Does a Maryland retirement system have to accept service credit transferred from a different type of public pension system?

Plain-English summary

The Executive Director of the Maryland State Retirement Agency asked the Attorney General three questions about transferring service credit, the period of employment counted toward retirement eligibility, when an employee moves between different public retirement systems. First, must a contributory system (one that deducts employee contributions) accept transferred service credit from an employee who came from a noncontributory system? Second, could a member who was eligible to transfer credit but missed the normal filing window still claim it? Third, since accepting these transfers can cost local systems money the State does not directly reimburse, is that cost-shifting legally permissible?

The opinion answered all three questions in the retirement system's and members' favor. It concluded that Article 73B, §32(c) plainly required a contributory system to accept service credit from a transferring member's prior noncontributory system, reducing only the member's own retirement allowance (not the employer's side) to account for the missing contributions, and that this reading was reinforced by nearly 45 years of legislative history aimed at pension "portability," including the Court of Appeals' own review of that history in Morris v. Prince George's County. On the second question, the opinion read uncodified Section 2 of Chapter 595 of the Laws of Maryland 1990 as giving members who transferred on or before June 30, 1990, and who were otherwise eligible but missed the standard one-year filing deadline, until June 30, 1991, to file a late claim for their service credit. On the third question, the opinion concluded that the State was not required to fund the added costs these transfer provisions impose on political subdivisions, relying on well-established Maryland case law that the General Assembly may impose costly duties on counties as instruments of state government, subject only to the narrower home rule protections that did not apply to this statute.

Currency note

This opinion was issued in 1991 and interpreted Article 73B, §32 of the Maryland Code and Chapter 595 of the Laws of Maryland 1990 as they then existed, tracing a legislative history running from 1947 through 1990. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis, including possible recodification of Article 73B's retirement system provisions and further amendments to the transfer rules or filing deadlines. Treat this page as historical context, not current legal advice. Verify the current codification of Maryland's retirement system transfer provisions and any current filing deadlines before relying on any specific rule described here.

Common questions

If a Maryland public employee moves from a noncontributory pension system to a contributory one, do they keep their service credit? According to this 1991 opinion, yes. The Attorney General concluded that Article 73B, §32(c) required the new contributory system to accept the member's service credit from the noncontributory system, reducing only the member's own retirement allowance actuarially to account for the contributions that were never deducted, without requiring the same offset against the employer's side.

What if a member missed the deadline to file a transfer claim? The opinion concluded that Chapter 595 of the Laws of Maryland 1990 gave a second chance to members who transferred between qualifying public retirement systems on or before June 30, 1990 and were eligible to claim service credit but never filed within the normal one-year window, letting them file a late claim by June 30, 1991.

Did the State have to pay counties back for the extra pension costs these transfer rules created? No, according to the opinion. It concluded that the State was not required to fund the added costs political subdivisions might bear from accepting transferred service credit, reasoning that the General Assembly has long had plenary authority to impose costly duties on counties as instruments of state government, and that Maryland's home rule protections did not limit this particular statute.

Background and statutory framework

Article 73B, §32 set out a matrix of transfer rules covering contributory-to-contributory, contributory-to-noncontributory, noncontributory-to-contributory, and noncontributory-to-noncontributory system transfers, with §32(c) squarely governing the noncontributory-to-contributory scenario at issue in the first question. The opinion traced this portability policy back to sections 25 and 26 of Chapter 664 of the Laws of Maryland 1947, and detailed nine subsequent amendments, most significantly Chapter 394 of the Laws of Maryland 1981, which extended portability to all system-type combinations after the creation of noncontributory systems by Chapters 23 and 24 of the Laws of Maryland 1979 had created gaps, and Chapter 780 of the Laws of Maryland 1988, which retroactively repealed an earlier requirement that employer contributions accompany a transferring member. The opinion leaned heavily on the Court of Appeals' own detailed review of this same legislative history in Morris v. Prince George's County, 319 Md. 597 (1990), which described the purpose of the transfer provisions as "enhanc[ing] pension portability," and on Webb v. State, 311 Md. 610 (1988), for the principle that a court must apply a statute as written rather than rewrite it to minimize cost consequences.

On the funding question, the opinion grounded the General Assembly's authority to impose uncompensated costs on counties in long-settled Maryland case law describing counties as "mere instruments of government" subject to legislative control, citing Talbot County Comm'rs v. Queen Anne's County Comm'rs, 50 Md. 245 (1879), and Howard County v. Matthews, 146 Md. 553 (1924), while noting that home rule protections under Article XI-A, §4, Article XI-E, §1, and Article XI-F, §4 of the Maryland Constitution did not limit the transfer provisions here. The opinion cited Kenneweg v. Allegany County, 102 Md. 119 (1905), upholding a statute requiring counties to bear election costs, as a direct precedent for the General Assembly's authority to impose this kind of unreimbursed financial burden, and noted several existing statutes doing the same for other local offices, including Article 10, §40 for State's Attorney's offices and §2-309 of the Courts Article for sheriff's offices.

Citations and references

Statutes:

• Article 73B, §32, the general provision governing transfer of service credit between Maryland public retirement systems
• Article 73B, §32(c), specifically governing transfers from a noncontributory to a contributory retirement system
• Article 73B, §32(e), governing transfer of membership and credit for a "former member" under §31(b)
• §31(b), setting the criteria referenced by §32(e)
• Article 73B, §32(f), governing transfers from a retirement system to a police or local fire department system
• Article 73B, §32(a), the provision whose "service credit" language the Court of Appeals construed in Morris
• Chapter 664 of the Laws of Maryland 1947, the original 1947 pension transfer and portability provisions
• Chapter 394 of the Laws of Maryland 1981, extending transfer without loss of benefits to all types of retirement systems
• Chapters 23 and 24 of the Laws of Maryland 1979, creating Maryland's noncontributory pension systems
• Chapter 327 of the Laws of Maryland 1986, retroactively permitting certain contributory-to-noncontributory transfers
• Chapter 780 of the Laws of Maryland 1988, retroactively repealing the requirement that employer contributions accompany a transferring member
• Chapter 595 of the Laws of Maryland 1990, giving members a second filing opportunity through June 30, 1991
• Article XI-A, §4, one of the home rule provisions of the Maryland Constitution discussed regarding limits on the General Assembly
• Article XI-E, §1, a second home rule provision discussed in the same context
• Article XI-F, §4, a third home rule provision discussed in the same context
• Article 10, §40, requiring counties to bear costs of State's Attorney's offices, cited as a parallel unreimbursed county obligation
• Article 33, §2-4(b), requiring counties to bear costs of election boards, cited as a parallel unreimbursed county obligation
• §2-309 of the Courts Article, requiring counties to bear costs of sheriff's offices, cited as a parallel unreimbursed county obligation

Cases:

• Morris v. Prince George's County, 319 Md. 597, 605, 573 A.2d 1346 (1990), Maryland Court of Appeals decision reviewing the legislative history of the transfer provisions and describing their purpose as enhancing pension portability
• Webb v. State, 311 Md. 610, 618, 536 A.2d 1161 (1988), Maryland Court of Appeals decision holding a court must apply a statute as written rather than rewrite it
• Talbot County Comm'rs v. Queen Anne's County Comm'rs, 50 Md. 245, 259 (1879), Maryland Court of Appeals decision on the General Assembly's authority to control county agencies
• Howard County v. Matthews, 146 Md. 553, 561, 127 A. 118 (1924), Maryland Court of Appeals decision describing counties as instruments of state government subject to legislative control
• Ritchmount Partnership v. Board of Supervisors of Elections, 283 Md. 48, 54-55, 388 A.2d 523 (1978), Maryland Court of Appeals decision cited on the scope of the General Assembly's control over counties
• Kenneweg v. Allegany County, 102 Md. 119, 62 A. 249 (1905), Maryland Court of Appeals decision upholding a statute requiring counties to bear election costs

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1991/Volume76_1991.pdf (this opinion appears at printed pages 358-365 of the bound annual volume; Maryland's site does not publish a standalone PDF of this opinion)

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

Retirement Systems - Transfer of Service Credit

June 13, 1991

Mr. Herbert L. Dyer
Executive Director
Maryland State Retirement Agency

You have requested our interpretation of the provisions of law that regulate the transfer of service credit from one public retirement system to another.1 Your specific questions are as follows:

1. Some retirement systems require deduction of contributions from members; others do not. Must a system that deducts contributions accept the transfer of service credit from an employee who was a member of a system that does not deduct contributions?

2. Must a retirement system accept a transfer of service credit if a member was eligible under prior law to transfer service credits by June 30, 1990 but did not do so?

3. If the first two questions are answered affirmatively, some political subdivisions will be obliged to bear significant costs. May the State impose such costs without providing the funds to pay them or designating a specific revenue source from which they could be paid?

For the reasons set forth below, we conclude as follows:

1. When a person accepts employment with the State or a political subdivision and as a condition of employment is required or is eligible to join a contributory retirement system, that system must accept a transfer of the member's service credit, even if the member's former system is noncontributory.

2. If a member voluntarily transferred from one retirement system to another on or before June 30, 1990 and at the time of transfer was eligible to transfer service credit, Chapter 595 of the Laws of Maryland 1990 gives the member until June 30, 1991 to file a claim for the transfer of service credit.

1
Throughout this opinion we use the term "retirement systems" to refer to retirement and pension systems under the aegis of the State or its political subdivisions.

3. The State is not required to fund whatever added costs these transfer provisions impose on the political subdivisions.

I

Transfers Between Systems

Article 73B, §32 generally provides that when a person who is a member of a retirement system accepts employment by the State or a political subdivision and as a consequence of employment may or must join its retirement system, then the member may transfer service credit between the following retirement systems:
(a) contributory to contributory systems; (b) contributory to non-contributory systems; (c) noncontributory to contributory; and (d) noncontributory to noncontributory.2 Service credit reflects the "period of employment that can be counted towards eligibility for retirement." Morris v. Prince George's County, 319 Md. 597, 605, 573 A.2d 1346 (1990).

Your first question involves analysis of the extent to which service credit is transferable if the particular system of the member's new employer is contributory. Since Article 73B, §32(c) deals with transfers from noncontributory to contributory systems, it is the starting point for our analysis:

If a member transfers from a retirement or pension system operated on an actuarial basis where accumulated contributions are not deducted on all earnable compensation to a retirement or pension system where accumulated contributions are deducted on all earnable compensation, the member shall receive service credit for and in the amount of benefits in the system to which the member transfers. Upon retirement, the member's retirement allowance shall be reduced by the actuarial equivalent of the accumulated contributions with interest that have not been deducted. Any claim for the service credit shall be made within one year of the date of entrance into the system to which the

2
Article 73B, §32(e) provides for the transfer of membership and receipt of credit when there is a transfer by a "former member" who satisfies the criteria set forth in §31(b). Article 73B, §32(f) provides for the transfer of membership and receipt of credit when there is a transfer from a retirement system to a police or local fire department system. These sections of the transfer provisions have no bearing on your inquiry and hence are not discussed in this opinion.
member transfers. Notwithstanding any other provision of this article or the laws of any political subdivision of this State, upon verification of the service credit, the system from which the transfer is made may not provide any benefit for the service credit transferred. Any accumulated contributions to the credit of the member in the system from which the member transfers shall be refunded upon request.

The language of the statute leaves little room for doubt abouts its effect: When a member changes employment and so transfers membership from a non-contributory to a contributory retirement system, the member's service credit while a member of the noncontributory retirement system is transferable to the contributory retirement system.

We recognize that, while Article 73B, §32(c) requires a reduction of the member's benefit at retirement to actuarially account for the deficiency in the member's accumulated contributions account, it does not comparably require a reduction in the member's benefit at retirement to actuarially account for the deficiency in the employer's contributions account. In other words, §32(c) does not mandate that employer contributions accompany a transferring member; therefore, as a result of the transfer provisions, some retirement systems might well bear additional expenses.

But the increased cost that might result from application of the transfer provisions is not in itself a sufficient basis to reject the meaning of the statute so plainly expressed by its language. As the Court of Appeals stated in Webb v. State, 311 Md. 610, 618, 536 A.2d 1161 (1988): "[W]e must take the statute as it reads, not rewrite it."

Moreover, our reading of the statute is supported by its legislative history. Transferability of pensions benefits has been a part of Maryland pension law since 1947. Sections 25 and 26 of Chapter 664 of the Laws of Maryland 1947 guaranteed that, upon transfer, the member would "receive membership service credit for all continuous service credit since January 1, 1926 ...." The General Assembly made its intention clear in the preamble to Chapter 664, which described the law as "providing for the transfer without loss of pension benefits by members of any retirement system operated on an actuarial basis under the laws of this State or any political subdivision thereof to any other retirement system operated on an actuarial basis under the laws of this State or any political subdivision." (Emphasis added.)

Since 1947, the transfer provisions have been amended on nine occasions. The Court of Appeals recently reviewed this legislative history in detail to determine the meaning of the term "service credit" in §32(a). Morris v. Prince George's County, 319 Md. 597, 573 A.2d 1346 (1990). Based upon its review, the Court wrote that the purpose underlying the transfer provisions "is to enhanc[e] pension portability." 319 Md. at 615. We seek to further this very purpose when we consider the extent to which membership credit is transferable between retirement systems.

In 1981, upon the recommendation of the Joint Committee on Pensions, the General Assembly first extended the transfer provisions to permit transfer without loss of pension benefits between all types of retirement systems. See Chapter 394 of the Laws of Maryland 1981. "Thus, the legislature made the 'portability' concept more broadly applicable than it had been previously." Morris, 319 Md. at 612.

Although portability had been the legislative policy prior to the 1981 amendment, it became an issue only after creation of the noncontributory pension systems by Chapters 23 and 24 of the Laws of Maryland 1979. The Joint Committee on Pensions concluded that these new systems "seriously affected" transfer of credit. 1980 Interim Report to the General Assembly at 87. In this report the Joint Committee observed that members could not transfer service credit from a contributory to a noncontributory system and concluded that "this inability to transfer service credit from one public jurisdiction to another within Maryland flies in the face of the concept of portability that was included in Maryland law as long ago as 1947." 1980 Report at 88.3 The 1981 legislation remedied this problem.

In addition, on the recommendation of the Joint Committee on Pensions, the statute included a requirement that employer contributions accompany the transferring member. The stated purpose of this recommendation was "[t]o protect employers who have different benefit structures and funding levels ...." 1980 Report at 89.

In 1986, the transfer provisions were again amended. While the 1981 amendment had an effective date of July 1, 1981 and thus applied to all transfers between retirement systems on or after that date, Chapter 327 of the Laws of Maryland 1986 retroactively permitted transfer of

3
In Opinion No. 80-053 (August 11, 1980) (unpublished), which was issued prior to the 1981 amendment to §32, this office similarly concluded that while "[o]n their face, §§31 and 32 of Article 73B provide for a reciprocal arrangement for the transfer between similar systems of service credit earned in the public sector," the provisions did not apply to transfers from a noncontributory plan to a contributory plan. (Emphasis in original.)

service credit when a member transferred on or after January 1, 1980 from a contributory to a noncontributory system. Moreover, Chapter 327 provided that members who transferred between January 1, 1980 and July 1, 1981 were entitled to receive the credit if they filed a claim on or before July 1, 1987. Although the 1986 enactment did not alter the requirement that employer contributions accompany the transferring member, it retroactively provided relief to certain transferring members and therefore furthered the legislative policy in favor of pension portability.

The Joint Committee on Pensions, having reconsidered the transfer provisions during the 1987 interim, recommended legislation to repeal, retroactively to July 1, 1981, the requirement that employer contributions accompany the member at the time of the transfer. The Joint Committee's recommendation was based on its findings that the requirement was complicated to administer, burdensome, not justified by the expense, and in fact had not been implemented. Joint Committee on Pensions, 1987 Interim Report to the General Assembly at 105-06. The General Assembly enacted this recommendation in Chapter 780 of the Laws of Maryland 1988.

In short, the language of the statute and its legislative history tell us that service credit is meant to be transferable, even if this aspect of portability sometimes increases the costs that must be borne by contributory systems. In Morris, the Court of Appeals observed that "the legislature has long been aware that expenses may indeed be increased by transfers between systems." 319 Md. at 613. In that decision, the Court rejected the argument that "public policy" demands a reading of transfer provisions so as to minimize the costs borne by the member's new employer. Similarly, we conclude that the increased costs possibly associated with portability of pension benefits do not justify an interpretation of §32(c) to limit transferability of service credit.

II

Effect of Chapter 595

Although a member has the right to transfer service credit under Article 73B, §32(a) through (d), transfer of service credit is not automatic. Under each paragraph of §32, a transfer is contingent upon

the filing of a claim within one year of the member's entry into the new retirement system.4

Uncodified Section 2 of Chapter 595 of the Laws of Maryland 1990 extends the period for filing a claim for credit. It provides as follows:

[A]ny member of a retirement or pension system operated on an actuarial basis by the State or a political subdivision of the State may make a claim on or before June 30, 1991 for service credit if the member:

(1) On or before June 30, 1990, transferred from a retirement or pension system operated on an actuarial basis by the State or a political subdivision of the State to a retirement or pension system operated on an actuarial basis by the State or a political subdivision of the State; and

(2) At the time of transfer is eligible to claim service credit under Article 73B, §32 of the Annotated Code of Maryland or under Chapter 327 of the Acts of the General Assembly of 1986.

The Joint Committee on Pensions, in its 1990 Interim Report to the General Assembly, explained that this provision "permits members of such systems (pension systems operated by the State or a political subdivision) who transferred before July 1, 1990 and did not apply to transfer their service credit during the first year of membership, as required under current law, to make a claim for that service credit by June 30, 1991." 1990 Report at 11. The statute, when viewed in light of these comments, makes clear that service credit is to be granted to those members who transferred between qualifying public systems prior to July 1, 1990 but who did not apply to transfer their service credit within the one year period required under §32, so long as the member files the claim on or before June 30, 1991. See Morris v. Prince George's County, 319 Md. at 616 n.9.

4
In the case of a transfer between contributory systems, the member must also deposit in the new system the accumulated employee contribution. In all other cases, any accumulated employee contributions are refundable upon request.

There is precedent for this type of legislative relief in the application of the transfer provisions. As discussed in Part I above, the requirement that employer contributions accompany a transferring member was retroactively repealed in 1988; hence, relief was provided to transferring members on a retroactive basis. Chapter 780, Laws of Maryland 1988. Moreover, when §32 was amended in 1986 to permit members who had transferred on or after January 1, 1980 between noncontributory and contributory retirement system to transfer service credit, the General Assembly opened a window period within which those eligible could apply to transfer the credit.

Thus, the General Assembly consistently has opted to further the policy of portability by not only providing for transfers between a variety of retirement systems but also by providing relief when members may have been eligible to receive credit but did not in fact do so, whether because of the failure of the employer to transfer funds or the failure of the employee to apply. Section 2 of Chapter 595 is yet another provision designed to provide relief for members, to the end that those members who may have been eligible to transfer their service credit under the transfer provisions but who did apply, for whatever reason, are given a second opportunity to file a claim for the credit.

III

The Burden of the Statute

The effect of the statutes governing transfers of service credit is that political subdivisions will bear added costs for which the State does not directly reimburse them. You ask whether this allocation of a financial burden is legally permissible. It is.

The General Assembly long ago held that the General Assembly, unless limited by the Constitution, may "exercise control over the county agencies, and require such public duties and functions to be performed by them, as fall within the general scope and objects of the municipal corporation." Talbot County Comm'rs v. Queen Anne's County Comm'rs, 50 Md. 245, 259 (1879). Counties are "mere instruments of government, appointed to aid in the administration of public affairs, and are parts of the State.... [They] are subject to the control of the Legislature." Howard County v. Matthews, 146 Md. 553, 561, 127 A. 118 (1924). See generally Ritchmount Partnership v. Board of Supervisors of Elections, 283 Md. 48, 54-55, 388 A.2d 523 (1978).

To be sure, the General Assembly's legislative powers are in some respects limited with respect to home rule counties and municipal corporations. See Article XI-A, §4; Article XI-E, §1; and Article XI-F, §4 of the Constitution. However, Article 73B, §32 and Section 2 of

Chapter 595 satisfy the requirements for their applicability to home rule jurisdictions.

In the exercise of its plenary legislative power, the General Assembly is free to impose costly duties on political subdivisions. For example, in Kenneweg v. Allegany County, 102 Md. 119, 62 A. 249 (1905), the Court of Appeals upheld the constitutionality of a statute requiring counties to bear the costs of elections. See also 76 Opinions of the Attorney General 191 (1991). The Maryland Code contains many provisions requiring political subdivisions to bear certain costs. See, e.g., Article 10, §40 (State's Attorney's offices); Article 33, §2-4(b) (election boards); §2-309 of the Courts Article (sheriff's offices). The legal status of costs occasioned by transfers to local retirement systems under authority of State law is no different.

IV

Conclusion

In summary, it is our opinion that:

1. When a person accepts employment with the State or a political subdivision and as a condition of employment is required or is eligible to join a contributory retirement system, that system must accept a transfer of the member's service credit, even if the member's former system is noncontributory.

2. If a member voluntarily transferred from one retirement system to another on or before June 30, 1990 and at the time of transfer was eligible to transfer service credit, Chapter 595 of the Laws of Maryland 1990 gives the member until June 30, 1991 to file a claim for the transfer of service credit.

3. The State is not required to fund whatever added costs these transfer provisions impose on the political subdivisions.

J. Joseph Curran, Jr.
Attorney General

Harriet Granet
Assistant Attorney General

Jack Schwartz
Chief Counsel
Opinions and Advice