J. C. Cresci v. State Employees' Retirement Board (Majority Opinion)
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IN THE COMMONWEALTH COURT OF PENNSYLVANIA John C. Cresci, : Petitioner : : v. : No. 1987 C.D. 2007 : Submitted: April 7, 2008 State Employees Retirement Board, : Respondent : BEFORE: HONORABLE BONNIE BRIGANCE LEADBETTER, President Judge HONORABLE ROBERT SIMPSON, Judge HONORABLE JOSEPH F. McCLOSKEY, Senior Judge OPINION NOT REPORTED MEMORANDUM OPINION BY SENIOR JUDGE McCLOSKEY FILED: May 13, 2008 John C. Cresci (Claimant) petitions for review of a decision and order of the State Employees Retirement Board (the Board), denying Claimant s request that the State Employees Retirement System (SERS) recalculate his disability retirement in accordance with the terms of a compromise and release agreement (C&R) between Claimant and the Pennsylvania State Police (PSP). We now affirm. Claimant became a member of SERS on March 15, 1993, by virtue of his employment as a State Trooper with PSP. In June of 1994, Claimant suffered a service-connected injury to his right knee. PSP accepted liability for this injury and Claimant received benefits under the Heart and Lung Act.1 Over the years, Claimant s injury necessitated a series of operations and Claimant was unable to return to work. In 2001, while recovering from a recent surgery, Claimant s knee buckled while walking up the stairs in his home, causing him to fall and injure his back. Claimant proceeded to file a claim petition under the Workers Compensation Act alleging that his back injury was related to his original work injury. PSP filed an answer denying this allegation and the case proceeded before a Workers Compensation Judge (WCJ). The WCJ ultimately issued a decision and order granting Claimant s claim petition. PSP later filed a petition seeking to discontinue Claimant s workers compensation benefits.2 However, as this matter was proceeding, PSP and Claimant agreed to resolve the same by way of a settlement agreement, otherwise known as a C&R. Under the terms of this C&R, Claimant was to receive a lump sum payment of $95,000.00 together with past due Heart and Lung Act benefits, in exchange for a release of any and all present and future liability on the part of PSP relating to the work injury.3 Additionally, PSP agreed not to oppose Claimant s eligibility for disability retirement benefits through SERS. Further, the C&R 1 Act of June 28, 1935, P.L. 477, as amended, 53 P.S. §§ 637-638. The Heart and Lung Act provides for benefits, equal to the full salary, for certain employees in the Commonwealth, including State Troopers, injured during the course of their employment. Nevertheless, these benefits are meant to be temporary. If the injury is determined to be permanent, the Commonwealth agency can petition to terminate such benefits and the matter would then proceed under the Pennsylvania Workers Compensation Act, Act of June 2, 1915, P.L. 736, as amended, 77 P.S. §§1-1041.4; 2501-2708. 2 The type of petition filed by PSP is not evident in the record. 3 In an addendum to the C&R, Claimant further agreed to resign from his employment with PSP. A resignation letter was indeed executed by Claimant on April 25, 2005. 2 provided that the Claimant s monthly Workers Compensation benefits for the purpose of determing [sic] any setoff by the Social Security Administration or any other applicable set off, shall be $138.89 per month for 540 months, commencing the date of the Judge s Order approving said [C&R]. (R.R. at 83a). The C&R was approved by the WCJ on April 27, 2005. On April 19, 2005, while the WCJ s approval of the C&R was pending, Claimant applied for disability retirement benefits with SERS. By letter dated April 28, 2005, SERS notified Claimant that his application had been approved. By letter dated September 9, 2005, SERS notified Claimant of the amount of his monthly disability retirement benefit, $1,639.37. By letter dated October 31, 2005, counsel for Claimant notified SERS that the collective bargaining agreement between the Commonwealth and the Pennsylvania State Troopers Association mandates that Claimant receive a supplement to his disability retirement benefit equal to 70% of final average salary, less the sum of the regular disability retirement and the amounts payable under the Pennsylvania Workers Compensation Act ¦. Applying this formula to Claimant, counsel indicated that Claimant s monthly annuity from SERS should total $3,319.47.4 By letter dated December 14, 2005, SERS advised Claimant that it did not agree with his counsel s calculations. In this letter, SERS noted that it calculated Claimant s supplement at $221.20 per month, which would be added to Claimant s regular disability retirement benefit 4 Counsel calculated the same by multiplying Claimant s final average salary ($59,286.14) by 70%, resulting in a figure of $41,500.30. Counsel then divided this figure by twelve (12), to arrive at a monthly annuity of $3,458.36. After subtracting the set off as agreed to by the parties in the C&R ($138.89) from this figure, counsel calculated Claimant s final monthly annuity as $3,319.47, not $1,639.37 as calculated by SERS. 3 for a period of forty (40) months. SERS cited to Section 5704(f) of the State Employees Retirement Code (the Code), 71 Pa. C.S. §5704(f), which mirrors the provision of the collective bargaining agreement addressed above. This Section further provided that the supplement shall continue as long as [claimant] is determined to be disabled and is receiving workers compensation payments for other than medical benefits on account of his service connected disability ¦. 71 Pa. C.S. §5704(f). In 2002, Section 5704(f) of the Code was amended to include provisions for the amortization of lump sum payments of workers compensation benefits in lieu of future weekly compensation payments. Specifically, the amendment provided that [i]f the member has received a lump sum workers compensation payment in lieu of future weekly compensation payments, the length in weeks and calculation of the service connected disability supplement shall be determined by dividing the lump sum payment by the average weekly wage as determined by the Workers' Compensation Board. By a subsequent letter also dated December 14, 2005, SERS attempted to further explain its calculation of Claimant s disability retirement supplement. In this letter, SERS noted that Claimant s normal monthly disability retirement benefit was actually $1,646.84, not $1,639.37 as indicated in its previous letter dated September 9, 2005. SERS then calculated Claimant s monthly workers compensation award at $1,590.31,5 which it combined with 5 SERS arrived at this figure by multiplying Claimant s original workers award ($365.87 per week) by two, which equals $731.74. SERS then took this figure ($731.74) and multiplied it by twenty-six and eight one-hundredths (26.08), representing the number of pay periods each year, to reach an annual compensation award figure of $19,083.78. After dividing this annual figure by twelve, SERS arrived at a monthly compensation award of $1,590.31. 4 Claimant s normal monthly retirement benefit of $1,646.84, for a total monthly entitlement of $3,237.15. SERS then multiplied this figure by twelve months to arrive at an annual entitlement of $38,845.80. Since Claimant was entitled to 70% of his final average salary, or $41,500.30, SERS subtracted the annual entitlement ($38,845.80) from this figure to arrive at an annual supplement of $2,654.50, or a monthly supplement of $221.20. In accordance with Section 5704(f) of the Code, to arrive at the duration of this supplement as forty (40) months, SERS simply divided the lump sum ($95,000.00) by Claimant s average weekly wage expressed in a monthly amount of $2,378.13.6 By letter dated December 27, 2005, Claimant appealed SERS calculation, noting that the same ignores the C&R which had set Claimant s monthly workers compensation benefit at $138.89 per month for 540 months. SERS thereafter forwarded Claimant s appeal to its Appeals Committee. By letter dated March 21, 2006, the Appeals Committee denied Claimant s appeal. By letter dated March 29, 2006, Claimant filed an appeal with the Board. SERS filed an answer to Claimant s appeal with the Board. The matter was subsequently assigned to a hearing examiner for the purpose of an administrative hearing. An administrative hearing was scheduled and held on January 25, 2007. At this hearing, the parties submitted several exhibits, including the original C&R approved by the WCJ on April 27, 2005, and numerous correspondence between Claimant or his counsel and representatives of PSP and SERS. Claimant 6 This monthly amount was calculated by multiplying Claimant s average weekly wage ($548.80) by fifty-two weeks, to reach an annual figure of $28,537.60. This annual figure is then divided by twelve months to reach a monthly figure of $2,378.13. 5 testified at this hearing on his own behalf relating to his work injuries and the C&R discussed above. SERS presented the testimony of Gayle Martin, an administrative assistant with the bureau of benefit administration. (R.R. at 30a). Ms. Martin testified as to the history of Claimant s application for retirement disability benefits. SERS also presented the testimony of Joseph Torta, director of the benefit determination division. (R.R. at 41a). Mr. Torta testified as to how SERS calculates a member s entitlement to disability retirement benefits and the supplement, where applicable. Mr. Torta proceeded to testify as to how SERS arrived at the calculations in Claimant s case.7 Further, Mr. Torta testified that SERS has no role in and offers no assistance to members in workers compensation matters and that SERS was not a party to the C&R between Claimant and PSP. Following the hearing, the hearing examiner issued an opinion and recommendation to deny Claimant s appeal as PSP cannot, by agreement with an employee, change the statutory and regulatory authority of the State Employees Retirement System. (Opinion of Hearing Examiner at 22). In making this recommendation, the hearing examiner relied on our Supreme Court s decision in Watrel v. Department of Education, 513 Pa. 61, 518 A.2d 1158 (1986), for the conclusion that PSP does not have the authority to bind SERS to representations regarding the calculation of benefits payable under the Code. Claimant thereafter filed exceptions to the hearing examiner s opinion. By opinion and order dated September 27, 2007, the Board overruled and dismissed Claimant s exceptions and adopted the opinion of the hearing examiner. Hence, the Board denied Claimant s request that SERS recalculate his disability 7 These calculations were discussed above and we will not reiterate the same here. 6 retirement benefit in accordance with the terms of his C&R with PSP. Claimant then filed a petition for review with this Court. On appeal, Claimant argues that the Board s reading of our Supreme Court s decision in Watrel was overbroad and that the Board erred as a matter of law in relying on Watrel to conclude that there are no circumstances whereby a Commonwealth agency such as PSP can make a bargained-for promise to an individual and bind another Commonwealth agency such as SERS. We disagree. In Watrel, Dr. Albert A. Watrel had been dismissed as the president of Slippery Rock State College in June of 1976. Dr. Watrel subsequently brought suit against the Department of Education (DOE) alleging that he had been illegally discharged. Dr. Watrel and the DOE thereafter entered into a settlement agreement and mutual release whereby Dr. Watrel would relinquish all claims against the DOE in exchange for the grant of a one-year sabbatical at half pay, the waiver of his duty to return to the state college system for one year of service following his sabbatical leave, liquidated damages and full fringe benefits through June 30, 1977. Furthermore, and more importantly, the parties agreed that Dr. Watrel would make an effort to obtain employment elsewhere and, if he obtains such employment, the DOE would accept contributions for retirement purposes through the state college system in order to permit Dr. Watrel to become vested with SERS. In the event that Dr. Watrel did not obtain employment elsewhere, the DOE agreed to permit him to again obtain employment with the state college system for a period of one year or such lesser period as was necessary for him to become vested with SERS. 7 Dr. Watrel thereafter accepted a position as president of Dickinson State College in Dickinson, North Dakota. He subsequently tendered the necessary contributions to the DOE for forwarding to SERS. SERS, however, refused such payments as violative of the Code. Dr. Watrel proceeded to file a suit against DOE alleging breach of the settlement agreement and mutual release and claiming damages in the amount of $105,333.41 (the value of his retirement account had he become vested). The Board of Claims denied any recovery to Dr. Watrel. The Board of Claims concluded that there was no such breach, noting that the DOE s duties under the settlement agreement were limited to acceptance, transmittal and recommendation of the contributions to SERS. Dr. Watrel appealed to this Court. We affirmed the Board of Claims noting that the settlement agreement permitting vesting could not be effectively performed without violating a statute and was therefore illegal, unenforceable, and void ab initio. Watrel, 513 Pa. at 65, 518 A.2d at 1160 (citation omitted). Dr. Watrel filed an appeal with our Supreme Court, which affirmed the decision and order of this Court. In reaching their decision, the Supreme Court concluded that SERS properly rejected Dr. Watrel s contributions, noting that the Code only provides for extension of retirement credit to active members, which included State employees who were contributing to the fund and members on leave without pay for whom authorized contributions were made to the fund ¦. Watrel, 513 Pa. at 65-66, 518 A.2d at 1160-1161 (citing Section 5102 of the Code, 71 Pa. C.S. §5102). The Court indicated that Dr. Watrel, while employed in North Dakota, did not fit either of the definitions above relating to an active member. Additionally, the Court noted that when the DOE forwarded Dr. Watrel s 8 contributions to SERS, it fully discharged its duties under the settlement agreement. The Court went on to hold that [a]s administration of the State Employees Retirement Fund is solely the responsibility of the [Board], DOE was without power to effect the vesting of Dr. Watrel s pension. 8 Watrel, 513 Pa. at 67, 518 A.2d at 1161. Further, the Court held that one who deals with a state official is bound to know the limitations of that official s authority. 9 Id. Finally, the Court stated the plain fact that the State Employees Retirement Board administers the State Employees Retirement System, and not DOE, the agency with which Dr. Watrel contracted. DOE simply has no authority to grant retirement credit. Watrel, 513 Pa. at 69, 518 A.2d at 1162. Based upon our reading of Watrel and the statements made by our Supreme Court therein, we cannot say that the Board s reading of the Court s decision in Watrel was overbroad or that the Board erred as a matter of law in relying on Watrel to conclude that the C&R between Claimant and PSP in the present case cannot bind SERS. Herein, SERS calculated Claimant s disability retirement supplement in the manner set forth by the Code and this calculation was upheld by the Board. Claimant and PSP attempted to manipulate this calculation via the C&R. However, similar to Watrel, the Board and SERS are responsible for administering the retirement fund in accordance with the Code, not the PSP, the 8 The Court later reiterated that the DOE has absolutely no authority to effect retirement credits in the State Employees Retirement System. Watrel, 513 Pa. at 68, 518 A.2d at 11611162. 9 The Court stressed that the provisions governing administration of the State Employees Retirement Fund are fully set forth in the Code. 9 agency with which Claimant contracted in this case. PSP was without authority to alter the calculations as set forth in the Code.10 Accordingly, the order of the Board is affirmed. JOSEPH F. McCLOSKEY, Senior Judge 10 In Hoerner v. Public School Employees Retirement Board, 546 Pa. 215, 226, 684 A.2d 112, 117, our Supreme Court held that an independent, administrative agency governed by statute, PSERS cannot be bound by characterizations of money payments made to a PSERS member pursuant to a private contractual settlement to which it is not a party. In Hoerner, a superintendent and a school district entered into a termination agreement whereby the parties attempted to inflate the superintendent s salary by characterizing severance payments as actual salary. 10 IN THE COMMONWEALTH COURT OF PENNSYLVANIA John C. Cresci, : Petitioner : : v. : No. 1987 C.D. 2007 : State Employees Retirement Board, : Respondent : ORDER AND NOW, this 13th day of May, 2008, the order of the State Employees Retirement Board is hereby affirmed. JOSEPH F. McCLOSKEY, Senior Judge
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