Public School Employees’ Retirement Code; Retirement Covered Compensation
Whalen v. Pennsylvania Pub. Sch. Employee Retirement Bd., 241 A.3d 1242 (Pa. Cmwlth. 2020), allocatur granted May 10, 2021, appeal docket 33 MAP 2021
The Pennsylvania Supreme Court will consider whether money received in settlement of an age discrimination action constitutes retirement-covered compensation (RCC) for purposes of calculating the final average salary under the Pennsylvania Public School Employees Retirement Code.
Whalen was employed by the Wyoming Valley West School District (District) from July 1995 to September 2014 and was enrolled in the Pennsylvania School Employee Retirement System (PSERS) by virtue of his employment. During the 2011-2012 school year, Whalen was paid $88,578.00. During the 2012-2013 school year, he was paid $89,616.90. During the 2013-2014 school year, he was paid $90,588.00. In 2011, Whalen filed age discrimination claims against the District alleging that as the oldest principal in the District, he was excluded from pay raises awarded to other principals. Whalen sought compensation for his lost pay resulting from the alleged age discrimination. Whalen and the District ultimately agreed to settle the matter and executed a Settlement Agreement and Release (Settlement Agreement). The Settlement Agreement stated, in pertinent part:
[Whalen], for and in consideration of payments and other good and valuable consideration … does, hereby remise, release, and forever discharge the [District] … of and from all, and all manner of, actions, causes of action, suits, claims … and any and all claims of whatever kind and nature whatsoever, arising out of or related to his employment … especially pertaining to those claims and causes of action more specifically described in actions filed in the United States District Court for the Middle District of Pennsylvania, docketed to number 13-2571 [seeking back pay for alleged age discrimination] ….
IT IS AGREED AND UNDERSTOOD that [the District] agrees to pay $15,000[.00], in the form of a salary enhancement in full and final settlement of this matter to [Whalen] and $5,000[.00] in full and final settlement of attorney’s fees and costs to [Whalen’s] attorney …. [The District] will cause the salary enhancements to be made before the end of business on June 30, 2014, and will make such payment and withholdings as are required in the normal course of payroll payments. It is the intent of the parties that this salary adjustment be income qualified for full pension credit by PSERS to be allocated to the year 2013-2014.
IT IS AGREED AND UNDERSTOOD that [Whalen] will receive any and all entitlements he is currently entitled to under the Administrative Compensation Plan based upon a retirement date of September 24, 2014.
IT IS AGREED AND UNDERSTOOD that there is no warranty by [the District] as to how PSERS treats the salary enhancement set forth above for settlement.
IT IS FURTHER AGREED AND UNDERSTOOD that this release contains the entire agreement between the parties hereto and that the terms of this release are contractual and not a mere recital.
Slip op. at 2-4 (emphasis added by Commonwealth Court). In June 2014, the District paid Whalen $15,000.00 in accordance with the Settlement Agreement. Thereafter, Whalen submitted an Application for Disability Retirement to PSERS. The District reported to PSERS that Whalen worked 62 total days from July 1 through September 24, 2014, and his total actual wages were $21,655.26, which annualized a $90,230.25 salary for the 2014-2015 school year. PSERS provided Whalen with a Finalized Retirement Benefit letter that identified his FAS as $89,726.48, which excluded the $15,000.00 settlement payment.
Whalen filed a nonadjudicatory benefit appeal with PSERS’ Executive Staff Review Committee (ESRC) contending that the settlement payment should have been considered RCC for the 2013-2014 school year. The ESRC denied Whalen’s appeal, explaining that:
In this case, your salary for the 2013-2014 school year was confirmed by [the District] to be $90,588.00. While the [Settlement] Agreement characterizes the $15,000.00 lump sum payment as a ‘salary enhancement’ to be allocated to the 2013-2014 school year, you cannot receive retirement credit based on a salary that is higher than what you were to earn on the standard salary schedule. Moreover, it is well settled that the parties to an agreement cannot turn payments that are not ‘compensation’ under the [Public School Employees’ Retirement Code (Retirement Code)] into ‘compensation’ through the contractual language they use. Nor is PSERS bound by the language that was used in the [Settlement] Agreement. The $15,000.00 settlement amounts to a damage award and does not represent your standard salary or back wages and benefits for the period at issue. It is, therefore, not [RCC] that can be included in the calculation of your FAS, and your records have been corrected accordingly.
Slip op. at 4-5 (footnote omitted). Whalen filed an adjudicatory benefit appeal with the Board arguing that the $15,000.00 settlement should be included in his RCC for the 2013-2014 school year for FAS calculation purposes. PSERS countered that “[t]o constitute [a] valid RCC, a settlement agreement must identify the payment as lost wages and indicate when the lost wages would have been earned — not received — and the payment must represent the actual pay that would have been earned but for the adverse employment action[,]” thus, “the $15,000.00 payment to [Whalen] by the District was not compensation as defined by the Retirement Code. Rather, it was a payment made in exchange for a release of all claims by [Whalen] against the District and was made in conjunction with an irrevocable notice of retirement.” Slip op. at 5. The Public School Employees’ Retirement Board affirmed the ESRC, concluding that the $15,000 settlement payment from the school district related to Whalen’s age discrimination claim did not constitute RCC for purposes of calculating Whalen’s final average salary. In concluding that the $15,000.00 salary enhancement was not RCC, the Board reasoned:
The Settlement Agreement … fails to make any mention or reference to ‘back pay’ or ‘lost wages.’ Rather, the agreement classifies the lump sum $15,000[.00] payment to [Whalen] as a salary enhancement paid as a full and final settlement, to effect a compromise of a disputed claim. Moreover, the Settlement Agreement makes no reference to either the 2011-2012 or 2012-2013 school years. Nor does the [Settlement] [A]greement identify when the salary enhancement was earned. See 22 Pa. Code § 211.2(b) (‘For final average salary purposes, retirement-covered compensation is credited in the school year in which it is earned, not paid.’). The Settlement Agreement specifies only that the salary enhancement [is] to be made before the end of business on June 30, 2014[,] and is intended to be allocated to the year 2013-2014.
In addition, the Settlement Agreement does not reference or incorporate any salary schedule, and the undisputed facts establish that [Whalen’s] wages were not increased by $15,000[.00] in the following school year (i.e., the 2014-2015 school year). Thus, there is no evidence that would indicate the salary enhancement was to be anything other than a one-time payment, outside of [Whalen’s] standard salary. [Whalen] argues for the first time, in response, that a portion of the $15,000[.00] settlement payment included monies for future salary during the period July 1, 2014 to September 24, 2014. The plain and unambiguous terms of the Settlement Agreement, however, do not support that assertion. Indeed, there is no mention of the 2014-2015 school year in the Settlement Agreement. Moreover, [Whalen’s] assertion is inconsistent with his claim that the $15,000[.00] amount was intended to represent ‘back pay.’
Slip op. at 11-12. Whalen appealed to Commonwealth Court.
Commonwealth Court reversed the Board’s determination, holding that where the Board liberally construes Retirement Code to allow the constructive awarding of amounts as RCC for the purpose of upholding a member’s contractual rights for a specified period, the Board is required to render a decision on whether payments made to the PSERS member pursuant to a settlement agreement is RCC. Moreover, the court held that in doing so, the Board must review of the settlement agreement to ascertain and give effect to the parties’ intent. The court concluded:
The Pennsylvania Supreme Court has held that, “as an independent administrative agency governed by statute, PSERS cannot be bound by characterizations of money payments made t o a PSERS member pursuant to a private contractual settlement to which it is not a party.” Hoerner v. Pub. Sch. Emps.’ Ret. Bd., 546 Pa. 215, 684 A.2d 112, 117 n.10 (1996). However, if, as the Board argues, it “has followed this Court’s jurisprudence and liberally construed the Retirement Code to allow the constructive awarding of such amounts as RCC … for the purpose of upholding a member’s contractual rights for a specified period[,]” Board Br. at 11, the Board must render a decision on whether such payment is RCC based on the evidence, and, in doing so, must review the Settlement Agreement to “ascertain and give effect to the parties’ intent[.]” Dick Enters., Inc., 746 A.2d at 1168.
In the instant matter, reading the Settlement Agreement as a whole, the provision that “[i]t is the intent of the parties that this salary adjustment be income qualified for full pension credit by PSERS to be allocated to the year 2013-2014[,]” is not a characterization but, rather, a clear expression of the parties’ intent that the payment was what Whalen should have received as part of his salary and, thus, be credited to his pension. R.R. at 61a. The Settlement Agreement clearly expresses the parties’ intent that the $15,000.00 payment was a salary enhancement to resolve Whalen’s claim for back pay, and was to be RCC. Therefore, this Court concludes, as a matter of law, that the Board should have treated the District’s $15,000.00 payment as RCC. Accordingly, the Board erred by granting the Motion.
Given that PSERS maintained there was no genuine issue of material fact, that Whalen agreed to PSERS’ statement of facts, and this Court’s conclusion that as a matter of law the Settlement Agreement is unambiguous, clearly revealing that the parties intended the $15,000.00 payment to be back pay…
Slip op. at 16-18 (emphasis in original, footnote omitted).
The Pennsylvania Supreme Court granted allocatur as to the following issues, as stated by the Petitioner:
(1) Did the Commonwealth Court abuse its discretion and depart from accepted judicial practices in holding that parties to a private settlement agreement may dictate what constitutes “compensation” under the Public School Employees’ Retirement Code (“Retirement Code”), 24 Pa.C.S. § 8101 et seq.?
(2) Did the Commonwealth Court apply the wrong standard of review to the Public School Employees’ Retirement Board’s adjudication by not affording the appropriate deference to the Board’s interpretation of the elements necessary to establish a settlement payment as “compensation” under the Retirement Code?