543 Pa. 132, *; 669
A.2d 940, **;
1996 Pa. LEXIS 10, ***
ROBERT D. CHRISTIANA, Appellant v. PUBLIC SCHOOL EMPLOYES'
RETIREMENT BOARD, Appellee
No. 75 W.D. Appeal Docket 1994
SUPREME COURT OF PENNSYLVANIA
543 Pa. 132; 669 A.2d 940; 1996 Pa. LEXIS 10
September 18, 1995, ARGUED
January 18, 1996, DECIDED
PRIOR
HISTORY: [***1] Appeal from the Order of
the Commonwealth Court Entered July 28, 1994, at No. 1745 C.D. 1993, Affirming
the Opinion and Order of the Public School Employes' Retirement Board Dated
June 24, 1993 at No. 117-16-8296. 166 Pa. Cmwlth.
300, 646 A.2d 645 (1994).
JUDGES BELOW: CRAIG, COLINS, MCGINLEY, PELLEGRINI, FRIEDMAN, KELLEY, NEWMAN,
JJ. (Cmwlth.).
DISPOSITION: Affirmed.
COUNSEL: Mr.
Robert D. Christiana, APPELLANT, Pro se.
For Public
School Employes' Retirement Board, APPELLEE: Louis Sheehan, Esquire. For
Attorney General's Office, APPELLEE: Ernest D. Preate, Jr., Esquire.
JUDGES: MR.
CHIEF JUSTICE ROBERT N. C. NIX, JR., FLAHERTY, ZAPPALA, CAPPY, CASTILLE,
MONTEMURO, JJ. Mr. Justice Montemuro, who was sitting by designation, did not
participate in the decision of this case.
OPINION BY: ZAPPALA
OPINION
[**940] [*134] OPINION
JUSTICE
ZAPPALA
DECIDED:
JANUARY 18, 1996
Appellant,
Robert D. Christiana, is a former superintendent of the Upper St. Clair School
District. Prior to his retirement, the School District had purchased certain
annuities for Christiana. Christiana requested that the amounts paid for the
annuities be included by the Public School Employes' Retirement System (PSERS)
in its calculation of his final average salary for retirement purposes. After
an administrative hearing, the Public School Employes' Retirement Board (Board)
entered an order directing that the annuities were not to be included in the
computation of his retirement benefits. The Commonwealth Court affirmed the
Board's order in an en banc decision. We granted Christiana's petition for
allowance [***2] of appeal and now affirm.
The Board's
opinion set forth detailed factual findings that are summarized as follows.
Christiana was hired as the superintendent by the School District in July of
1979 at a starting salary of $ 52,000. He had been employed previously by
school districts in [**941] Michigan and New York in
various positions and had served as the superintendent of Pennsylvania's
Springfield Township School District. Christiana's salary was increased over
the next few years:
1980-1981 $
58,000
1981-1982 $
63,500
1982-1983 $
65,723
1983-1984 $
71,000
In the next
five years, the School District reported the following figures as Christiana's
salary to PSERS:
[*135] 1984-1985 $ 71,000
1985-1986 $
71,000
1986-1987 $
71,000
1987-1988 $
74,000
1988-1989 $
80,000
Beginning
with the 1984-1985 school year, the School District also expended funds to
purchase single premium annuities for Christiana. The School District did not
report the expenditures as part of Christiana's salary to PSERS or pay
retirement contributions on those amounts. The minutes of Upper St. Clair
School Board's meetings at which the annuity payments were addressed
indicate [***3] that the annuity payments
were to be made for purposes of purchasing prior years' seniority pension
credit. 1 The
minutes reflect the costs of the annuity purchases:
FOOTNOTES
1 The
minutes also indicate that the annuity payments were "in lieu of salary
increases." For the school year 1987-1988, in which Christiana also
received a salary increase of $ 3,000, the minutes state that "in lieu of
any additional salary increase," the School District shall purchase a
single premium annuity for purposes of purchasing prior years' seniority
pension credit at a cost of $ 9,500.
1984-1985 $
5,000
1985-1986 $
7,000
1986-1987 $
10,000
1987-1988 $
9,500
By early
November of 1988, the School Board was apprised of Christiana's intention to
retire at the end of the 1988-1989 school year. On November 14, 1988, the
School Board adopted a resolution relating to Christiana's anticipated
retirement:
RESOLVED,
That for the 1988-89 school year, the salary for the Superintendent shall be $
80,000; and further,
[***4]
RESOLVED,
That commencing with the retirement of the Superintendent on June 30, 1989, the
Blue Cross/Blue Shield or equivalent medical and hospitalization benefits
applicable to building administrators shall be continued for the Superintendent
until his attaining age 65, and for his wife Nancy, until her attaining age 65,
at District expense; and further,
RESOLVED,
That the District shall reimburse the Superintendent during the 1988-1989
school year for costs incurred [*136]
for the services of a financial planner, such reimbursement not to exceed $
2,000; and further,
RESOLVED,
That the District shall purchase for the Superintendent three years' pension
credit under the State Retirement Plan for his service in the United States Air
Force as permitted by the laws of Pennsylvania; and further,
RESOLVED,
That the District shall provide the Superintendent with an annuity or other
equivalent payment at a cost to the District of $ 19,200 for purposes of
purchasing for the Superintendent pension credit under the State Retirement
Plan for service as an educator in positions prior to his employment under the
Pennsylvania retirement system, as permitted [***5] by the laws of
Pennsylvania; . . .
The annuity
payment of $ 19,200 for the 1988-1989 school year became problematic due to
changes in the federal tax code that were effective as of January 1, 1989. In
response, the School Board rescinded the resolution of November 14, 1988, and
adopted a second resolution on January 9, 1989. The resolution split the $
19,200 payment into two separate payments of $ 9,500, which was backdated to
the 1988 calendar year, and of $ 9,700, which was to be made at or prior to
Christiana's retirement date of June 30, 1989:
MOTION: By
Wellington: WHEREAS, the Board of School Directors at its regular meeting on
November 14, 1988, adopted certain resolutions relating to the salary and the
benefits payable to or for the benefit of the Superintendent; and
WHEREFORE,
prior to the adoption of such resolutions it was represented to the
Superintendent that the Board would consider [**942] modification to those
resolutions after the Superintendent and the District had an opportunity to
consult with their respective advisors, and such consultations have taken place
and the Board is prepared to make certain modifications;
NOW,
THEREFORE, [***6] BE IT RESOLVED, that with
the consent and agreement of the Superintendent, the resolutions [*137] adopted by the Board at
its November 14, 1988, meeting relating to the salary and benefits payable to
or for the benefit of the Superintendent be and are hereby rescinded and the
following resolutions are adopted in their place and stead:
RESOLVED,
that for the 1988-89 school year, the salary for the Superintendent shall be $
80,000; and further,
RESOLVED,
that commencing with the retirement of the Superintendent on June 30, 1989, the
Blue Cross/Blue Shield or equivalent medical and hospitalization benefits then
applicable to Building Administrators shall be continued for the Superintendent
until his attaining age 65, and for his wife, Nancy, until her attaining age
65, at District's expense . . .
RESOLVED,
that the District shall reimburse the Superintendent during the 1988-89 school
year for costs incurred for the services of a financial planner, such
reimbursement not to exceed $ 2,000; and further,
RESOLVED,
that the District, in recognition of the superior manner in which the
Superintendent has performed his duties and responsibilities, [***7] shall provide the
Superintendent in calendar year 1988 with additional compensation in the amount
of $ 9,500; and further,
RESOLVED,
that the District shall, at or prior to the retirement of the Superintendent on
June 30, 1989, pay to or on behalf of the Superintendent additional
compensation in the amount of $ 9,700 plus an amount necessary to purchase for
the Superintendent three years' pension credit under the State Retirement Plan
in recognition of his service in the United States Air Force, as permitted by
the laws of Pennsylvania.
Pursuant to
this resolution, the School District purchased an annuity in the amount of $
9,500. The annuity payment was not reflected in Christiana's regular salary.
The $ 9,700 payment made in 1989 was treated differently, however. Christiana
received that payment directly, but the School District in turn reduced his
monthly take-home pay and used the payroll [*138]
deductions to purchase the 1989 annuity. From March of 1989 through June of
1989, the School District reported additional remuneration of $ 8,730 to PSERS
that reflected the payroll changes.
Christiana
submitted an application for retirement to PSERS on August 8, 1989. On [***8] January 19, 1990, PSERS
sent a letter advising the School District that after review of the School
Board's minutes of November 14, 1988, and January 9, 1989, the $ 8,730 reported
did not appear to be Christiana's normal salary and that the amount could not
be used in calculating his retirement benefits. The School District was
requested to submit a form to reflect this change in the reported salary.
The School
District did not comply with the request. Instead, a form was sent increasing
the salary report by the sum of $ 970 -the difference between the $ 9,700
annuity purchase for 1989 and the $ 8,730 originally reported as salary. In a
letter dated February 9, 1990, the School District's business manager noted the
correction and indicated that in addition, the report for the fourth quarter of
1988 had failed to report a payment of $ 9,500 to Christiana. The letter stated
that the School District viewed the payments as merit increases. On February
27, 1990, PSERS requested a copy of the School District's merit pay policy. The
School District did not respond.
On December
19, 1990, PSERS informed Christiana that his request to include the $ 9,500 for
the 1987-1988 school year and the [***9]
$ 9,700 for the 1988-1989 school year in its calculation of his final average
salary for retirement purposes had been denied. An administrative hearing was
held on September 11, 1991, before a hearing examiner to consider whether the $
19,200 should be considered as compensation under the Public [**943] School Employees'
Retirement Code. 2
PSERS learned then that the School District had purchased annuities for
Christiana during the four previous school years (1984-1988). At the hearing,
Christiana sought for the first time to add [*139] each of those annuity
purchases to the salary amounts reported by the School District to PSERS.
Christiana's take-home pay did not reflect those payments, and as noted
earlier, the School District never included any of the annuity purchases in its
salary reports to PSERS during those four years.
FOOTNOTES
2 Act of
October 2, 1975, P.L. 298, as amended, 24 P.S. §§ 8101-8104.
The hearing
examiner recommended that the $ 19,200 should be excluded from the calculation
of Christiana's final average salary [***10]
because the amount was properly characterized as nonincludable "severance
payments" under the Retirement Code. The hearing examiner also recommended
that the four annuity payments made during 1984-1988 be included in the
calculation of final average salary as compensation.
The Board
determined that Christiana had not properly raised the issue relating to the
four annuity purchases in the earlier years, but nevertheless addressed the
issue because there were sufficient facts on the record for its resolution. The
Board concluded that the nonsalary reduction tax shelter annuity payments were
not includable as Retirement Code compensation because they were nonstandard
and/or nonregular remuneration as well as being bonuses and fringe benefits.
The $ 19,200 annuity purchases in the 1988-1989 school year were found not to
be includable in Retirement Code compensation because the payments were
components of a severance package and were also characterized as nonincludable
bonuses and fringe benefits. On June 24, 1993, the Board entered an order
directing that none of the annuity purchases were to be included as Retirement
Code Compensation. The Commonwealth Court affirmed the Board's order. [***11] HN1
On appeal
from a final adjudication of an administrative board, our scope of review is
limited to a determination of whether the board committed an error of law,
whether there has been a violation of constitutional rights, or whether
necessary factual findings are supported by substantial evidence. Estate of McGovern v. State Employees' Retirement Board, 512 Pa. 377, 517 A.2d 523
(1986). The issue
raised in this appeal is whether the Board committed an error of law in
determining that the annuity payments were not compensation [*140] for purposes of computing
final average salary under the Retirement Code.
Section 8102 of the Retirement Code defines
the following relevant terms:
HN2"Compensation." Pickup contributions plus any
remuneration received as a school employee excluding refunds for expenses
incidental to employment and excluding any severance payments.
"Final
average salary." The
highest average compensation received as an active member during any three
nonoverlapping periods of 12 consecutive months with the compensation for
part-time service being annualized on the basis of the fractional portion of
the school year for which credit is received; [***12] except, if the employee
was not a member for three such periods, the total compensation received as an
active member annualized in the case of part-time service divided by the number
of such periods of membership; and, in the case of a member with multiple
service credit, the final average salary shall be determined by reference to
compensation received by him as a school employee or a State employee or both.
"Pickup
contributions."
Regular or joint coverage member contributions which are made by the employer
for active members for current service on and after January 1, 1983.
"Severance
payments." Any
payments for unused vacation or sick leave and any additional compensation
contingent upon retirement including payments in excess of the scheduled or
customary salaries provided for members within the same governmental entity
with the same educational [**944]
and experience qualifications who are not terminating service.
The
regulations promulgated under the Retirement Code further refine the definition
of "compensation:"
HN3Excludes
a bonus, severance payment or other remuneration or similar emoluments received
by a [***13] school employee during his
school service not based on the standard salary [*141] schedule for which he is
rendering service. It shall exclude payments for unused sick leave, unused
vacation leave, bonuses for attending school seminars and conventions, special
payments for health and welfare plans based on the hours employed or any other
payment or similar emoluments which may be negotiated in a collective
bargaining agreement for the express purpose of enhancing the compensation
factor for retirement benefits.
In Laurito
v. Public School Employes' Retirement Board, the Commonwealth Court
affirmed [***14] a decision of the
Retirement Board that refused to include a salary increase for the purposes of
computation of retirement benefits for an elementary middle school principal.
Dr. Angelo Laurito retired after 42 years of service with the Northern Cambria
School District. Laurito's annual salary was negotiated each year with the
school district. For the 1984-1985 school year, his salary was $ 32,600. On
July 25, 1985, the school board awarded him a $ 16,000 "salary
adjustment" for the 1985-1986 school year. In addition, Laurito was
granted a leave of absence for the 1985-1986 school year, and his July 1, 1986
resignation for retirement purposes was accepted.
PSERS
notified Laurito that the $ 16,000 increase would not be included as
compensation for retirement purposes. The Retirement Board upheld the
determination, concluding that the claimed salary adjustment was a severance
payment. The Commonwealth Court affirmed on appeal, finding that the [*142] record failed to establish
that Laurito's salary increase was customary for an individual of similar
experience within the school district. The court concluded that the school
board's actions were tantamount to a severance agreement, stating [***15]
We find
especially persuasive the observation made by the board that the $ 16,000
payment in the final year of service provided a mechanism for the school
district to recognize Laurito's devoted service, as well as to remedy the
perceived inequity of a below-average salary throughout a working lifetime, by
effectuating an inflated final salary for purposes of retirement benefits.
In Dowler
v. Public School Employes' Retirement Board, the Commonwealth Court held
that a payment made pursuant to a retirement agreement was not compensation
despite the personnel director's performance of consulting services. William
Dowler was employed for over seventeen years as the personnel director at the
West Chester Area School District before his retirement on July 1, 1988. In
addition to his other duties, Dowler conducted all of the school district's
labor negotiations in the first three years of his employment. The school
district hired private contractors to conduct labor negotiations thereafter.
On November
17, 1987, Dowler and the school district entered into an agreement concerning
his retirement. Dowler was to be placed on a [***16] reduced work schedule from
January 1, 1988, to July 1, 1988. He was to be compensated during that time as
if he were working a five-day schedule and his duties would include training a
replacement and assisting with negotiations. In addition, [**945] funds were to be given to
Dowler on January 1, 1988, to purchase credit for his military services in an
amount not to exceed $ 15,000.
For the
first time in Dowler's experience, three labor contracts expired at the end of
June, 1988. Dowler assisted in the negotiations while working full-time as the
personnel director. A new director was not hired until May, 1988. The school
district paid $ 14,854.08 to Dowler, which he used to [*143] purchase retirement credit
for military service. PSERS concluded that the amount was a severance payment
and did not include it as part of Dowler's final average salary in computing
his retirement compensation.
Dowler
appealed the determination, asserting that he did not receive the benefit of
his agreement because he was not given the opportunity to work half-time at
full pay. The Board concluded that the money represented a severance payment
and dismissed the appeal. The Commonwealth Court affirmed, stating
Under [***17] the Code, all payments,
other than for regular professional salary, which are part of an agreement in
which a professional member agrees to terminate school service by a date
certain, are prima facie severance payments. The claimant may rebut a prima
facie case only by showing that the payment is in accord with the scheduled or
customary salary scale within the School District for personnel with the same
educational and experience qualifications who are not terminating service.
In
furtherance of its responsibility to ensure the actuarial soundness of the
retirement fund, the Board has determined that it is statutorily required to
exclude nonregular remuneration, nonstandard salary, fringe benefits, bonuses,
and severance payments from inclusion as compensation under the Retirement
Code. The Board has developed the concepts of "standard salary" and
"regular remuneration" as part of its understanding of compensation.
Based upon
its interpretation of the Retirement Code and accompanying regulations, HN5standard
salary and regular remuneration are defined by the Board as take-home cash, including,
among others, (i) amounts withheld [***18]
for tax remittances; (ii) amounts picked up as contributions to PSERS; and
(iii) amounts appropriately deferred in qualifying deferred compensation
programs, and excluding, fringe benefits, bonuses, severance payments,
and non-salary [*144] reduction Internal Revenue Code § 403(b) tax sheltered annuities.
The
nonsalary reduction tax sheltered annuities purchased for Christiana during the
four consecutive school years beginning in 1984-1985 were found by the Board to
be nonstandard salary, nonregular remuneration and bonuses or fringe benefits
under this analysis. 3 The
$ 19,200 in annuity purchases, which the School District authorized after being
advised of Christiana's impending retirement, were excluded as being part of a
severance package.
FOOTNOTES
3 Such
annuities are distinguishable from the annuity contracts purchased under a
deferred compensation program authorized under the Fiscal Code, Act of March
30, 1811, P.L. 145 as amended, 72 P.S. §§ 4521.1 - 4521.2. Income deferred under programs
authorized thereunder is included as regular compensation for the purpose of
computing deductions for employe contributions to retirement and pension
programs and for the purpose of computing retirement and pension benefits. 72 P.S. § 4521.1(e). Christiana's assertion that the
annuity purchases made on his behalf qualified for treatment as deferred
compensation under this provision fails to recognize this distinction and is
unsupportable.
[***19] Christiana had received
salary increases for the first three years after he became superintendent for
the Upper St. Clair School District. Over a four-year period, Christiana's
annual salary increased from $ 58,000 to $ 71,000. When his salary for
1984-1985 was under consideration, members of the School Board expressed
concern that an additional increase would generate negative publicity. A
newspaper reporter's comment that Christiana's salary at that time exceeded
that of Pennsylvania's Governor was repeated in the headlines of a local
newspaper. Unwilling to confront public scrutiny [**946] of a salary increase, the
School Board elected to freeze Christiana's salary and purchased a single
premium annuity for the purpose of purchasing prior years' seniority pension
credit.
Richard J.
Mancini, the School District's business manager, testified that Christiana was
the highest paid school superintendent in Western Pennsylvania, including the
City of Pittsburgh [*145] School District which was
ten times the size of Upper St. Clair's School District. Mancini indicated that
the single premium annuity was considered as a way to handle adverse public
reaction because responses to salary surveys would not [***20] include that amount. He
considered the annuity purchases to be compensation.
Nevertheless,
the record establishes that the School District did not report the annuity
payments to PSERS as compensation paid to Christiana and did not pay pickup
contributions on those amounts. In fact, the School District continued to
purchase single premium annuities even when salary increases were approved in
subsequent years. In the 1987-1988 school year, Christiana's salary was
increased to $ 74,000 and a single premium annuity in the amount of $ 9,500 was
purchased. His salary was then increased to $ 80,000 in the following year in
which an additional $ 9,500 was earmarked for an annuity purchase.
With
respect to the $ 19,200 annuity payment, the School Board's resolutions
indicate that it was part of a comprehensive salary and benefits package
developed after notice of Christiana's impending retirement. The School Board's
initial resolution dated November 14, 1988, contemplated a salary increase to $
80,000, payment for services of a financial planner not to exceed $ 2,000,
continuing medical benefits for Christiana and his wife until age 65, the
purchase of three years' pension credit for military [***21] service 4, and
the $ 19,200 annuity purchase. On January 9, 1989, the resolution was
rescinded. A second resolution was adopted which incorporated all of the
earlier provisions, but split the $ 19,200 into two separate annuity purchases.
FOOTNOTES
4 The amount
expended by the School District for this purchase was approximately $ 21,000.
Christiana did not seek to include this amount in the computation of his
retirement benefits.
The
Commonwealth Court concluded that the Board did not err in excluding the
annuity payments from the calculation of Christiana's final average salary. As
to the 1988-1989 salary and benefits package, the court found that the record
was devoid of any evidence that the package was in accord with the [*146] District's regular and
standard yearly compensation practices, particularly those involving Christiana
himself over the ten-year term of his employment.
We find
that the Commonwealth Court did not err in concluding that none of the annuity
purchases were includable as compensation for purposes of [***22] determining Christiana's
final average salary. There is substantial evidence in the record to support
the Retirement Board's conclusions that the annuity payments were remuneration
that was not based on the standard salary schedule for which Christiana was
rendering service, and that the $ 19,200 payment was a severance payment. Therefore,
under the Retirement Code and applicable regulations, the annuity payments were
properly excluded from the computation of Christiana's final average salary.
The order
of the Commonwealth Court is affirmed.
Mr. Justice
Montemuro, who was sitting by designation, did not participate in the decision
of this case.
ROBERT D.
CHRISTIANA, Petitioner v. PUBLIC SCHOOL EMPLOYES' RETIREMENT BOARD, Respondent
NO. 1745 C.D. 1993
COMMONWEALTH COURT OF PENNSYLVANIA
166 Pa. Commw. 300; 646 A.2d 645; 1994 Pa. Commw. LEXIS 436
March 2, 1994, ARGUED
July 28, 1994, FILED
SUBSEQUENT HISTORY:
Petition for Allowance of Appeal and/or Cross-Petition Granted December 7,
1994.
PRIOR HISTORY: [***1] APPEALED From File No. 117-16-8296. State
Agency, Public School Employes' Retirement Board.
COUNSEL: Reed B.
Day for petitioner.
Louis Sheehan, Assistant Counsel, for respondent.
JUDGES: BEFORE:
HONORABLE DAVID W. CRAIG, President Judge, HONORABLE JAMES GARDNER COLINS,
Judge, HONORABLE BERNARD L. McGINLEY, Judge, HONORABLE DAN PELLEGRINI, Judge,
HONORABLE ROCHELLE S. FRIEDMAN, Judge, HONORABLE JAMES R. KELLEY, Judge,
HONORABLE SANDRA SCHULTZ NEWMAN, Judge.
OPINION BY: JAMES R. KELLEY
OPINION
[*302] [**646]
OPINION BY JUDGE KELLEY
Robert D. Christiana, the former Superintendent of the Upper St. Clair School
District (District) appeals from an order of the Public School Employes'
Retirement Board (Board) which denied the inclusion of certain annuities
purchased for Christiana by the District in the calculation of his final
average salary under the Public School Employes' Retirement Code (Retirement Code).
1
FOOTNOTES
1
Act of October 2, 1975, P.L. 298, as
amended, 24 P.S. §§
8101 - 8104.
The Board made extensive findings of fact. Those findings relevant to the
present [***2] appeal may be summarized as
follows. Christiana was first employed by the District in July, 1979 at the
initial salary of $ 52,000. Christiana's salaries for the subsequent school
years were:
|
|
|
|
1980-1981
|
$ 58,000
|
|
1981-1982
|
$ 63,500
|
|
1982-1983
|
$ 65,723
|
|
1983-1984
|
$ 71,000
|
[*303] The following amounts were initially
reported to the Public School Employes' Retirement System (PSERS) as
Christiana's salary for the next five school years:
|
|
|
|
1984-1985
|
$ 71,000
|
|
1985-1986
|
$ 71,000
|
|
1986-1987
|
$ 71,000
|
|
1987-1988
|
$ 74,000
|
|
1988-1989
|
$ 80,000
|
In November 1988, the Upper St. Clair School Board (School Board) became aware
of Christiana's intention to retire from his position at the end of the
1988-1989 school year. Christiana formally retired in August, 1989.
At its November 14, 1988 meeting, the School Board adopted resolutions
concerning the 1988-1989 salary and benefits payable to [**647]
or for the benefit of Christiana. Among the resolutions was one which directed
the District to provide Christiana "with an annuity or other equivalent
payment at a cost to the District of $ 19,200 for the purposes of purchasing
for the Superintendent pension credit under the State Retirement Plan [***3] … ."
On January 9, 1989, the School Board met and rescinded its resolutions of
November 14, 1988, adopting the following relevant resolutions in their place:
RESOLVED, that the District, in recognition of the superior
manner in which the Superintendent has performed his duties and
responsibilities, shall provide the Superintendent in calendar year 1988 with
additional compensation in the amount of $ 9,500; and further,
RESOLVED, that the District shall, at or prior to the
retirement of the Superintendent on June 30, 1989, pay to or on behalf of the
Superintendent additional compensation in the amount of $ 9,700 plus an amount
necessary to purchase for the Superintendent three years' pension credit under
the State Retirement Plan in recognition of his service in the United States
Air Force, as permitted by the laws of Pennsylvania. 2
FOOTNOTES
2
The amount necessary to purchase the pension credit for military service was
slightly in excess of $ 20,000; however, Christiana does not seek to characterize
this expenditure as "compensation" under the Retirement Code.
[***4] [*304]
Pursuant to this resolution, the District purchased an annuity for Christiana
in the amount of $ 9,500, but this expenditure was not directly reflected as
Christiana's regular salary. 3 In
contradistinction, the District in 1989 directly paid Christiana an additional
$ 9,700 which increased his regular salary from $ 80,000 to $ 89,700. The $
9,700 was separately accounted for and deducted from Christiana's take-home
salary. The District purchased an annuity for Christiana with the payroll
deductions.
FOOTNOTES
3
This annuity, and all others subsequently referred to, were purchased by the
District pursuant to Internal
Revenue Code § 403(b) which
grants special tax advantages to school employees with respect to annuities
purchased for them by their tax-exempt employers.
The District reported to PSERS a total of $ 8,730 in payroll deductions
starting in March 1989, through and including June 1989, to reflect the
additional compensation called for by the January 9, 1989 School Board resolution.
4
After review of the School Board [***5] meeting
minutes and resolutions, on January 19, 1990, PSERS declined to accept or
recognize the reported $ 8,730 for retirement credit purposes.
FOOTNOTES
4
The $ 8,730 in payroll deductions reported to PSERS represented a $ 970
shortfall from the $ 9,700 deduction authorized by the School Board.
By letter to PSERS dated February 9, 1990, the District resubmitted
Christiana's reported salary for the 1988-1989 school year. The letter
broadened the reporting period to encompass deductions made between January 1,
1989 and June 30, 1989, and adjusted the total salary accordingly. The letter
read, in part:
On the original 1st quarter report $ 970.00 of additional
compensation was not reported in February, 1989.
Further, in reviewing the report for the 4th quarter of 1988
we discovered that a payment of $ 9,500.00 to Dr. Christiana was also not
reported.
The District views these payments as merit increases, no
different than merit pay which is paid in accordance with [*305] our negotiated agreement with the teachers of
[***6] the School District.
At the administrative hearing held September 11, 1991 before
a hearing examiner to consider the issue of whether the $ 19,200 (comprised of
$ 9,500 + $ 9,700) (Enhancement II) paid to Christiana in the 1988-1989 school
year should be considered Retirement Code compensation for the purposes of
calculating the final average salary, PSERS was made aware that additional
remuneration was awarded to Christiana not only in his final year of service
but also for the four previous school years (1984-1988) (Enhancement I). At the
hearing, for the first time Christiana sought to add Enhancement I to the
salaries previously reported to PSERS for the respective years for inclusion as
Retirement Code compensation.
[**648] According to the relevant School Board
meeting minutes, the Enhancement I payments were intended to compensate
Christiana "in lieu of salary increases" for the given years. The
pertinent resolutions directed that the District purchase a single premium
annuity for Christiana for the purposes of purchasing prior years seniority
pension credit at the following amounts:
|
|
|
|
1984-1985
|
$ 5,000
|
|
1985-1986
|
$ 7,000
|
|
1986-1987
|
$ 10,000
|
|
1987-1988
|
$ 9,500
|
None [***7] of these amounts were reflected in
Christiana's take-home pay, nor were the amounts formally reported to PSERS as
salary.
The hearing examiner recommended that Enhancement II be excluded from the
calculation of Christiana's final average salary because the amounts were
properly characterized as non-includable "severance payments" under
the Retirement Code. The hearing examiner recommended further that Enhancement
I be included in the calculation of final average salary because such amounts
were properly characterized as includable Retirement Code compensation. Christiana
appealed to the Board.
Concerning Enhancement I, the Board concluded that Christiana's non-salary
reduction tax shelter annuity payments [*306]
may not be included in Retirement Code compensation because such payments are
non-standard and/or non-regular remuneration as well as being bonuses and
fringe benefits. Similarly, the Board concluded that the Enhancement II
payments were components of a severance package none of which may be included
in Retirement Code compensation because such payments must be characterized as
non-includable bonuses and fringe benefits. It is from that order that
Christiana now appeals to this court.
[***8] On appeal, Christiana argues (1) that he
is entitled to have his final average salary adjusted in order to receive retirement
credit for single premium tax-sheltered annuities purchased for him by his
employer in lieu of salary increases; (2) that PSERS may not sua sponte utilize statistical and
public policy considerations when denying a claim for retirement benefits which
were not raised before the hearing examiner; (3) that the Board denied
Christiana due process by overruling the hearing examiner without providing Christiana
reasonable notice and an opportunity to be heard; and, (4) that the Board
denied Christiana due process by commingling the prosecutorial and adjudicative
functions in determining Christiana's eligibility for benefits.
We note that HN1
our
scope of review from adjudications of administrative boards is limited to a
determination of whether the board committed an error of law, whether
constitutional rights were violated, or whether necessary findings of fact are
supported by substantial evidence. Finnegan v. Public School Employes' Retirement Board, 126 Pa.
Commonwealth Ct. 584, 560 A.2d 848 (1989).
Christiana first [***9] argues that the Board
erred in failing to give effect to the relevant portions of the Fiscal Code of
the Commonwealth 5
which expressly authorize the inclusion of tax-deferred income as credit for
customary retirement plans. For five years, Christiana argues, the District
purchased qualified tax-deferred annuities for Christiana in accordance with
the HN2
Fiscal
Code, which provides in relevant part:
[*307] The state treasurer
shall pay all grants, salaries, annuities, gratuities, and pensions established
by law … the treasurer or other officer in charge of payrolls for any …
political subdivision may make systematic
investments in mutual funds, savings accounts or government bonds or make
premium payments on life insurance or annuity
contracts to any institution or company licensed and authorized … to accept deposits … for the purpose of funding a deferred compensation
program for employes.
72 P.S. §
4521 (emphasis provided by Christiana).
Moreover, Christiana asserts, the Fiscal Code authorizes the purchase of
annuities through a deferred compensation program:
[**649] HN3
(a)
The governing body of any … political subdivision may, by contract, agree with
any employe [***10] to defer, a portion of that employe's compensation and may
subsequently, with the consent of the employe, purchase … annuity contracts
… .
* * *
(e) Such deferred compensation program shall be in addition to, and not a part of, any other retirement benefit program provided by law for employes
of the … political subdivision. Income
deferred under programs authorized by this act shall continue to be included as regular compensation for the purpose
of computing deductions for employe contributions to retirement and pension
programs and for the purpose of computing retirement and pension benefits
earned by any employe.
72 P.S. §
4521.1(a), (e),
(emphasis provided by Christiana).
Christiana maintains that these provisions of the Fiscal Code permit the use of
tax-deferred annuity payments which may be purchased by deferring a portion of
an employee's compensation. Such deferred income, Christiana contends, is then
to be included in the computation of the employee's retirement and pension
benefits.
FOOTNOTES
5
Act of March 30, 1811, P.L. 145, as
amended, 72 P.S. §§
4521 - 4521.2.
[***11] We cannot disagree with Christiana's
reading of the Fiscal Code provision set forth above. However, his argument
continues, [*308] advancing the assertion that
the Board erred by characterizing the annuities as non-salary reduction
purchases, or non-regular remuneration, thus rendering such payments ineligible
for inclusion as compensation under its interpretation of the Retirement Code.
HN4
Section
8102 of the Retirement Code sets forth the following relevant
definitions:
"Compensation."
Pickup contributions plus any remuneration received as a school employee
excluding refunds for expenses incidental to employment and excluding severance
payments.
"HN5
Final average salary." The highest
average compensation received as an active member during any three
nonoverlapping periods of 12 consecutive months … .
"HN6
Pickup contributions." Regular or
joint coverage member contributions which are made by the employer for active
members for current service on and after January 1, 1983.
"HN7
Severance payments." Any payments
for unused vacation or sick leave and any additional compensation contingent
upon retirement including payments in excess of the scheduled or
customary [***12] salaries provided for members
within the same governmental entity with the same educational and experience
qualifications who are not terminating service.
Excludes a bonus, severance payment or other remuneration or
similar emoluments received by a school employe during his school service not
based on the standard salary schedule
for which he is rendering service. It shall exclude payments for unused sick
leave, unused vacation leave, bonuses for attending school seminars and
conventions, special payments for health and welfare plans based on the hours
employed or any other payment or similar emoluments [*309]
which may be negotiated in a collective bargaining agreement for the express
purpose of enhancing the compensation factor for retirement benefits.
22 Pa.
Code § 211.2 (emphasis added).
Accordingly, the Board has developed general concepts in understanding the
Retirement Code's meaning of "compensation": "standard
salary" and "regular remuneration". Based upon its
interpretation of the Retirement Code and accompanying regulations, [***13] standard salary and regular remuneration are
defined by the Board as take-home cash, including,
among others, (i) amounts withheld for tax remittances; (ii) amounts picked up as
contributions to PSERS; and (iii) amounts appropriately deferred in qualifying
deferred compensation programs, and excluding,
fringe benefits, bonuses, severance payments, and non-salary reduction Internal Revenue Code § 403(b) tax sheltered [**650]
annuities. Board's opinion, June 24,
1993, pp. 16-17 (emphasis added).
Based on its interpretation of the guiding statutes and regulations, the Board
characterized both Enhancement I and II payments to Christiana as non-standard
salary, non-regular remuneration, bonuses and fringe benefits. Additionally,
the Board characterized Enhancement II as part of a severance payment.
Therefore, the Board denied the inclusion of both the Enhancement I and
Enhancement II annuity payments in the calculation of Christiana's final
average salary.
HN9
The
Board is charged with the execution and application of the Retirement Code and
the Board's interpretation should not be overturned unless it is clear that
such construction is erroneous. Panko v. Public School Employees' Retirement System, 89 Pa.
Commonwealth Ct. 419, 492 A.2d 805 (1985). [***14]
Accordingly, our review of the record suggests that the Board did not err in
excluding the annuity payments from the calculation of Christiana's final
average salary.
In each of the school years in which Christiana received an Enhancement I
payment, the School Board adopted resolutions which directed that "in lieu
of a salary increase" for that year, Christiana would benefit from the
purchase of a single [*310] premium annuity
for the purpose of purchasing prior years seniority pension credit. Christiana
testified that the Enhancement I annuity payments were used as a means of
rewarding Christiana without representing to the taxpayers of Upper St. Clair
that his "salary" was substantially increased each year. (Original
Record, Transcript of Hearing held September 11, 1991, at pp. 16-18.) Christiana
testified he believed that his total compensation included his base reported
salary, plus the additional amounts provided for the purchase of the annuities.
(Id. at pp. 25-26.) The District's
business manager at the time, Richard Mancini, testified that in his opinion
"there was no doubt" the annuity payments were compensation. (Id. at p. 67.)
Referring to the first annuity payment of [***15]
$ 5,000 in 1984-1985, Dina J. Fulmer, a School Board member at the time
testified as follows:
Q: What did you understand this $ 5,000 to be?
A: It was a -- well, a reward for his performance. It was a
way of compensating him which would not get our name in the paper again.
* * *
Q: Why were the words in lieu of a salary increase chosen?
A: Well, in lieu of means instead of or actually in place of
being that lieu is the French word for place. Rather than increasing his base
salary, we just decided to purchase this annuity.
(Id. at pp. 83, 85.)
However, regardless of Christiana's or the District's contradictory
understanding, the record reveals that the District did not pay pickup
contributions on the annuity purchases made on behalf of Christiana beginning
with the 1984-1985 school year. 6
Further, in its reports to PSERS, the District did not [*311]
report the Enhancement I payments as compensation paid to Christiana, nor did
the District initially report any of the $ 19,200 Enhancement II payment to
PSERS, as compensation or otherwise. Lastly, despite its apparent unwillingness
to formally raise Christiana's base salary in the face of public opposition,
Christiana [***16] did in fact receive two regular
salary increases totalling $ 9,000 during the five year period under
consideration.
FOOTNOTES
6
Section
8102 of the Retirement
Code defined "pickup contributions" as regular or joint coverage
member contributions which are made by the employer for active members for
current service on and after January 1, 1983.
With respect to Enhancement II alone, the record also supports the findings of
the Board that the payments constituted part of a severance package. Christiana
testified the Board was made aware of his intention to retire prior to their
November, 1988 negotiations concerning his 1988-1989 salary and benefits. (Id. at 47-48.) What emerged from those
deliberations were resolutions directing (i) that the District, "in
recognition of the superior manner in which the Superintendent [**651] has performed his duties", pay Christiana
additional compensation in the amount of $ 9,500 in 1988; and (ii) that the
District pay Christiana an additional $ 9,700 at or prior to his retirement.
(Original Record, [***17] PSERS Exhibit #10B.)
While the record is silent as to whether Enhancement II was made contingent on Christiana's retirement,
it is at the very least payment "in excess of the scheduled or
customary" salary Christiana had enjoyed. Further, the final year salary
and benefits package, of which Enhancement II was a part, included employer
provided amounts for a financial planner, continuing medical coverage for
Christiana and his wife, and a one-time offering of a salary reduction tax
sheltered annuity. We find the record devoid of any evidence that Christiana's
final year package was in accord with the District's regular and standard
yearly compensation practices, particularly those involving Christiana himself
over the ten year term of his employment.
HN10
The
Retirement Code indicates that the General Assembly wishes to exclude from the
computation of employees' final average salary all payments which may
artificially inflate compensation for the purpose of enhancing retirement
benefits. [*312] Dowler v. Public School Employes' Retirement Board, 153 Pa.
Commonwealth Ct. 109, 620 A.2d 639 (1993).
Christiana next argues that the Board erred by [***18]
sua sponte utilizing financial
statistics and public policy considerations not considered before the hearing
examiner in denying Christiana's claim for retirement benefits. We disagree.
HN11
The
Board, and not the hearing examiner, is the final fact finder in these cases. Dowler. As such, the Board may take
official notice of facts which are obvious and notorious to an expert in the
agency's field and those facts contained in the agency's files. Falasco v. Pennsylvania Board of Probation and Parole, 104 Pa.
Commonwealth Ct. 321, 521 A.2d 991 (1987).
Next, Christiana asserts that in overruling the recommendations of the hearing
examiner, the Board denied Christiana reasonable notice and an opportunity to
be heard. Christiana contends that the Board made its determination in this
matter without his participation and based its decision on facts and issues
Christiana never had the opportunity to address.
HN12
The
Administrative Agency Law, 2 Pa.C.S.
§ 504, states that "no adjudication of a Commonwealth agency
shall be valid as to any party unless he shall have been afforded reasonable
notice and an opportunity to be heard." Christiana was presented [***19] with just these very opportunities and exploited
them by filing a brief and reply brief prior to the hearing; attending the
hearing and presenting evidence; and, filing exceptions to the hearing
examiner's recommendations, followed by a response to the exceptions filed by
PSERS. Our review of the record indicates that the Board studied the complete
record, including the arguments advanced by Christiana, in reaching its
decision.
Lastly, Christiana raises a due process challenge concerning the alleged
commingling of prosecutorial and adjudicative functions between the PSERS and
the Board. However, Christiana failed to raise this issue before the Board.
[*313] We have held that HN13
commingling
claims may be waived if they are not raised before the administrative board. Newlin Corp. v. Department of Environmental Resources, 134 Pa.
Commonwealth Ct. 396, 579 A.2d 996 (1990). 7
Unless a claimant can offer a convincing reason for failing to raise the claim
before the Board, the commingling issue is waived. Dowler. Here, Christiana has not offered any explanation for
failing to raise this issue below.
FOOTNOTES
7
HN14
Pennsylvania
Rule of Appellate Procedure 1551 states, in part, that:
no question shall be heard or considered by the court which was
not raised before the government unit except (1) Questions involving the
validity of a statute … (3) Questions which the court is satisfied that the
petitioner could not by the exercise of due diligence have raised before the
government unit.
[***20] Accordingly, the order of the Board is
affirmed.
JAMES R. KELLEY, Judge
[**652] ORDER
NOW, this 28th day of July, 1994, the order of the Public School Employes'
Retirement Board, dated June 24, 1993, is hereby affirmed.
JAMES R. KELLEY, Judge
669 A.2d 1098, *; 1996 Pa. Commw. LEXIS 10, **
DR. VERNON
R. WYLAND, Petitioner v. PUBLIC SCHOOL EMPLOYES' RETIREMENT BOARD, Respondent
NO. 566 C.D. 1995
COMMONWEALTH COURT OF PENNSYLVANIA
669 A.2d 1098; 1996 Pa. Commw. LEXIS 10
October 17, 1995, Argued
January 8, 1996, Decided
January 8, 1996, FILED
SUBSEQUENT HISTORY:
[**1] Petition for Allowance of Appeal Denied August 5, 1996,
Reported at: 1996 Pa.
LEXIS 1604.
PRIOR HISTORY: APPEALED From No.
File no. 480-24-6298. State Agency: Public School Employes' Retirement Board.
DISPOSITION: Affirmed.
COUNSEL: Dee Lafferty Pugh for
petitioner.
Louis Sheehan, Assistant Counsel, for respondent.
JUDGES: BEFORE: HONORABLE DAN
PELLEGRINI, Judge, HONORABLE JAMES R. KELLEY, Judge, HONORABLE GEORGE T.
KELTON, Senior Judge.
OPINION BY: JAMES R. KELLEY
OPINION
[*1100] OPINION BY JUDGE KELLEY
FILED: January 8, 1996
Dr. Vernon R. Wyland, the former Superintendent of the Garnet Valley School
District (school district) appeals from the order of the Public School
Employes' Retirement Board (board) adopting a hearing examiner's calculation of
his final average salary used to determine his retirement benefits under the
Public School Employees' Retirement Code (Retirement Code). 1 We affirm.
FOOTNOTES
1
24 Pa.C.S.
§§ 8101 - 8534.
The relevant facts as found by the hearing examiner, and adopted by the board,
may be summarized as follows. Wyland became a member of the Public School Employes'
Retirement System (PSERS) by virtue of his employment [**2] with the
Shaler Area School District on June 1, 1983. On July 1, 1987, he began service
with the Garnet Valley School District as the District Superintendent for the
1987-1988 school year, at an annual salary of $ 65,000. On December 16, 1988,
his annual salary for the 1988-1989 school year was increased to $ 70,200,
retroactive to July 1, 1988. On March 28, 1990, Wyland's annual salary for the
1989-1990 school year was increased to $ 74,412, retroactive to July 1, 1989.
Wyland's annual salary for the 1990-1991 school year was increased to $ 94,481
as of June 30, 1991.
During the 1989-1990 school year, the school district experienced a prolonged
labor action with intense teacher contract negotiations which continued until a
new contract was signed in June of 1990. During the labor action, the teachers
went out on strike for a period of 25 to 30 days. As a result of the contract
negotiations and work stoppage, Wyland became the target of community pressures
and antagonisms and he also became the subject of a vote of "no
confidence" from the teachers.
During the same period, the school district was engaged in a building program
involving the construction of a new middle school building [**3] and
other renovations. At that time, the Garnet Valley Board of School Directors
(school board) was sensitive to the adverse public reaction to cost overruns
associated with the building program. The teachers' contract negotiations and
public reaction to the work stoppage contributed to a significant turnover in
the composition of the school board. Six school board members changed as a
result of resignations, and new members who were appointed came to the school
board predisposed against Wyland as a result of the labor situation and the
cost overruns.
As a result, in November of 1990, Wyland was informed by the president of the
school board that his contract would not be extended beyond its expiration date
of June 30, 1991. Because the school board did not want to take public action
on their decision, Wyland was asked if he would rather resign from his
position. Wyland concluded that it would be best to resign as he felt it would
be easier to tell prospective employers that he had resigned, rather than to
say that his contract had not been extended.
After negotiations regarding the terms of Wyland's resignation, on November 21,
1990, the president of the school board sent him a letter [**4]
outlining the terms under which he could resign. The letter stated, inter alia:
3)
The [School] Board guarantees the payment to you of your
full salary through June 30, 1991. That salary will not be reduced between now
and June 30, 1991.
(a) Your annual raise, ordinarily effective January, 1991,
will be deferred. As part of your salary, and in lieu of the annual raise in
January, the [School] Board will purchase from you all unused vacation days
credited to your account as of June 30, 1991 … .
(b)
Additionally, at the conclusion of your contract on June 30,
1991, the [School] Board, as part of your annual raise, will pay you for all
unused sick days then credited to your account … .
(c)
Notwithstanding Paragraphs 3(a) and 3(b), you have agreed to
reimburse the District for its share of the retirement cost allocable to the
inclusion of that portion of your salary [*1101]
represented by payments under Paragraph 3(a) and 3(b).
Wyland accepted the proposed terms as outlined in the
letter.
On November 26, 1990, Wyland submitted his letter of resignation, contingent upon
the school board's acceptance of the proposed terms in [**5] the
president's letter. At its regular meeting on November 27, 1990, the school
board accepted Wyland's resignation effective June 30, 1991. The school board
did not take a public vote regarding the content and financial terms of the
November 21, 1990 letter to avoid disclosure of their action.
By letter dated June 20, 1991, Wyland submitted a memorandum to the school
district's director of business and support services which summarized his accumulated
vacation days and sick days. On June 25, 1991, Wyland and the school board
president signed a letter of agreement which contained identical terms as
outlined in the letter of November 21, 1990.
On June 28, 1991, the school district issued Wyland a check in the amount of $
20,069.40 as payment for his unused sick days, vacation days and comp days. The
payroll document computing Wyland's vacation and sick days noted that the
payment was to be considered compensation as per the November 21, 1990 letter
of agreement. As required by the letter of agreement, Wyland reimbursed the
school district for its share of the retirement costs allocable to the
inclusion of the $ 20,069.40 payment.
On June 28th, Wyland also entered into an agreement [**6] with the
school district releasing the school district from any future liability
concerning his resignation, in exchange for the payment of $ 20,069.40. The
agreement referred to this payment as a "severance payment". Wyland
was required to sign the release agreement in order to receive the $ 20,069.40
payment. He signed the release agreement and received the payment.
On September 17, 1991, PSERS received a retirement application from Wyland with
an effective date of retirement of June 29, 1991. PSERS contacted the school
district regarding the $ 20,069.40 payment to Wyland. The school district sent
PSERS a copy of the minutes of the school board meeting in which Wyland
formally submitted his resignation, and indicated that no information from his
personnel file could be released without his written consent. PSERS then
informed the school district that in the absence of any written evidence
concerning the reason for the payment, the $ 20,069.40 would not be used to
calculate Wyland's retirement benefits. Wyland was sent copies of both letters
from PSERS, but his consent for the release of information from his personnel
file was never requested by PSERS.
Initially, Wyland's retirement [**7] benefits were calculated by
PSERS using a "final average salary" of $ 79,698. However, without
the necessary documentation, the $ 20,069.40 was removed from PSERS'
computation of his final average salary. As a result, his retirement benefits
were recalculated using a final average salary of $ 73,008. By letter dated
April 8, 1992, PSERS informed Wyland that his benefits had been recomputed, and
that he was required to repay $ 7,619.03 that he had received in overpayment.
By letter dated April 23, 1992, Wyland requested that PSERS include the $
20,069.40 in its calculation of his final average salary. On July 1, 1992,
PSERS notified Wyland that its Appeals Committee had denied his request. By
letter dated July 28, 1992, Wyland requested an administrative hearing.
On July 6, 1993, a hearing was scheduled and held before an independent hearing
examiner. Based on the evidence presented at the hearing and the briefs and
motions submitted by the parties, the hearing examiner concluded that the $
20,069.40 paid to Wyland was a severance payment, and should not be considered
in the calculation of his final average salary. In this regard, the hearing
examiner specifically found the following: [**8]
1. At the time of the November 21, 1990 agreement, [the
school district] was under a great deal of political pressure due to the recent
teacher strike and cost overruns at the middle school project and [Wyland]'s
raise was motivated by [the school district]'s need for [Wyland]'s cooperation.
2. The November 21, 1990 agreement was designed as a buyout
of [Wyland]'s [*1102] vacation and sick days,
both items regularly purchased by [the school district] at the end of a
superintendent's term, and both items that would not normally be considered
standard salary.
3. Both [Wyland] and [the school district] represented to
the general public that [Wyland]'s pay for the 1990-1991 school year was $
74,412.00, and it would be unfair to now allow [Wyland] to claim a higher pay
for retirement purposes.
4. The November 21, 1990, agreement required [Wyland] to
reimburse [the school district] for its share of the retirement cost allocable
to the inclusion of the $ 20,069.40 payment into [Wyland]'s salary. With a
regular salary increase this retirement cost would have been the responsibility
of [the school district].
5. [Wyland] was required [**9] to sign the June
28, 1991, release agreement in order to receive the $ 20,069.40 payment and the
release agreement referred to the money as a severance payment.
The hearing examiner also found, inter alia, that: the payment was not based on the standard salary
schedule for which Wyland was rendering service; the payment was not made under
the school district's scheduled or customary salary scale; and, the payment was
made contingent upon Wyland's "retirement" as that term includes
terminations which result in the immediate receipt of a pension.
Both Wyland and PSERS filed exceptions to the hearing examiner's decision with
the board. The board adopted the hearing examiner's findings of fact and
conclusions of law, and affirmed the hearing examiner's decision. Wyland then
filed a petition for review in this court appeal.
On appeal, Wyland claims: (1) the board erred in determining that the $
20,069.40 payment in his final year of employment constituted severance pay
rather than compensation, thereby reducing his final average salary used for
the calculation of his retirement benefits; and (2) his due process rights were
denied by PSERS' failure to request information from [**10] him
before eliminating the $ 20,069.40 from its calculation of his final average salary,
and by the commingling of the prosecutorial and adjudicative functions of PSERS
and the board.
We note that HN1
our
scope of review from adjudications of administrative boards is limited to a
determination of whether the board committed an error of law, whether
constitutional rights were violated, or whether necessary findings of fact are
supported by substantial evidence. Christiana v. Public School Employees' Retirement Board, 166 Pa.
Commw. 300, 646 A.2d 645 (Pa. Cmwlth. 1994); Dowler v. Public School Employes' Retirement Board, 153 Pa.
Commw. 109, 620 A.2d 639 (Pa. Cmwlth. 1993). Because the board is
charged with the execution and application of the Retirement Code, the board's
interpretation should not be overturned unless it is clear that its
construction of the Retirement Code is erroneous. Christiana.
Wyland first argues that the board erred in determining that the $ 20,069.40
payment in his final year of employment constituted a severance payment rather
than compensation. In particular, Wyland claims that: there is no evidence that
the increase was paid contingent upon his retirement; there is no substantial
evidence [**11] that it was payment for his unused vacation or sick
time; his resignation at the end of his contract term cannot be considered to
be his "retirement"; the increase was consistent with the school
district's compensation plan; and it made his salary comparable to other
superintendents in Delaware County.
HN2
Both
the Retirement Code and the applicable regulations contain restrictions on the
types of compensation that may be used in calculating an employee's final
average salary. Hoerner v. Public School Employes' Retirement Board, 655 A.2d
207 (Pa. Cmwlth. 1995). The purpose of these restrictions is to ensure the
actuarial soundness of the retirement fund by preventing employees from
artificially inflating compensation as a means of receiving greater retirement
benefits. Id.
HN3
Section
8102 of the Retirement Code sets forth the following relevant
definitions:
"Compensation." Pickup
contributions plus any remuneration received as a school employee excluding
refunds for expenses [*1103] incidental to
employment and excluding any severance
payments.
"Final
average salary." The highest average compensation received as an
active member during any three nonoverlapping [**12] periods of 12
consecutive months … .
"Pickup
contributions." Regular or joint coverage member contributions which
are made by the employer for active members for current service on and after
January 1, 1983.
"Severance
payments." Any payments for unused vacation or sick leave and any
additional compensation contingent upon retirement including
payments in excess of the scheduled or customary salaries provided for members
within the same governmental entity with the same educational and experience
qualifications who are not terminating service.
Compensation
- Excludes a bonus, severance payment or other remuneration or similar
emoluments received by a school employe during his school service not based on
the standard salary schedule for which he is rendering service. It shall
exclude payments for unused sick leave, unused vacation leave, bonuses
for attending school seminars and conventions, special payments for health and
welfare plans based on the hours employed or any other payment or similar
emoluments which may be negotiated [**13] in a collective bargaining
agreement for the express purpose of enhancing the compensation factor for
retirement benefits. (Emphasis added.)
HN5
Whether
or not a payment must be considered a severance payment is a question of law. Dowler. Under the Retirement Code, all
payments, other than those for regular professional salary, which are part of
an agreement in which a professional member agrees to terminate school service
by a date certain, are prima facie
severance payments. Id. A claimant
may rebut a prima facie case only by
showing that the payment is in accord with the scheduled or customary salary
scale within the school district for personnel with the same educational and
experience qualifications who are not terminating service. Id.
In this case, both the hearing examiner and the board were presented with the
letters of agreement between Wyland and the school board president dated
November 21, 1990 and June 25, 1991 which stated, inter alia, that Wyland would
be paid for all of his unused vacation and sick days in lieu of his annual
raise, and that he would reimburse the school district for its share of the
retirement cost allocable to the inclusion [**14] of this amount.
The hearing examiner and the board were also presented with an agreement
between Wyland and the school board president dated June 28, 1991 which stated
that the parties had reached certain agreements concerning the termination of
his employment and severance payments, the terms of which were embodied in the
letter of June 25. The hearing examiner and the board were also presented with
documentation that Wyland was paid $ 20,069.40 by the school district for 62
unused vacation and comp days, and 93 unused sick days. Clearly, such evidence
is sufficient to support the board's conclusion that the $ 20,069.40 paid to
Wyland constituted a severance payment as it is defined in the Retirement Code.
Wyland is essentially asking this court to reweigh the conflicting evidence
presented to the hearing examiner and the board, and to only accept that
evidence which contradicts the plain meaning of the contents of the foregoing
documents. However, HN6
questions
of resolving conflicts in the evidence, witness credibility, and evidentiary
weight are properly within the exclusive discretion of the fact finding agency,
and are not usually matters for a reviewing court. [**15] Herzog v. Department of Environmental Resources, 166 Pa.
Commw. 114, 645 A.2d 1381 (Pa. Cmwlth. 1994). Moreover, "this
court 'may not substitute its judgment for that of an administrative agency
acting within its discretion in the field of its expertise upon substantial
evidence … .'" Dowler, 620 A.2d at 644 (citation
omitted). The hearing examiner and the board rejected Wyland's claims regarding
this evidence. On [*1104] appeal, we will not
substitute our judgment nor reweigh this evidence.
Wyland next claims that his right to due process and fundamental fairness was
denied by PSERS' failure to formally request information from him before
eliminating the $ 20,069.40 from its calculation of his final average salary,
and by the commingling of prosecutorial and adjudicative functions by PSERS and
the board. He first argues that his vested property rights to his pension were
reduced by PSERS in an arbitrary manner, without notice and without a chance to
respond, thereby violating his due process rights.
HN7
The
Administrative Agency Law, 2 Pa.C.S.
§ 504, states that "no adjudication of a Commonwealth agency
shall be valid as to any party unless he shall have been afforded reasonable
notice and an opportunity to be heard." [**16] Wyland was
afforded these opportunities and exercised them before the hearing examiner and
the board in this case.
As the claimant in Hoerner, we note that
Wyland has failed to cite any authority for the proposition that he was
entitled to a "pre-reduction" hearing before PSERS in this case. The
determination of Wyland's final average salary and the calculation of benefits
is simply the result of a staff function performed by PSERS.
Wyland could, and did, appeal the initial determination of his retirement
benefits to PSERS' appeal committee and, ultimately, to the board. He filed a
brief and a reply brief prior to the hearing before the hearing examiner,
attended the hearing and presented evidence, and filed exceptions to the
hearing examiner's determination with the board. HN8
As
Wyland was given notice and a hearing prior to the final determination of his
retirement benefits, and there exists no authority for a hearing in connection
with PSERS' initial review, this claim is meritless. See Stone & Edwards Insurance Agency, Inc. v.
Department of Insurance, 538 Pa. 276, 648 A.2d 304 (1994) (The
initial denial of an insurance license application was the result of a staff
function [**17] performed by the Pennsylvania Insurance Department;
as this decision could be appealed to the Insurance Commissioner who would
conduct a hearing before the final determination, applicants were not entitled
to notice and a hearing prior to the initial denial of a license application).
Finally, Wyland argues that the commingling of the prosecutorial and
adjudicative functions by PSERS and the board is violative of his due process
rights. In support of his position, Wyland relies on the case of Lyness v. State Board of Medicine, 529 Pa.
535, 605 A.2d 1204 (1994). In Lyness,
our Supreme Court stated:
In the modern world of sprawling governmental entities akin
to corporations it would be both unrealistic and counterproductive to insist
that administrative agencies be forbidden from handling both prosecutorial and
adjudicatory functions, where such roles are parcelled out and divided among
distinct departments or boards. Efficiency and cost-effectiveness are certainly
desirable ends. Indeed, each administrative board and judge is ultimately a
subdivision of a single entity, the Commonwealth of Pennsylvania, but this does
not render their collective work as prosecutors,
investigators [**18] and adjudicators constitutionally infirm, nor
create an imminent threat of prejudice.
What our Constitution requires, however, is that if more
than one function is reposed in a single administrative entity, walls of
division be constructed which eliminate the threat or appearance of bias. … [A]
"mere tangential involvement" of an adjudicator in the decision to
initiate proceeding is not enough to raise the red flag of procedural due
process. … Our constitutional notion of due process does not require a tabula rasa. … However, where the very
entity or individuals involved in the decision to prosecute are
"significantly involved" in the adjudicatory phase of the
proceedings, a violation of due process occurs.
Lyness, 529 Pa. at 546-47, 605 A.2d at
1209-10 (citations omitted).
Thus, HN9
where
"walls of division" are erected between the parties completing
disparate functions within an administrative agency, no due process violation
will be found. See, e.g., Stone & Edwards Insurance; [*1105]
Office of Disciplinary Counsel v. Duffield, 537 Pa.
485, 644 A.2d 1186 (1994).
Even if we were to adopt Wyland's position that the initial determination and
review [**19] of his retirement benefits by PSERS and the board
constitute "prosecutorial" and "adjudicative" functions,
there has been no showing by Wyland of a commingling of these functions as
proscribed by Lyness. Wyland's
initial application was reviewed by a supervisor in the retirement processing
section of PSERS. When he was dissatisfied with the determination of his
benefits, Wyland requested PSERS' appeals committee to review his claim. When
he was dissatisfied with the appeals committee's decision, Wyland submitted a
request to the legal division of PSERS for a hearing before a hearing examiner.
The independent hearing examiner conducted the hearing and made a
recommendation to the board, which was the final arbiter. The board was not
involved in the adjudication until Wyland appealed the decision of the hearing
examiner to the board. Such a procedure does not involve the commingling of
prosecutorial and adjudicative functions, and does not violate due process. See Duffield.
Unquestionably, under Lyness, HN10
the
mere possibility of bias under Pennsylvania law is sufficient to "raise
the red flag" of the protections offered by the procedural guaranty of due
process. Stone &
[**20] Edwards Insurance.
However, the appearance of bias proscribed by Lyness must be one which arises from an actual environment of commingled functions. Id. Wyland has not advanced a claim of the actual commingling of
functions in the manner in which PSERS and the board conduct their
investigations, prosecutions and adjudications. In the absence of any actual
commingling, which would give rise to an appearance of bias, Wyland's
unsubstantiated claim of commingling is meritless. Id.
Accordingly, the order of the board is affirmed.
JAMES R. KELLEY, Judge
ORDER
NOW, this 8th day of January, 1996, the order of the Public School Employes'
Retirement Board, dated January 27, 1995, at No. 480-24-6298, is affirmed.
JAMES R. KELLEY, Judge
543 Pa. 132, *; 669
A.2d 940, **;
1996 Pa. LEXIS 10, ***
ROBERT D. CHRISTIANA, Appellant v. PUBLIC SCHOOL EMPLOYES'
RETIREMENT BOARD, Appellee
No. 75 W.D. Appeal Docket 1994
SUPREME COURT OF PENNSYLVANIA
543 Pa. 132; 669 A.2d 940; 1996 Pa. LEXIS 10
September 18, 1995, ARGUED
January 18, 1996, DECIDED
PRIOR
HISTORY: [***1] Appeal from the Order of
the Commonwealth Court Entered July 28, 1994, at No. 1745 C.D. 1993, Affirming
the Opinion and Order of the Public School Employes' Retirement Board Dated
June 24, 1993 at No. 117-16-8296. 166 Pa. Cmwlth.
300, 646 A.2d 645 (1994).
JUDGES BELOW: CRAIG, COLINS, MCGINLEY, PELLEGRINI, FRIEDMAN, KELLEY, NEWMAN,
JJ. (Cmwlth.).
DISPOSITION: Affirmed.
COUNSEL: Mr.
Robert D. Christiana, APPELLANT, Pro se.
For Public
School Employes' Retirement Board, APPELLEE: Louis J. Sheehan, Esquire. For
Attorney General's Office, APPELLEE: Ernest D. Preate, Jr., Esquire.
JUDGES: MR.
CHIEF JUSTICE ROBERT N. C. NIX, JR., FLAHERTY, ZAPPALA, CAPPY, CASTILLE,
MONTEMURO, JJ. Mr. Justice Montemuro, who was sitting by designation, did not
participate in the decision of this case.
OPINION BY: ZAPPALA
OPINION
[**940] [*134] OPINION
JUSTICE
ZAPPALA
DECIDED:
JANUARY 18, 1996
Appellant,
Robert D. Christiana, is a former superintendent of the Upper St. Clair School
District. Prior to his retirement, the School District had purchased certain
annuities for Christiana. Christiana requested that the amounts paid for the
annuities be included by the Public School Employes' Retirement System (PSERS)
in its calculation of his final average salary for retirement purposes. After
an administrative hearing, the Public School Employes' Retirement Board (Board)
entered an order directing that the annuities were not to be included in the
computation of his retirement benefits. The Commonwealth Court affirmed the
Board's order in an en banc decision. We granted Christiana's petition for
allowance [***2] of appeal and now affirm.
The Board's
opinion set forth detailed factual findings that are summarized as follows.
Christiana was hired as the superintendent by the School District in July of
1979 at a starting salary of $ 52,000. He had been employed previously by
school districts in [**941] Michigan and New York in
various positions and had served as the superintendent of Pennsylvania's
Springfield Township School District. Christiana's salary was increased over
the next few years:
1980-1981 $
58,000
1981-1982 $
63,500
1982-1983 $
65,723
1983-1984 $
71,000
In the next
five years, the School District reported the following figures as Christiana's
salary to PSERS:
[*135] 1984-1985 $ 71,000
1985-1986 $
71,000
1986-1987 $
71,000
1987-1988 $
74,000
1988-1989 $
80,000
Beginning
with the 1984-1985 school year, the School District also expended funds to
purchase single premium annuities for Christiana. The School District did not
report the expenditures as part of Christiana's salary to PSERS or pay
retirement contributions on those amounts. The minutes of Upper St. Clair
School Board's meetings at which the annuity payments were addressed
indicate [***3] that the annuity payments
were to be made for purposes of purchasing prior years' seniority pension
credit. 1 The
minutes reflect the costs of the annuity purchases:
FOOTNOTES
1 The
minutes also indicate that the annuity payments were "in lieu of salary
increases." For the school year 1987-1988, in which Christiana also
received a salary increase of $ 3,000, the minutes state that "in lieu of
any additional salary increase," the School District shall purchase a
single premium annuity for purposes of purchasing prior years' seniority
pension credit at a cost of $ 9,500.
1984-1985 $
5,000
1985-1986 $
7,000
1986-1987 $
10,000
1987-1988 $
9,500
By early
November of 1988, the School Board was apprised of Christiana's intention to
retire at the end of the 1988-1989 school year. On November 14, 1988, the
School Board adopted a resolution relating to Christiana's anticipated
retirement:
RESOLVED,
That for the 1988-89 school year, the salary for the Superintendent shall be $
80,000; and further,
[***4]
RESOLVED,
That commencing with the retirement of the Superintendent on June 30, 1989, the
Blue Cross/Blue Shield or equivalent medical and hospitalization benefits
applicable to building administrators shall be continued for the Superintendent
until his attaining age 65, and for his wife Nancy, until her attaining age 65,
at District expense; and further,
RESOLVED,
That the District shall reimburse the Superintendent during the 1988-1989
school year for costs incurred [*136]
for the services of a financial planner, such reimbursement not to exceed $
2,000; and further,
RESOLVED,
That the District shall purchase for the Superintendent three years' pension
credit under the State Retirement Plan for his service in the United States Air
Force as permitted by the laws of Pennsylvania; and further,
RESOLVED,
That the District shall provide the Superintendent with an annuity or other
equivalent payment at a cost to the District of $ 19,200 for purposes of
purchasing for the Superintendent pension credit under the State Retirement
Plan for service as an educator in positions prior to his employment under the
Pennsylvania retirement system, as permitted [***5] by the laws of
Pennsylvania; . . .
The annuity
payment of $ 19,200 for the 1988-1989 school year became problematic due to
changes in the federal tax code that were effective as of January 1, 1989. In
response, the School Board rescinded the resolution of November 14, 1988, and
adopted a second resolution on January 9, 1989. The resolution split the $
19,200 payment into two separate payments of $ 9,500, which was backdated to
the 1988 calendar year, and of $ 9,700, which was to be made at or prior to
Christiana's retirement date of June 30, 1989:
MOTION: By
Wellington: WHEREAS, the Board of School Directors at its regular meeting on
November 14, 1988, adopted certain resolutions relating to the salary and the
benefits payable to or for the benefit of the Superintendent; and
WHEREFORE,
prior to the adoption of such resolutions it was represented to the
Superintendent that the Board would consider [**942] modification to those
resolutions after the Superintendent and the District had an opportunity to
consult with their respective advisors, and such consultations have taken place
and the Board is prepared to make certain modifications;
NOW,
THEREFORE, [***6] BE IT RESOLVED, that with
the consent and agreement of the Superintendent, the resolutions [*137] adopted by the Board at
its November 14, 1988, meeting relating to the salary and benefits payable to
or for the benefit of the Superintendent be and are hereby rescinded and the
following resolutions are adopted in their place and stead:
RESOLVED,
that for the 1988-89 school year, the salary for the Superintendent shall be $
80,000; and further,
RESOLVED,
that commencing with the retirement of the Superintendent on June 30, 1989, the
Blue Cross/Blue Shield or equivalent medical and hospitalization benefits then
applicable to Building Administrators shall be continued for the Superintendent
until his attaining age 65, and for his wife, Nancy, until her attaining age
65, at District's expense . . .
RESOLVED,
that the District shall reimburse the Superintendent during the 1988-89 school
year for costs incurred for the services of a financial planner, such
reimbursement not to exceed $ 2,000; and further,
RESOLVED,
that the District, in recognition of the superior manner in which the
Superintendent has performed his duties and responsibilities, [***7] shall provide the
Superintendent in calendar year 1988 with additional compensation in the amount
of $ 9,500; and further,
RESOLVED,
that the District shall, at or prior to the retirement of the Superintendent on
June 30, 1989, pay to or on behalf of the Superintendent additional
compensation in the amount of $ 9,700 plus an amount necessary to purchase for
the Superintendent three years' pension credit under the State Retirement Plan
in recognition of his service in the United States Air Force, as permitted by
the laws of Pennsylvania.
Pursuant to
this resolution, the School District purchased an annuity in the amount of $
9,500. The annuity payment was not reflected in Christiana's regular salary.
The $ 9,700 payment made in 1989 was treated differently, however. Christiana
received that payment directly, but the School District in turn reduced his
monthly take-home pay and used the payroll [*138]
deductions to purchase the 1989 annuity. From March of 1989 through June of
1989, the School District reported additional remuneration of $ 8,730 to PSERS
that reflected the payroll changes.
Christiana
submitted an application for retirement to PSERS on August 8, 1989. On [***8] January 19, 1990, PSERS
sent a letter advising the School District that after review of the School
Board's minutes of November 14, 1988, and January 9, 1989, the $ 8,730 reported
did not appear to be Christiana's normal salary and that the amount could not
be used in calculating his retirement benefits. The School District was
requested to submit a form to reflect this change in the reported salary.
The School
District did not comply with the request. Instead, a form was sent increasing
the salary report by the sum of $ 970 -the difference between the $ 9,700
annuity purchase for 1989 and the $ 8,730 originally reported as salary. In a
letter dated February 9, 1990, the School District's business manager noted the
correction and indicated that in addition, the report for the fourth quarter of
1988 had failed to report a payment of $ 9,500 to Christiana. The letter stated
that the School District viewed the payments as merit increases. On February
27, 1990, PSERS requested a copy of the School District's merit pay policy. The
School District did not respond.
On December
19, 1990, PSERS informed Christiana that his request to include the $ 9,500 for
the 1987-1988 school year and the [***9]
$ 9,700 for the 1988-1989 school year in its calculation of his final average
salary for retirement purposes had been denied. An administrative hearing was
held on September 11, 1991, before a hearing examiner to consider whether the $
19,200 should be considered as compensation under the Public [**943] School Employees'
Retirement Code. 2
PSERS learned then that the School District had purchased annuities for
Christiana during the four previous school years (1984-1988). At the hearing,
Christiana sought for the first time to add [*139] each of those annuity
purchases to the salary amounts reported by the School District to PSERS.
Christiana's take-home pay did not reflect those payments, and as noted
earlier, the School District never included any of the annuity purchases in its
salary reports to PSERS during those four years.
FOOTNOTES
2 Act of
October 2, 1975, P.L. 298, as amended, 24 P.S. §§ 8101-8104.
The hearing
examiner recommended that the $ 19,200 should be excluded from the calculation
of Christiana's final average salary [***10]
because the amount was properly characterized as nonincludable "severance
payments" under the Retirement Code. The hearing examiner also recommended
that the four annuity payments made during 1984-1988 be included in the
calculation of final average salary as compensation.
The Board
determined that Christiana had not properly raised the issue relating to the
four annuity purchases in the earlier years, but nevertheless addressed the
issue because there were sufficient facts on the record for its resolution. The
Board concluded that the nonsalary reduction tax shelter annuity payments were
not includable as Retirement Code compensation because they were nonstandard
and/or nonregular remuneration as well as being bonuses and fringe benefits.
The $ 19,200 annuity purchases in the 1988-1989 school year were found not to
be includable in Retirement Code compensation because the payments were
components of a severance package and were also characterized as nonincludable
bonuses and fringe benefits. On June 24, 1993, the Board entered an order
directing that none of the annuity purchases were to be included as Retirement
Code Compensation. The Commonwealth Court affirmed the Board's order. [***11] HN1
On appeal
from a final adjudication of an administrative board, our scope of review is
limited to a determination of whether the board committed an error of law,
whether there has been a violation of constitutional rights, or whether
necessary factual findings are supported by substantial evidence. Estate of McGovern v. State Employees' Retirement Board, 512 Pa. 377, 517 A.2d 523
(1986). The issue
raised in this appeal is whether the Board committed an error of law in
determining that the annuity payments were not compensation [*140] for purposes of computing
final average salary under the Retirement Code.
Section 8102 of the Retirement Code defines
the following relevant terms:
HN2"Compensation." Pickup contributions plus any
remuneration received as a school employee excluding refunds for expenses
incidental to employment and excluding any severance payments.
"Final
average salary." The
highest average compensation received as an active member during any three
nonoverlapping periods of 12 consecutive months with the compensation for
part-time service being annualized on the basis of the fractional portion of
the school year for which credit is received; [***12] except, if the employee
was not a member for three such periods, the total compensation received as an
active member annualized in the case of part-time service divided by the number
of such periods of membership; and, in the case of a member with multiple
service credit, the final average salary shall be determined by reference to
compensation received by him as a school employee or a State employee or both.
"Pickup
contributions."
Regular or joint coverage member contributions which are made by the employer
for active members for current service on and after January 1, 1983.
"Severance
payments." Any
payments for unused vacation or sick leave and any additional compensation
contingent upon retirement including payments in excess of the scheduled or
customary salaries provided for members within the same governmental entity
with the same educational [**944]
and experience qualifications who are not terminating service.
The
regulations promulgated under the Retirement Code further refine the definition
of "compensation:"
HN3Excludes
a bonus, severance payment or other remuneration or similar emoluments received
by a [***13] school employee during his
school service not based on the standard salary [*141] schedule for which he is
rendering service. It shall exclude payments for unused sick leave, unused
vacation leave, bonuses for attending school seminars and conventions, special
payments for health and welfare plans based on the hours employed or any other
payment or similar emoluments which may be negotiated in a collective
bargaining agreement for the express purpose of enhancing the compensation
factor for retirement benefits.
In Laurito
v. Public School Employes' Retirement Board, the Commonwealth Court
affirmed [***14] a decision of the
Retirement Board that refused to include a salary increase for the purposes of
computation of retirement benefits for an elementary middle school principal.
Dr. Angelo Laurito retired after 42 years of service with the Northern Cambria
School District. Laurito's annual salary was negotiated each year with the
school district. For the 1984-1985 school year, his salary was $ 32,600. On
July 25, 1985, the school board awarded him a $ 16,000 "salary
adjustment" for the 1985-1986 school year. In addition, Laurito was
granted a leave of absence for the 1985-1986 school year, and his July 1, 1986
resignation for retirement purposes was accepted.
PSERS
notified Laurito that the $ 16,000 increase would not be included as
compensation for retirement purposes. The Retirement Board upheld the
determination, concluding that the claimed salary adjustment was a severance
payment. The Commonwealth Court affirmed on appeal, finding that the [*142] record failed to establish
that Laurito's salary increase was customary for an individual of similar
experience within the school district. The court concluded that the school
board's actions were tantamount to a severance agreement, stating [***15]
We find
especially persuasive the observation made by the board that the $ 16,000
payment in the final year of service provided a mechanism for the school
district to recognize Laurito's devoted service, as well as to remedy the
perceived inequity of a below-average salary throughout a working lifetime, by
effectuating an inflated final salary for purposes of retirement benefits.
In Dowler
v. Public School Employes' Retirement Board, the Commonwealth Court held
that a payment made pursuant to a retirement agreement was not compensation
despite the personnel director's performance of consulting services. William
Dowler was employed for over seventeen years as the personnel director at the
West Chester Area School District before his retirement on July 1, 1988. In
addition to his other duties, Dowler conducted all of the school district's
labor negotiations in the first three years of his employment. The school
district hired private contractors to conduct labor negotiations thereafter.
On November
17, 1987, Dowler and the school district entered into an agreement concerning
his retirement. Dowler was to be placed on a [***16] reduced work schedule from
January 1, 1988, to July 1, 1988. He was to be compensated during that time as
if he were working a five-day schedule and his duties would include training a
replacement and assisting with negotiations. In addition, [**945] funds were to be given to
Dowler on January 1, 1988, to purchase credit for his military services in an
amount not to exceed $ 15,000.
For the
first time in Dowler's experience, three labor contracts expired at the end of
June, 1988. Dowler assisted in the negotiations while working full-time as the
personnel director. A new director was not hired until May, 1988. The school
district paid $ 14,854.08 to Dowler, which he used to [*143] purchase retirement credit
for military service. PSERS concluded that the amount was a severance payment
and did not include it as part of Dowler's final average salary in computing
his retirement compensation.
Dowler
appealed the determination, asserting that he did not receive the benefit of
his agreement because he was not given the opportunity to work half-time at
full pay. The Board concluded that the money represented a severance payment
and dismissed the appeal. The Commonwealth Court affirmed, stating
Under [***17] the Code, all payments,
other than for regular professional salary, which are part of an agreement in
which a professional member agrees to terminate school service by a date
certain, are prima facie severance payments. The claimant may rebut a prima
facie case only by showing that the payment is in accord with the scheduled or
customary salary scale within the School District for personnel with the same
educational and experience qualifications who are not terminating service.
In
furtherance of its responsibility to ensure the actuarial soundness of the
retirement fund, the Board has determined that it is statutorily required to
exclude nonregular remuneration, nonstandard salary, fringe benefits, bonuses,
and severance payments from inclusion as compensation under the Retirement
Code. The Board has developed the concepts of "standard salary" and
"regular remuneration" as part of its understanding of compensation.
Based upon
its interpretation of the Retirement Code and accompanying regulations, HN5standard
salary and regular remuneration are defined by the Board as take-home cash, including,
among others, (i) amounts withheld [***18]
for tax remittances; (ii) amounts picked up as contributions to PSERS; and
(iii) amounts appropriately deferred in qualifying deferred compensation
programs, and excluding, fringe benefits, bonuses, severance payments,
and non-salary [*144] reduction Internal Revenue Code § 403(b) tax sheltered annuities.
The
nonsalary reduction tax sheltered annuities purchased for Christiana during the
four consecutive school years beginning in 1984-1985 were found by the Board to
be nonstandard salary, nonregular remuneration and bonuses or fringe benefits
under this analysis. 3 The
$ 19,200 in annuity purchases, which the School District authorized after being
advised of Christiana's impending retirement, were excluded as being part of a
severance package.
FOOTNOTES
3 Such
annuities are distinguishable from the annuity contracts purchased under a
deferred compensation program authorized under the Fiscal Code, Act of March
30, 1811, P.L. 145 as amended, 72 P.S. §§ 4521.1 - 4521.2. Income deferred under programs
authorized thereunder is included as regular compensation for the purpose of
computing deductions for employe contributions to retirement and pension
programs and for the purpose of computing retirement and pension benefits. 72 P.S. § 4521.1(e). Christiana's assertion that the
annuity purchases made on his behalf qualified for treatment as deferred
compensation under this provision fails to recognize this distinction and is
unsupportable.
[***19] Christiana had received
salary increases for the first three years after he became superintendent for
the Upper St. Clair School District. Over a four-year period, Christiana's
annual salary increased from $ 58,000 to $ 71,000. When his salary for
1984-1985 was under consideration, members of the School Board expressed
concern that an additional increase would generate negative publicity. A
newspaper reporter's comment that Christiana's salary at that time exceeded
that of Pennsylvania's Governor was repeated in the headlines of a local
newspaper. Unwilling to confront public scrutiny [**946] of a salary increase, the
School Board elected to freeze Christiana's salary and purchased a single
premium annuity for the purpose of purchasing prior years' seniority pension
credit.
Richard J.
Mancini, the School District's business manager, testified that Christiana was
the highest paid school superintendent in Western Pennsylvania, including the
City of Pittsburgh [*145] School District which was
ten times the size of Upper St. Clair's School District. Mancini indicated that
the single premium annuity was considered as a way to handle adverse public
reaction because responses to salary surveys would not [***20] include that amount. He
considered the annuity purchases to be compensation.
Nevertheless,
the record establishes that the School District did not report the annuity
payments to PSERS as compensation paid to Christiana and did not pay pickup
contributions on those amounts. In fact, the School District continued to
purchase single premium annuities even when salary increases were approved in
subsequent years. In the 1987-1988 school year, Christiana's salary was
increased to $ 74,000 and a single premium annuity in the amount of $ 9,500 was
purchased. His salary was then increased to $ 80,000 in the following year in
which an additional $ 9,500 was earmarked for an annuity purchase.
With
respect to the $ 19,200 annuity payment, the School Board's resolutions
indicate that it was part of a comprehensive salary and benefits package
developed after notice of Christiana's impending retirement. The School Board's
initial resolution dated November 14, 1988, contemplated a salary increase to $
80,000, payment for services of a financial planner not to exceed $ 2,000,
continuing medical benefits for Christiana and his wife until age 65, the
purchase of three years' pension credit for military [***21] service 4, and
the $ 19,200 annuity purchase. On January 9, 1989, the resolution was
rescinded. A second resolution was adopted which incorporated all of the
earlier provisions, but split the $ 19,200 into two separate annuity purchases.
FOOTNOTES
4 The amount
expended by the School District for this purchase was approximately $ 21,000.
Christiana did not seek to include this amount in the computation of his
retirement benefits.
The
Commonwealth Court concluded that the Board did not err in excluding the
annuity payments from the calculation of Christiana's final average salary. As
to the 1988-1989 salary and benefits package, the court found that the record
was devoid of any evidence that the package was in accord with the [*146] District's regular and
standard yearly compensation practices, particularly those involving Christiana
himself over the ten-year term of his employment.
We find
that the Commonwealth Court did not err in concluding that none of the annuity
purchases were includable as compensation for purposes of [***22] determining Christiana's
final average salary. There is substantial evidence in the record to support
the Retirement Board's conclusions that the annuity payments were remuneration
that was not based on the standard salary schedule for which Christiana was
rendering service, and that the $ 19,200 payment was a severance payment. Therefore,
under the Retirement Code and applicable regulations, the annuity payments were
properly excluded from the computation of Christiana's final average salary.
The order
of the Commonwealth Court is affirmed.
Mr. Justice
Montemuro, who was sitting by designation, did not participate in the decision
of this case.
166 Pa. Commw. 300, *; 646 A.2d 645, **;
1994 Pa. Commw. LEXIS 436, ***
ROBERT D.
CHRISTIANA, Petitioner v. PUBLIC SCHOOL EMPLOYES' RETIREMENT BOARD, Respondent
NO. 1745 C.D. 1993
COMMONWEALTH COURT OF PENNSYLVANIA
166 Pa. Commw. 300; 646 A.2d 645; 1994 Pa. Commw. LEXIS 436
March 2, 1994, ARGUED
July 28, 1994, FILED
SUBSEQUENT HISTORY: Petition for
Allowance of Appeal and/or Cross-Petition Granted December 7, 1994.
PRIOR HISTORY: [***1]
APPEALED From File No. 117-16-8296. State Agency, Public School Employes'
Retirement Board.
COUNSEL: Reed B. Day for
petitioner.
Louis J. Sheehan, Assistant Counsel, for respondent.
JUDGES: BEFORE: HONORABLE DAVID W.
CRAIG, President Judge, HONORABLE JAMES GARDNER COLINS, Judge, HONORABLE
BERNARD L. McGINLEY, Judge, HONORABLE DAN PELLEGRINI, Judge, HONORABLE ROCHELLE
S. FRIEDMAN, Judge, HONORABLE JAMES R. KELLEY, Judge, HONORABLE SANDRA SCHULTZ
NEWMAN, Judge.
OPINION BY: JAMES R. KELLEY
OPINION
[*302] [**646] OPINION BY JUDGE KELLEY
Robert D. Christiana, the former Superintendent of the Upper St. Clair School
District (District) appeals from an order of the Public School Employes'
Retirement Board (Board) which denied the inclusion of certain annuities
purchased for Christiana by the District in the calculation of his final
average salary under the Public School Employes' Retirement Code (Retirement Code).
1
FOOTNOTES
1
Act of October 2, 1975, P.L. 298, as
amended, 24 P.S. §§
8101 - 8104.
The Board made extensive findings of fact. Those findings relevant to the
present [***2] appeal may be summarized as follows. Christiana was
first employed by the District in July, 1979 at the initial salary of $ 52,000.
Christiana's salaries for the subsequent school years were:
|
|
|
|
1980-1981
|
$ 58,000
|
|
1981-1982
|
$ 63,500
|
|
1982-1983
|
$ 65,723
|
|
1983-1984
|
$ 71,000
|
[*303] The following amounts were initially reported to the Public
School Employes' Retirement System (PSERS) as Christiana's salary for the next
five school years:
|
|
|
|
1984-1985
|
$ 71,000
|
|
1985-1986
|
$ 71,000
|
|
1986-1987
|
$ 71,000
|
|
1987-1988
|
$ 74,000
|
|
1988-1989
|
$ 80,000
|
In November 1988, the Upper St. Clair School Board (School Board) became aware
of Christiana's intention to retire from his position at the end of the
1988-1989 school year. Christiana formally retired in August, 1989.
At its November 14, 1988 meeting, the School Board adopted resolutions
concerning the 1988-1989 salary and benefits payable to [**647] or
for the benefit of Christiana. Among the resolutions was one which directed the
District to provide Christiana "with an annuity or other equivalent
payment at a cost to the District of $ 19,200 for the purposes of purchasing
for the Superintendent pension credit under the State Retirement
Plan [***3] … ."
On January 9, 1989, the School Board met and rescinded its resolutions of
November 14, 1988, adopting the following relevant resolutions in their place:
RESOLVED, that the District, in recognition of the superior
manner in which the Superintendent has performed his duties and
responsibilities, shall provide the Superintendent in calendar year 1988 with
additional compensation in the amount of $ 9,500; and further,
RESOLVED, that the District shall, at or prior to the
retirement of the Superintendent on June 30, 1989, pay to or on behalf of the
Superintendent additional compensation in the amount of $ 9,700 plus an amount
necessary to purchase for the Superintendent three years' pension credit under
the State Retirement Plan in recognition of his service in the United States
Air Force, as permitted by the laws of Pennsylvania. 2
FOOTNOTES
2
The amount necessary to purchase the pension credit for military service was
slightly in excess of $ 20,000; however, Christiana does not seek to characterize
this expenditure as "compensation" under the Retirement Code.
[***4] [*304] Pursuant to this resolution, the District
purchased an annuity for Christiana in the amount of $ 9,500, but this
expenditure was not directly reflected as Christiana's regular salary. 3 In contradistinction,
the District in 1989 directly paid Christiana an additional $ 9,700 which
increased his regular salary from $ 80,000 to $ 89,700. The $ 9,700 was
separately accounted for and deducted from Christiana's take-home salary. The
District purchased an annuity for Christiana with the payroll deductions.
FOOTNOTES
3
This annuity, and all others subsequently referred to, were purchased by the
District pursuant to Internal
Revenue Code § 403(b) which
grants special tax advantages to school employees with respect to annuities
purchased for them by their tax-exempt employers.
The District reported to PSERS a total of $ 8,730 in payroll deductions
starting in March 1989, through and including June 1989, to reflect the
additional compensation called for by the January 9, 1989 School Board resolution.
4 After review of the
School Board [***5] meeting minutes and resolutions, on January 19,
1990, PSERS declined to accept or recognize the reported $ 8,730 for retirement
credit purposes.
FOOTNOTES
4
The $ 8,730 in payroll deductions reported to PSERS represented a $ 970
shortfall from the $ 9,700 deduction authorized by the School Board.
By letter to PSERS dated February 9, 1990, the District resubmitted
Christiana's reported salary for the 1988-1989 school year. The letter
broadened the reporting period to encompass deductions made between January 1,
1989 and June 30, 1989, and adjusted the total salary accordingly. The letter
read, in part:
On the original 1st quarter report $ 970.00 of additional
compensation was not reported in February, 1989.
Further, in reviewing the report for the 4th quarter of 1988
we discovered that a payment of $ 9,500.00 to Dr. Christiana was also not
reported.
The District views these payments as merit increases, no
different than merit pay which is paid in accordance with [*305]
our negotiated agreement with the teachers of [***6] the School
District.
At the administrative hearing held September 11, 1991 before
a hearing examiner to consider the issue of whether the $ 19,200 (comprised of
$ 9,500 + $ 9,700) (Enhancement II) paid to Christiana in the 1988-1989 school
year should be considered Retirement Code compensation for the purposes of
calculating the final average salary, PSERS was made aware that additional
remuneration was awarded to Christiana not only in his final year of service
but also for the four previous school years (1984-1988) (Enhancement I). At the
hearing, for the first time Christiana sought to add Enhancement I to the
salaries previously reported to PSERS for the respective years for inclusion as
Retirement Code compensation.
[**648] According to the relevant School Board meeting minutes, the
Enhancement I payments were intended to compensate Christiana "in lieu of
salary increases" for the given years. The pertinent resolutions directed
that the District purchase a single premium annuity for Christiana for the
purposes of purchasing prior years seniority pension credit at the following
amounts:
|
|
|
|
1984-1985
|
$ 5,000
|
|
1985-1986
|
$ 7,000
|
|
1986-1987
|
$ 10,000
|
|
1987-1988
|
$ 9,500
|
None [***7] of these amounts were reflected in Christiana's
take-home pay, nor were the amounts formally reported to PSERS as salary.
The hearing examiner recommended that Enhancement II be excluded from the
calculation of Christiana's final average salary because the amounts were
properly characterized as non-includable "severance payments" under
the Retirement Code. The hearing examiner recommended further that Enhancement
I be included in the calculation of final average salary because such amounts
were properly characterized as includable Retirement Code compensation. Christiana
appealed to the Board.
Concerning Enhancement I, the Board concluded that Christiana's non-salary
reduction tax shelter annuity payments [*306] may not be included
in Retirement Code compensation because such payments are non-standard and/or
non-regular remuneration as well as being bonuses and fringe benefits.
Similarly, the Board concluded that the Enhancement II payments were components
of a severance package none of which may be included in Retirement Code
compensation because such payments must be characterized as non-includable
bonuses and fringe benefits. It is from that order that Christiana now appeals
to this court.
[***8] On appeal, Christiana argues (1) that he is entitled to have
his final average salary adjusted in order to receive retirement credit for
single premium tax-sheltered annuities purchased for him by his employer in
lieu of salary increases; (2) that PSERS may not sua sponte utilize statistical and public policy considerations
when denying a claim for retirement benefits which were not raised before the
hearing examiner; (3) that the Board denied Christiana due process by
overruling the hearing examiner without providing Christiana reasonable notice
and an opportunity to be heard; and, (4) that the Board denied Christiana due
process by commingling the prosecutorial and adjudicative functions in
determining Christiana's eligibility for benefits.
We note that HN1
our
scope of review from adjudications of administrative boards is limited to a
determination of whether the board committed an error of law, whether
constitutional rights were violated, or whether necessary findings of fact are
supported by substantial evidence. Finnegan v. Public School Employes' Retirement Board, 126 Pa.
Commonwealth Ct. 584, 560 A.2d 848 (1989).
Christiana first [***9] argues that the Board erred in failing to
give effect to the relevant portions of the Fiscal Code of the Commonwealth 5 which expressly
authorize the inclusion of tax-deferred income as credit for customary
retirement plans. For five years, Christiana argues, the District purchased
qualified tax-deferred annuities for Christiana in accordance with the HN2
Fiscal
Code, which provides in relevant part:
[*307] The state treasurer shall pay all grants,
salaries, annuities, gratuities, and pensions established by law … the
treasurer or other officer in charge of payrolls for any … political
subdivision may make systematic
investments in mutual funds, savings accounts or government bonds or make
premium payments on life insurance or annuity
contracts to any institution or company licensed and authorized … to accept deposits … for the purpose of funding a deferred compensation
program for employes.
72 P.S. §
4521 (emphasis provided by Christiana).
Moreover, Christiana asserts, the Fiscal Code authorizes the purchase of
annuities through a deferred compensation program:
[**649] HN3
(a)
The governing body of any … political subdivision may, by contract, agree with
any employe [***10] to defer,
a portion of that employe's compensation and may subsequently, with the
consent of the employe, purchase … annuity contracts … .
* * *
(e) Such deferred compensation program shall be in addition to, and not a part of, any other retirement benefit program provided by law for employes
of the … political subdivision. Income
deferred under programs authorized by this act shall continue to be included as regular compensation for the purpose
of computing deductions for employe contributions to retirement and pension
programs and for the purpose of computing retirement and pension benefits
earned by any employe.
72 P.S. §
4521.1(a), (e),
(emphasis provided by Christiana).
Christiana maintains that these provisions of the Fiscal Code permit the use of
tax-deferred annuity payments which may be purchased by deferring a portion of
an employee's compensation. Such deferred income, Christiana contends, is then
to be included in the computation of the employee's retirement and pension
benefits.
FOOTNOTES
5
Act of March 30, 1811, P.L. 145, as
amended, 72 P.S. §§
4521 - 4521.2.
[***11] We cannot disagree with Christiana's reading of the Fiscal
Code provision set forth above. However, his argument continues,
[*308] advancing the assertion that the Board erred by
characterizing the annuities as non-salary reduction purchases, or non-regular
remuneration, thus rendering such payments ineligible for inclusion as
compensation under its interpretation of the Retirement Code.
HN4
Section
8102 of the Retirement Code sets forth the following relevant
definitions:
"Compensation."
Pickup contributions plus any remuneration received as a school employee
excluding refunds for expenses incidental to employment and excluding severance
payments.
"HN5
Final average salary." The highest
average compensation received as an active member during any three
nonoverlapping periods of 12 consecutive months … .
"HN6
Pickup contributions." Regular or
joint coverage member contributions which are made by the employer for active
members for current service on and after January 1, 1983.
"HN7
Severance payments." Any payments
for unused vacation or sick leave and any additional compensation contingent
upon retirement including payments in excess of the scheduled or
customary [***12] salaries provided for members within the same
governmental entity with the same educational and experience qualifications who
are not terminating service.
Excludes a bonus, severance payment or other remuneration or
similar emoluments received by a school employe during his school service not
based on the standard salary schedule
for which he is rendering service. It shall exclude payments for unused sick
leave, unused vacation leave, bonuses for attending school seminars and
conventions, special payments for health and welfare plans based on the hours
employed or any other payment or similar emoluments [*309] which
may be negotiated in a collective bargaining agreement for the express purpose
of enhancing the compensation factor for retirement benefits.
22 Pa.
Code § 211.2 (emphasis added).
Accordingly, the Board has developed general concepts in understanding the
Retirement Code's meaning of "compensation": "standard
salary" and "regular remuneration". Based upon its
interpretation of the Retirement Code and accompanying regulations,
[***13] standard salary and regular remuneration are defined by the
Board as take-home cash, including,
among others, (i) amounts withheld for tax remittances; (ii) amounts picked up as
contributions to PSERS; and (iii) amounts appropriately deferred in qualifying
deferred compensation programs, and excluding,
fringe benefits, bonuses, severance payments, and non-salary reduction Internal Revenue Code § 403(b) tax sheltered [**650] annuities. Board's opinion, June 24,
1993, pp. 16-17 (emphasis added).
Based on its interpretation of the guiding statutes and regulations, the Board
characterized both Enhancement I and II payments to Christiana as non-standard
salary, non-regular remuneration, bonuses and fringe benefits. Additionally,
the Board characterized Enhancement II as part of a severance payment.
Therefore, the Board denied the inclusion of both the Enhancement I and
Enhancement II annuity payments in the calculation of Christiana's final
average salary.
HN9
The
Board is charged with the execution and application of the Retirement Code and
the Board's interpretation should not be overturned unless it is clear that
such construction is erroneous. Panko v. Public School Employees' Retirement System, 89 Pa.
Commonwealth Ct. 419, 492 A.2d 805 (1985). [***14]
Accordingly, our review of the record suggests that the Board did not err in
excluding the annuity payments from the calculation of Christiana's final
average salary.
In each of the school years in which Christiana received an Enhancement I
payment, the School Board adopted resolutions which directed that "in lieu
of a salary increase" for that year, Christiana would benefit from the
purchase of a single [*310] premium annuity for the purpose of
purchasing prior years seniority pension credit. Christiana testified that the
Enhancement I annuity payments were used as a means of rewarding Christiana
without representing to the taxpayers of Upper St. Clair that his
"salary" was substantially increased each year. (Original Record,
Transcript of Hearing held September 11, 1991, at pp. 16-18.) Christiana
testified he believed that his total compensation included his base reported
salary, plus the additional amounts provided for the purchase of the annuities.
(Id. at pp. 25-26.) The District's
business manager at the time, Richard Mancini, testified that in his opinion
"there was no doubt" the annuity payments were compensation. (Id. at p. 67.)
Referring to the first annuity payment of [***15] $ 5,000 in
1984-1985, Dina J. Fulmer, a School Board member at the time testified as
follows:
Q: What did you understand this $ 5,000 to be?
A: It was a -- well, a reward for his performance. It was a
way of compensating him which would not get our name in the paper again.
* * *
Q: Why were the words in lieu of a salary increase chosen?
A: Well, in lieu of means instead of or actually in place of
being that lieu is the French word for place. Rather than increasing his base
salary, we just decided to purchase this annuity.
(Id. at pp. 83, 85.)
However, regardless of Christiana's or the District's contradictory
understanding, the record reveals that the District did not pay pickup
contributions on the annuity purchases made on behalf of Christiana beginning
with the 1984-1985 school year. 6 Further, in its
reports to PSERS, the District did not [*311] report the
Enhancement I payments as compensation paid to Christiana, nor did the District
initially report any of the $ 19,200 Enhancement II payment to PSERS, as
compensation or otherwise. Lastly, despite its apparent unwillingness to
formally raise Christiana's base salary in the face of public opposition,
Christiana [***16] did in fact receive two regular salary increases
totalling $ 9,000 during the five year period under consideration.
FOOTNOTES
6
Section
8102 of the Retirement
Code defined "pickup contributions" as regular or joint coverage
member contributions which are made by the employer for active members for
current service on and after January 1, 1983.
With respect to Enhancement II alone, the record also supports the findings of
the Board that the payments constituted part of a severance package. Christiana
testified the Board was made aware of his intention to retire prior to their
November, 1988 negotiations concerning his 1988-1989 salary and benefits. (Id. at 47-48.) What emerged from those
deliberations were resolutions directing (i) that the District, "in
recognition of the superior manner in which the Superintendent
[**651] has performed his duties", pay Christiana additional
compensation in the amount of $ 9,500 in 1988; and (ii) that the District pay
Christiana an additional $ 9,700 at or prior to his retirement. (Original
Record, [***17] PSERS Exhibit #10B.)
While the record is silent as to whether Enhancement II was made contingent on Christiana's retirement,
it is at the very least payment "in excess of the scheduled or
customary" salary Christiana had enjoyed. Further, the final year salary
and benefits package, of which Enhancement II was a part, included employer
provided amounts for a financial planner, continuing medical coverage for
Christiana and his wife, and a one-time offering of a salary reduction tax
sheltered annuity. We find the record devoid of any evidence that Christiana's
final year package was in accord with the District's regular and standard
yearly compensation practices, particularly those involving Christiana himself
over the ten year term of his employment.
HN10
The
Retirement Code indicates that the General Assembly wishes to exclude from the
computation of employees' final average salary all payments which may
artificially inflate compensation for the purpose of enhancing retirement
benefits. [*312] Dowler v. Public School Employes' Retirement Board, 153 Pa.
Commonwealth Ct. 109, 620 A.2d 639 (1993).
Christiana next argues that the Board erred by [***18] sua sponte utilizing financial
statistics and public policy considerations not considered before the hearing
examiner in denying Christiana's claim for retirement benefits. We disagree.
HN11
The
Board, and not the hearing examiner, is the final fact finder in these cases. Dowler. As such, the Board may take
official notice of facts which are obvious and notorious to an expert in the
agency's field and those facts contained in the agency's files. Falasco v. Pennsylvania Board of Probation and Parole, 104 Pa.
Commonwealth Ct. 321, 521 A.2d 991 (1987).
Next, Christiana asserts that in overruling the recommendations of the hearing
examiner, the Board denied Christiana reasonable notice and an opportunity to
be heard. Christiana contends that the Board made its determination in this
matter without his participation and based its decision on facts and issues
Christiana never had the opportunity to address.
HN12
The
Administrative Agency Law, 2 Pa.C.S.
§ 504, states that "no adjudication of a Commonwealth agency
shall be valid as to any party unless he shall have been afforded reasonable
notice and an opportunity to be heard." Christiana was
presented [***19] with just these very opportunities and exploited them
by filing a brief and reply brief prior to the hearing; attending the hearing
and presenting evidence; and, filing exceptions to the hearing examiner's
recommendations, followed by a response to the exceptions filed by PSERS. Our
review of the record indicates that the Board studied the complete record,
including the arguments advanced by Christiana, in reaching its decision.
Lastly, Christiana raises a due process challenge concerning the alleged
commingling of prosecutorial and adjudicative functions between the PSERS and
the Board. However, Christiana failed to raise this issue before the Board.
[*313] We have held that HN13
commingling
claims may be waived if they are not raised before the administrative board. Newlin Corp. v. Department of Environmental Resources, 134 Pa.
Commonwealth Ct. 396, 579 A.2d 996 (1990). 7 Unless a claimant can
offer a convincing reason for failing to raise the claim before the Board, the
commingling issue is waived. Dowler. Here,
Christiana has not offered any explanation for failing to raise this issue
below.
FOOTNOTES
7
HN14
Pennsylvania
Rule of Appellate Procedure 1551 states, in part, that:
no question shall be heard or considered by the court which was
not raised before the government unit except (1) Questions involving the
validity of a statute … (3) Questions which the court is satisfied that the
petitioner could not by the exercise of due diligence have raised before the
government unit.
[***20] Accordingly, the order of the Board is affirmed.
JAMES R. KELLEY, Judge
[**652] ORDER
NOW, this 28th day of July, 1994, the order of the Public School Employes'
Retirement Board, dated June 24, 1993, is hereby affirmed.
JAMES R. KELLEY, Judge
669 A.2d 1098, *; 1996 Pa. Commw. LEXIS 10, **
DR. VERNON
R. WYLAND, Petitioner v. PUBLIC SCHOOL EMPLOYES' RETIREMENT BOARD, Respondent
NO. 566 C.D. 1995
COMMONWEALTH COURT OF PENNSYLVANIA
669 A.2d 1098; 1996 Pa. Commw. LEXIS 10
October 17, 1995, Argued
January 8, 1996, Decided
January 8, 1996, FILED
SUBSEQUENT HISTORY:
[**1] Petition for Allowance of Appeal Denied August 5, 1996,
Reported at: 1996 Pa.
LEXIS 1604.
PRIOR HISTORY: APPEALED From No.
File no. 480-24-6298. State Agency: Public School Employes' Retirement Board.
DISPOSITION: Affirmed.
COUNSEL: Dee Lafferty Pugh for
petitioner.
Louis J. Sheehan, Assistant Counsel, for respondent.
JUDGES: BEFORE: HONORABLE DAN
PELLEGRINI, Judge, HONORABLE JAMES R. KELLEY, Judge, HONORABLE GEORGE T.
KELTON, Senior Judge.
OPINION BY: JAMES R. KELLEY
OPINION
[*1100] OPINION BY JUDGE KELLEY
FILED: January 8, 1996
Dr. Vernon R. Wyland, the former Superintendent of the Garnet Valley School
District (school district) appeals from the order of the Public School
Employes' Retirement Board (board) adopting a hearing examiner's calculation of
his final average salary used to determine his retirement benefits under the
Public School Employees' Retirement Code (Retirement Code). 1 We affirm.
FOOTNOTES
1
24 Pa.C.S.
§§ 8101 - 8534.
The relevant facts as found by the hearing examiner, and adopted by the board,
may be summarized as follows. Wyland became a member of the Public School Employes'
Retirement System (PSERS) by virtue of his employment [**2] with the
Shaler Area School District on June 1, 1983. On July 1, 1987, he began service
with the Garnet Valley School District as the District Superintendent for the
1987-1988 school year, at an annual salary of $ 65,000. On December 16, 1988,
his annual salary for the 1988-1989 school year was increased to $ 70,200,
retroactive to July 1, 1988. On March 28, 1990, Wyland's annual salary for the
1989-1990 school year was increased to $ 74,412, retroactive to July 1, 1989.
Wyland's annual salary for the 1990-1991 school year was increased to $ 94,481
as of June 30, 1991.
During the 1989-1990 school year, the school district experienced a prolonged
labor action with intense teacher contract negotiations which continued until a
new contract was signed in June of 1990. During the labor action, the teachers
went out on strike for a period of 25 to 30 days. As a result of the contract
negotiations and work stoppage, Wyland became the target of community pressures
and antagonisms and he also became the subject of a vote of "no
confidence" from the teachers.
During the same period, the school district was engaged in a building program
involving the construction of a new middle school building [**3] and
other renovations. At that time, the Garnet Valley Board of School Directors
(school board) was sensitive to the adverse public reaction to cost overruns
associated with the building program. The teachers' contract negotiations and
public reaction to the work stoppage contributed to a significant turnover in
the composition of the school board. Six school board members changed as a
result of resignations, and new members who were appointed came to the school
board predisposed against Wyland as a result of the labor situation and the
cost overruns.
As a result, in November of 1990, Wyland was informed by the president of the
school board that his contract would not be extended beyond its expiration date
of June 30, 1991. Because the school board did not want to take public action
on their decision, Wyland was asked if he would rather resign from his
position. Wyland concluded that it would be best to resign as he felt it would
be easier to tell prospective employers that he had resigned, rather than to
say that his contract had not been extended.
After negotiations regarding the terms of Wyland's resignation, on November 21,
1990, the president of the school board sent him a letter [**4]
outlining the terms under which he could resign. The letter stated, inter alia:
3)
The [School] Board guarantees the payment to you of your
full salary through June 30, 1991. That salary will not be reduced between now
and June 30, 1991.
(a) Your annual raise, ordinarily effective January, 1991,
will be deferred. As part of your salary, and in lieu of the annual raise in
January, the [School] Board will purchase from you all unused vacation days
credited to your account as of June 30, 1991 … .
(b)
Additionally, at the conclusion of your contract on June 30,
1991, the [School] Board, as part of your annual raise, will pay you for all
unused sick days then credited to your account … .
(c)
Notwithstanding Paragraphs 3(a) and 3(b), you have agreed to
reimburse the District for its share of the retirement cost allocable to the
inclusion of that portion of your salary [*1101] represented by
payments under Paragraph 3(a) and 3(b).
Wyland accepted the proposed terms as outlined in the
letter.
On November 26, 1990, Wyland submitted his letter of resignation, contingent upon
the school board's acceptance of the proposed terms in [**5] the
president's letter. At its regular meeting on November 27, 1990, the school
board accepted Wyland's resignation effective June 30, 1991. The school board
did not take a public vote regarding the content and financial terms of the
November 21, 1990 letter to avoid disclosure of their action.
By letter dated June 20, 1991, Wyland submitted a memorandum to the school
district's director of business and support services which summarized his accumulated
vacation days and sick days. On June 25, 1991, Wyland and the school board
president signed a letter of agreement which contained identical terms as
outlined in the letter of November 21, 1990.
On June 28, 1991, the school district issued Wyland a check in the amount of $
20,069.40 as payment for his unused sick days, vacation days and comp days. The
payroll document computing Wyland's vacation and sick days noted that the
payment was to be considered compensation as per the November 21, 1990 letter
of agreement. As required by the letter of agreement, Wyland reimbursed the
school district for its share of the retirement costs allocable to the
inclusion of the $ 20,069.40 payment.
On June 28th, Wyland also entered into an agreement [**6] with the
school district releasing the school district from any future liability
concerning his resignation, in exchange for the payment of $ 20,069.40. The
agreement referred to this payment as a "severance payment". Wyland
was required to sign the release agreement in order to receive the $ 20,069.40
payment. He signed the release agreement and received the payment.
On September 17, 1991, PSERS received a retirement application from Wyland with
an effective date of retirement of June 29, 1991. PSERS contacted the school
district regarding the $ 20,069.40 payment to Wyland. The school district sent
PSERS a copy of the minutes of the school board meeting in which Wyland
formally submitted his resignation, and indicated that no information from his
personnel file could be released without his written consent. PSERS then
informed the school district that in the absence of any written evidence
concerning the reason for the payment, the $ 20,069.40 would not be used to
calculate Wyland's retirement benefits. Wyland was sent copies of both letters
from PSERS, but his consent for the release of information from his personnel
file was never requested by PSERS.
Initially, Wyland's retirement [**7] benefits were calculated by
PSERS using a "final average salary" of $ 79,698. However, without
the necessary documentation, the $ 20,069.40 was removed from PSERS'
computation of his final average salary. As a result, his retirement benefits
were recalculated using a final average salary of $ 73,008. By letter dated
April 8, 1992, PSERS informed Wyland that his benefits had been recomputed, and
that he was required to repay $ 7,619.03 that he had received in overpayment.
By letter dated April 23, 1992, Wyland requested that PSERS include the $
20,069.40 in its calculation of his final average salary. On July 1, 1992,
PSERS notified Wyland that its Appeals Committee had denied his request. By
letter dated July 28, 1992, Wyland requested an administrative hearing.
On July 6, 1993, a hearing was scheduled and held before an independent hearing
examiner. Based on the evidence presented at the hearing and the briefs and
motions submitted by the parties, the hearing examiner concluded that the $
20,069.40 paid to Wyland was a severance payment, and should not be considered
in the calculation of his final average salary. In this regard, the hearing
examiner specifically found the following: [**8]
1. At the time of the November 21, 1990 agreement, [the
school district] was under a great deal of political pressure due to the recent
teacher strike and cost overruns at the middle school project and [Wyland]'s
raise was motivated by [the school district]'s need for [Wyland]'s cooperation.
2. The November 21, 1990 agreement was designed as a buyout
of [Wyland]'s [*1102] vacation and sick days, both items regularly
purchased by [the school district] at the end of a superintendent's term, and
both items that would not normally be considered standard salary.
3. Both [Wyland] and [the school district] represented to
the general public that [Wyland]'s pay for the 1990-1991 school year was $
74,412.00, and it would be unfair to now allow [Wyland] to claim a higher pay
for retirement purposes.
4. The November 21, 1990, agreement required [Wyland] to
reimburse [the school district] for its share of the retirement cost allocable
to the inclusion of the $ 20,069.40 payment into [Wyland]'s salary. With a
regular salary increase this retirement cost would have been the responsibility
of [the school district].
5. [Wyland] was required [**9] to sign the June
28, 1991, release agreement in order to receive the $ 20,069.40 payment and the
release agreement referred to the money as a severance payment.
The hearing examiner also found, inter alia, that: the payment was not based on the standard salary
schedule for which Wyland was rendering service; the payment was not made under
the school district's scheduled or customary salary scale; and, the payment was
made contingent upon Wyland's "retirement" as that term includes
terminations which result in the immediate receipt of a pension.
Both Wyland and PSERS filed exceptions to the hearing examiner's decision with
the board. The board adopted the hearing examiner's findings of fact and
conclusions of law, and affirmed the hearing examiner's decision. Wyland then
filed a petition for review in this court appeal.
On appeal, Wyland claims: (1) the board erred in determining that the $
20,069.40 payment in his final year of employment constituted severance pay
rather than compensation, thereby reducing his final average salary used for
the calculation of his retirement benefits; and (2) his due process rights were
denied by PSERS' failure to request information from [**10] him
before eliminating the $ 20,069.40 from its calculation of his final average salary,
and by the commingling of the prosecutorial and adjudicative functions of PSERS
and the board.
We note that HN1
our
scope of review from adjudications of administrative boards is limited to a
determination of whether the board committed an error of law, whether
constitutional rights were violated, or whether necessary findings of fact are
supported by substantial evidence. Christiana v. Public School Employees' Retirement Board, 166 Pa.
Commw. 300, 646 A.2d 645 (Pa. Cmwlth. 1994); Dowler v. Public School Employes' Retirement Board, 153 Pa.
Commw. 109, 620 A.2d 639 (Pa. Cmwlth. 1993). Because the board is
charged with the execution and application of the Retirement Code, the board's
interpretation should not be overturned unless it is clear that its
construction of the Retirement Code is erroneous. Christiana.
Wyland first argues that the board erred in determining that the $ 20,069.40
payment in his final year of employment constituted a severance payment rather
than compensation. In particular, Wyland claims that: there is no evidence that
the increase was paid contingent upon his retirement; there is no substantial
evidence [**11] that it was payment for his unused vacation or sick
time; his resignation at the end of his contract term cannot be considered to
be his "retirement"; the increase was consistent with the school
district's compensation plan; and it made his salary comparable to other
superintendents in Delaware County.
HN2
Both
the Retirement Code and the applicable regulations contain restrictions on the
types of compensation that may be used in calculating an employee's final
average salary. Hoerner v. Public School Employes' Retirement Board, 655 A.2d
207 (Pa. Cmwlth. 1995). The purpose of these restrictions is to ensure the
actuarial soundness of the retirement fund by preventing employees from
artificially inflating compensation as a means of receiving greater retirement
benefits. Id.
HN3
Section
8102 of the Retirement Code sets forth the following relevant
definitions:
"Compensation." Pickup
contributions plus any remuneration received as a school employee excluding
refunds for expenses [*1103] incidental to employment and excluding any severance payments.
"Final
average salary." The highest average compensation received as an
active member during any three nonoverlapping [**12] periods of 12
consecutive months … .
"Pickup
contributions." Regular or joint coverage member contributions which
are made by the employer for active members for current service on and after
January 1, 1983.
"Severance
payments." Any payments for unused vacation or sick leave and any
additional compensation contingent upon retirement including
payments in excess of the scheduled or customary salaries provided for members
within the same governmental entity with the same educational and experience
qualifications who are not terminating service.
Compensation
- Excludes a bonus, severance payment or other remuneration or similar
emoluments received by a school employe during his school service not based on
the standard salary schedule for which he is rendering service. It shall
exclude payments for unused sick leave, unused vacation leave, bonuses
for attending school seminars and conventions, special payments for health and
welfare plans based on the hours employed or any other payment or similar
emoluments which may be negotiated [**13] in a collective bargaining
agreement for the express purpose of enhancing the compensation factor for
retirement benefits. (Emphasis added.)
HN5
Whether
or not a payment must be considered a severance payment is a question of law. Dowler. Under the Retirement Code, all
payments, other than those for regular professional salary, which are part of
an agreement in which a professional member agrees to terminate school service
by a date certain, are prima facie
severance payments. Id. A claimant
may rebut a prima facie case only by
showing that the payment is in accord with the scheduled or customary salary
scale within the school district for personnel with the same educational and
experience qualifications who are not terminating service. Id.
In this case, both the hearing examiner and the board were presented with the
letters of agreement between Wyland and the school board president dated
November 21, 1990 and June 25, 1991 which stated, inter alia, that Wyland would
be paid for all of his unused vacation and sick days in lieu of his annual
raise, and that he would reimburse the school district for its share of the
retirement cost allocable to the inclusion [**14] of this amount.
The hearing examiner and the board were also presented with an agreement
between Wyland and the school board president dated June 28, 1991 which stated
that the parties had reached certain agreements concerning the termination of
his employment and severance payments, the terms of which were embodied in the
letter of June 25. The hearing examiner and the board were also presented with
documentation that Wyland was paid $ 20,069.40 by the school district for 62
unused vacation and comp days, and 93 unused sick days. Clearly, such evidence
is sufficient to support the board's conclusion that the $ 20,069.40 paid to
Wyland constituted a severance payment as it is defined in the Retirement Code.
Wyland is essentially asking this court to reweigh the conflicting evidence
presented to the hearing examiner and the board, and to only accept that
evidence which contradicts the plain meaning of the contents of the foregoing
documents. However, HN6
questions
of resolving conflicts in the evidence, witness credibility, and evidentiary
weight are properly within the exclusive discretion of the fact finding agency,
and are not usually matters for a reviewing court. [**15] Herzog v. Department of Environmental Resources, 166 Pa.
Commw. 114, 645 A.2d 1381 (Pa. Cmwlth. 1994). Moreover, "this
court 'may not substitute its judgment for that of an administrative agency
acting within its discretion in the field of its expertise upon substantial
evidence … .'" Dowler, 620 A.2d at 644 (citation
omitted). The hearing examiner and the board rejected Wyland's claims regarding
this evidence. On [*1104] appeal, we will not substitute our
judgment nor reweigh this evidence.
Wyland next claims that his right to due process and fundamental fairness was
denied by PSERS' failure to formally request information from him before
eliminating the $ 20,069.40 from its calculation of his final average salary,
and by the commingling of prosecutorial and adjudicative functions by PSERS and
the board. He first argues that his vested property rights to his pension were
reduced by PSERS in an arbitrary manner, without notice and without a chance to
respond, thereby violating his due process rights.
HN7
The
Administrative Agency Law, 2 Pa.C.S.
§ 504, states that "no adjudication of a Commonwealth agency
shall be valid as to any party unless he shall have been afforded reasonable
notice and an opportunity to be heard." [**16] Wyland was
afforded these opportunities and exercised them before the hearing examiner and
the board in this case.
As the claimant in Hoerner, we note that
Wyland has failed to cite any authority for the proposition that he was
entitled to a "pre-reduction" hearing before PSERS in this case. The
determination of Wyland's final average salary and the calculation of benefits
is simply the result of a staff function performed by PSERS.
Wyland could, and did, appeal the initial determination of his retirement
benefits to PSERS' appeal committee and, ultimately, to the board. He filed a
brief and a reply brief prior to the hearing before the hearing examiner,
attended the hearing and presented evidence, and filed exceptions to the
hearing examiner's determination with the board. HN8
As
Wyland was given notice and a hearing prior to the final determination of his
retirement benefits, and there exists no authority for a hearing in connection
with PSERS' initial review, this claim is meritless. See Stone & Edwards Insurance Agency, Inc. v.
Department of Insurance, 538 Pa. 276, 648 A.2d 304 (1994) (The
initial denial of an insurance license application was the result of a staff
function [**17] performed by the Pennsylvania Insurance Department;
as this decision could be appealed to the Insurance Commissioner who would
conduct a hearing before the final determination, applicants were not entitled
to notice and a hearing prior to the initial denial of a license application).
Finally, Wyland argues that the commingling of the prosecutorial and
adjudicative functions by PSERS and the board is violative of his due process
rights. In support of his position, Wyland relies on the case of Lyness v. State Board of Medicine, 529 Pa.
535, 605 A.2d 1204 (1994). In Lyness,
our Supreme Court stated:
In the modern world of sprawling governmental entities akin
to corporations it would be both unrealistic and counterproductive to insist
that administrative agencies be forbidden from handling both prosecutorial and
adjudicatory functions, where such roles are parcelled out and divided among
distinct departments or boards. Efficiency and cost-effectiveness are certainly
desirable ends. Indeed, each administrative board and judge is ultimately a
subdivision of a single entity, the Commonwealth of Pennsylvania, but this does
not render their collective work as prosecutors,
investigators [**18] and adjudicators constitutionally infirm, nor
create an imminent threat of prejudice.
What our Constitution requires, however, is that if more
than one function is reposed in a single administrative entity, walls of
division be constructed which eliminate the threat or appearance of bias. … [A]
"mere tangential involvement" of an adjudicator in the decision to
initiate proceeding is not enough to raise the red flag of procedural due
process. … Our constitutional notion of due process does not require a tabula rasa. … However, where the very
entity or individuals involved in the decision to prosecute are
"significantly involved" in the adjudicatory phase of the
proceedings, a violation of due process occurs.
Lyness, 529 Pa. at 546-47, 605 A.2d at
1209-10 (citations omitted).
Thus, HN9
where
"walls of division" are erected between the parties completing
disparate functions within an administrative agency, no due process violation
will be found. See, e.g., Stone & Edwards Insurance; [*1105] Office of Disciplinary Counsel v. Duffield, 537 Pa.
485, 644 A.2d 1186 (1994).
Even if we were to adopt Wyland's position that the initial determination and
review [**19] of his retirement benefits by PSERS and the board
constitute "prosecutorial" and "adjudicative" functions,
there has been no showing by Wyland of a commingling of these functions as
proscribed by Lyness. Wyland's
initial application was reviewed by a supervisor in the retirement processing
section of PSERS. When he was dissatisfied with the determination of his
benefits, Wyland requested PSERS' appeals committee to review his claim. When
he was dissatisfied with the appeals committee's decision, Wyland submitted a
request to the legal division of PSERS for a hearing before a hearing examiner.
The independent hearing examiner conducted the hearing and made a
recommendation to the board, which was the final arbiter. The board was not
involved in the adjudication until Wyland appealed the decision of the hearing
examiner to the board. Such a procedure does not involve the commingling of
prosecutorial and adjudicative functions, and does not violate due process. See Duffield.
Unquestionably, under Lyness, HN10
the
mere possibility of bias under Pennsylvania law is sufficient to "raise
the red flag" of the protections offered by the procedural guaranty of due
process. Stone &
[**20] Edwards Insurance.
However, the appearance of bias proscribed by Lyness must be one which arises from an actual environment of commingled functions. Id. Wyland has not advanced a claim of the actual commingling of
functions in the manner in which PSERS and the board conduct their
investigations, prosecutions and adjudications. In the absence of any actual
commingling, which would give rise to an appearance of bias, Wyland's
unsubstantiated claim of commingling is meritless. Id.
Accordingly, the order of the board is affirmed.
JAMES R. KELLEY, Judge
ORDER
NOW, this 8th day of January, 1996, the order of the Public School Employes'
Retirement Board, dated January 27, 1995, at No. 480-24-6298, is affirmed.
JAMES R. KELLEY, Judge
