Retirement and Social Security Law excludes “large raises having the effect of inflating the members final average salary” in determining the member’s retirement allowance

The Retirement and Social Security Law excludes “large raises having the effect of inflating the members final average salary” in determining the member’s retirement allowance
Chichester v DiNapoli, 2013 NY Slip Op 05283, Appellate Division, Third Department

Gilbert L. Chichester was employed as the Executive Director of the Montgomery-Otsego-Schoharie Solid Waste Management Authority (MOSA) from December 1, 1993 through December 2004 pursuant to a series of employment contracts.

In December 2004, Chichester's then-current employment contract expired without a new agreement in place. MOSA's Board and Chichester entered into an oral agreement providing for Chichester’s continued employment and compensation pending further contract negotiations.

No agreement had been reached as of January 2006 and MOSA's Board adopted a resolution imposing retroactive salary increases for Chichester for 2004, 2005 and 2006. Negotiations, however, continued and, on August 20, 2009, Chichester and MOSA entered into a written employment contract covering the period from January 1, 2005 to August 31, 2009. That contract “retroactively increased Chichester's annual base salary and resulted  in certain lump-sum payments being made to Chichester.* The same day Chichester and MOSA entered into a separate agreement indicating Chichester's intention to resign from his position effective August 31, 2009 and to thereafter retire.

When Chichester submitted his application for service retirement effective September 23, 2009 to the New York State and Local Employees' Retirement System, the System advised him that the retroactive lump-sum payments he received in August 2009 (covering the period from September 1, 2006 to August 31, 2009) would not be included in the calculation of his final average salary for purposes of determining the pension portion of his retirement allowance.

The Retirement System explained that “such payments were not annual compensation but, rather, represented either a form of termination pay or additional compensation paid in anticipation of [Chichester’s] retirement.”

Chichester challenged that administrative decision and following a hearing, the Hearing Officer concluded that the "lump-sum" payments should be included in Chichester’s final average salary. The Comptroller disagreed and excluded such payments from Chichester’s retirement benefit calculation and Chichester filed a petition pursuant to CPLR article 78 challenging the Comptroller’s determination.

The Appellate Division said that its case law makes clear that "the Comptroller is vested with exclusive authority to determine applications for retirement benefits and such determination, if supported by substantial evidence, must be upheld" even if other evidence in the record could support a contrary result.

The Retirement and Social Security Law [RSSL] provides that a member's pension benefit is based upon his or her final average salary, i.e., "the average salary earned by such . . . member during any three consecutive years which provide the highest average salary." However, RSSL §431further provides that to avoid the artificial inflation of that such calculation must exclude "any form of termination pay" or "any additional compensation paid in anticipation of retirement."

The Appellate Division then observed that "In determining what constitutes termination pay or compensation paid in anticipation of retirement, [it] must look to the substance of the transaction and not to what the parties may label it."

Although, noted the court, the arguments advanced by Chichester “arguably militates in favor of a finding that the lump-sum payments at issue indeed were regular salary payments,” the Appellate Division said that it could not overlook the fact that “the underlying employment agreement expired by its own terms as of August 31, 2009 — a mere 11 days after it was signed by [Chichester] and MOSA's chair — and, more to the point, was executed the same day that [Chichester] and MOSA entered into an agreement relative to Chichester's resignation (effective August 31, 2009) and retirement” and, the retroactive salary increases were disproportionate to the salary increases previously enjoyed by Chichester.

Here, said the court, "the timing of [Chichester’s] large raise[s] … had the effect of inflating [Chichester’s] final average salary." Accordingly the Appellate Division ruled that the Comptroller's exclusion of such sums from Chichester‘s final average salary and corresponding retirement benefit calculation was supported by substantial evidence.

* Chichester‘s base salary was increased incrementally from $73,254 as of August 31, 2006 to $115,000 as of August 31, 2009.

The decision is posted on the Internet at:

http://www.nycourts.gov/reporter/3dseries/2013/2013_05283.htm