Pension boosting offered to encourage retirement or to encourage an individual not to retire may not be “pensionable compensation” for the purposes of the Retirement and Social Security Law

The Court of Appeals sustained the New York State Comptroller’s decision that a New York - New Jersey Port Authority [Authority] compensation adjustment program [Program] that “artificially enhanced certain employees' final average salaries”* were not “pensionable compensation” under Retirement and Social Security Law §431(3).** The Authority’s Program served “to increase ... retirement benefits” for employees and thus, said the Court, "any additional compensation paid in anticipation of retirement" must be excluded from final average salary calculations.”

The Court opined that “[g]overnment pensions are based on employees' regular average salaries. All New York State employees rely on the integrity of the pension system. The protection against its manipulation is one of the Comptroller's primary responsibilities.

The genesis of the Program was a statutory retirement incentive program*** that offered additional pension benefits to certain public employees if they retired before the end of the 2002. The purpose of the retirement incentive was "to achieve cost-savings for public employers and to avoid layoffs of public employees in th[e] time of fiscal need" following the September 11 attacks. However the Authority employees [Petitioners] in this CPLR Article 78 action were key executives of the Authority and  exempted from the Program. As an alternative, the Authority’s Chief Administrative Officer [CAO] recommended "a compensation adjustment program" that would "achieve [an] equivalent level of pension benefit for" employees, including [the CAO] who would be exempted from the retirement incentive.”

A Retirement System member's pension benefit depends upon their final average salary, i.e., "the average salary earned by … a member during any three consecutive years which provide the highest average salary" (Retirement and Social Security Law §443 [a]). The CAO suggested a salary increase to replicate the level of pension benefit that the executive employees would not otherwise be able to receive and the CAO’s proposal was adopted as a "retention program" the Petitioners signed letter agreements acknowledging their exemption from the retirement incentive and their acceptance of the "retention program," which was described as being "designed to provide a limited number of staff members with a parity' benefit" and received “the promised pay raises, which ranged from 4.5% to 11% of salary and were included in biweekly payroll checks, for periods ranging from nine months to ten years.”

Subsequently all Petitioners received determination letters from the New York State and Local Employees Retirement System [ERS], stating that the compensation adjustment payments should have been, or (in the case of the last three) would be, excluded from final average salaries for pension calculation purposes. ERS explained that the allowances were "retention payments made to delay retirement," and constituted "compensation paid in anticipation of eventual retirement." RSSL §431, however, provides that "[i]n any retirement or pension plan to which the state or municipality thereof contributes, the salary base for the computation of retirement benefits shall in no event include … any additional compensation paid in anticipation of retirement" (Retirement and Social Security Law §431 [3].”

The Hearing Officer found that the Authority had given "each of the applicants additional compensation to increase their final average salaries so that their pensions would equal what their pensions would have been had they been eligible for the retirement incentive and taken it in December 2002" and ruled that the ERS had acted reasonably in excluding the allowance payments from final average salary, concluding that ERS "had the authority to determine what payments were excludable as . . . made in anticipation of eventual retirement . . . , whether the applicant joined ERS before or after the effective date of § 431." The Executive Deputy Comptroller adopted these findings and conclusions and denied petitioner employees' applications for reconsideration.

The Appellate Division annulled the Comptroller's determination, granted the petition, and remitted the matter to the Retirement System (164 AD3d 1038 [3d Dept 2018]). The Court concluded that the "payments are more appropriately characterized as . . . made to delay petitioners' retirements, not to artificially inflate their final average salary in anticipation of retirement."****

RSSL §431 provides that "retirement benefits are to be computed on the basis of an employee's regular salary and not on any kind of termination pay or other form of additional compensation paid in anticipation of retirement." The salary base for the computation of retirement benefits “shall in no event include any of the following earned or received, on or after April first, nineteen hundred seventy-two:”

1. Lump sum payments for deferred compensation, sick leave, accumulated vacation or other credits for time not worked;

2. Any form of termination pay;

3. Any additional compensation paid in anticipation of retirement; or

4. That portion of compensation earned during any twelve months included in such salary base period which exceeds that of the preceding twelve months by more than twenty per centum."

However “pension boosting” may be made available to encourage individuals “to retire early” by promising an enhanced pension or may be offered in other contexts, including in exchange for a promise not to retire, as demonstrated by the decision in Thompson v New York State Teachers' Retirement Sys., 78 AD3d 1456.

Finding that the record contains substantial evidence supporting the Comptroller's determination that the Authority provided the compensation adjustments “to artificially increase the executive employees' final average salaries so that, upon retirement, they would receive pension increases roughly equivalent to those they would have received under the retirement incentive program” and supports the conclusion that the compensation, by design, was made in anticipation of petitioner employees' retirement within the meaning of the statute, the Court of Appeals reversed the ruling of by the Appellate Division and dismissed the petition.

* The decision characterizes such employees as “ executive employees” of the Authority.

** The Authority is a participating employer in the New York State and Local Employees Retirement System.

*** See Chapter 69 of the Laws of  2002.

**** See 164 AD3d at 1040.

The decision is posted on the Internet at:
http://www.nycourts.gov/reporter/3dseries/2020/2020_00997.htm

Employee alleges employer ignored her sexually hostile work environment and the negligent supervision claims

Plaintiff's claim of negligent supervision was based on, among other things, Office for People with Developmental Disabilities, an agency of  State of New York [collectively "Defendants"]  alleged failure to properly supervise its employees by allowing acts and words of retaliation against her following her report of patient abuse by another supervisor and her assistance in the investigation of that abuse.

Following a trial, a jury found in plaintiff's favor on the sexually hostile work environment and the negligent supervision claims against Defendants and dismissed the sexual harassment claim against a named individual defendant. Plaintiff was awarded $300,000 in damages on her sexually hostile work environment claims and $200,000 in damages on her negligent supervision claim.

Supreme Court denied Defendants' subsequent motion to set aside the jury verdict or, in the alternative, to order a new trial, and partially granted plaintiff's request for counsel fees. Defendants appeals from the judgment entered upon the jury verdict and from the order denying its postverdict motion. Plaintiff cross-appeals from that part of the order as partially denied her request for counsel fees.

Considering Defendants' argument that the jury verdict was unsupported by legally sufficient evidence and against the weight of the evidence the Appellate Division said that "A verdict may be set aside as unsupported by legally sufficient evidence where 'there is simply no valid line of reasoning and permissible inferences which could possibly lead rational [people] to the conclusion reached by the jury on the basis of the evidence presented at trial.'" In contrast, citing Matter of Grancaric, 68 AD3d 1279 the court explained that a jury verdict will be stricken as against the weight of the evidence "where the proof so preponderated in favor of the unsuccessful party that the verdict could not have been reached on any fair interpretation of the evidence."

Addressing Plaintiff's sexually hostile work environment claims, the decision noted that "an individual plaintiff must show that his or her workplace was permeated with discriminatory intimidation, ridicule, and insult that is sufficiently severe or pervasive to alter the conditions of [his or her] employment and create an abusive working environment" and all circumstances must be considered, including the frequency of the alleged discriminatory conduct; its severity; whether it was physically threatening or humiliating, or a mere offensive utterance; and whether it unreasonably interfered with [an employee's] work performance.

In addition, the Appellate Division, citing Forrest v Jewish Guild for the Blind, 3 NY3d 298, opined that "the workplace must be both subjectively and objectively hostile" whereby a plaintiff must not only perceive that the conditions of his or her employment were altered because of discriminatory conduct, but the conduct must also "have created an objectively hostile or abusive environment — one that a reasonable person would find to be so."

However, as the Court of Appeals held in State Div. of Human Rights v St. Elizabeth's Hosp., 66 NY2d 684, "An employer cannot be held liable for an employee's discriminatory act unless the employer became a party to it by encouraging, condoning, or approving it." Further, "An employer's calculated inaction in response to discriminatory conduct may, as readily as affirmative conduct, indicate condonation," while an employer may "disprove condonation by a showing that it reasonably investigated complaints of discriminatory conduct and took corrective action.

Rejecting Defendants' argument that the verdict on the hostile work environment claims should have been set aside because it was not based on legally sufficient evidence and was contrary to the weight of the evidence, the Appellate Division held that "the evidence clearly supports the finding that Defendants knew or should have known of [the Plaintiff's coworker's] harassing conduct and failed to take appropriate action" and reached the same conclusion with regard to Plaintiff's negligent supervision claim.

Addressing Defendants' challenge to the amount of damages awarded by the jury, the Appellate Division opined that "a court may set aside a jury award of damages when that award 'deviates materially from what would be reasonable compensation' ... [and a] "A challenge to damages will only be successful where the record evidence preponderates in favor of the moving party to such a degree that the verdict could not have been reached on any fair interpretation of the evidence."

The Appellate Division, considering the jury awarding Plaintiff $300,000 on the hostile work environment claims and $200,000 on the claim against Defendants for negligent supervision, ruled that considering "limited evidence of Plaintiff's psychological trauma and the lack of medical proof as to the effects of the sexual harassment and coworker retaliation upon her" said that the award for damages on the hostile work environment claims should be reduced to $150,000 and the award on the negligent supervision claim should be reduced to $100,000, for a total award of $250,000.

Addressing Petitioner's objection to Supreme Court's reduction of counsel fees to 60% of the $344,067.94 of amount requested in fees and expenses, the Appellate Division concluded that there was no basis upon which to disturb the award made by the lower court. However, the Appellate Division's order included a provision for new trial on the issue of damages "unless, within 20 days after service of a copy of the order herein, Plaintiff stipulates to reduce the total award for said claims to $250,000, in which event said judgment and order, as so modified, are affirmed."

The decision is posted on the Internet at:

http://www.nycourts.gov/reporter/3dseries/2020/2020_00897.htm

Final order

Addressing Petitioner's objection to Supreme Court's reduction of counsel fees to 60% of the $344,067.94 of amount requested in fees and expenses, the Appellate Division concluded that there was no basis upon which to disturb the award made by the lower court. However, the Appellate Division's order included a provision for new trial on the issue of damages "unless, within 20 days after service of a copy of the order herein, Plaintiff stipulates to reduce the total award for said claims to $250,000, in which event said judgment and order, as so modified, are affirmed."

The decision is posted on the Internet at:

http://www.nycourts.gov/reporter/3dseries/2020/2020_00897.htm

Arbitration award challenged on the grounds the arbitrator exceed his authority and it violated strong public policy

Plaintiff in this CPLR Article 75 appealed of a Supreme Court's denial of her petition to vacate an arbitration award, contending [1] the award violates strong public policy and [2] the arbitrator exceeded his authority as limited by the Demand to Arbitrate.

The Appellate Division, pointing out that CPLR §7511(b) sets forth the statutory grounds for vacating an arbitration award, noted that such statutory grounds an arbitrator exceeded or imperfectly executed his power. However, opined the court, “an award will not be overturned unless the award violates a strong public policy, is totally irrational or exceeds a specifically enumerated limitation on the arbitrator's power” and that the grounds for vacating an arbitration award are narrowly construed.

With respect to vacating an arbitration award on the grounds that it violates strong public policy, the Appellate Division, citing Matter of Reddy v Schaffer, 123 AD3d 935, said that a court will do so "only where [the] court can conclude, without engaging in any extended fact finding or legal analysis, that a law prohibits the particular matters to be decided by arbitration, or where the award itself violates a well defined constitutional, statutory or common law of this state."

Further, the Appellate Division explained that exceeding expressly enumerated limits on an arbitrator's authority “is a separate basis to invalidate an award as an excess of authority” and which authority is typically set out in the arbitration clause of an agreement, in a statute, or in a notice or demand for arbitration. Significantly, the court noted that “[e]ven where a claim is otherwise arbitrable, the scope of the arbitration is still limited to the specific issues presented and may not extend to those that are materially different or legally distinct.

In addition, the decision cited Matter of United Fedn. of Teachers, Local 2, AFT, AFL-CIO v Bd. of Educ. of City School Dist. of City of N.Y., 1 NY3d 72, in which the Court of Appeals held that “[a] public policy argument may be raised for the first time on a motion to vacate, and should be considered by the court.”

The decision is posted on the Internet at:
http://www.nycourts.gov/reporter/3dseries/2020/2020_00923.htm

STATE COMPTROLLER DiNAPOLI RELEASES ANALYSIS OF EXECUTIVE BUDGET

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New York's State Comptroller encourages transparency during Medicaid redesign team's deliberations, raises concerns about accounting changes.

Despite projections for healthy gains in tax receipts and continued growth in the economy, the State Fiscal Year (SFY) 2020-21 Executive Budget reflects significant fiscal challenges related, in part, to higher than expected spending in the Medicaid program, according to an analysis released today by New York State Comptroller Thomas P. DiNapoli. With a budget deadline soon approaching, more than a third of the Executive’s proposed nearly $7 billion gap-closing plan remains to be identified by the Medicaid Redesign Team (MRT), creating uncertainty for Medicaid beneficiaries, providers, local governments and the state budget.

DiNapoli also raised concerns about transparency and accountability, including proposed statutory changes that could distort the reporting of revenue and spending in the state’s financial statements and allow the Executive to spend beyond the amounts approved by the legislature. Other proposals would weaken oversight.

“New York’s economy is expanding but the state is still facing a serious budget gap. It’s imperative the Medicaid Redesign Team seek broad input on the root causes and options for addressing rising Medicaid costs,” DiNapoli said. “There is limited time for deliberations before the budget deadline. The state needs to identify long-term solutions for the millions of New Yorkers that rely on Medicaid and the taxpayers who will be footing the bill. Failure to effectively solve the Medicaid problem may result in harmful impacts in other areas of the budget this year and going forward.”

The MRT is charged with identifying savings that can lead to financial sustainability of the program, including meeting the goal of having “zero impact on local governments and zero impact on beneficiaries.” The budget also proposes linking state funding of the local share of certain Medicaid costs to the property tax cap. It is unclear how the budget proposals or any recommendations by the MRT will achieve these potentially conflicting goals.

The Executive budget assumes a second consecutive deferral across fiscal years of $1.7 billion in Medicaid costs. DiNapoli said the deferrals are troubling reminders of historical practices that resulted in a large accumulated structural deficit.

DiNapoli’s analysis also raised concerns about the Medicaid Global Cap. The cap was established in 2011 to promote cost containment efforts, but actions since then have moved various elements of Medicaid spending into or out of the cap. The shifting of the $1.7 billion into SFY 2019-2020, an effort to avoid exceeding the cap, contributed to the ongoing delay in addressing the program’s increasing fiscal challenges.

The financial plan projects SFY 2020-21 total spending at $178 billion, up 1.2 percent. Spending from State Operating Funds is estimated to increase by 1.9 percent. DiNapoli said after adjusting for prepayments and other identifiable budgetary actions, the increase is estimated at 3.1 percent.

The Comptroller urged the Executive to remove language in the 30-day amendment period that seeks to require the comptroller’s cash-basis reports to classify receipts and disbursements in accordance with provisions established by budget legislation. This proposal raises a potential conflict with Article V, Section 1 of the State Constitution, which grants the Comptroller the power to determine accounting methods, and is troubling with respect to transparency and accuracy in financial reporting. Related to this issue, proposed new language would broadly authorize netting of certain revenue against disbursements. Among other concerns, this would cloud the picture of true spending growth and potentially results in significant expenditures beyond the appropriations approved by the legislature.

DiNapoli called the Division of Budget’s plan to deposit $428 million into the Rainy Day Reserve Fund at the end of the current fiscal year a positive step. However, the report noted New York’s rainy day reserves are less than half their authorized levels and no additional deposits are planned. The Comptroller has advanced a proposal to provide a disciplined, consistent approach to building these reserves. This would help ensure that more robust reserves will be available in the event an economic downturn or catastrophic event merits their use. 

The Comptroller’s report also finds:

● School Aid would increase by $826 million, or 3 percent, to $28.5 billion in the coming school year. This increase is less than the 4 percent growth allowable under a statutory limit related to personal income in the state;

● Funding for most local governments aid programs would be held flat, continuing a trend in recent years of decreases or level funding in such areas. These include Aid and Incentives for Municipalities, also known as AIM, the largest unrestricted aid program for local governments, as well as major funding for streets, highways and bridges;

● Total capital spending over the current and next four years is projected at $66.7 billion, little changed from the estimate based on the SFY 2019-20 Enacted Budget. Projected transportation spending is increased $3.3 billion, partly offset by certain unspecified reductions from the previous plan. The budget would appropriate $3 billion for the Metropolitan Transportation Authority’s 2020-2024 capital program, although funding sources are not identified;

● The budget recommends presenting a $3 billion Restore Mother Nature General Obligation (GO) Bond Act to the voters that, if approved, would provide funding to restore habitats, reduce flood risks, improve water quality, protect open space, expand the use of renewable energy and support other environmental projects. DiNapoli said that having voters weigh in on new state debt is a sound approach;

● The budget would authorize an additional $10.3 billion in new state-supported debt, all to be issued by public authorities except the proposed $3 billion Restore Mother Nature GO Bond Act. Outstanding state-supported debt is projected to rise 20.3 percent, and annual debt service 48.4 percent, by SFY 2024-25; and

● The Executive anticipates elimination of 2,500 state prison beds in the coming fiscal year, and a $181.5 million reduction in spending for the Department of Corrections and Community Supervision, partly reflecting budget language that would authorize additional prison closures.

For the full Report click on:

State Fiscal Year 2020-21 Executive Budget Analysis

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