A Tier 4 member [Petitioner] of the New York Teachers' Retirement System [TRS] retired and commenced receiving a monthly retirement allowance that included a "pension" benefit.
Petitioner subsequently received a letter from TRS advising that it was removing certain payments he had received from the School District during the last three years of his employment — i.e., a technology/wellness allowance, vacation buyback payments and raises he received outside of a negotiated agreement — from the calculation of his final average salary [FAS] for the purpose of determining his pension benefit. This change resulted in Petitioner receiving "a reduced benefit amount". Petitioner challenged TRS's determination.
Ultimately TRS issued a final determination in May 2022, which included the raise Petitioner received during the 2018-2019 and 2019-2020 school years in the calculation of Petitioner's FAS, but excluded a technology/wellness allowance and vacation buyback payments from this calculation.
Petitioner initiated a CPLR Article 78 proceeding contending TRS's determination was arbitrary and capricious. After receiving additional documentary evidence, TRS issued a revised determination that found Petitioner's entire reported salary for 2019-2020 — i.e., when he was promoted to deputy superintendent — pensionable, but TRS adhered to its original determinations regarding the 2017-2018 and 2018-2019 school years. In addition, TRS "capped the increases" in Petitioner's salary for the three years used to calculate his FAS at 10% of his average salary for the preceding two years.
Petitioner filed an amended petition challenging TRS's revised final determination, which was dismissed by Supreme Court. Petitioner appealed.
The Appellate Division affirmed the Supreme Court's ruling, explaining "Where, as here, "[a] challenged determination was made [by TRS] without a hearing, judicial review is limited to whether the determination is arbitrary and capricious and without a rational basis". Further, said the Appellate Division, "if the wages* earned during any year included in the period used to determine final average salary exceeds that of the average of the previous two years by more than [10%], the amount in excess of [10%] shall be excluded from the computation of final average salary".
Additionally, the Appellate Division observed that when determining a member's base salary for the purpose of computing retirement benefits, "lump sum payments for sick leave, annual leave or any other form of termination pay" are excluded, as are any form of termination pay "to prevent artificial inflation of final average salary by payments made in anticipation of retirement".
In determining what constitutes average regular compensation within the meaning of the statute, the Appellate Division opined that courts "must look to the substance of the transaction and not to what the parties may label it".
Petitioner had given up a technology/wellness stipend during the 2017-2018 school year in exchange for the cash value of the stipend being rolled into his base salary. This was consistent with the terms of the relevant collective bargaining agreement, which deleted this benefit in exchange for increasing the salary step schedules of all unit members by the benefit amount.
Also noted was the fact that Petitioner's vacation time was also reduced from 30 to 20 days beginning in the 2017-2018 school year, with a prior option to sell back unused vacation time omitted from his employment contract. In exchange for giving up 10 days of vacation time Petitioner's base salary was also increased.
Notwithstanding "averments by School District officials to the contrary," after considering the totality of the record, the Appellate Division concluded that TRS could rationally determine that rolling the cash value of these benefits into Petitioner's reported salary for the 2017-2018 and 2018-2019 school years constituted payments made in anticipation of retirement that should be excluded from the calculation of Petitioner's FAS.
The Appellate Division also noted that the 10% cap is mandated by statute and Petitioner had cited no authority for the proposition that TRS has discretion to dispense with its application.
* The term "wages", said the court, refers to "regular compensation earned by and paid to a member by a public employer", citing Retirement and Social Security Law §601[l] [a]).
Click HERE to access the Appellate Division's decision posted on the Internet.