Determining final average salary for retirement
purposes - lump sum payments
Wallon v NYS Teachers' Retirement System,
294 AD2d 644
An employee's final average salary [FAS] is a critical element in determining
the individual's retirement allowance. In the Wallon case the issue before the
court concerned whether or not certain "lump sum payments" should
have been included in determining the retiree's FAS.
When Thomas Wallon retired from his position as an elementary school principal
with the Avon School District, the School District
included its lump sum payments of $21,500 to Wallon's tax-sheltered annuity and
$14,793.43 in lieu of health insurance in reporting his compensation to the New
York State Teachers' Retirement System [TRS]. Both lump sum payments were made
in accordance with the terms of a collective bargaining agreement between the
District and Wallon's collective bargaining unit representative.
Initially TRS included these lump sum payments in determining Wallon's FAS for
the purpose of calculating his retirement allowance. Later TRS decided that
neither lump sum payment constituted "compensation" for the purpose
of determining his FAS within the meaning of Education Law Section 501(11).
TRS also determined that the inclusion of these amounts in calculating Wallon's
retirement allowance resulted in a $9,031.63 overpayment of retirement
benefits. This, said TRS, required it to deduct $1,000 from Wallon's monthly
benefits until this overpayment was recouped.
Wallon sued, seeking a court order annulling TRS's determinations. Supreme
Court ruled that while the lump sum payment for Wallon's tax deferred annuity
may not be included in determining his FAS, Avon's "payments in lieu of
health insurance was properly included in determining [Wallon's] FAS."
Wallon and TRS both appealed this ruling.
The Appellate Division affirmed the lower court's decision, holding that it had
previously ruled that "payments made near the end of an applicant's career
of benefits which he [or she] accumulated throughout the course of his [or her]
working life will not be included in the ultimate determination of his [or her]
retirement income," citing Martone v New York State Teachers' Retirement
Sys., 105 AD2d 511.
According to the decision, the record did not demonstrate that "the
payments to [Wallon's] annuity were for services performed during the time
period covered by the … collective bargaining agreement."
Turning to the question of including the amount of the lump sum payment in lieu
of health insurance in determining Wallon's FAS, the court noted that although
TRS had included such payments in the FAS of another Avon retiree, Richard Letvin, it disallowed similar payments in Wallon's
case. It appears that TRS's decision was based on its finding that Letvin, in
retirement, was covered by his spouse's health insurance while Wallon used his
lump sum payment to purchase health insurance.
The Appellate Division agreed with Supreme Court's conclusion that Wallon and
Letvin "were similarly situated and had to be similarly treated by [TRS]
to avoid being arbitrary and capricious."
Finally, the court sustained the recoupment any overpayments made by TRS to
Wallon, commenting that TRS did not abuse its discretion by demanding such
repayment over a nine-month period since Wallon was on notice for at least 13
months that substantial portions of his FAS were being disputed and that he might
be required to repay any overpayments.
The Appellate Division observed that once Wallon had initiated his lawsuit, TRS
suspended the monthly deduction pending resolution of the litigation, thus
giving Wallon an additional 15-month grace period before resumption of the now
reduced deductions. Accordingly, the court ruled that TRS's recoupment schedule
of repayment over a nine-month period was neither arbitrary nor capricious.