Termination pay and other compensation paid in anticipation of an employee’s retirement excluded in determining the individual’s final average salary

Termination pay and other compensation paid in anticipation of an employee’s retirement excluded in determining the individual’s final average salary
Matter of Thompson v New York State Teachers' Retirement Sys., 2010 NY Slip Op 08670, November 24, 2010, Appellate Division, Third Department

James R. Thompson was employed as a principal in the LeRoy Central School District. In accordance with the relevant collective bargaining agreement between the school district and the LeRoy Administrators' Association, Thompson was to receive 3.5% annual pay increases through the 2005-2006 school year.

The CBA also offered a retirement incentive wherein an administrator who retired immediately after becoming eligible to do so without penalty would receive a lump-sum payment of $20,750.

Although Thompson would have qualified for the incentive had he retired during the 2004-2005 school year, continued in his position. However, the school district and association executed a memorandum of understanding in 2005 that granted large annual raises to Thompson and another administrator nearing retirement age in the 2005-2006 and 2006-2007 school years.

When Thompson retired in 2007 retirement, the New York State Teachers’ Retirement System excluded his 2005-2006 and 2006-2007 salary increases when calculating his retirement benefit. Thompson sued but Supreme Court dismissed his petition.

The Appellate Division affirmed Supreme Court’s ruling, holding that NYSTRS had “appropriately calculated his final average salary using ‘the average regular compensation earned . . . during the three years of actual service immediately preceding his date of retirement.’”

The court explained that in order to prevent the artificial inflation of a member’s final average salary in determining the individual’s retirement allowance, Education Law §501 [11] [b], (see also 21 NYCRR 5001.1 [d]; 5003.1 [a]) requires NYSTRS to exclude any form of termination pay or compensation otherwise paid in anticipation of retirement.

As the 2005 memorandum of understanding stated that it was intended to "provide administrators with an incentive to continue [working] beyond retirement eligibility," and granted exceptional salary increases to Thompson [and other school administrators], the Appellate Division held that NYSTRS “rationally concluded from the above evidence that the disproportionate increases in his salary were made in anticipation of retirement.”

The decision is posted on the Internet at: http://www.courts.state.ny.us/reporter/3dseries/2010/2010_08670.htm
NYPPL