Retirement System is required by law to correct errors in retirement benefit payments and seek repayment of excess benefits already paid to a retiree

Retirement System is required by law to correct errors in retirement benefit payments and seek repayment of excess benefits already paid to a retiree
Matter of Palandra v New York State Teachers' Retirement Sys., 2010 NY Slip Op 50735(U), Decided on March 17, 2010, Supreme Court Albany County, Judge George B. Ceresia, Jr.

Maria Palandra, a retired Superintendent of the Elmont Union Free School District, sued the NYS Teachers’ Retirement System challenging the System’s determination that a portion of salary increases Palandra received prior to her retirement (and other compensation items) should not be included in her three-year final average salary for purposes of determining her retirement allowance.

Palandra was appointed Superintendent of Schools in March 1998 and entered into her first contract with the School District as Superintendent. Two years later Palandra executed a second contract with the School District, extending her employment through the 2002-2003 school year. Well before expiration of the “second contract,” the parties renegotiated the terms of Palandra's employment and entered into a “third contract.”

This contract continued a provision set out in an earlier contract permitting Palandra to elect to receive a one-time "career increment" of 27.5%; and continued the provision for payment of accumulated unused sick days and vacation days upon retirement.

Prior to the expiration of the third contract, on February 10, 2004, Palandra and the School District entered into a fourth contract that “retroactively established Palandra's salary for the 2002-2003 school year at $224,668.00, with salary increases in 2003-2004 and 2004-2005 in accordance with the CPI, capped at 5%."

In September 2004 Palandra requested that the Retirement System provide her with an estimate of her annual retirement benefits. The Retirement System, computed her estimated retirement benefits was $222,178.00, based upon the foregoing contractual increases in compensation. In reliance upon this estimate Palandra decided to retire after the 2004-2005 school year and commenced receiving a retirement allowance of $7,350.00 per month.

In November 2008 the Retirement System told Palandra that a significant portion of the salary increases which she had received since the August 29, 2000 contract had been disallowed for purposes of computing her final annual salary. Palandra sent the System a detailed explanation with regard to why she believed the reductions in her three-year final average salary were unfair. Her letter was considered by the Retirement System in making its final determination, which affirmed the preliminary determination.

Judge Ceresia cited §443 (a) of the New York Retirement and Social Security Law "Final average salary," that, as relevant here, states:

"The salary base used for the computation of benefits upon retirement, hereinafter called in this article final average salary, applicable to all members of the retirement systems who are subject to the provisions of this article, shall be the average salary earned by such a member during any three consecutive years which provide the highest average salary, exclusive of any form of termination pay (which shall include any compensation in anticipation of retirement), or any lump sum payment for deferred compensation, sick leave, or accumulated vacation credit, or any other payment for time not worked (other than compensation received while on sick leave or authorized leave of absence); provided, however, if the salary or wages earned during any year included in the period used to determine final average salary exceeds that of the average of the previous two years by more than twenty percentum, the amount in excess of twenty percentum shall be excluded from the computation of final average salary. . ."*

The court said that the Retirement System “is statutorily required to correct errors in retirement benefit payments and seek repayment of excess benefits already paid in order to ensure that the integrity of the public retirement system is maintained," citing Matter of Blais v New York State Retirement Teachers' System, 68 AD3d 1266.

Further, said Judge Ceresia, “It has been repeatedly held, in construing a similar statute, that compensation items such as termination pay, bonuses, lump sum increments, longevity payments, or lump sum cash payments for sick leave and annual leave, may not be included in final average salary in calculating an employees' retirement benefit.”

In response to Palandra argument in the nature of estoppel in that the System’s final determination was made nearly three and one half years after her retirement and that had she known that her retirement allowance would be drastically reduced from System's original estimate, she would have delayed retirement, Judge Ceresia pointed out that “[i]t is well settled that estoppel cannot be invoked against a governmental agency to prevent it from discharging its statutory duties."

Further, said the court, erroneous information given by a government employee does not ordinarily constitute an exception to the rule.

Finding that the Retirement System's determination was not made in violation of lawful procedure, was not affected by an error of law, and was not irrational, arbitrary and capricious, or an abuse of discretion, Judge Ceresia dismissed Palandra’s petition.

* 21 NYCRR 5003.1(a) of the Rules of the New York State Retirement system, entitled]"Three-year final average salary for members who join system prior to July 1, 1976" provides as follows: "(a) A three-year final average salary is defined as the highest average annual regular salary earned by a member over a period covering three consecutive years of New York State service credit. Regular salary earned shall exclude termination pay and payments which are not part of the salary base and/or are not paid over a period of years; for example, bonuses and one-time-only increments. It shall also exclude any earnings in excess of 120 percent of the earnings for the preceding year of service credit (the preceding two years of service credit for those members who joined on and after July 1, 1973 and before July 1, 1976), after such earnings have been adjusted to exclude the termination pay."

The decision is posted on the Internet at:
http://www.courts.state.ny.us/reporter/3dseries/2010/2010_50735.htm