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July 08, 2011

Extraordinary salary increases excluded in determining the individual’s final average salary for retirement purposes.


Extraordinary salary increases excluded in determining the individual’s final average salary for retirement purposes.
Matter of Palandra v New York State Teachers' Retirement Sys., 011 NY Slip Op 04357, Appellate Division, Third Department
 
Maria Palandra was employed by the Elmont Union Free School District and eventually became its superintendent of schools. In 2000, Palandra and the school district entered into a contract setting her salary and providing that she would receive payment for her accumulated vacation and sick leave upon her retirement.

Subsequently the parties entered into a new agreement that eliminated the career increment provision and barred Palandra from receiving payment for unused leave time upon her retirement. Instead, Palandra’s was retroactively raised to $224,268, with increases in following years capped at 5%.

Ultimately the New York State Teachers’ Retirement System [TRS] excluded those increases from the calculation of Palandra's final average salary and reduced her retirement benefits accordingly. Palandra sued but Supreme Court dismissed her petition.

The Appellate Division affirmed the lower court’s ruling, noting that “In order to calculate [Palandra’s] retirement benefits, [TRS] must rely upon her final average salary, defined as "the average regular compensation earned . . . during the three years of actual service immediately preceding [her] date of retirement" as mandated by Education Law §501[11] [b]. Accordingly, the Retirement System will act to prevent the artificial inflation of that figure by excluding "any form of termination pay or compensation otherwise paid in anticipation of retirement."

The court explained that Palandra had received extraordinary salary increases in the 2001-2002 and 2002-2003 school years and, indeed, had altered the terms of prior agreements to do so. Moreover, the latter increase was accompanied by the elimination of her contractual rights to obtain payments for accumulated leave time upon her retirement and an optional one-time only increment, "items that were facially excludable from her final average salary.”

The Appellate Division, conceding that “material in the record that could support a different result,” held that the Retirement System could “rationally concluded from the above evidence that the 2001-2002 and 2002-2003 salary increases were made in anticipation of [Palandra’s] retirement and excluded them from her final average salary."

The court also rejected Palandra’s claim that the System's “otherwise rational determination” was rendered arbitrary and capricious by the delay in issuing it.

The decision is posted on the Internet at:
http://www.courts.state.ny.us/reporter/3dseries/2011/2011_04357.htm

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