COMMONWEALTH OF MASSACHUSETTS

Suffolk, ss. DIVISION OF ADMINISTRATIVE LAW APPEALS

Appeal of:

James Deming,

Petitioner, Docket No. CR-07-674

v.

Middlesex Retirement Board,

Respondent.

Appearance for Petitioner:

Mary E. Bassett, Esq.

McWalter, Barron & Boisvert, PC
30 Monument Square
Concord, Massachusetts 01742

Appearance for Respondent:

Thomas F. Gibson, Esq.

Middlesex Retirement Board
25 Linnell Circle
P.O. Box 160
Billerica, Massachusetts 01865

Administrative Magistrate:

Natalie S. Monroe, Esq.

DECISION

The petitioner, James Deming, is appealing the Middlesex Retirement Board's determination that certain payments he received as the District Manager for the Water Supply District of Acton were not regular compensation within the meaning of G.L. c. 32, § 1. Mr. Deming timely appealed the decision in accordance with G.L. c. 32, § 16(4).

Pursuant to 801 CMR 1.01(10)(c), the parties agreed to waive a hearing and have the case decided on written submissions. On January 30, 2008, the Middlesex Retirement Board filed a memorandum of law, which I marked as Exhibit A for identification. On February 1, 2008, Mr. Deming filed a memorandum of law, which I marked as Exhibit B for identification. On the same date, the parties filed a joint stipulation of facts and a set of agreed-upon exhibits. I marked the joint stipulation of facts as Exhibit C for identification.

The following documents are in evidence:

Exhibit 1: Letter from the Middlesex Retirement Board to James Deming, dated August 29, 2007

Exhibit 2: Letter from Mary Bassett, Esq., to the Middlesex Retirement Board, dated August 17, 2007

Exhibit 3: E-mail from Thomas Gibson, Esq., to Mary Bassett, Esq., dated July 23, 2007

Exhibit 4: Petitioner's employment contract with the Commissioners of the Water Supply District of Acton, dated June 28, 2004

Exhibit 5: Petitioner's employment contract with the Commissioners of the Water Supply District of Acton, dated May 14, 2001

Exhibit 6: Affidavit of James L. Deming, dated January 9, 2008

Exhibit 7: Affidavit of Mary Jo Bates, dated January 23, 2008, with attachments

Exhibit 8: Affidavit of Stephen Stuntz, dated January 14, 2008

Exhibit 9: Mr. Deming's appeal, dated September 11, 2007

Findings of Fact

Based on the evidence presented, I make the following findings of fact:

1. James Deming has contributed to the Commonwealth's retirement system since 1975. (Stipulation at ¶ 1).

2. From 1996 to 2007, Mr. Deming worked as the District Manager of the Water Supply District of Acton (the "District"). (Stipulation at ¶¶ 2, 3).

3. During the eleven years that he worked as a District Manager, Mr. Deming had an employment contract with the Commissioners of the District (the "Commissioners"). (Exhibits 5, 6; Affidavit of James Deming at ¶¶ 3, 5, 6, 10).

4. Mr. Deming's first employment contract with the Commissioners contained the following provision:

Flexible Benefit Allowance

In addition to salary, the Commissioners shall provide … $3,000.00 per year, the purpose of which may be allocated by Mr. Deming in his sole discretion for health insurance, life insurance, retirement contribution, professional development, or any other benefits which are acceptable to the Commissioners.

(Affidavit of James Deming at ¶¶ 5, 7, 10; Affidavit of Stephen Stuntz at ¶ 5; Exhibit 5).

5. The Flexible Benefit Allowance originally was intended to allow Mr. Deming to purchase fringe benefits, such as life insurance. (Affidavit of Stephen Stuntz at ¶ 5).

6. After Mr. Deming's first year as the District Manager, both the Commissioners and Mr. Deming realized that the money would not be used to buy any fringe benefits. (Affidavit of James Deming at ¶¶ 8-9; Affidavit of Stephen Stuntz at ¶ 5).

7. All of Mr. Deming's subsequent employment contracts contained the same Flexible Benefit Allowance provision, except that by no later than 2001, the allowance had been increased from three thousand dollars to six thousand dollars. (Exhibits 4, 5; Affidavit of James Deming at ¶ 5).

8. When including this provision in Mr. Deming's subsequent employment contracts, the Commissioners and Mr. Deming intended the allowance to be part of Mr. Deming's annual compensation package. The money was not to be used to purchase fringe benefits. (Affidavit of James Deming at ¶¶ 8-9; Affidavit of Stephen Stuntz at ¶ 5).

9. Mr. Deming never used the Flexible Benefit Allowance to buy any fringe benefits. (Affidavit of James Deming at ¶ 8; Affidavit of Stephen Stuntz at ¶ 6).

10. During the time that Mr. Deming worked as the District Manager, he received the Flexible Benefit Allowance in a lump sum in June of each year. Mr. Deming preferred to receive the payment all at once at the end of the school year. (Affidavit of Stephen Stuntz at ¶ 5; Affidavit of Mary Jo Bates at Exhibit A).

11. During Mr. Deming's tenure as the District Manager, the Treasurer of the District took the required pension deductions from the Flexible Benefit Allowance and reported those deductions to the Middlesex Retirement Board (the "Board"). (Affidavit of Mary Jo Bates at ¶¶ 5, 6).

12. Starting in November 2000, Mr. Deming's employment contracts included the following provision:
Retirement Contributions

[Mr. Deming] shall contribute to the Middlesex Retirement Board a percentage of his salary as determined by the Board. Any amount exceeding 5% of his base salary shall be reimbursed to [Mr. Deming] in a lump sum payment equal to the amount in excess of 5% on the first payroll of the fiscal year.(Exhibits 4, 5; Affidavit of Mary Jo Bates at ¶ 7; Affidavit of Stephen Stuntz at ¶ 8).

13. The Commissioners included the retirement contribution provision (hereafter, the "2% Reimbursement") to give Mr. Deming a raise after they realized that he had lost two percent of his annual salary when he left his job with the City of Newton to work for the District. (Affidavit of Stephen Stuntz at ¶ 8).

14. During Mr. Deming's tenure as the District Manager, the Treasurer of the District took the required pension deductions from the 2% Reimbursement and reported those deductions to the Board. (Affidavit of Mary Jo Bates at ¶¶ 5, 6).

15. In 2004, the District paid Mr. Deming a one-time performance bonus. The District took pension deductions from the bonus and reported those deductions to the Board. (Stipulation at ¶ 5).

16. On June 30, 2007, Mr. Deming left his position as the District Manager. (Stipulation at ¶ 2).

17. On August 29, 2007, the Board advised Mr. Deming that the Flexible Benefit Allowance and the 2% Reimbursement were not regular compensation as defined in G.L. c. 32, § 1, and therefore could not be included in the calculation of his retirement allowance. (Exhibit 1).

18. The Board also determined that the performance bonus Mr. Deming had received in 2004 was not regular compensation. (Exhibit 1).

19. Mr. Deming appealed the Board's decision on September 11, 2007. (Exhibit 9).

20. On October 16, 2007, Mr. Deming filed an application for superannuation retirement, with an effective date of January 3, 2008. (Stipulation at ¶ 2).

Conclusion

After reviewing the evidence presented in this case, I conclude that the Flexible Benefit Allowance and the 2% Reimbursement are regular compensation and therefore should have been included in calculating Mr. Deming's retirement allowance. I affirm the Board's determination that the 2004 bonus is not regular compensation.

Chapter 32 of the General Laws defines regular compensation as follows:

salary, wages or other compensation in whatever form, lawfully determined for the individual service of the employee by the employing authority, not including bonus, overtime, severance pay for any and all unused sick leave, early retirement incentives, or any other payment made as a result of giving notice of retirement….

G.L. c. 32, § 1.

In Bower v. Contributory Retirement Appeal Board, 393 Mass. 427, 471 N.E.2d 1296 (1984), the Supreme Judicial Court ("SJC") stated that the term, "regular compensation,"seems to us to point to recurrent or repeated amounts of compensation not inflated by extraordinary ad hoc payments…. [M]oreover, "regular" as it modifies "compensation," imports the idea of ordinariness or normality as well as the idea of recurrence. All this contrasts with "overtime" and with the compendious "bonus" which are to be excluded from the compensation that figures in computing retirement benefits. Id. at 429, 471 N.E.2d at 1298 (internal citations omitted). See also Boston Ass'n of School Adm'rs & Supervisors v. Boston Ret. Bd., 383 Mass. 336, 419 N.E.2d 277 (1981) (contrasting ordinary, regular and recurring payments, which qualify as regular compensation, with bonuses, overtime and other ad hoc payments, which do not).

Mr. Deming received both the Flexible Benefit Allowance and the 2% Reimbursement every year in accordance with his employment contracts. Both were in exchange for services rendered; they were not bonuses, were not contingent on performance, and were not paid in anticipation of his retirement. See, e.g., 807 CMR 6.02 (2)(3) (the definition of regular compensation excludes "[a]ny other payment made as a result of the employer's having knowledge of the member's retirement"). The payments therefore qualify as regular compensation within the meaning of G.L. c. 32, § 1.

The 2% Reimbursement is similar to the housing allowance at issue in Bulger v. Contributory Retirement Appeals Board, 447 Mass. 651, 856 N.E.2d 799 (2006). In that case, the SJC held that a housing allowance that was paid to William Bulger when he was president of the University of Massachusetts qualified as "other compensation in whatever form" under G.L. c. 32, § 1. The SJC first stated: The use of the terms, "salary, wages or other compensation in whatever form," denotes, unquestionably in our minds, a legislative intent to include the many distinct ways in which individuals are paid for their services. As wages have a meaning apart from salary, so "other compensation in whatever form" must be understood to encompass all other forms of recurring payments for an employee's services, so long as the payments comport with the other requirements of § 1. Id. at 658, 856 N.E.2d at 805 (internal citations omitted; emphasis added). The SJC found that, while labeled a "housing allowance," both Mr. Bulger and his employer knew the money would never be used for housing. Rather, the allowance was "an enhancement of [Mr. Bulger's] compensation package … [intended to] motivate his interest in the presidency for another five-year term." Id. at 658-59, 856 N.E.2d at 805. The SJC concluded that the housing allowance payments were "recurrent," "regular," and "ordinary" remuneration for Mr. Bulger's services as president of the university. Consequently, they constituted "other compensation in whatever form" - and thus, regular compensation - within the meaning of G.L. c. 32, §1. Id.

Like the housing allowance in Bulger, the 2% Reimbursement was "an enhancement of [Mr. Deming's] compensation package," which the Commissioners added after they learned that Mr. Deming had lost two percent of his salary when he left his City of Newton job to work for the District. The 2% Reimbursement was not meant to reimburse Mr. Deming for his retirement contributions. Moreover, after Mr. Deming received the 2% Reimbursement as a raise in 2000, he continued to receive the payment every year until he left his position. In short, the 2% Reimbursement payments were "recurrent," "regular," and "ordinary" remuneration for Mr. Deming's services as District Manager. Consequently, the payments qualify as "other compensation in whatever form" and therefore are regular compensation under Chapter 32.

The Flexible Benefit Allowance is analogous to the stipend at issue in Olsen v. Teachers' Retirement Board, 70 Mass. App. Ct. 429, 874 N.E.2d 492 (2007). The dispute in Olsen involved whether stipends that were paid to teachers in exchange for the teachers' assumption of increased health insurance costs qualified as regular compensation pursuant to G.L. c. 32, § 1. In the first year, the amount of each teacher's stipend equaled five percent of the total annual premium that the teacher paid for his or her health insurance plan. Each year thereafter, the stipend increased in proportion to the teacher's general salary increase. Id. at 430-31, 874 N.E.2d at 494. The Appeals Court held that the stipends qualified as "other compensation in whatever form" under Chapter 32. The Court agreed with the plaintiffs' argument that the stipend [was] a recurrent or repeated amount of compensation and, after the first year, [was] not geared to the cost of health care or a teacher's continued participation in a city-offered health plan. 70 Mass. App. Ct. at 433, 874 N.E.2d at 496. The Court further found that "the stipend was not a bonus to induce early retirement, but rather an annual increase in salary dependent on the amount of general salary increase each year." Id. Consequently, the stipends were regular compensation as defined in G.L. c. 32, § 1.

Here, the Flexible Benefit Allowance originally was to be used to purchase fringe benefits. After the first year, however, Mr. Deming and the Commissioners considered it as part of the standard pay Mr. Deming received in exchange for services rendered. Both Mr. Deming and the Commissioners knew the money would not be used to buy fringe benefits and Mr. Deming in fact never bought any fringe benefits with the allowance. Like the stipends in Olsen, moreover, the Flexible Benefit Allowance was not tied to the actual cost of any fringe benefits, but was a lump sum (first $3,000 and then $6,000) negotiated between the Commissioners and Mr. Deming. Stated differently, the Flexible Benefit Allowance payments were "recurrent," "regular," and "ordinary" remuneration for Mr. Deming's services as District Manager of the District. Like the stipend in Olsen, therefore, the Flexible Benefit Allowance payments constitute "other compensation in whatever form" - and thus, regular compensation - within the meaning of G.L. c. 32, §1.

Finally, I conclude that the 2004 performance bonus paid to Mr. Deming is not regular compensation under Chapter 32. See, e.g., G.L. c. 32, § 1 (excluding bonuses from the definition of regular compensation); 804 CMR 15.03(2)(c) (bonuses, other than cost-of-living bonuses, are not regular compensation). Mr. Deming does not dispute this. See Petitioner's Memorandum of Law, dated February 1, 2008, at p. 3 n.1.

For the foregoing reasons, the Middlesex Retirement Board's decision to exclude the Flexible Benefit Allowance and the 2% Reimbursement from Mr. Deming's retirement calculation is reversed. Both payments fall within the definition of regular compensation and therefore must be included in the calculation of Mr. Deming's retirement allowance. The Board's decision to exclude the 2004 bonus from Mr. Deming's retirement calculation is affirmed.

SO ORDERED.

DIVISION OF ADMINISTRATIVE LAW APPEALS

Natalie S. Monroe
Administrative Magistrate

Date: March 31, 2008


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