fraction of a month, until the retirant attains age 62 years. The amount of the monthly retirement allowance supplement shall be based upon the annual rate of base salary of the retirant as of the pay period immediately preceding the date of retirement, according to the following schedule:

Monthly Retirement

Annual Base Salary Allowance Supplement

Less than $10,000.00 .................................... $240.00

At least $10,000.00 but not more than $19,999.99 ........ $280.00

At least $20,000.00 but not more than $29,999.99 ........ $320.00

At least $30,000.00 ..................................... $360.00

'A payment shall not be made under this subsection for any month for which the retirant is paid, on account of his or her state employment, worker's compensation benefits, unemployment compensation benefits, long or short term disability benefits, federal social security benefits, Michigan state employees' retirement system disability benefits, state salary, or receiving remuneration for any contractual services provided to the state certified under section 18(1)(d) of Act No. 18 of the Public Acts of 1981, being section 21.518 of the Michigan Compiled Laws. (Emphasis added.)

The purpose of this 'early retirement' legislation is to provide retirement incentive to those eligible individuals, not otherwise disposed to do so, to retire from state employment and thereby achieve significant and immediate reductions in the number of state employees on the state payroll. (1) Recognizing that the purpose of the legislation could be thwarted if persons retiring under 1943 PA 240, Sec. 19a(1), supra, were permitted to return and provide their skills to the state on a private contractual basis, either directly or indirectly as employees of an independent contractor, the Legislature, in order to prevent that occurrence, broadly defined those early retirants who would suffer the loss of supplemental retirement payments should they be 'receiving remuneration for any contractual services provided to the state certified under section 18(1)(d) of Act No. 18 of the Public Acts of 1981, . . .' 1943 PA 240, Sec. 19a(2), supra. (Emphasis added.)

1981 PA 18, Sec. 18(1), supra, was amended by 1984 PA 2 to add subsection (d) thereto, which provides:

'(1) Before the fifteenth of each month, the department of civil service shall report the following for each contract for services approved by the department of civil service during the previous calendar month:

(d) The name of any individual providing contractual services to the state, whether as a special personal service employee or as the employee of an independent contractor, as certified by the contracting state agency, and who has retired under section 19a of Act No. 240 of the Public Acts of 1943, being section 38.19a of the Michigan Compiled Laws.'

To interpret legislative intent and determine what contractual services rendered by retired state employees will result in the loss of the supplemental retirement payments, "all acts relating to the same subject, or having the same general purpose, should be read in connection with it, as together constituting one law. The endeavor should be made, by tracing the history of legislation on the subject, to ascertain the uniform and consistent purpose of the legislature, . . ." Remus v City of Grand Rapids, 274 Mich 577, 581; 265 NW 755, 756, (1936), quoting from 36 Cyc, p 1147-1149; County of Wayne v State Dep't of Social Welfare, 343 Mich 475, 479; 72 NW2d 200, 203 (1955). Thus, 1943 PA 240, Sec. 19a, supra, and 1981 PA 18, Sec. 18, supra, should be read together and the legislative history of these provisions should be examined to ascertain the intent of the Legislature.

The legislative intent as to what persons providing services and receiving remuneration for any contractual services provided to the state would experience the withdrawal of supplemental retirement payments as certified under 1981 PA 18, Sec. 18(1)(d), supra, is apparent not only from the stated purpose of the legislation, but also from the legislative history of these enactments.

As introduced and passed by the House, HB 4644 purported to amend 1981 PA 18 to add thereto only section 32 so as to provide for a reduction in the number of state employees arising from the early retirement program. It contained no reference to suspension of such supplemental retirement benefits paid to early retirants providing contractual services to the state. 1983 House Journal, No. 62, p 1307. However, the senate substitute for HB 4644, (S-4) reported out of the Senate Committee on Appropriations and Retirement, 1983 Senate Journal, No. 107, p 2175, proposed to amend 1981 PA 18, Sec. 18, supra, to provide:

'(1) Before the fifteenth of each month, the department of civil service shall report the following for each contract for services approved by the department of civil service during the previous calendar month:

'(a) The state agency contracting for the service.

'(b) The name of the individual or entity with whom the state agency is contracting.

'(c) The dollar amount of and source of financing for the contract.

'(D) THE NAME OF ANY INDIVIDUAL IDENTIFIED UNDER SUBDIVISION (B) WHO HAS RETIRED UNDER SECTION 19a OF ACT NO. 240 OF THE PUBLIC ACTS OF 1943, BEING SECTION 38.19A OF THE MICHIGAN COMPILED LAWS.

'(2) The report shall be made to the appropriations committees and the fiscal agencies.'

The senate substitute for HB 4644, section 18(1)(d), was thereafter amended by the Senate to read:

'THE NAME OF ANY INDIVIDUAL PROVIDING CONTRACTUAL SERVICES TO THE STATE, WHETHER AS A SPECIAL PERSONAL SERVICE EMPLOYEE OR AS THE EMPLOYEE OF AN INDEPENDENT CONTRACTOR, AS CERTIFIED BY THE CONTRACTING STATE AGENCY, AND WHO HAS RETIRED UNDER SECTION 19a OF ACT NO. 240 OF THE PUBLIC ACTS OF 1943, BEING SECTION 38.19a OF THE MICHIGAN COMPILED LAWS.' 1984 Senate Journal, No. 3, p 44, 45.

The Senate approved HB 4644, as substituted and amended, without further change. 1984 Senate Journal No. 3, p 47. The House concurred in the action of the Senate. 1984 House Journal, No. 5, p 69.

Thus, from the foregoing legislative history of HB 4644, it is clear that the Legislature intended to encompass a broad range of persons receiving supplemental retirement payments and providing services to the state under contract who would suffer the loss of the supplemental retirement payment for any month during which such persons received remuneration for any contractual services provided to the state as certified under 1981 PA 18, Sec. 18(1)(d), supra.

The legislative intent (2) is manifest that no supplemental retirement benefits are to be paid for any month in which an early retirant also is receiving remuneration for services performed upon a state contract, whether the early retiree contracts directly with the state agency or is an employee of an independent contractor under a contract with a state agency. The Legislature did not countenance the payment in any month of both the supplemental retirement benefit to an early retirant and the payment of remuneration for service to the same person under a contract with the state, whether the remuneration was paid directly by the state or by an independent contractor under a contract with a state agency for services provided under the contract. This prohibition is imposed by 1943 PA 240, Sec. 19a, as added by 1984 PA 3, supra. The reporting and control mechanism to effectuate said legislative intent is provided by 1981 PA 18, Sec. 18, as last amended by 1984 PA 2, supra. Although these provisions are to be read together, each serves a different purpose.

Const 1963, art 11, Sec. 5, p s 4 and 12, provide:

'The commission shall classify all positions in the classified service according to their respective duties and responsibilities, fix rates of compensation for all classes of positions, approve or disapprove disbursements for all personal services, determine by competitive examination and performance exclusively on the basis of merit, efficiency and fitness the qualifications of all candidates for positions in the classified service, make rules and regulations covering all personnel transactions, and regulate all conditions of employment in the classified service.'

'No payment for personal services shall be made or authorized until the provisions of this constitution pertaining to civil service have been complied with in every particular. Violation of any of the provisions hereof may be restrained or observance compelled by injunctive or mandamus proceedings brought by any citizen of the state.'

Rule No. 4-6.1, adopted by the Civil Service Commission, provides:

'An appointing authority may request the use of contractual personal services upon a satisfactory showing that it is not economical or feasible to establish a classified position to perform the required personal services. Approval or disapproval for the use of such contractual personal services shall be in accordance with procedures issued by the director.'

The State Personnel Director, in a letter to state executive department directors dated May 10, 1984, stated that in order to assure that all departments comply with the requirements of 1943 PA 240, Sec. 19a, supra, and 1981 PA 18, Sec. 18, supra, certain policies and procedures should be adherred to, the first of which is:

'The requirements of the above acts pertain to all contractual services including those preauthorized by the Department of Civil Service.'

In this connection, it is to be noted that the Department of Civil Service Administrative Procedure, Classification Procedure 18, section 8, includes:

'C. Construction contracts previously approved by the State Administrative Board.

'D. Highway construction contracts (but not maintenance agreements with local units of government, design or research contracts).'

Thus, approval by the Department of Civil Service by authorization or preauthorization for the disbursement of funds for contractual services includes construction contracts and highway construction contracts.

It is my opinion, therefore, that an early retirant drawing supplemental retirement benefits from the state employees' retirement system shall not receive the supplemental retirement benefit for any month in which such early retirant is receiving remuneration for services performed upon any state contract, whether as a special personal service employee of a state agency or as the employee of an independent contractor under contract with the state agency, including contracts for consulting services, building contracts, and highway construction contracts.

Your second question is:

'By specifying that the Department of Civil Service is to monitor the contractual services certified by the contracting state agency, does MCLA 21.518(1)(d) effectively authorize the Department of Civil Service to monitor those contractual services arranged by state departments which are currently outside its review and approval authority under Rule 138?'

The authority of the Department of Civil Service to review and authorize or preauthorize contracts for personal services to be rendered to the State of Michigan derives from Const 1963, art 11, Sec. 5, p4, which, in pertinent part, states:

'The commission shall classify all positions in the classified service according to their respective duties and responsibilities, fix rates of compensation for all classes of positions, approve or disapprove disbursements for all personal services . . . make rules and regulations covering all personnel transactions and regulate all conditions of employment in the classified service.' (Emphasis added.)

Pursuant to section 8 of its Classification Procedure 18, the Department of Civil Service has 'preauthorized' contracting agencies to enter into certain specific contractual arrangements without the necessity of approval through the use of CS-138. However, under sections 3 and 8 of Procedure 18, the Department of Civil Service specifically reserves the right to require contractual personal service reviews and periodically conducts reviews of all preauthorized contractual personal services.

As expressly stated in 1981 PA 18, Sec. 18(1)(d), supra, the Department of Civil Service is to report the necessary information for each contract for services approved by the Department of Civil Service during the previous calendar month. While the Department of Civil Service does not approve contracts for personal services between a principal department and an individual or an entity, in order for the state to enter into a contract and pay for the services rendered, the department must give its approval in the form of authorization or preauthorization for the disbursement of funds for the contractual personal services before the state may enter into such a contract. This, in turn, triggers the reporting function imposed upon the department by 1981 PA 18, Sec. 18(1)(d). supra.

Further, as you correctly observe in your question, 1981 PA 18, Sec. 18(1)(d), supra, is intended to be the monitoring mechanism through which the Legislature seeks to ensure that the overall purpose of the early retirement program is not subverted.

In answer to your second question, it is my opinion that 1981 PA 18, Sec. 18(1)(d), supra, does not impact upon the authority of the Department of Civil Service to review and grant authorization or preauthorization for contracts for personal services entered into between individuals or entities and the State of Michigan, but rather, consistently with the purpose of the legislation, 1981 PA 18, Sec. 18(1)(d), serves as a reporting mechanism to prevent early retirants from collecting both early retirement supplemental payments and payment for contract services rendered to the state, either pursuant to an individual contract as a special personal service employee or as an employee of an independent contractor.

Your third question is:

'Let us assume that a state employee retires under the early retirement program and then goes to work for an independent contractor who, as an individual or a firm, provides to the state services of a nature which create ineligibility for the supplemental allowance. If that state retiree works on non-state-related work--a separate project from that under which the contractor provides services to the state--will the state retiree lose his or her eligibility for the supplemental allowance?'

By its plain terms, 1943 PA 240, Sec. 19a(2), supra, precludes supplemental retirement payments only when the early retirant 'is receiving remuneration for any contractual services provided to the state.' (Emphasis added.)

In answer to your third question, it is my opinion that if an early retirant drawing supplemental retirement payments is employed by a person or entity contracting with the state, but such retirant is employed on projects which do not relate to the state contract and, therefore, is not receiving remuneration for contractual services provided to the state, no cessation of supplemental retirement benefits is required.

Your fourth question is:

'Will the Department of Civil Service, the certifying state departments, or the independent contractor define the test and administer the task of distinguishing which of the independent contractor's employees who are also participants in the early retirement program are performing state-related work, and which are not?'

The Legislature has mandated that the Department of Civil Service shall report, inter alia, the names of individuals 'providing contractual services to the state, whether as a special personal service employee or as the employee of an independent contractor, as certified by the contracting state agency, and who has retired under section 19a of Act No. 240 of the Public Acts of 1943, . . ..' 1981 PA 18, Sec. 18(1), supra, (Emphasis supplied.)

The commonly understood meaning of the word 'certify' is to verify, attest or affirm authoritatively in writing. Webster's Third New International Dictionary. Doherty v McDowell, 276 F 728, 731-732 (DC Me, 1921); Bates v Bates, 247 Ala 337; 24 So 2d 440, 442 (1946).

The contracting state agency is charged by 1981 PA 18, Sec. 18(1), supra, with the duty to verify monthly the names of persons providing services to the state under contract, whether as a special service employee or as an employee of an independent contractor of such state contract. This may be accomplished by securing from the independent contractor timely monthly reports of the names and other identification information of all of its employees performing services relative to a contract with the state and receiving compensation therefor in the preceding month. Upon receipt of these monthly reports, the contracting state agency is required to compare the names in the report against the names of early retirants drawing supplemental retirement benefits provided by the Department of Civil Service.

The contracting state agency's report to the Department of Civil Service should be verified and submitted before the 15th day of each month. The contracting state agency's certification of the names of such early retirants should have appended thereto a copy of the independent contractor's report of the names of the employees working on the state contract for the certification period. Based upon the contracting state agency's report to it, the Department of Civil Service is required to file its report with the appropriations committees and the fiscal agencies of the Legislature and with the Department of Management and Budget, as well as with the Department of Treasury.

A similar reporting procedure is required with respect to early retirants contracting directly with a state agency as a special personal service employee to provide services to the state. Since the contracting state agency is dealing directly with the early retirant, it should have no difficulty in certifying whether the contracting early retiree has provided services and received remuneration during a particular month.

It is to be noted that the suspension of supplemental retirement benefits for any early retirant who is providing services to the state and who is receiving remuneration therefor in any month is triggered by the report filed by the Department of Civil Service.

In answer to your fourth question, it is my opinion that it is the responsibility of the Department of Civil Service to make the determination whether early retirants, who are drawing supplemental retirement benefits pursuant to 1943 PA 240, Sec. 19a, supra, are concurrently receiving remuneration for contract services provided to the state.

Your final question is:

'Is it illegal discrimination to penalize state early retirees who provide contractual services to the state by denying them a supplemental allowance, while permitting other state early retirees to work for other units of government and still receive a supplemental allowance?'

The supplemental retirement benefits due early retirants pursuant to 1943 PA 240, Sec. 19a(2), supra, were intended to induce persons, not otherwise disposed to do so, to retire from state employment. The Legislature hoped to achieve significant reductions in the number of persons on the state payroll with an accompanying decrease in the amount of general fund expenditures for salaries, wages and fringe benefits. 1981 PA 18, Sec. 33, as added by 1984 PA 2, supra.

1943 PA 240, Sec. 19a(2), supra, prohibits supplemental retirement benefits to be paid to all persons retired under 1943 PA 240, Sec. 19a(2), supra, who are receiving remuneration for any contractual services provided by the retired person to the state, while permitting supplemental retirement benefits to continue to be received by those early retirants who may become employed by nonstate governmental bodies, agencies, or by private employers. Such legislation operates equally upon those persons choosing early retirement under 1943 PA 240, Sec. 19a, supra, and clearly has a rational relationship to the legitimate state interest of reducing the size of the state payroll by preventing early retirants from receiving supplemental retirement benefits from the state and, at the same time, from being able to 'double-dip,' in the sense of receiving further remuneration for services provided under contracts with the state.

In Burgess v Detroit, 359 Mich 269; 102 NW2d 483 (1960), an action for declaratory judgment was brought by the widows and beneficiaries of city policemen and firemen, killed in the performance of duty or receiving injuries resulting in death, seeking an increase in pension benefits available to members of the new retirement system based upon an approved charter amendment providing increased benefits to all policemen and firemen in service on July 1, 1941 and to their beneficiaries. The widows claimed, in part, that their exclusion from the increase in benefits was unconstitutional as denying equal protection of the laws. The court held that the widows of policemen and firemen whose husbands were members of the new system were members of one class and that those who were widows prior to the amendment are in another class, concluding that the charter amendment was not unconstitutional because it operated equally upon all of those within a particular class.

The decision in Burgess was followed in Hughes v Judges' Retirement Bd, 407 Mich 75; 282 NW2d 160 (1979). In Hughes, supra, retired judges receiving benefits under the Judges' Retirement Act, 1951 PA 198; MCLA 38.801 et seq; MSA 27.125(1) et seq, challenged, on equal protection grounds, 1951 PA 198 supra, Sec. 14, as amended by 1974 PA 337, which provided for increased retirement benefits of 2 1/2% of final compensation for each year of service in excess of 12 years and up to 16 years to be paid to judges who retired after December 18, 1974. Plaintiff judges, who had retired prior to December 18, 1974, were denied the increased benefits. In rejecting the contention that the nonapplication of 1974 PA 337, Sec. 14, supra, to judges who retired prior to the amendment's effective date resulted in a denial of the equal protection of the laws under the federal and state constitutions, the Michigan Supreme Court held:

'We hold that the Court of Appeals correctly relied upon this Court's decision in Burgess v Detroit, 359 Mich 269; 102 NW2d 483 (1960) to dispose of the plaintiffs' equal protection challenge. In Burgess, supra, at 280, this Court stated:

"The remaining question is whether such exclusion makes the amendment unconstitutional. All widows of policemen and firemen whose husbands were members of the new policemen and firemen retirement system at date of death or retirement are in one class and subject to the new provisions for benefits. All widows prior to the amendment are in another class. This Court has many times held that legislation is not unconstitutional because it is legislation of a particular kind or character, or because it benefits a particular class, so long as the law operates equally upon those within the particular class. In re Phillips, 305 Mich 636 [9 NW2d 872 (1945)]; Lake Shore Coach Lines, Inc v Secretary of State, 327 Mich 146 [41 NW2d 503 (1950)]; People's Appliance, Inc v City of Flint, 358 Mich 34 [99 NW2d 522 (1959)]. This amendment includes all within the respective classes; consequently, it is not arbitrary or unreasonable. The legislative body in its wisdom determines who shall receive benefits. In this instance it chose to exclude plaintiffs. This Court cannot and will not question its reasons unless they appear to be palpably arbitrary or unreasonable. Ver Hoven Woodward Chevrolet, Inc v Dunkirk, 351 Mich 190 [88 NW2d 408 (1958)]; Metropolitan Funeral System Ass'n v Commission of Insurance, 331 Mich 185 [49 NW2d 131 (1951)]."

'In view of the legislative purpose of the Judges' Retirement Act, this Court cannot say that the distinction created between judges who retire prior to the amendment and those who retire after the amendment is arbitrary, unreasonable or devoid of rational bases. . . .' Hughes, supra, at 93-94.

The legislation authorization for provision of supplemental benefits to early retirees in order to reduce the number of state employees, and thereby the amount of the state budget, serves as a rational basis upon which to make a distinction between the class of early retirants providing services to the state under contract for which remuneration is received and the class of early retirants who provide services to other public bodies or private employers at no expense to the state. The former class continues to impact the state budget and the latter class does not. The distinction created between the two classes is not arbitrary, unreasonable or devoid of rational basis.

It is my opinion, therefore, that 1943 PA 240, Sec. 19(a)(2), supra, does not deny equal protection of the laws to early retirants who provide services to the state under contracts as certified under 1981 PA 18, Sec. 18(1)(d), supra.

Frank J. Kelley

Attorney General

(1) As provided in 1981 PA 18, Sec. 33(2), as added by 1984 PA 2; MCLA 21.533; MSA 3.584(33), only 25% of the total amount of the salaries, wages, longevity payments, group insurance payments, retirement fund contributions and social security employer contributions which would have been paid early retirants from 1983-1984 and 1984-1985 appropriations may be paid to employees filling vacancies created by early retirement of state employees.

(2) This opinion addresses the question of the legislative intent in the enactment of amendatory 1984 PA 2 and 1984 PA 3 and no other question.

 


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