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Pursuant to G. L. c. 32, § 16(4), the Petitioner, Watertown Retirement Board, is appealing the July 10, 2006 determination of the Respondent, PERAC, refusing to reconsider its calculation of the pension reimbursement level that the State Board of Retirement has to make each year toward the pension portion of the retirement allowance of a retiree of the Watertown Retirement System. (Exs. 6 & 7.) The appeal was filed September 26, 2006. (Ex. 8) The Watertown Retirement Board waived its right to a hearing and submitted its case on a documentary record under 801 CMR 1.01(10)(c). ("A") On January 2, 2008, I was assigned as the Division of Administrative Law Appeals (DALA) Administrative Magistrate to decide this appeal. Also on January 2, 2008, the Watertown Retirement Board filed its documentary submission, which included Exhibits 1-8, and a set of proposed findings of fact numbered 1 - 10. The Board included its legal arguments. ("B") PERAC had agreed to do its filing by January 31, 2008, but that date was extended to February 15, 2008 when the record closed. ("A") PERAC agreed to all the Exhibits and to all the proposed findings of fact. PERAC also provided its legal arguments. ("C")
1. John Bartley, d.o.b. 3/25/56, was retired from the Watertown Retirement System through G. L. c. 32, § 10(2)(a), effective January 2, 2004. ("A". Exs. 1 & 2.)
2. In 1996, Mr. Bartley became a member of the Watertown Retirement System because he was a compensated elected official of the Watertown School Committee. He failed to win re-election in 2003, and decided to retire. ("A". Ex. 2.)
3. As a compensated member of the Watertown School Committee, Mr. Bartley served from January 1996 through December 2003, at $175.00 per month, or $2,100.00 annually. He received nine years of creditable service for this membership service from the Watertown Retirement Board. ("A". Exs. 2 & 3.)
4. Mr. Bartley had prior membership service as a member of the State Retirement System when he served as an elected member of the Massachusetts Legislature from January 1, 1979 through December 31, 1991. He received compensation for this service, and thirteen years of creditable service. ("A". Exs. 2 & 4.)
5. The Town of Watertown did not accept the provisions of Chapter 473 of the Acts of 1984, a local option, which amended G. L. c. 32, § 10(2)(a) and provided that only the member's three highest years of earnings were to be used in the retirement calculation. ("A". Ex. 2.)
6. In calculating Mr. Bartley's retirement allowance, the Watertown Retirement Board recognized a total of twenty-two years of creditable service. The Board did not need to use the three highest annual salaries and instead used his five highest annual salaries in the calculation, which were earned while he was working as a legislator. The average salary used in his retirement calculation was $37,232.40. ("A". Exs. 2 & 4.)
7. The Watertown Retirement Board filed its retirement calculations for Mr. Bartley with PERAC on or about February 26, 2004. PERAC approved the retirement for Mr. Bartley effective January 2, 2004, calculating an annual pension portion of $12,410.76 of his annual retirement allowance of $14,554.20. PERAC informed the Board by letter of March 18, 2004 about its approval of Mr. Bartley's retirement, noting he was receiving "a superannuation retirement allowance calculated under option B." ("A". Exs. 1 & 2.)
8. By letter of March 29, 2004, PERAC informed the State Board of Retirement that the Board was responsible for an annual reimbursement of a portion of the pension component of Mr. Bartley's annual retirement allowance. PERAC computed this portion in accordance with the terms of G. L. c. 32, § 3(8)(c). The State Board of Retirement's portion was based on Mr. Bartley's length of service as a member of the State Retirement System from January 1, 1979 through December 31, 1991, or thirteen years. PERAC found this portion to be 59.0909% of Mr. Bartley's total service of twenty-two years, and instructed the Board to reimburse the Watertown Retirement System $7,333.63 each year. PERAC copied the Watertown Retirement Board on this letter. ("A". Ex. 5.)
9. By letter of June 2, 2004, the Watertown Retirement Board asked PERAC to recalculate the amount of the State Board of Retirement's reimbursement under Section 3(8)(c) because of the substantial discrepancy between Mr. Bartley's average of his five highest years of earnings through his state service of $37,232.40 compared to his annual earnings as a member of the Watertown School Committee of only $2,100.00. ("A". Ex. 6.)
10. By letter of July 10, 2006, PERAC responded to the Watertown Retirement Board's request for a recalculation of the State Board of Retirement's annual pension reimbursement level. PERAC's actuary explained:
Mr. Bartley retired from Watertown under G. L. c. 32, § 10(2)(a). The increased benefit pursuant to that section is the result of his termination in Watertown. When a
member retires under that section, the Board from which the member retired may not request a recalculation of the reimbursement amount. Since he failed of re-election in Watertown, only the State Retirement Board could request such a recalculation in this case. (Ex. 7)
11. The July 10, 2006 letter did not contain any information in it that the Watertown Retirement Board had a right to appeal this determination to the Contributory Retirement Appeal Board (CRAB). (Ex. 7)
12. By letter of September 23, 2006, the Watertown Retirement Board filed an appeal with CRAB challenging the failure of PERAC's actuary to recalculate the amount of annual pension reimbursement the State Board of Retirement had to make, because the compensation Mr. Bartley received while a legislator was so much larger that the small compensation he received for service with the Watertown Retirement System. (Ex. 8)
I conclude the appeal was timely filed. This is because of the failure of PERAC to include in any correspondence sent to the Watertown Retirement Board describing its calculation of the State Retirement System's pension reimbursement, any information that this was a final PERAC calculation and could be appealed to the Contributory Retirement Appeal Board (CRAB) for further review.
Just what factors the PERAC actuary should consider in calculating an annual pension reimbursement owed by one retirement system to another, is set forth in the case of Massachusetts Port Authority Employees' Retirement Board ( Mass. Port Retirement Board v. Contributory Retirement Appeal Board, CRAB, PERAC, and the Danvers Retirement Board, Appeals Court 1:28 Decision No. 02-P-561 (2/18/05).("D") This case concerned a retiree, Mr. Hersey, who retired through the Mass. Port Retirement Board. He worked for the Massachusetts Port Authority for eight years and ten months, all with retirement system membership. He had four prior years of service as a Selectman in the Town of Danvers that he purchased for four years of creditable service before retiring. For his Danvers service, he had been paid $800 per year. He retired under superannuation, G. L. c. 32, § 5(2). The calculation performed to secure his retirement allowance used his three highest years of salary, which were all while he worked for the Massachusetts Port Authority. The average of those three years was $64,012.61. Factoring Mr. Hersey's age into the retirement calculation resulted in an annual pension portion of his retirement allowance of $7,916.76.
The Appeals Court addressed how Section 3(8)(c) allowed the Mass. Port Retirement Board to be reimbursed for the pension amounts attributable to service under a different retirement system, and that this provision required that PERAC's actuary compute the amount of pension reimbursement this other retirement system [Danvers] had to make each year. PERAC performed a calculation pursuant to G. L. c. 32, § 3(8)(c) that relied on the length of service Mr. Hersey had under both retirement systems, and determined that the Danvers Retirement Board would be responsible for an annual pension reimbursement of $2,467.65. This represented 31.17% of Mr. Hersey's years of creditable service or four of his twelve years and ten months of creditable service. Thereafter, the Danvers Retirement Board requested that PERAC recalculate this reimbursement amount to take into account the small annual salaries Mr. Hersey had received for his service in Danvers of $800 per year. PERAC agreed, and recalculated the pension reimbursement amount down to $44.57 per year. The Mass. Port Retirement Board appealed this recalculation. The Appeals Court sided with PERAC's recalculation, upholding the CRAB decision that also agreed with PERAC's recalculation. The Appeals Court addressed how PERAC had done its recalculation. PERAC's recalculation took into account the amount Hersey would have received if he had retired independently of his Massport service and the amount he would have received if he had retired independently of his Danvers service, and calculated the Danvers reimbursement obligation based on the relationship between the two independent pension amounts.
Mass. Port Retirement Board, at 2.
The Appeals Court noted as significant that the provision requires that the actuary "consider" the employee's "length of service" in determining the amount of pension reimbursement, but does not mandate that length of service is the only factor the actuary can consider in determining the amount of annual pension reimbursement. Specifically, the Appeals Court explained:
Those provisions invest the actuary with some measure of discretion regarding the method for making the required computations, for rarely, if ever, will there be only one computational approach. Here, we cannot say that an approach based on the economic consequence of each year of Hersey's service was an abuse of discretion.
Mass. Port Retirement Board, at 2.
As further support for its interpretation of the PERAC actuary's discretion to calculate the pension reimbursement under Section 3(8)(c) considering economic impacts, the Appeals Court emphasized:
This is a pension statute and the ability to predict distant, sometimes long distant, pension obligations is an important ingredient of any retirement system's ability to assess current and future financial needs …. Accordingly, employment for a relatively short period and for a modest amount could generate a pension liability many ultiples of the employee's annual salary. The actuary's method of calculation in this case avoids those problems by creating at least a rough relationship between a system's contingent reimbursement obligation and the retired employee's time and pay in the employ of the governmental unit the system was created to serve.
Mass.Port Retirement Board, at 3.
But, PERAC contends that Section 3(8)(c) is not applicable to determining the proper pension reimbursement the State Board of Retirement will be owing to the Watertown Retirement System. PERAC reasons that because Mr. Bartley retired through G. L. c. 32, § 10(2)(a) with a termination allowance, the length of service factor in Section 3(8)(c) is not pertinent. PERAC notes that the calculation of a Section 10(2)(a) termination allowance does not take into account the exact years of creditable service once twenty years of service is reached. PERAC argues:
The basic eligibility requirements [for a Section 10(2)(a) termination allowance] are the nature of the termination and having been granted at least 20 years of creditable
service. Once basic eligibility for the benefit is met, the allowance is calculated either based on three years or five years, depending upon whether the System from which the member is retiring has accepted the provisions of Chapter 473 of the Acts of 1984. If a member has more than 20 years of service, the benefit is not increased. ("C" at 2.)
I reject PERAC's argument. Mr. Bartley's retirement comes within the reach of Mass. Port Board, supra. The PERAC actuary must take into consideration in determining the annual pension reimbursement for the State Board of Retirement, the significant discrepancy in salary levels between Mr. Bartley's service with the State Board of Retirement and his service with the Watertown Retirement System. As the Watertown Retirement Board points out, nothing in Section 3(8)(c) or in Section 10(2)(a) "excuses or restricts the application of Section 3(8)(c), and would disallow PERAC's review of 'all factors' in arriving at a rational proportioning of retirement funding obligations." ("B" at 7.) I also agree with the argument of the Watertown Retirement Board that a Section 10(2)(a) termination allowance is a kind of superannuation retirement allowance. See, Kaplan v. CRAB, et al., 51 Mass. App. Ct. 201, 205-206 (2001). The ruling in Mass. Port Board, supra, is controlling even though Mr. Bartley received a Section 10(2)(a) termination retirement allowance. There is still a pension portion of that allowance with the need to apply the provisions of Section 3(8)(c).
For these reasons, the case is remanded to PERAC to perform a recalculation of the annual pension reimbursement that the State Board of Retirement has to make to the Watertown Retirement Board in line with the recalculation done for Mr. Hersey in Mass. Port Retirement Board, supra.
DIVISION OF ADMINISTRATIVE LAW APPEALS
Sarah H. Luick, Esq.
DATED: June 27, 2008