Maurice O'Shea filed a timely appeal under G. L. c. 32, s. 16 (4) of the April 4, 2007 decision of the State Board of Retirement ("Board") to deny his request to have the cash housing allowance he received as a college president treated as regular compensation for purposes of calculating his retirement allowance because he retired prior to July 2, 2002. (Exs. 1, 2)
I held a hearing on April 17, 2008 at the office of the Division of Administrative Law Appeals, 98 North Washington Street, Boston. I admitted documents into evidence. (Exs. 1 - 16) I marked the joint Stipulation of Facts "A" for identification, the Petitioner's pre-hearing summary of contentions "B" for identification, and the Respondent's pre-hearing memorandum "C" for identification. The Petitioner testified. There is one tape cassette of the hearing.
I informed the parties that I would delay issuing this decision to be contemporaneous with the issuing of my decision in the consolidated cases of Gerard Burke, et al. v. State Board of Retirement, CR-07-293; 296; 298; 316; 316; 360; and 362, heard on June 19, 2008. The issue in the instant case is identical to the issue in the consolidated cases.
FINDINGS OF FACTS
1. Maurice O'Shea worked at Bunker Hill Community College ("BHCC") from September 9, 1973 to July 8, 1999 when he retired for superannuation. ("A")
2. From September 28, 1995 to February 13, 1997, Mr. O'Shea served as the Interim President of BHCC with an annual salary of $90,000. ("A")
3. The Board calculated Mr. O'Shea's pension based on his three highest years of salary from October 1, 1995 to October 1, 1998. ("A")
4. In 1995, Mr. O'Shea received a total of $2,250.00 as a housing allowance, payable in monthly installments, in addition to his salary. ("A")
5. In 1996, Mr. O'Shea received a total of $10,500.00 as a housing allowance, payable in monthly installments, in addition to his salary. ("A")
6. In 1997, Mr. O'Shea received a total of $1,500.00 as a housing allowance, payable in monthly installments, in addition to his salary. ("A")
7. No retirement deductions were taken from Mr. O'Shea's total housing allowance of $14,250.00 from October 1, 1995 to February 13, 1997. ("A")
8. In or about June 1999, prior to his retirement, Mr. O'Shea went to the Board and spoke with a retirement counselor. Mr. O'Shea asked whether his cash housing allowance would be included in his retirement calculation. The retirement counselor told him that his cash housing allowance would not be included in his retirement calculation. (Testimony)
9. By letter of July 2, 2002, the General Counsel of the Office of the Community College Counsel ("OCCC") asked the Public Employee Retirement Administration Commission ("PERAC") whether a housing allowance was subject to retirement deductions. (Ex. 10, "A")
10. By letter of July 19, 2002, PERAC referred the inquiry to the Board. (Ex. 10, "A")
11. By letter of September 4, 2002, OCCC requested an opinion from the then Executive Director of the Board about whether a cash housing allowance received by a community college president was considered regular compensation. (Ex. 9, "A")
12. By letter of September 18, 2002, the Board informed OCCC that it did not consider the cash housing allowance to be regular compensation. (Ex. 9, "A")
13. By letter of June 27, 2003, the President of Mount Wachusett Community College, Daniel Asquino, requested to meet with the Executive Director or the Board who was then Ellen Philbin. (Ex. 9, "A")
14. By letter of July 3, 2003, the new Executive Director of the Board, Nicola Favorito, responded to President Asquino's request for a meeting. (Ex. 9, "A")
15. By letter of August 12, 2003, President Asquino thanked Mr. Favorito and Board staff for meeting with him and several other community college presidents on August 8, 2003. (Ex. 9, "A")
16. By letter of November 16, 2006, Mr. O'Shea requested that the Board recalculate his pension by including the cash housing allowance he received as regular compensation, in light of "a recent court decision." (Ex. 3, "A")
17. By letter of December 29, 2006, Mr. Favorito requested that Mr. O'Shea supply further documentation from Bunker Hill Community College to confirm the amounts and time periods during which he received a cash housing allowance. (Ex. 4)
18. Mr. O'Shea responded by letters of January 4, 2007 and March 9, 2007. (Exs. 5, 6)
19. At its meeting of March 29, 2007, the Board adopted a policy to allow the inclusion of the cash housing allowances provided to college and university presidents as regular compensation for those college and university presidents (1) who are member of the State Employees' Retirement System; (2) who retired on or after July 2, 2002; (3) who have submitted requests to the Board for the inclusion of said housing allowance, and have been reviewed and approved by the Board; and (4) who submit payment of any applicable retirement contributions and interest related to the housing allowance. (Ex. 8)
20. At its meeting of March 29, 2007, the Board voted to deny Mr. O'Shea's request to have his cash housing allowance treated as regular compensation for retirement purposes because he retired prior to July 2, 2002. (Ex. 1, "A")
21. In April 2007, the Board sent a Memorandum to all University, State College, and Community College Human Resource Directors notifying them of the Board's policy with respect to cash housing allowances and non-cash maintenance allowances. The memo explained that for those college presidents who met the criteria of the Board's policy, "the retirement allowance would be adjusted retroactively to the effective date of retirement after the Board receives the applicable retirement contributions and interest related to the receipt of the cash housing allowance." (Ex. 7, "A")
22. By letter of April 12, 2007, Mr. O'Shea appealed the Board's decision.
(Ex. 2, "A")
CONCLUSION AND ORDER
The decision of the State Board of Retirement is reversed. The Board shall recalculate the retirement allowance of Maurice O'Shea to include his cash housing allowance as regular compensation, after Mr. O'Shea pays to the Board the retirement deductions that would have been taken from his housing allowance, plus interest. The recalculated retirement allowance shall be calculated in accordance with G. L. c. 32, s. 20(5)(c)(2) to account for payments that should have been made since the Petitioner's date of retirement.
G. L. c. 32, s. 1 provides in pertinent part:
'Regular compensation' … shall mean the 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 payments made as a result
of giving notice of retirement …
A superannuation retirement allowance is based on the member's age, his years of creditable service, and his annual average rate of regular compensation received during any period of three consecutive years of creditable service, or during the last three years of creditable service preceding retirement, whichever is greater. (G. L. c. 32, s. 5(2)(a)) The Supreme Judicial Court has held that a monthly cash housing allowance paid to a University President is regular compensation for purposes of calculating his retirement allowance. Bulger v. Contributory Retirement Appeal Board, 447 Mass. 651 (2006).
At its meeting on March 29, 2007, the Board considered three options for implementing the Bulger decision: (1) to apply the housing allowance retroactively to individual retirement dates, after payment of retirement contributions from college presidents; (2) to apply the housing allowance to those who retired on or after July 2, 2002, the date PERAC received a written inquiry from the General Counsel of the Office of the Community College Counsel, after payment of retirement contributions from college presidents; or (3) to apply the housing allowance prospectively only. The Board voted to apply the housing allowance only to those who retired on or after July 2, 2002. The Board outlined its policy in a memorandum of April 2007. Those state, community college and university presidents who may have their retirement allowances recalculated to include their cash housing allowances are those who are members of the State Employees' Retirement System; who retired on or after July 2, 2002; who have submitted requests to the Board for inclusion of the housing allowance; who have received the Board's approval; and who submit payment of any applicable retirement contributions and interest related to the housing allowance.
The Board argues that this policy is reasonable and generous. The Board argues that: (1) this Petitioner lacks standing to have his retirement allowance recalculated because he did not raise the issue prior to retirement, thereby waiving his right to raise the issue post-retirement; (2) any post-retirement change to these pensions would be harmful to the system as a whole; and (3) nothing in the Bulger decision mandates that the decision be applied retroactively. The Board's arguments are without merit.
Standing and failure to raise the issue prior to retirement
The Petitioner did not waive the right to have the Board correct an error in calculation of his retirement allowance, as the Board is required to do under G. L. c. 32, s. 20(5)(c)(2).
Section 20(5)(c)(2) provides that:
[w]hen…an error is made in computing a benefit and, as a result, a
member or beneficiary receives from the system more or less than the
member or beneficiary would have been entitled to receive…had
the error not been made, the … error shall be corrected and as far as
practicable, …future payments shall be adjusted so that the actuarial
equivalent of the pension or benefit to which the member or beneficiary
was correctly entitled shall be paid.
This paragraph is not discretionary and does not afford a retirement board the option of deciding, as a matter of policy, not to correct an error in calculation of a benefit made in the past. Under this section, the error is required to be corrected, regardless of whether or not the member requested the correct calculation or even knew of the mistake at the time it was made. The import of the Bulger decision was to establish that the Board's long-standing practice of not considering university presidents' housing allowances to be regular compensation for purposes of calculating the annuity savings deductions and benefit levels was erroneous as a matter of law under chapter 32 as it existed at the time the Petitioner retired. Accordingly, an error was made in the calculation of the Petitioner's benefit.
Even if this were not true, the Board's decision in each of these cases was erroneous because the July 2, 2002 cut-off is arbitrary and capricious.
Furthermore, the Petitioner did raise the issue of his housing allowance prior to retirement by speaking with a retirement counselor at the Board in 1999, prior to his retirement. The Petitioner asked whether his housing allowance would be included in his retirement allowance. The Board counselor told him that his housing allowance would not be included in his retirement allowance.
Even if the Petitioner had not raised the issue of his housing allowance prior to retirement, that would not be fatal to his case. There is no evidence that the college presidents who retired after July 2, 2002 ever raised the issue prior to retirement, yet the Board has decided to honor their post-retirement requests for inclusion of their housing allowances. The Board's policy grants to those who retired after July 2, 2002 the right to make the request now, and does not require a showing that the request was made prior to retirement. This demonstrates the arbitrary nature of the Board's decision. If the Board deems those who retired after July 2, 2002 who did not raise the housing allowance issue prior to retirement not to have waived their rights, then those who retired before July 2, 2002 without raising the housing allowance issue prior to retirement have not waived their rights either.
The Board argues that choosing July 2, 2002 as a cut-off date is a reasonable decision because that was the date that the General Counsel of the Office of the Community College Counsel requested an opinion from PERAC about housing allowances. "It is the Board's understanding that this correspondence was the first time the issue of whether a housing allowance would be included as regular compensation for retirement purposes was raised by any University, State or Community College President." ("C" for identification, p. 5). This argument is without merit, in view of the Petitioner's credible testimony that he raised the issue to a Board counselor in 1999 and was told the housing allowance would not be included in his retirement calculation. Furthermore, the issue of standing is governed by G. L. c. 32, s. 16(4) which extends the right to appeal the Board's decision to the Contributory Retirement Appeal Board ("CRAB") to "any person when aggrieved by any action taken or decision of the retirement board." The Petitioner is aggrieved by the Board's decision to deny him a financial benefit and he therefore has standing to appeal to CRAB.
Harm to the System
The Board contends that allowing the Petitioners who retired prior to July 2, 2002 to have their retirement allowance recomputed would do harm to the system, citing two cases that hold that post-retirement option changes are not allowable and would do harm to the "actuarial soundness" of the retirement system. Olga DiVittorio v. State Board of Retirement, CR-06-28 (DALA, 2006), citing Joseph Olsen v. State Board of Retirement, CR-1136 (CRAB, 1978). These cases are not relevant to the case at hand. Option selection is governed by statute (G. L. c. 32, s. 12), and there is no statutory provision allowing for post-retirement option changes. Moreover, option selection is a matter of the Petitioner's choice. The Petitioner had no choice in determining what would be included in his retirement calculation because regular compensation is defined by G. L. c. 32, s.1 and determined by the Board. The Board's counselor told the Petitioner that his housing allowance would not be used. The Board is required under G. L. c. 32, s. 20(5)(c)(2) to correct errors in computing a benefit, as previously discussed, without regard to the actuarial consequence of the correction.
The Bulger decision should not be applied retroactively
The Board argues that nothing in the Bulger decision mandates that its holding be applied retrospectively to those already retired. This is a specious argument, in view of the fact that the Board voted to apply the case retroactively to those who retired after July 2, 2002. Furthermore, the Bulger case is not a new law. It is an interpretation of a statutory provision that the Board has historically misinterpreted. The Board must now correct its error with respect to all Petitioners who have been harmed by the Board's error.
The decision of the Board is reversed. The Petitioner's retirement allowance shall be recalculated to include his cash housing allowance as regular compensation, after the Petitioner pays to the system the retirement deductions, plus interest, that should have been withheld.
DIVISION OF ADMINISTRATIVE LAW APPEALS
/s/ Maria A. Imparato