December 19, 2018

Correcting errors made in determining an individual's retirement allowance even after benefits are awarded

Correcting errors made in determining an individual's retirement allowance even after benefits are awarded
Smith v DiNapoli, 2018 NY Slip Op 08606, Appellate Division, Third Department

A one-time, 30-day overtime pay earned in the last year of a member's employment is excluded from the member's final average salary calculation as such payments are deemed "termination pay" within the meaning of  §302(9)(d) of the Retirement and Social Security Law [RSSL].

A member [Retiree] of the New York State and Local Retirement System [ERS] retired in August 1998 and commenced receiving his retirement pension. In 2012, ERS notified Retiree that it had reviewed the calculation of his final average salary used to compute his retirement benefits and determined that his one-time, 30-day overtime pay earned in the last year of his employment should have been excluded from the final average salary as mandated by §302(9)(d). Retiree challenge the determination but the Comptroller adopted a Hearing Officer decision that the 30-day overtime payment was properly excluded from Retiree's final average salary as it constituted termination pay and compensation in anticipation of retirement and, as such, was not includable pursuant to RSSL §431(2) and (3). Retiree then appealed the Comptroller's decision.

Citing Matter of Chichester v DiNapoli, 108 AD3d. The Appellate Division confirmed the Comptroller's decision 924, the court explained that "[T]he 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."

As relevant here, Retiree's "final average salary" was defined as "the regular compensation earned from [the] employer during the twelve months of actual service immediately preceding the date of [retiree's] retirement," with certain exclusions permitted pursuant to RSSL §302[9][d]. This, said the Appellate Division was "In order to avoid the artificial inflation of that figure." In computing retirement benefits the base salary excludes, as pertinent here, "any form of termination pay" and "any additional compensation paid in anticipation of retirement."

Significantly, observed the court, "the determination of what constitutes termination pay or compensation in anticipation of retirement requires that we 'look to the substance of the transaction and not to what the parties may label it.'" As substantial evidence supported the Comptroller's determination that the payment for 30 days of overtime in retiree's final year of service is excludable in arriving at his final average salary, as it constituted a form of termination pay and compensation in anticipation of retirement.

In this instance the relevant employment contract provided that Retiree and certain other employees were required to work overtime without additional compensation until their final year of service, when they could accumulate and were paid for overtime actually earned upon their retirement, such overtime pay "restricted to one-time, one[-]year maximum of 30 days." Retiree conceded that this was taken in the final year to boost his retirement benefits.

Under these circumstances, the Appellate Division held that the Comptroller rationally excluded such sums from retiree's final average salary and corresponding retirement benefit calculation.

Retiree had contended that General Municipal Law §90 provides a basis upon which to permit the inclusion of overtime pay in his final average salary for purposes of calculating his retirement benefits. The court, noting that §90 permits the governing board of a political subdivision of the state to adopt an ordinance, local law, resolution or rule providing for the payment of overtime compensation to public officers and employees, and mandates that such payments be considered as salary or compensation for "the purposes of any pension or retirement system," this statute, which is strictly construed, requires that, for overtime payments to be considered as salary, they must be paid pursuant to "an overtime plan [adopted by the governing board] setting forth in detail the terms, conditions and remuneration for such employment."

As the overtime payment to Retiree was not made pursuant to such an ordinance or resolution adopted by the City Council., his reliance on a 1994 adopted by the City Council was "unavailing." That resolution indicated that the City Council had entered into a memorandum agreement with the police union regarding a labor relations contract, although neither document was provided. Further, observed the court, the resolution "merely authorized the mayor to enter into a labor agreement" with certain employees in the police department but there is no indication that the attached labor relations agreement entered into with Retiree and other nonunion employees — which restricted overtime to a "one-time, one[-]year maximum of 30 days" of overtime and contained no details — was ever approved by the City Council. Indeed, said the Appellate Division, that agreement expressly stated that it was "subject to approval by the City Council."

Finally, the Appellate Division rejected Retiree's argument that the Comptroller is estopped* from correcting the error due to the passage of time. Rather, said the court, "[T]he Comptroller is statutorily required to correct errors in the retirement benefits records and adjust payments accordingly to ensure the integrity of the public retirement system,"** citing Matter of Mowry v DiNapoli, 111 AD3d 1117 and RSSL §111 [c]). Indeed, said the court, noting the decision in Matter of Schwartfigure v Hartnett, 83 NY2d 296, the Comptroller's duty to correct errors is ongoing, and continues even after benefits are awarded and includes the right to recoup overpayments.

* As a general rule, estoppel may not be invoked against the state or its agencies absent a "showing of fraud, misrepresentation, deception, or similar affirmative misconduct, along with reasonable reliance thereon."

** It is assumed that this duty extends to correcting errors that resulted in a retiree receiving less that the amount to which he or she was entitled.

The decision is posted on the Internet at:


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