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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Public Employees' Retirement System v. Gallant (12/29/2006) sp-6088
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
| PUBLIC EMPLOYEES RETIREMENT | ) |
| SYSTEM; TEACHERS RETIREMENT | ) Supreme Court Nos. S- 11926/11945 |
| SYSTEM; STATE OF ALASKA, and | ) |
| DEPARTMENT OF ADMINISTRATION, | ) |
| DIVISION OF RETIREMENT AND | ) Superior Court No. |
| BENEFITS, as administrator of the Public | ) 3AN- 02-9748 CI |
| Employees Retirement System and the | ) |
| Teachers Retirement System, | ) |
| ) | |
| Appellants/Cross-Appellees, | ) |
| ) O P I N I O N | |
| v. | ) |
| ) | |
| A. JOHN GALLANT, ROBERT G. | ) |
| BELLMORE, and DONNA J. BELLMORE, | ) |
| individually and on behalf of all persons | ) |
| similarly situated, | ) |
| ) | |
| Appellees/Cross-Appellants. | ) No. 6088 - December 29, 2006 |
| ) | |
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, John Suddock, Judge.
Appearances: Stephen C. Slotnick, Assistant
Attorney General, David W. M rquez, Attorney
General, Juneau, for Appellants/Cross-
Appellees. Linda M. OBannon, Ray R. Brown,
Dillon & Findley, P.C., Anchorage, Bennett A.
McConaughy, Michael D. Sandler, Sandler Ahern
& McConaughy, PLLC, Seattle, for
Appellees/Cross-Appellants.
Before: Bryner, Chief Justice, Matthews,
Eastaugh, Fabe, and Carpeneti, Justices.
MATTHEWS, Justice.
I. INTRODUCTION
By statute, two Alaska retirement systems pay retirees
who reside in the state a cost-of-living allowance that adds ten
percent to their basic retirement pay. The question presented is
whether failing to pay a similar allowance to retirees who live
in high cost areas outside Alaska violates the equal protection
clause of the Alaska Constitution. We hold that it does not
because the purpose of the allowance encouraging retirees to
continue to live in Alaska by partially offsetting Alaskas higher
cost of living is legitimate and it bears a fair and substantial
relationship to the achievement of this objective.
II. FACTS AND PROCEEDINGS
Many former public employees receive retirement
benefits under the Public Employees Retirement System (PERS).
Monthly retirement benefits are calculated by taking some
percentage of average monthly compensation and multiplying that
amount by years of service.1 Retirees sixty-five years old or
older, or who first entered the system before July 2, 1986,
residing in Alaska are entitled to a monthly cost-of-living
allowance (COLA) in addition to the base benefit.2 The COLA is
the greater of fifty dollars or ten percent of the basic monthly
benefit.3 Public school teachers receive retirement benefits
under the Teachers Retirement System (TRS). Retirement benefits
under TRS are calculated in much the same manner as under PERS,
and retiree teachers are eligible for a similar COLA.4 The
statutes governing both systems have contained COLAs since the
1960s.
John Gallant is a retired correctional officer who
receives benefits under PERS but, because he lives in Hawaii,
does not receive a COLA. Robert and Donna Bellmore are retired
public school employees who live in Kenai and receive the TRS
COLA but plan to move outside Alaska in the near future. Gallant
and the Bellmores (collectively Gallant) filed a class action
against the administrators of PERS and TRS, arguing that the COLA
residency requirement was an unconstitutional restriction on the
right to travel and a violation of equal protection of the law
under the provisions of the federal and state constitutions.
Gallant also argued that denial of the COLA was a breach of the
states contract with the members of PERS and TRS under article
XII, section 7 of the Alaska Constitution. Gallant requested
damages under the contract claim for past non-receipt of the
COLA.
The parties filed cross-motions for summary judgment.
The superior court ruled that the residency requirement was
invalid on state equal protection grounds and granted Gallants
motion for summary judgment.5 The superior court also ruled that
Gallant was entitled to prospective relief only and granted the
states cross-motion for summary judgment on the issue of damages.
The state appeals from the grant of summary judgment to
Gallant and from the denial of its cross-motion for summary
judgment. Gallant cross-appeals from the denial of his motion
for summary judgment as to damages.
III. DISCUSSION
We review a grant or denial of summary judgment de
novo.6 The equal protection challenge presents a question of law
to which this court applies its independent judgment.7 A
constitutional challenge to a statute must overcome a presumption
of constitutionality.8
A. State Equal Protection and the Right To Travel
The Alaska Constitution provides that all persons are
entitled to equal rights, opportunities, and protection under the
law.9 We interpret this provision to be a command to state and
local governments to treat those who are similarly situated
alike.10 When equal protection claims are raised, the question is
whether two groups of people who are treated differently are
similarly situated and therefore are entitled to equal treatment
under the constitution. In order to determine whether
differently treated groups are similarly situated, we look to the
states reasons for treating the groups differently. As a matter
of nomenclature we refer to that portion of a law that treats two
groups differently as a classification.11 We most often review a
classification by asking whether a legitimate reason for
disparate treatment exists, and, given a legitimate reason,
whether the enactment creating the classification bears a fair
and substantial relationship to that reason.12
The legitimate reason inquiry is the standard level of
scrutiny that we apply in equal protection cases. But when a
classification is based on a suspect factor (for example, race,
national origin, or alienage) or infringes on fundamental rights
(for example, voting, litigating, or the exercise of intimate
personal choices) a classification will be upheld only when the
enactment furthers a compelling state interest and the enactment
is necessary to the achievement of that interest.13 We refer to
this as the strict scrutiny standard. Some cases fall between
standard scrutiny and strict scrutiny. With respect to these we
use a sliding scale. As the right asserted becomes more
fundamental or the classification scheme employed becomes more
constitutionally suspect, the challenged law is subjected to more
rigorous scrutiny at a more elevated position on our sliding
scale. 14 Although theoretically there are any number of require
ments that could be used in cases falling between standard and
strict scrutiny, we have in practice required that
classifications be based on governmental interests that are
important, and, as with standard scrutiny, we have insisted that
the enactments bear a substantial relationship to the
accomplishment of their objectives.15
In the present case Gallant claims that the
classification in question burdens the right to travel. We have
recognized the right to travel as a right that is protected by
the equal protection clause of the state constitution.16 In order
to determine the degree of scrutiny that should be applied in
cases claiming an infringement of the right to travel, we balance
the extent of the infringement against the purpose of the statute
and the closeness of the relationship between the means employed
by the statute to further that purpose and the purpose itself.17
There is an awkwardness to this approach. In order to determine
what degree of scrutiny to employ, we must address the whole
range of questions posed by our equal protection methodology. In
other words, we have to quantify (a) the importance of the states
purpose, (b) the extent of the infringement on the right to
travel, and (c) the closeness of the relationship between the
means employed by the statute and its purpose. The answers to
these questions determine both the degree of scrutiny that we
should employ and whether the challenged statute violates the
equal protection clause.18 Although this approach is cumbersome,
we will continue to use it because it requires that we examine in
some form the factors that should be examined in cases of this
nature.
B. The Decision of the Superior Court
The superior court viewed the purpose of the COLA as
[a]lignment of benefits to economic conditions of the retirees
locale. The court decided to employ a level of scrutiny higher
than standard scrutiny because it concluded that the COLA
burdened the right to travel that is the right to live wherever
in the United States one chooses because the COLA cannot but
tend to affect the destinations of choice of Alaska pensioners.
Even using heightened scrutiny, the court found that the states
purpose of equalizing benefits was sufficiently weighty and
meritorious. But the means used to accomplish this purpose fell
short.
The court found that the purpose of equalizing benefits
according to local costs of living was not sufficiently furthered
by paying a COLA only to those who stay in Alaska. Recognizing
that there are now several areas of the United States with higher
costs of living than Anchorage, the court concluded that
penalizing those who retire to the expanding number of higher
cost locales [outside Alaska] is no longer constitutionally
permissible, if ever it were. It followed that those living in
metropolitan areas where the statistical data show a higher cost
of living than Anchorage, . . . are prospectively entitled to
receive the [COLA]. As to other retirees living outside Alaska
in lower cost areas, the court indicated that they would not be
entitled to the COLA prospectively if the legislature amended the
statutes to institute a constitutionally permissible cost-of-
living adjustment within a reasonable time. Barring such an
amendment, they too would be entitled to COLA payments because
the court had previously ruled that the residency requirement of
the COLA statutes would be severable. Thus, when the residency
requirement was stricken as unconstitutional, the rest of the law
providing for payment of the COLA would still stand. All
retirees would then be entitled to receive COLA payments
regardless of where they lived unless the legislature acted to
restrict COLA payments to Alaska retirees and those living
outside Alaska in high cost-of-living areas.
The superior court gave the following account of
comparative living costs in Alaska and in locations outside the
state:
According to one study the cost of living in
Anchorage is 107% of a standard city.
Plaintiffs aver that 25% of departed PERS
retirees select the state of Washington. The
cost of living in Seattle is about 120% the
cost of living in Anchorage. Honolulu is
138.5% of the standard city, or 129% of
Anchorage.1. . .
The State points out, using the same
data, that the composite cost of living for
lower income households in Alaska is 12.5%
above the national average. The composite
cost of living index for Alaska is 28.2%
higher than the national average, higher than
all states but California, New Jersey,
Hawaii, and the District of Columbia.[19]
_____________________________________________
____
1 American cities with higher costs than
Anchorage include New York (Manhattan), San
Francisco, Jersey City, San Jose, Honolulu,
Seattle, Stamford-Norwalk, Bergen-Passaic,
Oakland, Chicago, Newark-Elizabeth, San
Diego, Los Angeles-Long Beach, Washington
D.C./suburban Maryland, Middlesex, Boston,
Framingham-Natick, and Nassau County.
The court also observed that [o]f 26,000 PERS and TRS benefit
recipients, 62% live in Alaska, and 38% outside. According to
the state, only 3% of benefit recipients live in locales with
higher costs of living than Alaska.
C. The COLA Residency Requirement Does Not Violate Equal
Protection.
We proceed to examine the three inquiries required by
the method of analysis that we have employed in equal protection
cases involving a claimed violation of the right to travel.
1. The purpose of the COLA and its importance
The main purpose of the COLA according to the State
Division of Retirement and Benefits is to assist retirees, who
elect to remain in the state, to defray the higher cost of living
in Alaska.20 The state contends in its opening brief that this is
a legitimate purpose in itself and that enabling retirees to stay
in the state after they retire also benefits public employers:
Consistent with promoting public service, the
COLA helps attract qualified employees who
wish to make Alaska their home even after
retirement. Employees who plan to remain in
Alaska after retirement are also less likely
to leave their jobs, and the public interest
is served when experienced employees are
retained. The public also benefits because
these employees will tend to be more
committed to the states long term interests.
Gallant disagrees that the COLA is intended to
encourage retirees to continue to reside in Alaska. He cites the
stated purpose of PERS:
The purpose of this chapter is to
encourage qualified personnel to enter and
remain in the service of the state or a
political subdivision or public organization
of the state by establishing a system for the
payment of retirement, disability, and death
benefits to or on behalf of the employees.[21]
But he does not acknowledge that paying a COLA to retirees is
related to this purpose or that encouraging them to continue to
reside in Alaska is a legitimate purpose. Gallant mentions only
one purpose that the COLA has: to preserve the buying power of
retirement dollars by compensating for high living costs in
Alaska.
We agree with the state that the main purpose of the
COLA is to encourage retired public employees to continue to live
in the state by helping to defray the higher cost of living.
This conflicts with the superior courts conclusion that the COLA
was broadly meant to equalize the value of state retirement
benefits regardless of whether retirees choose to live in Alaska
or some other high cost location. We think that the fact that
the COLA statutes have always provided that the COLA is only
available to retirees who continue to live in the state renders
untenable the superior courts conclusion. Gallants statement of
the COLA purpose compensating for high living costs in Alaska
also conflicts with the superior courts geographically unlimited
conception of the purpose of COLA payments. Further, when one
asks why the legislature might have wished to pay a COLA to
retirees in order, as Gallant would have it, to compensate for
high living costs in Alaska, the only plausible answer is that
given by the state: to encourage retirees to continue to live in
Alaska. Retirees not living in Alaska have no need to be
compensated for Alaskas high living costs.
How important is this purpose? We believe, for the
reasons that follow, that it is at least legitimate. The policy
of encouraging Alaskans to continue to reside in Alaska is one
that the legislature has pursued in other contexts. As we stated
in State, Department of Revenue, Permanent Fund Dividend Division
v. Cosio, one of the three main purposes of the Permanent Fund
Dividend Program is to encourage persons to maintain their
residence in Alaska and to reduce population turnover in the
state.22 We recognized in Cosio that this purpose was legitimate.23
Likewise, the Longevity Bonus Program was also enacted for this
purpose: Alaskas longevity bonus program was enacted by the
Alaska Legislature in 1972 for the purpose of providing to
Alaskans age sixty-five years and older an incentive to continue
to live in Alaska.24
The legislature could readily view as desirable the
goal of encouraging retired public employees to remain in the
state. As a class, they tend to be responsible and economically
stable citizens. They make minimal demands on such big ticket
government items as public education and law enforcement, they
have generally comprehensive health insurance, and they often
positively contribute to society by volunteering in charitable
and civic endeavors. Further, retirees contribute to the economy
when they remain in the state, spending the money that they have
earned during their working lives.
2. The relationship between the COLA and its purpose
Given that the COLA is designed to encourage public
employee retirees to continue to live in the state by
neutralizing or lessening the incentive to move from the state
created by Alaskas high living costs, what can be said about the
COLA as a means to that end? We conclude that it is fairly and
substantially related.
As the statistics referred to by the superior court
show, the cost of living in Alaska is still substantially higher
than the average cost of living in the United States. The
decision of a retired person to stay in the state or move to
another one can be influenced by many factors. Some of the most
important are the location of close relatives and friends, the
desire to remain a part of the community in which the retiree has
worked and lived for many years, weather, cultural and
recreational resources, income, and the cost of living. To the
extent that cost of living is a factor that creates a
disincentive to stay in the state, the COLA works to neutralize
it by increasing income.
The disincentive to remain in Alaska caused by high
costs is not undercut by the fact that there are now a number of
metropolitan areas outside Alaska with higher living costs. The
cost of living in most areas of the United States is still lower
than in Alaska, and in many areas it is much lower.25 Thus the
rationale for neutralizing the incentive to move still exists.
Further, insofar as economics are a factor in decisions about
where to live after retirement, the COLA seems well designed to
achieve its purpose because it does defray to some extent Alaskas
high living costs. We think the COLA can readily be described as
having a fair and substantial relationship to its purpose.
3. Nature and extent of the infringement
The COLA of course is intended to influence retirees
decision-making as to where to live after retirement. It can be
said then that to the extent that the COLA is effective in
causing retirees to remain in the state, it also works to deter
them from exercising their right to live elsewhere. We think
that this is acceptable because the COLA is reasonably related to
the cost-of-living differential between Alaska and most other
areas of the United States and because the COLA is a small part
of retirees retirement income.
The fact that Alaska still has a higher living cost
than most other areas in the United States has already been
discussed and is reflected in the statistics employed by the
superior court. The fact that there are currently a number of
metropolitan areas in the United States with higher living costs
than Anchorage though not necessarily Bush Alaska simply means
that there is a cost disincentive for retirees to retire to those
areas. This is an effect independent of the COLA. That is, if
all retirees were paid a bonus of ten percent of their base
retirement regardless of where they chose to live, there still
would be a cost disincentive to retire to high cost areas such as
Honolulu or Seattle. No Alaska program needs to be designed to
make up for the high cost of living in such areas.
At its core, the right to travel appears to be implicit
in the federal structure of our national government. The right
of free interstate migration finds its unmistakable essence in
that document that transformed a loose confederation of States
into one Nation.26 Care must be taken to avoid imposing a penalty
on free migration that would conflict with the constitutional
purpose of maintaining a Union rather than a mere league of
States. 27 The difference between a prohibited penalty and an
allowance that neutralizes general cost-of-living differences may
only be a matter of degree. If so, we think that the current
COLA program does not exceed acceptable limits for two reasons.
First, as already noted, the ten percent COLA is reasonably
related to the current cost-of-living differential between Alaska
and most other areas of the United States. Second, the cost-of-
living allowance is a small amount only ten percent of a
retirees regular monthly benefit. Moreover, relative to a
retirees actual state-related retirement income, the COLA is less
than ten percent because most public employees have supplemental
retirement income from employer-sponsored defined contribution
programs.
We do not mean to suggest that the state would be free
to design a public retirement program under which retirees would
forfeit a substantial portion of their retirement pay should they
decide to move from the state. Any such program would properly
be viewed with suspicion as a potential threat to the core values
underlying the right of free interstate migration. If every
state adopted similar programs, the character of our nation would
be changed and retirees effectively might be barred from
migrating to other states. But because the COLA payments are
related to current cost-of-living differentials between Alaska
and most of the rest of the United States, and because they are a
small part of retirees retirement income, we do not think that
they infringe substantially on the right to travel.
In Alaska Pacific Assurance Co. v. Brown, we reviewed a
statute that adjusted and reduced workers compensation benefits
for workers who had moved out of the state.28 The reduction was
made in proportion to the ratio of the Alaska average weekly wage
to the average weekly wage in the workers state of residence.29
The reductions could be significant. The worker in Brown had
moved from Alaska to California. If he had remained in Alaska he
would have received $551.86 per week, but as adjusted his
benefits were reduced to $211.91 per week.30 We noted that the
purpose of the statute was to adjust benefit levels to the
economic environment where recipients lived and that one reason
for this was to avoid paying benefits that were so high when
compared to a workers actual living costs that they amounted to a
disincentive to return to work.31 Accepting the legitimacy of
these purposes, we held that the statute was unconstitutional,
finding it to be not well designed to achieve the objective of
adjusting benefits to the cost of living of workers who lived
outside the state.32 This was because the statute did not use
cost-of-living statistics from other states; rather it used wage
levels which tended to yield an average benefit reduction of
approximately 142% of the reduction in the cost of living.33
There are at least two important points that serve to
distinguish Brown from the present case. The first is the amount
of the potential reduction in benefits. In the present case
benefits cannot be reduced by more than ten percent, whereas
benefits under the statute in Brown were subject to a reduction
of more than sixty percent. The second point is that the purpose
of the statute in Brown was to equalize real benefit levels
between the workers place of residence and Alaska. This purpose
necessarily focused on the living costs in the particular state
where the worker lived. Here the purpose is to neutralize the
incentive to migrate from Alaska. This purpose only requires
that we focus on the general cost-of-living discrepancy between
Alaska and most other states.
IV. CONCLUSION
The purpose of the PERS and TRS COLA payments
encouraging retired public employees to remain in the state is
legitimate. COLA payments are a means that is fairly and
substantially related to that purpose. They do not substantially
infringe on the right of member retirees to live elsewhere.
Considering these determinations, we conclude both that standard
scrutiny is appropriate and that limiting COLA payments to
resident retirees does not violate the equal protection clause of
the Alaska Constitution. Therefore, the judgment of the superior
court is REVERSED, and this case is REMANDED for further
proceedings consistent with this opinion.34
_______________________________
1 AS 39.35.370(c). Between two and two-and-one-half
percent of monthly salary is used for the calculation, depending
on the date of employment.
2 AS 39.35.480(a).
3 AS 39.35.480(a).
4 AS 14.25.110(d) (calculation of retirement benefits);
AS 14.25.142 (COLA).
5 The court rejected the states argument based on article
I, section 23, that only the more relaxed standards of the
Federal Constitution should be applied. Section 23 provides that
the Alaska Constitution does not prohibit the State from granting
preferences, on the basis of Alaska residence, to residents of
the State over nonresidents to the extent permitted by the
Constitution of the United States. On appeal the state continues
to argue, in addition to its argument concerning the application
of the equal protection clause of the state constitution, that
section 23 applies. Because we conclude that the COLA does not
violate equal protection under the Alaska Constitution, it is
unnecessary for us to determine whether article I, section 23
applies.
6 Alaska Civil Liberties Union v. State, 122 P.3d 781,
785 (Alaska 2005).
7 Id.
8 Id.
9 Alaska Const. art. I, 1.
10 Gonzales v. Safeway Stores, Inc., 882 P.2d 389, 396
(Alaska 1994).
11 Id.
12 Id.
13 Id.; State v. Ostrosky, 667 P.2d 1184, 1192-93 (Alaska
1983).
14 State, Dept of Revenue, Permanent Fund Dividend Div. v.
Cosio, 858 P.2d 621, 629 (Alaska 1993) (quoting Ostrosky, 667
P.2d at 1192-93).
15 Stanek v. Kenai Peninsula Borough, 81 P.3d 268, 270
(Alaska 2003). In this respect our review in cases falling
between standard and strict scrutiny has been similar to
intermediate scrutiny analysis under the Federal Equal Protection
Clause. Cosio, 858 P.2d at 626.
16 Church v. State, Dept of Revenue, 973 P.2d 1125, 1131
(Alaska 1999); Brodigan v. Alaska Dept of Revenue, 900 P.2d 728,
734 n.13 (Alaska 1995); Alaska Pac. Assurance Co. v. Brown, 687
P.2d 264, 271 (Alaska 1984).
17 Brown, 687 P.2d at 271 n.10 (citing Williams v. Zobel,
619 P.2d 448, 453 (Alaska 1980), revd on other grounds, 457 U.S.
55 (1982)).
18 This was recognized, at least implicitly, in Brown, 687
P.2d at 272:
The parties contentions regarding whether the
right to travel is burdened by [the statutory
section in question] and the extent of that
burden are related both to the selection of
the standard of review and the question of
whether the statute is fairly designed to
accomplish its purposes. We will therefore
defer discussion of this point until a
discussion of the statutory purposes.
19 The court observed that the parties did not agree on
the validity and purport of the statistical data, but the court
used the statistics as illustrative of scope. We use them in the
same way.
20 State of Alaska, Alaska Retirement and Benefits,
http://www.state.ak.us/drb/pers/pers-cola.shtml (last visited
July 28, 2006). In its brief the state argues:
A high cost of living is a disincentive for a
retiree on a fixed income to remain in
Alaska, because the retiree can obtain more
for his or her income elsewhere.
Accordingly, in the early years of statehood,
the State of Alaska determined to reverse or
at least ameliorate this disincentive for
public employees by providing a COLA for
retired public employees who stay in the
state.
21 AS 39.35.010(a). Parallel language pertaining to TRS
appears in AS 14.25.012(a).
22 858 P.2d at 627.
23 Id. As a general proposition this is not
controversial, for, as Justice Brennan explained in his
concurring opinion in Zobel v. Williams, 457 U.S. 55, 67-68
(1982), a state may make residence within its boundaries more
attractive by offering direct benefits to its citizens.
24 Simpson v. Murkowski, 129 P.3d 435, 437 (Alaska 2006).
25 According to the Department of Labor and Workforce
Development publication Alaska Economic Trends, submitted by
Gallant as an exhibit in support of his motion for summary
judgment, living in Alaska can cost substantially more than
living in other areas. Anchorage is over twenty percent more
expensive than many other cities, including Phoenix, Dallas,
Orlando, and Montgomery. Other Alaskan cities are even more
expensive.
26 Attorney Gen. v. Soto-Lopez, 476 U.S. 898, 902 n.2
(1986) (Brennan, J., plurality opinion) (quoting Zobel, 457 U.S.
at 67 (Brennan, J., concurring)).
27 Zobel, 457 U.S. at 73 (OConnor, J., concurring).
28 687 P.2d at 266.
29 Id. at 267.
30 Id. at 268.
31 Id. at 272.
32 Id. at 273-74.
33 Id. at 274.
34 This decision moots the cross-appeal.
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