I. RECENT CASES
High Court to Hear Age Discrimination Case.
On September 25, 2007, the United States Supreme Court granted a petition for certiorari filed by the Kentucky Retirement Systems to review an en banc decision of the United States Court of Appeals for the 6th Circuit holding the KRS statute discriminated on the basis of age. Under the KRS plan, once a member becomes eligible for an unreduced normal retirement based on years of service or a combination of years of service and age, disability benefits are no longer available. If a member is disabled prior to retirement, the plan imputes years of service needed to get a member to the earliest normal retirement date, but not more than double the years of actual service. The EEOC filed suit against KRS in 1998. Summary judgment was granted in favor of KRS on the basis that the statute did not intentionally discriminate against older workers. A three-judge panel of the U.S. 6th Circuit Court of Appeals affirmed the dismissal. The EEOC moved for rehearing by the entire fourteen-member court which determined in late 2006 that the statute did discriminate, by a vote of 10-4. KRS requested the U.S. Supreme Court to exercise its discretionary review authority. That request was granted in September. The question before the Supreme Court is whether any use of age in a governmental retirement plan violates the age discrimination laws. The matter will be heard in January, 2008. A decision is expected before the Court session ends in July.
KRS v. EEOC, _____S.Ct.____, 2007 WL 2768021 (9/25/07); lower court ruling 467 F.3d 571 (6th Cir. En banc 2006)
Connecticut Court Finds Longevity Is Salary for Pension Purposes but Not Payment of Unused Accumulated Leave.
The State Retirement Plan challenged an appellate court decision finding that both longevity payments and pay-outs of accumulated unused leave were required to be included in final average salary. The issue centered on whether the payments were “base salary” for “state service.” The Supreme Court concluded that longevity should included but leave time should not. The court concluded that the former was clearly a payment included in salary, where unused leave had no direct connection to service unless used to actually replace a day of work. The state retirement commission had refused the inclusion of both payments. The court concluded that the commission correctly addressed the use of leave but failed to properly interpret the statutes defining the role of longevity as part of base salary.
Langley v. State Employees’ Retirement Commission, ___A.2d___, 2007 WL 2790869 (Conn. 2007)
Louisiana Supreme Court Upholds Dedicated Taxation for Retirement Plans.
For the last 14 years, several of Louisiana’s statewide retirement plans have been battling the City of New Orleans to collect certain taxation required to be paid by the City. The amount of taxes was determined as a percentage of the City’s collectible taxes. The City had refused to pay, claiming the money was dedicated for specific entities and could not be distributed to the retirement plans. The Assessors Retirement Plan was successful in convincing the Legislature to divert state revenue sharing money to the retirement plan if the City refused to pay. The City challenged the law as a violation of the City’s home rule powers and claimed the Legislature was wrongly withholding money. The trial court held the law regarding revenue sharing as unconstitutional and the Fund appealed. By a 6-1 vote, the Supreme Court found that the City had a duty to fund the retirement plans. The “dedicated” taxes was merely a measure of the amount the City was required to pay and did not constitute a diversion of money for City agencies. Similarly, the Court held that the right to revenue sharing came from the Legislature and could be amended by it. The trial court was reversed and the statute upheld.
City of New Orleans v. Louisiana Assessors’ Retirement and Relief Fund,___So.2d___, 2007 WL 2823223 (La. 2007)
Time as a Police Recruit Held to Be Non-Hazardous Duty.
The Kentucky Retirement Systems consist of both hazardous and non-hazardous classifications. Hazardous classifications are generally reserved to public safety personnel. Recruits are not eligible for retirement plan membership. Some years later, a police officer tried to buy his recruit time as prior service. The System informed him that his service was hazardous service and could only be purchased at a higher contribution rate. The employee contended that no one else had ever had his recruit time so classified. The employee demanded that the time be reclassified but the System refused. The trial court and the Kentucky Court of Appealsboth agreed that the officer was simply the victim of a clerical error that should have been corrected. Accordingly, the recruit time was determined to be non-hazardous.
Board of Trustees v. DASD, ____S.W.3d____, 2007 WL 2811643 (Ky. App. 2007)
New York Court Denies Disability to Employee Unwilling to Undergo Outpatient Surgery.
An auto mechanic for a New York school district injured his foot in a duty-related accident. The employee’s doctor advised that the condition could be resolved by a safe, common 10 minute procedure performed on an outpatient basis. The procedure had a success rate of over 80% and resulted in a worsened condition only in very rare occurrences. The Retirement Plan denied disability benefits on the basis that the employee’s refusal to undergo the procedure (plantar fasciatus release). The employee countered with a doctor’s report suggesting only a 50% chance of success. The New York appellate court upheld the system finding that what was presented was essentially a dispute as to medical evidence which the System is authorized to resolve.
Beckley v. New York State and Local Retirement System, ___N.Y.S.2d___, 2007 WL 2790668 (N.Y. App. 2007)
Divorce Decree Voids Beneficiary Designation.
A South Dakota college employee named her then husband as beneficiary of her state retirement benefits. Three years after commencing state employment the employee and her husband divorced. In the divorce decree it was held that each person retained their respective property. Several years thereafter, the employee remarried but did not change her beneficiary designation. Statements from the plan still listed the former husband as beneficiary. The employee died in 2006, more than 30 years after her divorce while still married to her second husband of 25 years. The second husband filed suit seeking to have himself declared the beneficiary of the retirement benefits. The trial court held that the divorce decree had the effect of voiding the beneficiary designation. The first husband claimed that the law, to the extent it permitted the cancellation of the designation violated his constitutional property rights. This was also rejected by the trial court. On appeal to the Supreme Court of South Dakota, the court held that the trial court correctly interpreted the law. The state probate code clearly held that the divorce had the effect of voiding any marital-based benefit. To the extent it arguably interfered with the first husband’s contractual rights, the Supreme Court held it was nonetheless justified as upholding the uniformity of state probate statutes.
Bucholtz v. Storsve, ___N.W.2d___, 2007 WL 2806880 (S.D. 2007)
Divorce Court Lacks Authority to Require Pension Payments Prior to Retirement.
An Arizona state employee was divorced prior to eligibility for normal retirement. The employee was eligible for an actuarially-reduced early retirement. The non-employee spouse asked for and received a monthly payment beginning at the date the employee was eligible for early retirement. On appeal, the Arizona Court of Appeals held that the trial court lacked the authority to order the husband to pay retirement benefits at a time when he was not actually eligible for his full retirement benefit. Noting that there was a need to balance the interest of the non-employee spouse in the receipt of marital rights from the retirement plan and the right of the employee to continue working beyond retirement age, the court held that only when the pension became an absolute and unconditional right of payment did this balancing test become enforceable. Accordingly the interim payments by the husband were set aside.
Boncoskey v. Boncoskey, ___P.2d ___, 2007 WL 2770613 (Ariz. App. 2007)
Court Declines to Entertain Correction of Minor Administrative Error.
A former New Jersey state employee had her pension benefit recalculated and reduced by $15 per month. The error was caused by transmission of erroneous payroll data from the employer. The employee unsuccessfully challenged the recalculation in a full administrative, evidentiary proceeding which resulted in the recalculation being upheld. The employee then appealed. In a tersely worded opinion, the court affirmed the result finding that the claim was so insignificant and unfounded that it “did not deserve a written opinion.”
Tripolski v. State, 2007 WL 2752267 (N.J. App. 2007)
Collective Bargaining Agreement Requires Increase in Employer Contribution.
As the result of a labor agreement, the City of Toledo agreed to begin picking up the employee contribution to the retirement plan until the full amount was being paid by the City. During the term of the agreement, the State Retirement Plan raised the employee contribution from 8.5% to 10%. At the time the contract was formed, the contribution rate was 8.5% and the City claimed that was the limit of its responsibility. The Union filed a grievance under the CBA and the arbitrator held that the agreement was intended to provide for the City to pay the full cost of the employee contribution, regardless of the change in the statutory rate. On appeal, the Court of Appeals held that the arbitrator’s decision, as a fair reading of the CBA, drawing its essence from the CBA, and as such, was entitled to judicial deference. The City was ordered to pay the higher rate.
City of Toledo v. AFSCME, ___N.E.2d___, 2007 WL 2745227 (Ohio App. 2007)
One Year of Salary Does Not Include 27th Pay Period.
A group of Flint, Michigan employees has been allowed to retire and submitting retirement calculations that included a 27th paycheck during a 365 day period. By timing their retirements to begin on a payday, the employees were able to capture 27 paychecks in each of the 3 years used to determine final average compensation. The practice apparently went unnoticed until the City was faced with a financial emergency. The City’s chief financial officer directed the benefits to be recalculated but allowed the use of a 27th paycheck year to remain for one of the years used to calculate retirement benefits. The affected retirees filed suit claimed a deprivation of property rights, detrimental reliance, and the right to accrued benefits. The trial court ruled for the City and the employees appealed. Affirming the decision, the appeals court held that no property right can be earned in a benefit that is not permitted by the plan. The pension plan clearly discussed annual compensation. The court applied a common sense definition of “annual” by recognizing that 27 paychecks represented more than 365 days of work. Further, the court held that benefits accrued in “annual” salary, not a longer period. Lastly, the court held that detrimental reliance cannot be found because the employees knowingly acted to manipulate the plan and did not act on any misinformation or promise from the City.
Rutherford v. City of Flint, ___N.W.2d___, 2007 WL 2743631 (Mich. App. 2007)
Disability Based on Reproductive System Properly Held Non-Duty Related.
A Louisiana firefighter suffered from genitourinary prolapse. She filed an application for service-connected disability retirement claiming that lifting as a paramedic/firefighter had caused her problems. Substantial medical evidence showed that her difficulties were in fact the result of childbirth aggravating a genetic predisposition. The Board awarded a non-duty disability. The employee sued claiming that the Board’s decision was arbitrary and capricious. Further, the employee claimed that the decision discriminated on the basis of gender. In upholding the Board, the Court of Appeals held that the determination medical evidence is a matter within the Board’s discretion and absent direct proof of discrimination or proof of arbitrary or unreasonable behavior on the part of the Board, the decision must be upheld.
Bowers v. Louisiana Firefighters Retirement System, ___So.2d___, 2007 WL 2713484 (La. App. 2007)
Court Held a 0% Payment Plan to Unsecured Creditors While Making a Large Payment to the Debtor’s Retirement Account Is Not Made in Good Faith.
Debtor proposed a plan that contributes roughly 10% of his gross income to his retirement account and made a provision for a 0% dividend payment to his unsecured creditors, meaning that his unsecured creditors will not receive any payments. The bankruptcy trustee objected to debtor’s proposed plan on two grounds: first, the debtor’s plan fails to commit all of his disposable income to the plan during the required term, and second, a plan that pays no dividend to general unsecured creditors, but pays 10% of gross income to debtor’s retirement plan, is not a plan “proposed in good faith.” Creditors of a debtor in a bankruptcy look to two sources of income to receive payment: disposable income and property of the estate. Since contributions to a qualified retirement plan are not included in disposable income, any contribution to a retirement plan reduces disposable income available to creditors for recovery. The debtor’s plan would allow him to contribute $39,300 into his retirement account, pay $33,000 to his secured creditors, pay nothing to his unsecured creditors, and discharge $89,237 in debt. The court recognized that such a grossly disproportionate plan invites scrutiny. The court held that a plan that proposes to pay 0% to creditors when a debtor could pay substantially more is not a plan proposed in good faith.
In re Sheldon, 2007 WL 1856949 Bkrtcy.N.D. (Ga.,2007)
Retirement Plan Loans Are Neither Debts Nor Secured Debts under the Bankruptcy Code.
Debtor obtained a loan from his retirement plan and was to repay the loan with payments deducted directly from his paycheck. Debtor subsequently filed a bankruptcy petition under Chapter 7 of the Bankruptcy Code. If there is abuse of discretion in filing for bankruptcy under Chapter 7 the court may dismiss the petition filed by an individual debtor whose debts are primarily unsecured consumer debts. A bankruptcy court presumes that abuse exists if the debtor’s discretionary monthly income is greater than $100 as determined by the Means Test. In this case, if the debtor was able to deduct the loan payments for his retirement plan loan from his income, debtor’s disposable income would be less than $100, without the deduction his disposable income would be more than $100, invoking the presumption of abuse of discretion. This court has recognized that most courts have held that retirement plan loans are not bankruptcy debts subject to discharge and has concluded that a retirement plan loan is not a debt nor a secured debt because the retirement plan loan administrator has no claim for repayment against the debtor or the estate if the debtor defaults on the loan. Therefore, debtor could not deduct the loan payments to reduce his monthly disposable income and this court reversed the bankruptcy court’s decision denying a presumption of abuse.
Eisen v. Thompson, 2007 WL 1880290 (N.D. Ohio 2007)
Contributions to a 403(b) Employee Retirement Plan Are Excluded from the Bankruptcy Estate and Do Not Need to Be Exempted.
A nurse had participated in a tax deferred annuity under 403(b) of the Internal Revenue Code sponsored by her employer. After filing for bankruptcy under Chapter 7 the debtor filed an Objection to Debtor’s third amended Claim of Exemption asserting that the debtor’s contributions to her 403(b) account made within one year of filing are not exempt under the code. A bankruptcy estate consists of all legal or equitable interests of the debtor in property as of the commencement of the case. The Bankruptcy Abuse Prevention Act of 2005 (“BAPCPA”) provides that property of the bankruptcy estate does not include any amount withheld by an employer from the wages of the employee for payment as contributions to a tax-deferred annuity under section 403(b), or received by an employer from an employee as payment as a contribution to a tax-deferred annuity under section 403(b). If property is excluded from the bankruptcy estate, the Court need not determine whether such property is exempt.
In re Leahy, 370 B.R. 620 (Bkrtcy D.Vt. 2007)
A Member of the Police and Fireman’s Retirement System That Is Injured While Performing His Ordinary Duties Is Not Disqualified from Receiving Accidental Disability Retirement Benefits Based upon a Lack of a Traumatic Event.
A police officer was employed as a corrections officer and was injured when an inmate violently resisted being handcuffed. The police officer filed for accidental disability retirement benefits with the Board of Trustees (“Board”), but was only granted ordinary disability benefits. The Board reasoned that this incident did not qualify as a traumatic event because it was to be expected in the ordinary course of his duties. To obtain accidental disability a police officer must prove that he is permanently disabled as a direct result of a traumatic event that is identifiable as to time and place; undesigned and unexpected; and caused by a circumstance external to the member. The Board found that subduing an inmate is part of the anticipated work of a corrections officer and was not unexpected or unintended; therefore the police officer could not satisfy the traumatic event standard. This Court held that the Board has misread the statute and that a member who is injured while performing his ordinary duties is not automatically disqualified from receiving accidental disability benefits. This court reasoned that the police officer did suffer a traumatic event because the occurrence was identifiable as to time and place; unexpected and undesigned; and not caused by a pre-existing condition of the police officer alone or in combination with the work effort.
Richardson v. Board of Trustees, 2007 WL 2088868 (N.J. 2007)
Police and Firemen’s Retirement System Was Equitably Estopped from Requiring Reimbursement of Retired Fire Chief’s Benefits Because He Relied in Good Faith on Department’s Pension Advice.
A fire chief retired and was re-hired the next day as the public safety director. The Board of Trustee’s required the fire chief to re-enroll in the Police and Firemen’s Retirement System (&ldqou;PFRS”) and repay approximately $450,000 that he received in pension benefits. Before fire chief accepted the public safety director job he consulted with a secretary in the City’s Public Safety Department. He received a “copy” of a letter from the Pension Board to another police officer who had retired and immediately thereafter accepted a public safety director position saying that he was able to retire and take the new position without jeopardizing his pension. The fire chief also consulted with a pension counselor, who was never identified, in the State Division of Pensions and Benefits to ensure that his acceptance of the new position would not interfere with his right to receive his Fire Department pension. The fire chief also consulted with the Administrative Secretary of the Board and he was further assured that the law had been rewritten such that the fire chief could take the job and his pension would not be affected. The court held that the fire chief reasonably exercised due diligence in consulting with the Division of Pensions before accepting his new administrative positions and that public employees should be able to rely on advice received from the Division of Pensionsregarding receipt of pension benefits that may have enormous financial ramifications.
Hemsey v. Board of Trustees, Police & Firemen’s Retirement System, 393 N.J.Super. 524 (N.J.Super.A.D.,2007)
Comptroller Is Vested with the Authority to Weigh Conflicting Medical Evidence and Credit the Opinion of One Expert over the Other.
Petitioner’s decedent was a general manager for the Port Authority at the World Trade Center on September 11, 2001. Decedent survived the terrorist attack and suffered a heart attack on March 31, 2002. Petitioner filed application for accidental death benefits which was denied, and petitioner timely filed an appeal. Conflicting medical evidence was presented at trial as to what caused the heart attack. Petitioner’s expert attributed some of the heart attack to the employment, but the Retirement System’s expert disagreed and concluded that the decedent’s death was unrelated to the events of September 11. The Hearing Officer found the Retirement System’s expert’s testimony credible and denied petitioner’s application. The court held that the comptroller has exclusive authority to determine applications for accidental death benefits, and if the decision is supported by substantial evidence, that decision must be upheld. When there is competing medical authority the comptroller has vested authority to weigh conflicting medical evidence and credit the opinion of one expert over the other. The court ruled that they were constrained to uphold the determination made by the comptroller.
Varriano v. Hevesi, 40 A.D.3d 1357 (N.Y.A.D. 3 Dept. 2007)
The Court Will Not Enforce an Illegal Contract Nor Will They Reward Illegal Performance Even Where the Contract Itself Does Not Call for Illegal Performance.
Public employee entered into two parallel contracts for the same public job. Her goal, and the goal of the city government, was to allow the employee to remain in the state pension system and at the same time become a full time employee at full pay for the Springfield Parking Authority (“SPA”). The relevant statute provides that individuals collecting benefits from a state or local retirement program may generally not be paid for services rendered to the state or locality. The court recognized that the SPA is technically separate from the city, and its employees do not participate in the pension plan. The parties attempted to provide pension benefits for a public employee whose job excluded such benefits, thus circumventing the statutory system. However, the court found that in her capacity as executive director of the SPA, the employee was clearly rendering a service to the city. The employee argued that even if she provided services to the city, she was allowed to accept limited post-retirement governmental employment. However the court held that a clear policy that an employee of a governmental unit in Massachusetts generally may not retire, receive a pension, accept employment elsewhere in the government, and, by combining her pension and her new compensation, make more money than if she had not retired.
Pellegrino v. Springfield Parking Authority, 69 Mass.App.Ct. 94 (Mass.App.Ct. 2007).
The Mere Awareness of Some Potential Problem That Might, One Day, Require Medication Is Not Enough to Trigger the Notice of Claim Provision under Workers’ Compensation Act.
Police Officer had two doctor office visits that revealed high blood pressure readings and that he may have a potential hypertension problem that could require medication sometime in the future. In order to collect the benefits provided by Heart and Hypertension Act, a claimant must show that his preemployment physical examination revealed no evidence of hypertension or heart disease, and now suffers a condition or an impairment of health caused by hypertension or heart disease that has resulted in death or disability, and has suffered a resultant economic loss. When an employee has evidence of hypertension, he is obligated to notify his employer and to file a claim for workers’ compensation benefits within one year of that accidental injury, and this is true even when the employee is not seeking immediate benefits, but simply is seeking to preserve his right to future benefits. When employee sustains an injury under workers’ compensation law, he immediately must notify his employer of the injury, and if an employee fails to provide immediate notification, his award of benefits may be reduced if the employer can prove that it has been prejudiced by the failure to provide immediate notification. The workers compensation board held that elevated blood pressure and an abnormal stress test were enough to put the claimant on notice such that he must immediately notify his employer of his hypertension. However, the appellate court found that the fact that the officer had a potential hypertension problem that may require medication” simply is not sufficient to support the conclusion that the plaintiff had an accidental injury that required him to notify his employer and to file a claim for benefits, and reversed the Board’s order denying benefits.
Arborio v. Windham Police Dept, 2007 WL 2263924 (Conn. App. 2007).
A Municipality or Subdivision Is Not Required to Enroll Retirees Who Were Not Plan Participants on Retirement in a Health Insurance Plan.
A public school teacher retired at 55 and did not enroll in the town’s public employee group insurance health plan at that time. During her tenure as a teacher she was not enrolled in the public health plan and was listed on her husband’s private health plan from his employer. After her husband retired they were no longer eligible for his health plan and the teacher attempted to enroll in the town plan. Enrollment in this plan did not contain any limitation in the statutes that required participation in the plan during employment. However, in response to her enrollment forms, the town’s board of selectmen (“board”) stated that enrollment in the town’s group health insurance program on retirement was a predicate to coverage during retirement. The court held that a municipality may adopt reasonable regulations with respect to a municipal health insurance plan, as has been done concerning participation in a municipality’s program by a retiree who was not a participant in such a program at the time of retirement. The court ultimately concluded that the board has broad authority to regulate the terms of their health care plans within the statutory framework, and that the town may properly proscribe post retirement enrollment in its health care plans by limiting eligibility for enrollment to active employees.
Cioch v. Treasurer of Ludlow, 449 Mass. 690 (Mass. 2007).
A police officer responded to a call about a suspicious object placed near the main entrance to a computer science and electrical engineering building. When the officer arrived he discovered that the object was only a television. The officer decided that it must be removed immediately because it was causing a lot of anxiety due to the terrorist activities of September 11th, 2001. The officer decided that any delay in its movement would generate needless fear and more phone calls to the department. The officer felt a pop in his back as he lifted the console and was later diagnosed with a herniated disk. The Public Safety Board concluded that the officer did not suffer a disabling injury while discharging his occupational duties. Administrative agencies are granted great deference while interpreting their own regulations, unless the interpretation is arbitrary and capricious. The court reasoned that the officer’s duties included the exercise of professional judgment, which was legitimately calculated to protect the health, safety, and general welfare of the public. The court held that the panel erred in denying the officer’s application for continued employer-provided health-insurance benefits because he was injured while performing his duties.
In re Claim for Benefits by Sloan, 729 N.W.2d 626 (Minn. App. 2007)
Retired Firefighters and Police Officers Were Not Entitled to an Increase in Pension as a Result of Reclassification of Their Active-duty Counterparts.
Sixty-two retired firefighters and police officers claim that when their former employer, the City of Annapolis (“City”), reclassified the positions of their active-duty counterparts so that they would ultimately receive more compensation for the positions they currently held, it was required, under Annapolis City Code § 3.36.150A1 (“ACC”), to increase their pension payments in tandem. The Board refused to increase their pension payments and as a result, the officers filed a claim with the circuit court, which reversed the board’s decision. The court of appeals then held that the officers were not, under the city code, entitled to an increase in pension payments as a result of reclassification of their active-duty counterparts; city code provision stating that retirees’ pensions would be increased by the same percentage as any increase in the pay scale for members of the same rank and years of service who were on active duty was in cost-of-living chapter of city code, and city had over the years consistently interpreted such provision as applicable only to cost of living adjustments. The court reasoned an administrative agency’s interpretation and application of a statute which the agency administers should ordinarily be given considerable weight by reviewing courts, and held that the increase in the statute only applies to cost-of-living increases given to retiree’s counterparts, and therefore the retirees did not get an increase in pension benefits.
City of Annapolis v. Bowen, 173 Md.App. 522 (Md. App. 2007)
Sufficiency of a Retirement Division’s Notice Is Determined on an Objective Standard, and a Subjective Belief Does Not Provide Competent, Substantial Evidence to Support an ALJ’s Finding That the Division’s Notice Was Unclear.
Appellant failed to timely respond to three letters from the Department of Management Services, Division of Retirement (“Division”), notifying her of an entitlement to a monthly retirement benefit following her husband’s death in 1996. Nine years later appellant requested retroactive benefits, which the Administrative Law Judge (“ALJ”) granted. The Division reversed the ALJ’s decision and the court upheld the order because the ALJ’s factual findings that the Division’s letters to appellant were deficient, unclear, failed to provide notice, were not supported by competent substantial evidence. The court noted that in a retirement system with over 800,000 members there was not a single instance that was presented of a beneficiary not understanding the letters which the Division has been sending out for years. Appellant argued that the agency failed to apply the doctrine of equitable estoppel. In order to demonstrate estoppel, appellant must show that: (1) the Division represented a material fact contrary to its later asserted position; (2) appellant relied on the Division’s earlier representation; and (3) appellant changed positions to her detriment due to the Division’s representation and her reliance thereon. The court held that the appellant failed to establish the first element of estoppel because the ALJ found that the Division did not make any false or misleading statement to her, nor did appellant show that the Division represented a material fact contrary to its later asserted position.
Hoffman v. State, Dept. of Management Services, Div. of Retirement, 2007 WL 1772145 (Fla. 1st DCA 2007)
Decision by Trustees to Adopt a Two-tiered Rate Structure for Health Plan Benefits Was Not Found to Be an Abuse of Discretion Nor Does it Mean the Trustees Acted with Malicious or Improper Purpose.
Employer-Union Benefits Trust Fund (ETUF) was established to provide a single health plan delivery system for the state and county employees. ETUF Board developed a plan that would adopt a two-tier rate structure. Plaintiffs, state and county employees, brought suit alleging that the EUTF trustees breached their fiduciary duties of loyalty because their two-tier plan overcharges and unfairly discriminates against two-member families, that the state was vicariously liable for the actions of the trustees; and the state was directly liable for negligently training and advising the trustees. The court found that the health benefits were not solely for the employee beneficiaries, but was also to benefit the public employers in providing a cost-effective health benefit plan therefore the common law fiduciary duties do not apply. This court has held that an abuse of discretion occurs when the decision maker exceeds the bounds of reason or disregards rules of principles of law or practice to the substantial detriment of a party. The court held that the trustees could not treat every beneficiary equally and any chosen plan would not satisfy all beneficiaries, and in this situation the trustees did not abuse discretion. The court held that since there was no abuse of discretion, there was no breach of fiduciary duty, there could not be any vicarious liability for the state because there was no breach, and finally there could be no liability for negligent training because there was no breach of duty.
Awakuni v. Awana, 2007 WL 2405333 (Haw. 2007)
An Entitlement Does Not Exist Unless an Ordinance Provides That There must Be a Benefit Granted or That the Benefit must Be Denied, and in Order to Prove Age Discrimination the Challenger must Show That Age Was a Motivating Factor in the Decision Making Process.
Plaintiffs, members of the Teamsters Union, and two non-union management employees, retired and were not allowed to continue to receive health care benefits from the city’s health plan after retirement. Plaintiffs claim that the failure to provide health insurance coverage for retirees deprives plaintiffs of an entitlement (a constitutionally-protected property interest) and discriminated against them based on their age. The court held that a legitimate claim of entitlement arises if it is created by existing rules or understandings that stem from an independent source such as state law, and only if the statute sets out conditions under which the benefit must be granted or when benefits must be denied. The court reviewed the municipal code and found that city shall extend coverage to retired employees insofar as and to the extent possible. The court interpreted this language to mean that the city has discretion as to whether it chooses to grant retirees health benefits, and denied their claim that there was an entitlement to health benefits because there was no language that required the benefits or prohibited them. The court next stated that the ADEA prohibits employers from discriminating against any individual with respect to compensation, terms, condition, or privileges of employment because of such individual’s age. Liability depends upon whether the protected trait actually motivated the employer’s decision to deny benefits. The court found that there is no evidence that age was a motivating factor in the city’s decision and dismissed the plaintiffs’ final claim.
Doyle v. City of Medford, 2007 WL 2248161 (D. Ore. 2007)
Pursuant to the Contract Clause in the Constitution of the United States, a State Is Prohibited from Passing Laws Impairing the Obligations of Contracts.
AB 1102, a bill, was enacted that granted vested rights to a continuous annual transfer from the general fund to the Supplemental Benefit Maintenance Account (“SBMA”) in the amount of 2.5 percent of the total credible compensation. California later passed SB 20, which reduced the state’s obligation to fund the SBMA by $500,000,000. The Teachers Retirement Board (“TRB”) filed petition for writ of mandate and a complaint for injunctive relief against the director of the Department of Finance (“DOF”), claiming that SB 20 is unconstitutional because it violates the contract clause and interferes with TRB’s plenary authority to administer the assets of California State Teachers’ Retirement System (“CalSTRS”). The court stated that there is a two part review: 1) the nature and extent of any contractual obligation, and 2) the scope of the legislature’s power to modify any such obligation. The court held that AB 1102 vested the funding stream at its current level of 2.5 percent, thus the language of the statute contractually obligated the state to make an annual contribution of2.5 percent of creditable compensation into the SBMA. Therefore SB 20 was unconstitutional because it violated the contract clause.
Teachers’ Retirement Bd. v. Genest, 2007 WL 2445937 (Cal.App. 3 Dist. 2007)
Executive Order Requiring City Departments to Recognize “Same Sex Marriages” of City Employees in Same Manner as Opposite-sex Marriages of City Employees Did Not Conflict with State’s Defense of Marriage Act Defining Marriage as Civil Contract Between a Male and a Female.
Mayor issued an executive order that directed all city departments to recognize the same sex marriages of city employees in the same manner as they currently recognize opposite sex marriages of city employees for the purposes of granting employee benefits and other benefits ordinarily received in the course of employment. Petitioners sought declaratory, injunctive, and other relief on the basis that the executive order was invalid. Specifically, they contended that the order conflicted with the Defense of Marriage Act. However the court found that the executive order does not conflict with the Defense of Marriage Act nor is it preempted by any other statutes. The court reasoned that the field of employee benefits for city employees had not been preempted by the state and remained a matter of local concern. The court noted that the city may enforce regulations that are not in conflict with general laws. The court concluded that the petitioner failed to show that the state has preempted the field of employee benefits. To the contrary, the court found that the field remains a matter of local concern in which the city exercise broad discretion.
Leskovar v. Nickels, 2007 WL 2696724 (Wash. App. Div. 1 2007)
Court Upholds Dismissal of Disability Application for Failure to Timely Complete
An Illinois police officer, after 9 years of service, was terminated for inability to perform the duties of his occupation due to bi-lateral hearing loss. The employee sued the city for discrimination on the basis of physical disability. At the same time, the employee sought a “stay” of his disability retirement application. The Board declined the request. The employee cancelled his appointments with the Board appointed medical examiners. The Board ultimately granted a request of the employee to withdraw his application. When the employee sought to reinstate the application, the Board determined it no longer has jurisdiction because the applicant was no longer a police officer. The employee filed suit challenging the Board determination. In upholding the decision, the Illinois Court of Appeals reaffirmed earlier holdings that failure to pursue an application while still a “member” of the Plan warranted dismissal. Additionally, the failure of the applicant to timely pursue his application did not give rise to any ground for equitable relief.
Tucker v. Board of Trustees, ___N.E.2d___, 2007 WL 2458486 (Ill. App. 2007)
Florida Appeals Court Requires City to Fund Terminated Plan
In 2002, the Town of Lake Park entered into an inter-local agreement with Palm Beach County transferring firefighting responsibility from the town to the county. As part of the agreement, the pension plan was terminated. The plan consisted of thirteen members. In connection with the termination of the plan, the pension board distributed plan assets in a lump sum to the membership. One firefighter, who was eligible for retirement, was paid a lump sum of the full value of his accrued benefit. Three firefighters, with ten or more years of service, received a portion of their accrued benefit. The nine remaining firefighters, with less than ten years of service, received no payment. The pension board demanded that the town pay $600,000 to the plan, representing the cost of the unfunded benefits for the twelve firefighters who received only partial or no benefits. The Town of Lake Park Florida filed a complaint for declaratory judgment regarding its obligations to continue funding a terminated firefighter pension plan. Had the plan not been terminated, it would have been able to continue receiving state premium taxes on an annual basis until the plan became fully funded.
The trial court, ruling for the Town, reasoned that during the existence of the plan, the town made all required contributions. The plan was managed by the board of trustees, who selected the method of lump sum distribution. The board followed the payment protocol set forth in the applicable statute. The termination statute provided for less than full payment to members, if the assets of the plan were inadequate to fully fund the plan. The statute created a priority for higher ranking categories of members, based on years of service. The court reasoned that if assets are exhausted by payment to higher ranking categories of membership, lower ranking members receive nothing. The court interpreted the statute to provide that a municipality has no obligation to continue funding a terminated plan under these circumstances.
On appeal, the Florida District Court of Appeals reversed finding that state law was unequivocal on the obligation of a city to fully fund its retirement plan. The Court noted that the lump sum distributions criticized by the trial court were a lawful alternative for the Board and did not provide a ground for the City to avoid its funding obligation.
Board of Trustees v. Town of Lake Park, ____So.2d_____, 2007 WL 2848014 (Fla. 4th DCA 2007)
New Jersey Considers New Psychic Injury Standard
A toll taker on the New Jersey Turnpike observed the September 11 attacks on the world Trade Center in New York City. He claimed that he saw the planes fly into the towers and felt the concussion from the explosion. As a result, the employee claimed to have suffered a psychic injury rendering him permanently and totally disabled. A hearing officer ruled in the employees favor and the PERS Board of Trustees rejected the recommendation. On appeal by the employee, the Court found that the matter should be remanded to the Board due to a change n the definition of traumatic injury as the result of a court case decided while this appeal was pending.
In a similar case, a deputy sheriff accused by a girlfriend of domestic violence was required to surrender his off-duty weapon and attend a group batters program. The deputy claimed the letter from the prosecutor containing the allegation caused a traumatic psychic injury. The retirement board denied the benefit. On appeal, the New Jersey appeals court remanded the case to the Board for the same reasons as in the prior case; a new standard for psychic injury.
Kackos v. Board of Trustees, ___A2d___, 2007 WL 2349992 (N.J. App 2007)
Miller v. Board of Trustees, ___A2d____, 2007 WL 2350098 (N.J. App. 2007)
Independent Contractor Not Entitled to Retirement Benefits
An Ohio attorney was hired on a part-time basis to serve as a magistrate. The attorney claimed he should have been granted membership in the State PERS. The Board refused finding that he was a contractor rather than an employee. In reaching this conclusion the Board determined that the attorney was hired on an as needed basis, received no benefits, and did not appear on the payroll of the City or the State. Further, he was not supervised in the performance of his duties and was free to accept or reject any assignment. Essentially employing a common law test if employment, the attorney was found not to be an employee. On appeal, the Ohio Supreme Court agreed finding that it was obligated to accept the decision of the retirement plan unless it was arbitrary or unreasonable. A similar result was reached by a Florida Court on the status of leased employees, finding that the leasing company and not the government was the true employer
State ex rel Schaengold v. Ohio PERS, 870 N.E.2d 719 (Ohio 2007)
Children’s Trust of Miami Dade County v. Department of Management Services, 962 So.2d 1009 (Fla. 3d DCA 2007)