C2

543 Pa. 132, *; 669 A.2d 940, **;

1996 Pa. LEXIS 10, ***

ROBERT D. CHRISTIANA, Appellant v. PUBLIC SCHOOL EMPLOYES’ RETIREMENT BOARD, Appellee

No. 75 W.D. Appeal Docket 1994

SUPREME COURT OF PENNSYLVANIA

543 Pa. 132; 669 A.2d 940; 1996 Pa. LEXIS 10

September 18, 1995, ARGUED

January 18, 1996, DECIDED

PRIOR HISTORY:  [***1]  Appeal from the Order of the Commonwealth Court Entered July 28, 1994, at No. 1745 C.D. 1993, Affirming the Opinion and Order of the Public School Employes’ Retirement Board Dated June 24, 1993 at No. 117-16-8296. 166 Pa. Cmwlth. 300, 646 A.2d 645 (1994). JUDGES BELOW: CRAIG, COLINS, MCGINLEY, PELLEGRINI, FRIEDMAN, KELLEY, NEWMAN, JJ. (Cmwlth.).

DISPOSITION: Affirmed.

COUNSEL: Mr. Robert D. Christiana, APPELLANT, Pro se.

For Public School Employes’ Retirement Board, APPELLEE: Louis Sheehan, Esquire. For Attorney General’s Office, APPELLEE: Ernest D. Preate, Jr., Esquire.

JUDGES: MR. CHIEF JUSTICE ROBERT N. C. NIX, JR., FLAHERTY, ZAPPALA, CAPPY, CASTILLE, MONTEMURO, JJ. Mr. Justice Montemuro, who was sitting by designation, did not participate in the decision of this case.

OPINION BY: ZAPPALA

OPINION

[**940]   [*134]  OPINION

JUSTICE ZAPPALA

DECIDED: JANUARY 18, 1996

Appellant, Robert D. Christiana, is a former superintendent of the Upper St. Clair School District. Prior to his retirement, the School District had purchased certain annuities for Christiana. Christiana requested that the amounts paid for the annuities be included by the Public School Employes’ Retirement System (PSERS) in its calculation of his final average salary for retirement purposes. After an administrative hearing, the Public School Employes’ Retirement Board (Board) entered an order directing that the annuities were not to be included in the computation of his retirement benefits. The Commonwealth Court affirmed the Board’s order in an en banc decision. We granted Christiana’s petition for allowance [***2]  of appeal and now affirm.

The Board’s opinion set forth detailed factual findings that are summarized as follows. Christiana was hired as the superintendent by the School District in July of 1979 at a starting salary of $ 52,000. He had been employed previously by school districts in  [**941]  Michigan and New York in various positions and had served as the superintendent of Pennsylvania’s Springfield Township School District. Christiana’s salary was increased over the next few years:

1980-1981 $ 58,000

1981-1982 $ 63,500

1982-1983 $ 65,723

1983-1984 $ 71,000

In the next five years, the School District reported the following figures as Christiana’s salary to PSERS:

[*135]  1984-1985 $ 71,000

1985-1986 $ 71,000

1986-1987 $ 71,000

1987-1988 $ 74,000

1988-1989 $ 80,000

Beginning with the 1984-1985 school year, the School District also expended funds to purchase single premium annuities for Christiana. The School District did not report the expenditures as part of Christiana’s salary to PSERS or pay retirement contributions on those amounts. The minutes of Upper St. Clair School Board’s meetings at which the annuity payments were addressed indicate [***3]  that the annuity payments were to be made for purposes of purchasing prior years’ seniority pension credit. 1 The minutes reflect the costs of the annuity purchases:

FOOTNOTES

1 The minutes also indicate that the annuity payments were “in lieu of salary increases.” For the school year 1987-1988, in which Christiana also received a salary increase of $ 3,000, the minutes state that “in lieu of any additional salary increase,” the School District shall purchase a single premium annuity for purposes of purchasing prior years’ seniority pension credit at a cost of $ 9,500.

1984-1985 $ 5,000

1985-1986 $ 7,000

1986-1987 $ 10,000

1987-1988 $ 9,500

By early November of 1988, the School Board was apprised of Christiana’s intention to retire at the end of the 1988-1989 school year. On November 14, 1988, the School Board adopted a resolution relating to Christiana’s anticipated retirement:

RESOLVED, That for the 1988-89 school year, the salary for the Superintendent shall be $ 80,000; and further,

[***4]

RESOLVED, That commencing with the retirement of the Superintendent on June 30, 1989, the Blue Cross/Blue Shield or equivalent medical and hospitalization benefits applicable to building administrators shall be continued for the Superintendent until his attaining age 65, and for his wife Nancy, until her attaining age 65, at District expense; and further,

RESOLVED, That the District shall reimburse the Superintendent during the 1988-1989 school year for costs incurred  [*136]  for the services of a financial planner, such reimbursement not to exceed $ 2,000; and further,

RESOLVED, That the District shall purchase for the Superintendent three years’ pension credit under the State Retirement Plan for his service in the United States Air Force as permitted by the laws of Pennsylvania; and further,

RESOLVED, That the District shall provide the Superintendent with an annuity or other equivalent payment at a cost to the District of $ 19,200 for purposes of purchasing for the Superintendent pension credit under the State Retirement Plan for service as an educator in positions prior to his employment under the Pennsylvania retirement system, as permitted [***5]  by the laws of Pennsylvania; . . .

The annuity payment of $ 19,200 for the 1988-1989 school year became problematic due to changes in the federal tax code that were effective as of January 1, 1989. In response, the School Board rescinded the resolution of November 14, 1988, and adopted a second resolution on January 9, 1989. The resolution split the $ 19,200 payment into two separate payments of $ 9,500, which was backdated to the 1988 calendar year, and of $ 9,700, which was to be made at or prior to Christiana’s retirement date of June 30, 1989:

MOTION: By Wellington: WHEREAS, the Board of School Directors at its regular meeting on November 14, 1988, adopted certain resolutions relating to the salary and the benefits payable to or for the benefit of the Superintendent; and

WHEREFORE, prior to the adoption of such resolutions it was represented to the Superintendent that the Board would consider  [**942]  modification to those resolutions after the Superintendent and the District had an opportunity to consult with their respective advisors, and such consultations have taken place and the Board is prepared to make certain modifications;

NOW, THEREFORE,  [***6]  BE IT RESOLVED, that with the consent and agreement of the Superintendent, the resolutions  [*137]  adopted by the Board at its November 14, 1988, meeting relating to the salary and benefits payable to or for the benefit of the Superintendent be and are hereby rescinded and the following resolutions are adopted in their place and stead:

RESOLVED, that for the 1988-89 school year, the salary for the Superintendent shall be $ 80,000; and further,

RESOLVED, that commencing with the retirement of the Superintendent on June 30, 1989, the Blue Cross/Blue Shield or equivalent medical and hospitalization benefits then applicable to Building Administrators shall be continued for the Superintendent until his attaining age 65, and for his wife, Nancy, until her attaining age 65, at District’s expense . . .

RESOLVED, that the District shall reimburse the Superintendent during the 1988-89 school year for costs incurred for the services of a financial planner, such reimbursement not to exceed $ 2,000; and further,

RESOLVED, that the District, in recognition of the superior manner in which the Superintendent has performed his duties and responsibilities,  [***7]  shall provide the Superintendent in calendar year 1988 with additional compensation in the amount of $ 9,500; and further,

RESOLVED, that the District shall, at or prior to the retirement of the Superintendent on June 30, 1989, pay to or on behalf of the Superintendent additional compensation in the amount of $ 9,700 plus an amount necessary to purchase for the Superintendent three years’ pension credit under the State Retirement Plan in recognition of his service in the United States Air Force, as permitted by the laws of Pennsylvania.

Pursuant to this resolution, the School District purchased an annuity in the amount of $ 9,500. The annuity payment was not reflected in Christiana’s regular salary. The $ 9,700 payment made in 1989 was treated differently, however. Christiana received that payment directly, but the School District in turn reduced his monthly take-home pay and used the payroll  [*138]  deductions to purchase the 1989 annuity. From March of 1989 through June of 1989, the School District reported additional remuneration of $ 8,730 to PSERS that reflected the payroll changes.

Christiana submitted an application for retirement to PSERS on August 8, 1989. On [***8]  January 19, 1990, PSERS sent a letter advising the School District that after review of the School Board’s minutes of November 14, 1988, and January 9, 1989, the $ 8,730 reported did not appear to be Christiana’s normal salary and that the amount could not be used in calculating his retirement benefits. The School District was requested to submit a form to reflect this change in the reported salary.

The School District did not comply with the request. Instead, a form was sent increasing the salary report by the sum of $ 970 -the difference between the $ 9,700 annuity purchase for 1989 and the $ 8,730 originally reported as salary. In a letter dated February 9, 1990, the School District’s business manager noted the correction and indicated that in addition, the report for the fourth quarter of 1988 had failed to report a payment of $ 9,500 to Christiana. The letter stated that the School District viewed the payments as merit increases. On February 27, 1990, PSERS requested a copy of the School District’s merit pay policy. The School District did not respond.

On December 19, 1990, PSERS informed Christiana that his request to include the $ 9,500 for the 1987-1988 school year and the [***9]  $ 9,700 for the 1988-1989 school year in its calculation of his final average salary for retirement purposes had been denied. An administrative hearing was held on September 11, 1991, before a hearing examiner to consider whether the $ 19,200 should be considered as compensation under the Public  [**943]  School Employees’ Retirement Code. 2 PSERS learned then that the School District had purchased annuities for Christiana during the four previous school years (1984-1988). At the hearing, Christiana sought for the first time to add  [*139]  each of those annuity purchases to the salary amounts reported by the School District to PSERS. Christiana’s take-home pay did not reflect those payments, and as noted earlier, the School District never included any of the annuity purchases in its salary reports to PSERS during those four years.

FOOTNOTES

2 Act of October 2, 1975, P.L. 298, as amended, 24 P.S. §§ 8101-8104.

The hearing examiner recommended that the $ 19,200 should be excluded from the calculation of Christiana’s final average salary [***10]  because the amount was properly characterized as nonincludable “severance payments” under the Retirement Code. The hearing examiner also recommended that the four annuity payments made during 1984-1988 be included in the calculation of final average salary as compensation.

The Board determined that Christiana had not properly raised the issue relating to the four annuity purchases in the earlier years, but nevertheless addressed the issue because there were sufficient facts on the record for its resolution. The Board concluded that the nonsalary reduction tax shelter annuity payments were not includable as Retirement Code compensation because they were nonstandard and/or nonregular remuneration as well as being bonuses and fringe benefits. The $ 19,200 annuity purchases in the 1988-1989 school year were found not to be includable in Retirement Code compensation because the payments were components of a severance package and were also characterized as nonincludable bonuses and fringe benefits. On June 24, 1993, the Board entered an order directing that none of the annuity purchases were to be included as Retirement Code Compensation. The Commonwealth Court affirmed the Board’s order.  [***11]  HN1

On appeal from a final adjudication of an administrative board, our scope of review is limited to a determination of whether the board committed an error of law, whether there has been a violation of constitutional rights, or whether necessary factual findings are supported by substantial evidence. Estate of McGovern v. State Employees’ Retirement Board, 512 Pa. 377, 517 A.2d 523 (1986). The issue raised in this appeal is whether the Board committed an error of law in determining that the annuity payments were not compensation  [*140]  for purposes of computing final average salary under the Retirement Code.

Section 8102 of the Retirement Code defines the following relevant terms:

HN2“Compensation.” Pickup contributions plus any remuneration received as a school employee excluding refunds for expenses incidental to employment and excluding any severance payments.

“Final average salary.” The highest average compensation received as an active member during any three nonoverlapping periods of 12 consecutive months with the compensation for part-time service being annualized on the basis of the fractional portion of the school year for which credit is received;  [***12]  except, if the employee was not a member for three such periods, the total compensation received as an active member annualized in the case of part-time service divided by the number of such periods of membership; and, in the case of a member with multiple service credit, the final average salary shall be determined by reference to compensation received by him as a school employee or a State employee or both.

“Pickup contributions.” Regular or joint coverage member contributions which are made by the employer for active members for current service on and after January 1, 1983.

“Severance payments.” Any payments for unused vacation or sick leave and any additional compensation contingent upon retirement including payments in excess of the scheduled or customary salaries provided for members within the same governmental entity with the same educational  [**944]  and experience qualifications who are not terminating service.

24 Pa.C.S.A. § 8102.

The regulations promulgated under the Retirement Code further refine the definition of “compensation:”

HN3Excludes a bonus, severance payment or other remuneration or similar emoluments received by a [***13]  school employee during his school service not based on the standard salary  [*141]  schedule for which he is rendering service. It shall exclude payments for unused sick leave, unused vacation leave, bonuses for attending school seminars and conventions, special payments for health and welfare plans based on the hours employed or any other payment or similar emoluments which may be negotiated in a collective bargaining agreement for the express purpose of enhancing the compensation factor for retirement benefits.

22 Pa. Code § 211.2.

The restrictive definitions of compensation under the Retirement Code and regulations reflect the Legislature’s intention to preserve the actuarial integrity of the retirement fund by “excluding from the computation of employes’ final average salary all payments which may artificially inflate compensation for the purpose of enhancing retirement benefits.” Dowler v. Public School Employes’ Retirement Board, 153 Pa. Commw. 109, 620 A.2d 639 (1993); Laurito v. Public School Employes’ Retirement Board, 146 Pa. Commw. 514, 519, 606 A.2d 609, 611 (1992).

In Laurito v. Public School Employes’ Retirement Board, the Commonwealth Court affirmed [***14]  a decision of the Retirement Board that refused to include a salary increase for the purposes of computation of retirement benefits for an elementary middle school principal. Dr. Angelo Laurito retired after 42 years of service with the Northern Cambria School District. Laurito’s annual salary was negotiated each year with the school district. For the 1984-1985 school year, his salary was $ 32,600. On July 25, 1985, the school board awarded him a $ 16,000 “salary adjustment” for the 1985-1986 school year. In addition, Laurito was granted a leave of absence for the 1985-1986 school year, and his July 1, 1986 resignation for retirement purposes was accepted.

PSERS notified Laurito that the $ 16,000 increase would not be included as compensation for retirement purposes. The Retirement Board upheld the determination, concluding that the claimed salary adjustment was a severance payment. The Commonwealth Court affirmed on appeal, finding that the  [*142]  record failed to establish that Laurito’s salary increase was customary for an individual of similar experience within the school district. The court concluded that the school board’s actions were tantamount to a severance agreement, stating [***15]

We find especially persuasive the observation made by the board that the $ 16,000 payment in the final year of service provided a mechanism for the school district to recognize Laurito’s devoted service, as well as to remedy the perceived inequity of a below-average salary throughout a working lifetime, by effectuating an inflated final salary for purposes of retirement benefits.

146 Pa. Commw. at 519-20, 606 A.2d at 611-12.

In Dowler v. Public School Employes’ Retirement Board, the Commonwealth Court held that a payment made pursuant to a retirement agreement was not compensation despite the personnel director’s performance of consulting services. William Dowler was employed for over seventeen years as the personnel director at the West Chester Area School District before his retirement on July 1, 1988. In addition to his other duties, Dowler conducted all of the school district’s labor negotiations in the first three years of his employment. The school district hired private contractors to conduct labor negotiations thereafter.

On November 17, 1987, Dowler and the school district entered into an agreement concerning his retirement. Dowler was to be placed on a [***16]  reduced work schedule from January 1, 1988, to July 1, 1988. He was to be compensated during that time as if he were working a five-day schedule and his duties would include training a replacement and assisting with negotiations. In addition,  [**945]  funds were to be given to Dowler on January 1, 1988, to purchase credit for his military services in an amount not to exceed $ 15,000.

For the first time in Dowler’s experience, three labor contracts expired at the end of June, 1988. Dowler assisted in the negotiations while working full-time as the personnel director. A new director was not hired until May, 1988. The school district paid $ 14,854.08 to Dowler, which he used to  [*143]  purchase retirement credit for military service. PSERS concluded that the amount was a severance payment and did not include it as part of Dowler’s final average salary in computing his retirement compensation.

Dowler appealed the determination, asserting that he did not receive the benefit of his agreement because he was not given the opportunity to work half-time at full pay. The Board concluded that the money represented a severance payment and dismissed the appeal. The Commonwealth Court affirmed, stating

HN4

Under [***17]  the Code, all payments, other than for regular professional salary, which are part of an agreement in which a professional member agrees to terminate school service by a date certain, are prima facie severance payments. The claimant may rebut a prima facie case only by showing that the payment is in accord with the scheduled or customary salary scale within the School District for personnel with the same educational and experience qualifications who are not terminating service.

153 Pa. Commw. at 115-16, 620 A.2d at 643.

In furtherance of its responsibility to ensure the actuarial soundness of the retirement fund, the Board has determined that it is statutorily required to exclude nonregular remuneration, nonstandard salary, fringe benefits, bonuses, and severance payments from inclusion as compensation under the Retirement Code. The Board has developed the concepts of “standard salary” and “regular remuneration” as part of its understanding of compensation.

Based upon its interpretation of the Retirement Code and accompanying regulations, HN5standard salary and regular remuneration are defined by the Board as take-home cash, including, among others, (i) amounts withheld [***18]  for tax remittances; (ii) amounts picked up as contributions to PSERS; and (iii) amounts appropriately deferred in qualifying deferred compensation programs, and excluding, fringe benefits, bonuses, severance payments, and non-salary  [*144]  reduction Internal Revenue Code § 403(b) tax sheltered annuities.

Christiana v. Public School Employees’ Retirement Board, 166 Pa. Commw. 300,    , 646 A.2d 645, 649-50 (1994) (emphasis supplied).

The nonsalary reduction tax sheltered annuities purchased for Christiana during the four consecutive school years beginning in 1984-1985 were found by the Board to be nonstandard salary, nonregular remuneration and bonuses or fringe benefits under this analysis. 3 The $ 19,200 in annuity purchases, which the School District authorized after being advised of Christiana’s impending retirement, were excluded as being part of a severance package.

FOOTNOTES

3 Such annuities are distinguishable from the annuity contracts purchased under a deferred compensation program authorized under the Fiscal Code, Act of March 30, 1811, P.L. 145 as amended, 72 P.S. §§ 4521.1 – 4521.2. Income deferred under programs authorized thereunder is included as regular compensation for the purpose of computing deductions for employe contributions to retirement and pension programs and for the purpose of computing retirement and pension benefits. 72 P.S. § 4521.1(e). Christiana’s assertion that the annuity purchases made on his behalf qualified for treatment as deferred compensation under this provision fails to recognize this distinction and is unsupportable.

[***19]  Christiana had received salary increases for the first three years after he became superintendent for the Upper St. Clair School District. Over a four-year period, Christiana’s annual salary increased from $ 58,000 to $ 71,000. When his salary for 1984-1985 was under consideration, members of the School Board expressed concern that an additional increase would generate negative publicity. A newspaper reporter’s comment that Christiana’s salary at that time exceeded that of Pennsylvania’s Governor was repeated in the headlines of a local newspaper. Unwilling to confront public scrutiny  [**946]  of a salary increase, the School Board elected to freeze Christiana’s salary and purchased a single premium annuity for the purpose of purchasing prior years’ seniority pension credit.

Richard J. Mancini, the School District’s business manager, testified that Christiana was the highest paid school superintendent in Western Pennsylvania, including the City of Pittsburgh  [*145]  School District which was ten times the size of Upper St. Clair’s School District. Mancini indicated that the single premium annuity was considered as a way to handle adverse public reaction because responses to salary surveys would not [***20]  include that amount. He considered the annuity purchases to be compensation.

Nevertheless, the record establishes that the School District did not report the annuity payments to PSERS as compensation paid to Christiana and did not pay pickup contributions on those amounts. In fact, the School District continued to purchase single premium annuities even when salary increases were approved in subsequent years. In the 1987-1988 school year, Christiana’s salary was increased to $ 74,000 and a single premium annuity in the amount of $ 9,500 was purchased. His salary was then increased to $ 80,000 in the following year in which an additional $ 9,500 was earmarked for an annuity purchase.

With respect to the $ 19,200 annuity payment, the School Board’s resolutions indicate that it was part of a comprehensive salary and benefits package developed after notice of Christiana’s impending retirement. The School Board’s initial resolution dated November 14, 1988, contemplated a salary increase to $ 80,000, payment for services of a financial planner not to exceed $ 2,000, continuing medical benefits for Christiana and his wife until age 65, the purchase of three years’ pension credit for military [***21]  service 4, and the $ 19,200 annuity purchase. On January 9, 1989, the resolution was rescinded. A second resolution was adopted which incorporated all of the earlier provisions, but split the $ 19,200 into two separate annuity purchases.

FOOTNOTES

4 The amount expended by the School District for this purchase was approximately $ 21,000. Christiana did not seek to include this amount in the computation of his retirement benefits.

The Commonwealth Court concluded that the Board did not err in excluding the annuity payments from the calculation of Christiana’s final average salary. As to the 1988-1989 salary and benefits package, the court found that the record was devoid of any evidence that the package was in accord with the  [*146]  District’s regular and standard yearly compensation practices, particularly those involving Christiana himself over the ten-year term of his employment.

We find that the Commonwealth Court did not err in concluding that none of the annuity purchases were includable as compensation for purposes of [***22]  determining Christiana’s final average salary. There is substantial evidence in the record to support the Retirement Board’s conclusions that the annuity payments were remuneration that was not based on the standard salary schedule for which Christiana was rendering service, and that the $ 19,200 payment was a severance payment. Therefore, under the Retirement Code and applicable regulations, the annuity payments were properly excluded from the computation of Christiana’s final average salary.

The order of the Commonwealth Court is affirmed.

Mr. Justice Montemuro, who was sitting by designation, did not participate in the decision of this case.

166 Pa. Commw. 300, *; 646 A.2d 645, **;
1994 Pa. Commw. LEXIS 436, ***

ROBERT D. CHRISTIANA, Petitioner v. PUBLIC SCHOOL EMPLOYES’ RETIREMENT BOARD, Respondent

  1. 1745 C.D. 1993

COMMONWEALTH COURT OF PENNSYLVANIA
166 Pa. Commw. 300; 646 A.2d 645; 1994 Pa. Commw. LEXIS 436
March 2, 1994, ARGUED

July 28, 1994, FILED
SUBSEQUENT HISTORY: Petition for Allowance of Appeal and/or Cross-Petition Granted December 7, 1994.

PRIOR HISTORY:  [***1]  APPEALED From File No. 117-16-8296. State Agency, Public School Employes’ Retirement Board.

COUNSEL: Reed B. Day for petitioner.

Louis Sheehan, Assistant Counsel, for respondent.

JUDGES: BEFORE: HONORABLE DAVID W. CRAIG, President Judge, HONORABLE JAMES GARDNER COLINS, Judge, HONORABLE BERNARD L. McGINLEY, Judge, HONORABLE DAN PELLEGRINI, Judge, HONORABLE ROCHELLE S. FRIEDMAN, Judge, HONORABLE JAMES R. KELLEY, Judge, HONORABLE SANDRA SCHULTZ NEWMAN, Judge.

OPINION BY: JAMES R. KELLEY

OPINION

[*302]   [**646]  OPINION BY JUDGE KELLEY

Robert D. Christiana, the former Superintendent of the Upper St. Clair School District (District) appeals from an order of the Public School Employes’ Retirement Board (Board) which denied the inclusion of certain annuities purchased for Christiana by the District in the calculation of his final average salary under the Public School Employes’ Retirement Code (Retirement Code). 1

FOOTNOTES

1 Act of October 2, 1975, P.L. 298, as amended, 24 P.S. §§ 8101 – 8104.

The Board made extensive findings of fact. Those findings relevant to the present [***2]  appeal may be summarized as follows. Christiana was first employed by the District in July, 1979 at the initial salary of $ 52,000. Christiana’s salaries for the subsequent school years were:

1980-1981 $ 58,000
1981-1982 $ 63,500
1982-1983 $ 65,723
1983-1984 $ 71,000

[*303]  The following amounts were initially reported to the Public School Employes’ Retirement System (PSERS) as Christiana’s salary for the next five school years:

1984-1985 $ 71,000
1985-1986 $ 71,000
1986-1987 $ 71,000
1987-1988 $ 74,000
1988-1989 $ 80,000

In November 1988, the Upper St. Clair School Board (School Board) became aware of Christiana’s intention to retire from his position at the end of the 1988-1989 school year. Christiana formally retired in August, 1989.

At its November 14, 1988 meeting, the School Board adopted resolutions concerning the 1988-1989 salary and benefits payable to  [**647]  or for the benefit of Christiana. Among the resolutions was one which directed the District to provide Christiana “with an annuity or other equivalent payment at a cost to the District of $ 19,200 for the purposes of purchasing for the Superintendent pension credit under the State Retirement Plan [***3]  … .”

On January 9, 1989, the School Board met and rescinded its resolutions of November 14, 1988, adopting the following relevant resolutions in their place:

RESOLVED, that the District, in recognition of the superior manner in which the Superintendent has performed his duties and responsibilities, shall provide the Superintendent in calendar year 1988 with additional compensation in the amount of $ 9,500; and further,

RESOLVED, that the District shall, at or prior to the retirement of the Superintendent on June 30, 1989, pay to or on behalf of the Superintendent additional compensation in the amount of $ 9,700 plus an amount necessary to purchase for the Superintendent three years’ pension credit under the State Retirement Plan in recognition of his service in the United States Air Force, as permitted by the laws of Pennsylvania. 2

FOOTNOTES

2 The amount necessary to purchase the pension credit for military service was slightly in excess of $ 20,000; however, Christiana does not seek to characterize this expenditure as “compensation” under the Retirement Code.

[***4]   [*304]  Pursuant to this resolution, the District purchased an annuity for Christiana in the amount of $ 9,500, but this expenditure was not directly reflected as Christiana’s regular salary. 3 In contradistinction, the District in 1989 directly paid Christiana an additional $ 9,700 which increased his regular salary from $ 80,000 to $ 89,700. The $ 9,700 was separately accounted for and deducted from Christiana’s take-home salary. The District purchased an annuity for Christiana with the payroll deductions.

FOOTNOTES

3 This annuity, and all others subsequently referred to, were purchased by the District pursuant to Internal Revenue Code § 403(b) which grants special tax advantages to school employees with respect to annuities purchased for them by their tax-exempt employers.

The District reported to PSERS a total of $ 8,730 in payroll deductions starting in March 1989, through and including June 1989, to reflect the additional compensation called for by the January 9, 1989 School Board resolution. 4 After review of the School Board [***5]  meeting minutes and resolutions, on January 19, 1990, PSERS declined to accept or recognize the reported $ 8,730 for retirement credit purposes.

FOOTNOTES

4 The $ 8,730 in payroll deductions reported to PSERS represented a $ 970 shortfall from the $ 9,700 deduction authorized by the School Board.

By letter to PSERS dated February 9, 1990, the District resubmitted Christiana’s reported salary for the 1988-1989 school year. The letter broadened the reporting period to encompass deductions made between January 1, 1989 and June 30, 1989, and adjusted the total salary accordingly. The letter read, in part:

On the original 1st quarter report $ 970.00 of additional compensation was not reported in February, 1989.

Further, in reviewing the report for the 4th quarter of 1988 we discovered that a payment of $ 9,500.00 to Dr. Christiana was also not reported.

The District views these payments as merit increases, no different than merit pay which is paid in accordance with  [*305]  our negotiated agreement with the teachers of  [***6]  the School District.

At the administrative hearing held September 11, 1991 before a hearing examiner to consider the issue of whether the $ 19,200 (comprised of $ 9,500 + $ 9,700) (Enhancement II) paid to Christiana in the 1988-1989 school year should be considered Retirement Code compensation for the purposes of calculating the final average salary, PSERS was made aware that additional remuneration was awarded to Christiana not only in his final year of service but also for the four previous school years (1984-1988) (Enhancement I). At the hearing, for the first time Christiana sought to add Enhancement I to the salaries previously reported to PSERS for the respective years for inclusion as Retirement Code compensation.

[**648]  According to the relevant School Board meeting minutes, the Enhancement I payments were intended to compensate Christiana “in lieu of salary increases” for the given years. The pertinent resolutions directed that the District purchase a single premium annuity for Christiana for the purposes of purchasing prior years seniority pension credit at the following amounts:

1984-1985 $ 5,000
1985-1986 $ 7,000
1986-1987 $ 10,000
1987-1988 $ 9,500

None [***7]  of these amounts were reflected in Christiana’s take-home pay, nor were the amounts formally reported to PSERS as salary.

The hearing examiner recommended that Enhancement II be excluded from the calculation of Christiana’s final average salary because the amounts were properly characterized as non-includable “severance payments” under the Retirement Code. The hearing examiner recommended further that Enhancement I be included in the calculation of final average salary because such amounts were properly characterized as includable Retirement Code compensation. Christiana appealed to the Board.

Concerning Enhancement I, the Board concluded that Christiana’s non-salary reduction tax shelter annuity payments  [*306]  may not be included in Retirement Code compensation because such payments are non-standard and/or non-regular remuneration as well as being bonuses and fringe benefits. Similarly, the Board concluded that the Enhancement II payments were components of a severance package none of which may be included in Retirement Code compensation because such payments must be characterized as non-includable bonuses and fringe benefits. It is from that order that Christiana now appeals to this court.

[***8]  On appeal, Christiana argues (1) that he is entitled to have his final average salary adjusted in order to receive retirement credit for single premium tax-sheltered annuities purchased for him by his employer in lieu of salary increases; (2) that PSERS may not sua sponte utilize statistical and public policy considerations when denying a claim for retirement benefits which were not raised before the hearing examiner; (3) that the Board denied Christiana due process by overruling the hearing examiner without providing Christiana reasonable notice and an opportunity to be heard; and, (4) that the Board denied Christiana due process by commingling the prosecutorial and adjudicative functions in determining Christiana’s eligibility for benefits.

We note that HN1our scope of review from adjudications of administrative boards is limited to a determination of whether the board committed an error of law, whether constitutional rights were violated, or whether necessary findings of fact are supported by substantial evidence. Finnegan v. Public School Employes’ Retirement Board, 126 Pa. Commonwealth Ct. 584, 560 A.2d 848 (1989).

Christiana first [***9]  argues that the Board erred in failing to give effect to the relevant portions of the Fiscal Code of the Commonwealth 5 which expressly authorize the inclusion of tax-deferred income as credit for customary retirement plans. For five years, Christiana argues, the District purchased qualified tax-deferred annuities for Christiana in accordance with the HN2Fiscal Code, which provides in relevant part:

[*307]  The state treasurer shall pay all grants, salaries, annuities, gratuities, and pensions established by law … the treasurer or other officer in charge of payrolls for any … political subdivision may make systematic investments in mutual funds, savings accounts or government bonds or make premium payments on life insurance or annuity contracts to any institution or company licensed and authorized … to accept depositsfor the purpose of funding a deferred compensation program for employes.

72 P.S. § 4521 (emphasis provided by Christiana).

Moreover, Christiana asserts, the Fiscal Code authorizes the purchase of annuities through a deferred compensation program:

[**649]  HN3(a) The governing body of any … political subdivision may, by contract, agree with any employe  [***10]  to defer, a portion of that employe’s compensation and may subsequently, with the consent of the employe, purchaseannuity contracts … .

* * *

(e) Such deferred compensation program shall be in addition to, and not a part of, any other retirement benefit program provided by law for employes of the … political subdivision. Income deferred under programs authorized by this act shall continue to be included as regular compensation for the purpose of computing deductions for employe contributions to retirement and pension programs and for the purpose of computing retirement and pension benefits earned by any employe.

72 P.S. § 4521.1(a), (e), (emphasis provided by Christiana).

Christiana maintains that these provisions of the Fiscal Code permit the use of tax-deferred annuity payments which may be purchased by deferring a portion of an employee’s compensation. Such deferred income, Christiana contends, is then to be included in the computation of the employee’s retirement and pension benefits.

FOOTNOTES

5 Act of March 30, 1811, P.L. 145, as amended, 72 P.S. §§ 4521 – 4521.2.

[***11]  We cannot disagree with Christiana’s reading of the Fiscal Code provision set forth above. However, his argument continues,  [*308]  advancing the assertion that the Board erred by characterizing the annuities as non-salary reduction purchases, or non-regular remuneration, thus rendering such payments ineligible for inclusion as compensation under its interpretation of the Retirement Code.

HN4Section 8102 of the Retirement Code sets forth the following relevant definitions:

“Compensation.” Pickup contributions plus any remuneration received as a school employee excluding refunds for expenses incidental to employment and excluding severance payments.

HN5Final average salary.” The highest average compensation received as an active member during any three nonoverlapping periods of 12 consecutive months … .

HN6Pickup contributions.” Regular or joint coverage member contributions which are made by the employer for active members for current service on and after January 1, 1983.

HN7Severance payments.” Any payments for unused vacation or sick leave and any additional compensation contingent upon retirement including payments in excess of the scheduled or customary [***12]  salaries provided for members within the same governmental entity with the same educational and experience qualifications who are not terminating service.

24 P.S. § 8102.

HN8Section 211.2 of Title 22 of the Pennsylvania Code expands upon the definition of Retirement Code compensation, in pertinent part:

Excludes a bonus, severance payment or other remuneration or similar emoluments received by a school employe during his school service not based on the standard salary schedule for which he is rendering service. It shall exclude payments for unused sick leave, unused vacation leave, bonuses for attending school seminars and conventions, special payments for health and welfare plans based on the hours employed or any other payment or similar emoluments  [*309]  which may be negotiated in a collective bargaining agreement for the express purpose of enhancing the compensation factor for retirement benefits.

22 Pa. Code § 211.2 (emphasis added).

Accordingly, the Board has developed general concepts in understanding the Retirement Code’s meaning of “compensation”: “standard salary” and “regular remuneration”. Based upon its interpretation of the Retirement Code and accompanying regulations,  [***13]  standard salary and regular remuneration are defined by the Board as take-home cash, including, among others, (i) amounts withheld for tax remittances; (ii) amounts picked up as contributions to PSERS; and (iii) amounts appropriately deferred in qualifying deferred compensation programs, and excluding, fringe benefits, bonuses, severance payments, and non-salary reduction Internal Revenue Code § 403(b) tax sheltered  [**650]  annuities. Board’s opinion, June 24, 1993, pp. 16-17 (emphasis added).

Based on its interpretation of the guiding statutes and regulations, the Board characterized both Enhancement I and II payments to Christiana as non-standard salary, non-regular remuneration, bonuses and fringe benefits. Additionally, the Board characterized Enhancement II as part of a severance payment. Therefore, the Board denied the inclusion of both the Enhancement I and Enhancement II annuity payments in the calculation of Christiana’s final average salary.

HN9The Board is charged with the execution and application of the Retirement Code and the Board’s interpretation should not be overturned unless it is clear that such construction is erroneous. Panko v. Public School Employees’ Retirement System, 89 Pa. Commonwealth Ct. 419, 492 A.2d 805 (1985). [***14]  Accordingly, our review of the record suggests that the Board did not err in excluding the annuity payments from the calculation of Christiana’s final average salary.

In each of the school years in which Christiana received an Enhancement I payment, the School Board adopted resolutions which directed that “in lieu of a salary increase” for that year, Christiana would benefit from the purchase of a single  [*310]  premium annuity for the purpose of purchasing prior years seniority pension credit. Christiana testified that the Enhancement I annuity payments were used as a means of rewarding Christiana without representing to the taxpayers of Upper St. Clair that his “salary” was substantially increased each year. (Original Record, Transcript of Hearing held September 11, 1991, at pp. 16-18.) Christiana testified he believed that his total compensation included his base reported salary, plus the additional amounts provided for the purchase of the annuities. (Id. at pp. 25-26.) The District’s business manager at the time, Richard Mancini, testified that in his opinion “there was no doubt” the annuity payments were compensation. (Id. at p. 67.)

Referring to the first annuity payment of  [***15]  $ 5,000 in 1984-1985, Dina J. Fulmer, a School Board member at the time testified as follows:

Q: What did you understand this $ 5,000 to be?

A: It was a — well, a reward for his performance. It was a way of compensating him which would not get our name in the paper again.

* * *

Q: Why were the words in lieu of a salary increase chosen?

A: Well, in lieu of means instead of or actually in place of being that lieu is the French word for place. Rather than increasing his base salary, we just decided to purchase this annuity.

(Id. at pp. 83, 85.)

However, regardless of Christiana’s or the District’s contradictory understanding, the record reveals that the District did not pay pickup contributions on the annuity purchases made on behalf of Christiana beginning with the 1984-1985 school year. 6 Further, in its reports to PSERS, the District did not  [*311]  report the Enhancement I payments as compensation paid to Christiana, nor did the District initially report any of the $ 19,200 Enhancement II payment to PSERS, as compensation or otherwise. Lastly, despite its apparent unwillingness to formally raise Christiana’s base salary in the face of public opposition, Christiana [***16]  did in fact receive two regular salary increases totalling $ 9,000 during the five year period under consideration.

FOOTNOTES

6 Section 8102 of the Retirement Code defined “pickup contributions” as regular or joint coverage member contributions which are made by the employer for active members for current service on and after January 1, 1983.

With respect to Enhancement II alone, the record also supports the findings of the Board that the payments constituted part of a severance package. Christiana testified the Board was made aware of his intention to retire prior to their November, 1988 negotiations concerning his 1988-1989 salary and benefits. (Id. at 47-48.) What emerged from those deliberations were resolutions directing (i) that the District, “in recognition of the superior manner in which the Superintendent  [**651]  has performed his duties”, pay Christiana additional compensation in the amount of $ 9,500 in 1988; and (ii) that the District pay Christiana an additional $ 9,700 at or prior to his retirement. (Original Record,  [***17]  PSERS Exhibit #10B.)

While the record is silent as to whether Enhancement II was made contingent on Christiana’s retirement, it is at the very least payment “in excess of the scheduled or customary” salary Christiana had enjoyed. Further, the final year salary and benefits package, of which Enhancement II was a part, included employer provided amounts for a financial planner, continuing medical coverage for Christiana and his wife, and a one-time offering of a salary reduction tax sheltered annuity. We find the record devoid of any evidence that Christiana’s final year package was in accord with the District’s regular and standard yearly compensation practices, particularly those involving Christiana himself over the ten year term of his employment.

HN10The Retirement Code indicates that the General Assembly wishes to exclude from the computation of employees’ final average salary all payments which may artificially inflate compensation for the purpose of enhancing retirement benefits.  [*312]  Dowler v. Public School Employes’ Retirement Board, 153 Pa. Commonwealth Ct. 109, 620 A.2d 639 (1993).

Christiana next argues that the Board erred by  [***18]  sua sponte utilizing financial statistics and public policy considerations not considered before the hearing examiner in denying Christiana’s claim for retirement benefits. We disagree.

HN11The Board, and not the hearing examiner, is the final fact finder in these cases. Dowler. As such, the Board may take official notice of facts which are obvious and notorious to an expert in the agency’s field and those facts contained in the agency’s files. Falasco v. Pennsylvania Board of Probation and Parole, 104 Pa. Commonwealth Ct. 321, 521 A.2d 991 (1987).

Next, Christiana asserts that in overruling the recommendations of the hearing examiner, the Board denied Christiana reasonable notice and an opportunity to be heard. Christiana contends that the Board made its determination in this matter without his participation and based its decision on facts and issues Christiana never had the opportunity to address.

HN12The Administrative Agency Law, 2 Pa.C.S. § 504, states that “no adjudication of a Commonwealth agency shall be valid as to any party unless he shall have been afforded reasonable notice and an opportunity to be heard.” Christiana was presented [***19]  with just these very opportunities and exploited them by filing a brief and reply brief prior to the hearing; attending the hearing and presenting evidence; and, filing exceptions to the hearing examiner’s recommendations, followed by a response to the exceptions filed by PSERS. Our review of the record indicates that the Board studied the complete record, including the arguments advanced by Christiana, in reaching its decision.

Lastly, Christiana raises a due process challenge concerning the alleged commingling of prosecutorial and adjudicative functions between the PSERS and the Board. However, Christiana failed to raise this issue before the Board.

[*313]  We have held that HN13commingling claims may be waived if they are not raised before the administrative board. Newlin Corp. v. Department of Environmental Resources, 134 Pa. Commonwealth Ct. 396, 579 A.2d 996 (1990). 7 Unless a claimant can offer a convincing reason for failing to raise the claim before the Board, the commingling issue is waived. Dowler. Here, Christiana has not offered any explanation for failing to raise this issue below.

FOOTNOTES

7 HN14Pennsylvania Rule of Appellate Procedure 1551 states, in part, that:

no question shall be heard or considered by the court which was not raised before the government unit except (1) Questions involving the validity of a statute … (3) Questions which the court is satisfied that the petitioner could not by the exercise of due diligence have raised before the government unit.

[***20]  Accordingly, the order of the Board is affirmed.

JAMES R. KELLEY, Judge

[**652]  ORDER

NOW, this 28th day of July, 1994, the order of the Public School Employes’ Retirement Board, dated June 24, 1993, is hereby affirmed.

JAMES R. KELLEY, Judge

Top of Form

669 A.2d 1098, *; 1996 Pa. Commw. LEXIS 10, **

  1. VERNON R. WYLAND, Petitioner v. PUBLIC SCHOOL EMPLOYES’ RETIREMENT BOARD, Respondent
  2. 566 C.D. 1995

COMMONWEALTH COURT OF PENNSYLVANIA
669 A.2d 1098; 1996 Pa. Commw. LEXIS 10
October 17, 1995, Argued

January 8, 1996, Decided

January 8, 1996, FILED
SUBSEQUENT HISTORY:  [**1]  Petition for Allowance of Appeal Denied August 5, 1996, Reported at: 1996 Pa. LEXIS 1604.

PRIOR HISTORY: APPEALED From No. File no. 480-24-6298. State Agency: Public School Employes’ Retirement Board.

DISPOSITION: Affirmed.

COUNSEL: Dee Lafferty Pugh for petitioner.

Louis Sheehan, Assistant Counsel, for respondent.

JUDGES: BEFORE: HONORABLE DAN PELLEGRINI, Judge, HONORABLE JAMES R. KELLEY, Judge, HONORABLE GEORGE T. KELTON, Senior Judge.

OPINION BY: JAMES R. KELLEY

OPINION

[*1100]  OPINION BY JUDGE KELLEY

FILED: January 8, 1996

Dr. Vernon R. Wyland, the former Superintendent of the Garnet Valley School District (school district) appeals from the order of the Public School Employes’ Retirement Board (board) adopting a hearing examiner’s calculation of his final average salary used to determine his retirement benefits under the Public School Employees’ Retirement Code (Retirement Code). 1 We affirm.

FOOTNOTES

1 24 Pa.C.S. §§ 8101 – 8534.

The relevant facts as found by the hearing examiner, and adopted by the board, may be summarized as follows. Wyland became a member of the Public School Employes’ Retirement System (PSERS) by virtue of his employment [**2]  with the Shaler Area School District on June 1, 1983. On July 1, 1987, he began service with the Garnet Valley School District as the District Superintendent for the 1987-1988 school year, at an annual salary of $ 65,000. On December 16, 1988, his annual salary for the 1988-1989 school year was increased to $ 70,200, retroactive to July 1, 1988. On March 28, 1990, Wyland’s annual salary for the 1989-1990 school year was increased to $ 74,412, retroactive to July 1, 1989. Wyland’s annual salary for the 1990-1991 school year was increased to $ 94,481 as of June 30, 1991.

During the 1989-1990 school year, the school district experienced a prolonged labor action with intense teacher contract negotiations which continued until a new contract was signed in June of 1990. During the labor action, the teachers went out on strike for a period of 25 to 30 days. As a result of the contract negotiations and work stoppage, Wyland became the target of community pressures and antagonisms and he also became the subject of a vote of “no confidence” from the teachers.

During the same period, the school district was engaged in a building program involving the construction of a new middle school building [**3]  and other renovations. At that time, the Garnet Valley Board of School Directors (school board) was sensitive to the adverse public reaction to cost overruns associated with the building program. The teachers’ contract negotiations and public reaction to the work stoppage contributed to a significant turnover in the composition of the school board. Six school board members changed as a result of resignations, and new members who were appointed came to the school board predisposed against Wyland as a result of the labor situation and the cost overruns.

As a result, in November of 1990, Wyland was informed by the president of the school board that his contract would not be extended beyond its expiration date of June 30, 1991. Because the school board did not want to take public action on their decision, Wyland was asked if he would rather resign from his position. Wyland concluded that it would be best to resign as he felt it would be easier to tell prospective employers that he had resigned, rather than to say that his contract had not been extended.

After negotiations regarding the terms of Wyland’s resignation, on November 21, 1990, the president of the school board sent him a letter [**4]  outlining the terms under which he could resign. The letter stated, inter alia:

3)

The [School] Board guarantees the payment to you of your full salary through June 30, 1991. That salary will not be reduced between now and June 30, 1991.

(a) Your annual raise, ordinarily effective January, 1991, will be deferred. As part of your salary, and in lieu of the annual raise in January, the [School] Board will purchase from you all unused vacation days credited to your account as of June 30, 1991 … .

(b)

Additionally, at the conclusion of your contract on June 30, 1991, the [School] Board, as part of your annual raise, will pay you for all unused sick days then credited to your account … .

(c)

Notwithstanding Paragraphs 3(a) and 3(b), you have agreed to reimburse the District for its share of the retirement cost allocable to the inclusion of that portion of your salary  [*1101]  represented by payments under Paragraph 3(a) and 3(b).

Wyland accepted the proposed terms as outlined in the letter.

On November 26, 1990, Wyland submitted his letter of resignation, contingent upon the school board’s acceptance of the proposed terms in [**5]  the president’s letter. At its regular meeting on November 27, 1990, the school board accepted Wyland’s resignation effective June 30, 1991. The school board did not take a public vote regarding the content and financial terms of the November 21, 1990 letter to avoid disclosure of their action.

By letter dated June 20, 1991, Wyland submitted a memorandum to the school district’s director of business and support services which summarized his accumulated vacation days and sick days. On June 25, 1991, Wyland and the school board president signed a letter of agreement which contained identical terms as outlined in the letter of November 21, 1990.

On June 28, 1991, the school district issued Wyland a check in the amount of $ 20,069.40 as payment for his unused sick days, vacation days and comp days. The payroll document computing Wyland’s vacation and sick days noted that the payment was to be considered compensation as per the November 21, 1990 letter of agreement. As required by the letter of agreement, Wyland reimbursed the school district for its share of the retirement costs allocable to the inclusion of the $ 20,069.40 payment.

On June 28th, Wyland also entered into an agreement [**6]  with the school district releasing the school district from any future liability concerning his resignation, in exchange for the payment of $ 20,069.40. The agreement referred to this payment as a “severance payment”. Wyland was required to sign the release agreement in order to receive the $ 20,069.40 payment. He signed the release agreement and received the payment.

On September 17, 1991, PSERS received a retirement application from Wyland with an effective date of retirement of June 29, 1991. PSERS contacted the school district regarding the $ 20,069.40 payment to Wyland. The school district sent PSERS a copy of the minutes of the school board meeting in which Wyland formally submitted his resignation, and indicated that no information from his personnel file could be released without his written consent. PSERS then informed the school district that in the absence of any written evidence concerning the reason for the payment, the $ 20,069.40 would not be used to calculate Wyland’s retirement benefits. Wyland was sent copies of both letters from PSERS, but his consent for the release of information from his personnel file was never requested by PSERS.

Initially, Wyland’s retirement [**7]  benefits were calculated by PSERS using a “final average salary” of $ 79,698. However, without the necessary documentation, the $ 20,069.40 was removed from PSERS’ computation of his final average salary. As a result, his retirement benefits were recalculated using a final average salary of $ 73,008. By letter dated April 8, 1992, PSERS informed Wyland that his benefits had been recomputed, and that he was required to repay $ 7,619.03 that he had received in overpayment.

By letter dated April 23, 1992, Wyland requested that PSERS include the $ 20,069.40 in its calculation of his final average salary. On July 1, 1992, PSERS notified Wyland that its Appeals Committee had denied his request. By letter dated July 28, 1992, Wyland requested an administrative hearing.

On July 6, 1993, a hearing was scheduled and held before an independent hearing examiner. Based on the evidence presented at the hearing and the briefs and motions submitted by the parties, the hearing examiner concluded that the $ 20,069.40 paid to Wyland was a severance payment, and should not be considered in the calculation of his final average salary. In this regard, the hearing examiner specifically found the following:  [**8]

  1. At the time of the November 21, 1990 agreement, [the school district] was under a great deal of political pressure due to the recent teacher strike and cost overruns at the middle school project and [Wyland]’s raise was motivated by [the school district]’s need for [Wyland]’s cooperation.
  2. The November 21, 1990 agreement was designed as a buyout of [Wyland]’s  [*1102] vacation and sick days, both items regularly purchased by [the school district] at the end of a superintendent’s term, and both items that would not normally be considered standard salary.
  3. Both [Wyland] and [the school district] represented to the general public that [Wyland]’s pay for the 1990-1991 school year was $ 74,412.00, and it would be unfair to now allow [Wyland] to claim a higher pay for retirement purposes.
  4. The November 21, 1990, agreement required [Wyland] to reimburse [the school district] for its share of the retirement cost allocable to the inclusion of the $ 20,069.40 payment into [Wyland]’s salary. With a regular salary increase this retirement cost would have been the responsibility of [the school district].
  5. [Wyland] was required [**9]  to sign the June 28, 1991, release agreement in order to receive the $ 20,069.40 payment and the release agreement referred to the money as a severance payment.

The hearing examiner also found, inter alia, that: the payment was not based on the standard salary schedule for which Wyland was rendering service; the payment was not made under the school district’s scheduled or customary salary scale; and, the payment was made contingent upon Wyland’s “retirement” as that term includes terminations which result in the immediate receipt of a pension.

Both Wyland and PSERS filed exceptions to the hearing examiner’s decision with the board. The board adopted the hearing examiner’s findings of fact and conclusions of law, and affirmed the hearing examiner’s decision. Wyland then filed a petition for review in this court appeal.

On appeal, Wyland claims: (1) the board erred in determining that the $ 20,069.40 payment in his final year of employment constituted severance pay rather than compensation, thereby reducing his final average salary used for the calculation of his retirement benefits; and (2) his due process rights were denied by PSERS’ failure to request information from [**10]  him before eliminating the $ 20,069.40 from its calculation of his final average salary, and by the commingling of the prosecutorial and adjudicative functions of PSERS and the board.

We note that HN1our scope of review from adjudications of administrative boards is limited to a determination of whether the board committed an error of law, whether constitutional rights were violated, or whether necessary findings of fact are supported by substantial evidence. Christiana v. Public School Employees’ Retirement Board, 166 Pa. Commw. 300, 646 A.2d 645 (Pa. Cmwlth. 1994); Dowler v. Public School Employes’ Retirement Board, 153 Pa. Commw. 109, 620 A.2d 639 (Pa. Cmwlth. 1993). Because the board is charged with the execution and application of the Retirement Code, the board’s interpretation should not be overturned unless it is clear that its construction of the Retirement Code is erroneous. Christiana.

Wyland first argues that the board erred in determining that the $ 20,069.40 payment in his final year of employment constituted a severance payment rather than compensation. In particular, Wyland claims that: there is no evidence that the increase was paid contingent upon his retirement; there is no substantial evidence [**11]  that it was payment for his unused vacation or sick time; his resignation at the end of his contract term cannot be considered to be his “retirement”; the increase was consistent with the school district’s compensation plan; and it made his salary comparable to other superintendents in Delaware County.

HN2Both the Retirement Code and the applicable regulations contain restrictions on the types of compensation that may be used in calculating an employee’s final average salary. Hoerner v. Public School Employes’ Retirement Board, 655 A.2d 207 (Pa. Cmwlth. 1995). The purpose of these restrictions is to ensure the actuarial soundness of the retirement fund by preventing employees from artificially inflating compensation as a means of receiving greater retirement benefits. Id.

HN3Section 8102 of the Retirement Code sets forth the following relevant definitions:

“Compensation.” Pickup contributions plus any remuneration received as a school employee excluding refunds for expenses  [*1103]  incidental to employment and excluding any severance payments.

“Final average salary.” The highest average compensation received as an active member during any three nonoverlapping [**12]  periods of 12 consecutive months … .

“Pickup contributions.” Regular or joint coverage member contributions which are made by the employer for active members for current service on and after January 1, 1983.

“Severance payments.” Any payments for unused vacation or sick leave and any additional compensation contingent upon retirement including payments in excess of the scheduled or customary salaries provided for members within the same governmental entity with the same educational and experience qualifications who are not terminating service.

24 Pa.C.S. § 8102 (emphasis added).

HN4Title 22 Pa. Code § 211.2 also defines compensation as follows:

Compensation – Excludes a bonus, severance payment or other remuneration or similar emoluments received by a school employe during his school service not based on the standard salary schedule for which he is rendering service. It shall exclude payments for unused sick leave, unused vacation leave, bonuses for attending school seminars and conventions, special payments for health and welfare plans based on the hours employed or any other payment or similar emoluments which may be negotiated [**13]  in a collective bargaining agreement for the express purpose of enhancing the compensation factor for retirement benefits. (Emphasis added.)

HN5Whether or not a payment must be considered a severance payment is a question of law. Dowler. Under the Retirement Code, all payments, other than those for regular professional salary, which are part of an agreement in which a professional member agrees to terminate school service by a date certain, are prima facie severance payments. Id. A claimant may rebut a prima facie case only by showing that the payment is in accord with the scheduled or customary salary scale within the school district for personnel with the same educational and experience qualifications who are not terminating service. Id.

In this case, both the hearing examiner and the board were presented with the letters of agreement between Wyland and the school board president dated November 21, 1990 and June 25, 1991 which stated, inter alia, that Wyland would be paid for all of his unused vacation and sick days in lieu of his annual raise, and that he would reimburse the school district for its share of the retirement cost allocable to the inclusion [**14]  of this amount. The hearing examiner and the board were also presented with an agreement between Wyland and the school board president dated June 28, 1991 which stated that the parties had reached certain agreements concerning the termination of his employment and severance payments, the terms of which were embodied in the letter of June 25. The hearing examiner and the board were also presented with documentation that Wyland was paid $ 20,069.40 by the school district for 62 unused vacation and comp days, and 93 unused sick days. Clearly, such evidence is sufficient to support the board’s conclusion that the $ 20,069.40 paid to Wyland constituted a severance payment as it is defined in the Retirement Code.

Wyland is essentially asking this court to reweigh the conflicting evidence presented to the hearing examiner and the board, and to only accept that evidence which contradicts the plain meaning of the contents of the foregoing documents. However, HN6questions of resolving conflicts in the evidence, witness credibility, and evidentiary weight are properly within the exclusive discretion of the fact finding agency, and are not usually matters for a reviewing court.  [**15] Herzog v. Department of Environmental Resources, 166 Pa. Commw. 114, 645 A.2d 1381 (Pa. Cmwlth. 1994). Moreover, “this court ‘may not substitute its judgment for that of an administrative agency acting within its discretion in the field of its expertise upon substantial evidence … .'” Dowler, 620 A.2d at 644 (citation omitted). The hearing examiner and the board rejected Wyland’s claims regarding this evidence. On  [*1104]  appeal, we will not substitute our judgment nor reweigh this evidence.

Wyland next claims that his right to due process and fundamental fairness was denied by PSERS’ failure to formally request information from him before eliminating the $ 20,069.40 from its calculation of his final average salary, and by the commingling of prosecutorial and adjudicative functions by PSERS and the board. He first argues that his vested property rights to his pension were reduced by PSERS in an arbitrary manner, without notice and without a chance to respond, thereby violating his due process rights.

HN7The Administrative Agency Law, 2 Pa.C.S. § 504, states that “no adjudication of a Commonwealth agency shall be valid as to any party unless he shall have been afforded reasonable notice and an opportunity to be heard.”  [**16]  Wyland was afforded these opportunities and exercised them before the hearing examiner and the board in this case.

As the claimant in Hoerner, we note that Wyland has failed to cite any authority for the proposition that he was entitled to a “pre-reduction” hearing before PSERS in this case. The determination of Wyland’s final average salary and the calculation of benefits is simply the result of a staff function performed by PSERS.

Wyland could, and did, appeal the initial determination of his retirement benefits to PSERS’ appeal committee and, ultimately, to the board. He filed a brief and a reply brief prior to the hearing before the hearing examiner, attended the hearing and presented evidence, and filed exceptions to the hearing examiner’s determination with the board. HN8As Wyland was given notice and a hearing prior to the final determination of his retirement benefits, and there exists no authority for a hearing in connection with PSERS’ initial review, this claim is meritless. See Stone & Edwards Insurance Agency, Inc. v. Department of Insurance, 538 Pa. 276, 648 A.2d 304 (1994) (The initial denial of an insurance license application was the result of a staff function [**17]  performed by the Pennsylvania Insurance Department; as this decision could be appealed to the Insurance Commissioner who would conduct a hearing before the final determination, applicants were not entitled to notice and a hearing prior to the initial denial of a license application).

Finally, Wyland argues that the commingling of the prosecutorial and adjudicative functions by PSERS and the board is violative of his due process rights. In support of his position, Wyland relies on the case of Lyness v. State Board of Medicine, 529 Pa. 535, 605 A.2d 1204 (1994). In Lyness, our Supreme Court stated:

In the modern world of sprawling governmental entities akin to corporations it would be both unrealistic and counterproductive to insist that administrative agencies be forbidden from handling both prosecutorial and adjudicatory functions, where such roles are parcelled out and divided among distinct departments or boards. Efficiency and cost-effectiveness are certainly desirable ends. Indeed, each administrative board and judge is ultimately a subdivision of a single entity, the Commonwealth of Pennsylvania, but this does not render their collective work as prosecutors, investigators [**18]  and adjudicators constitutionally infirm, nor create an imminent threat of prejudice.

What our Constitution requires, however, is that if more than one function is reposed in a single administrative entity, walls of division be constructed which eliminate the threat or appearance of bias. … [A] “mere tangential involvement” of an adjudicator in the decision to initiate proceeding is not enough to raise the red flag of procedural due process. … Our constitutional notion of due process does not require a tabula rasa. … However, where the very entity or individuals involved in the decision to prosecute are “significantly involved” in the adjudicatory phase of the proceedings, a violation of due process occurs.

Lyness, 529 Pa. at 546-47, 605 A.2d at 1209-10 (citations omitted).

Thus, HN9where “walls of division” are erected between the parties completing disparate functions within an administrative agency, no due process violation will be found. See, e.g., Stone & Edwards Insurance;  [*1105]  Office of Disciplinary Counsel v. Duffield, 537 Pa. 485, 644 A.2d 1186 (1994).

Even if we were to adopt Wyland’s position that the initial determination and review [**19]  of his retirement benefits by PSERS and the board constitute “prosecutorial” and “adjudicative” functions, there has been no showing by Wyland of a commingling of these functions as proscribed by Lyness. Wyland’s initial application was reviewed by a supervisor in the retirement processing section of PSERS. When he was dissatisfied with the determination of his benefits, Wyland requested PSERS’ appeals committee to review his claim. When he was dissatisfied with the appeals committee’s decision, Wyland submitted a request to the legal division of PSERS for a hearing before a hearing examiner. The independent hearing examiner conducted the hearing and made a recommendation to the board, which was the final arbiter. The board was not involved in the adjudication until Wyland appealed the decision of the hearing examiner to the board. Such a procedure does not involve the commingling of prosecutorial and adjudicative functions, and does not violate due process. See Duffield.

Unquestionably, under Lyness, HN10the mere possibility of bias under Pennsylvania law is sufficient to “raise the red flag” of the protections offered by the procedural guaranty of due process. Stone &  [**20]  Edwards Insurance. However, the appearance of bias proscribed by Lyness must be one which arises from an actual environment of commingled functions. Id. Wyland has not advanced a claim of the actual commingling of functions in the manner in which PSERS and the board conduct their investigations, prosecutions and adjudications. In the absence of any actual commingling, which would give rise to an appearance of bias, Wyland’s unsubstantiated claim of commingling is meritless. Id.

Accordingly, the order of the board is affirmed.

JAMES R. KELLEY, Judge

ORDER

NOW, this 8th day of January, 1996, the order of the Public School Employes’ Retirement Board, dated January 27, 1995, at No. 480-24-6298, is affirmed.

JAMES R. KELLEY, Judge

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543 Pa. 132, *; 669 A.2d 940, **;

1996 Pa. LEXIS 10, ***

ROBERT D. CHRISTIANA, Appellant v. PUBLIC SCHOOL EMPLOYES’ RETIREMENT BOARD, Appellee

No. 75 W.D. Appeal Docket 1994

SUPREME COURT OF PENNSYLVANIA

543 Pa. 132; 669 A.2d 940; 1996 Pa. LEXIS 10

September 18, 1995, ARGUED

January 18, 1996, DECIDED

PRIOR HISTORY:  [***1]  Appeal from the Order of the Commonwealth Court Entered July 28, 1994, at No. 1745 C.D. 1993, Affirming the Opinion and Order of the Public School Employes’ Retirement Board Dated June 24, 1993 at No. 117-16-8296. 166 Pa. Cmwlth. 300, 646 A.2d 645 (1994). JUDGES BELOW: CRAIG, COLINS, MCGINLEY, PELLEGRINI, FRIEDMAN, KELLEY, NEWMAN, JJ. (Cmwlth.).

DISPOSITION: Affirmed.

COUNSEL: Mr. Robert D. Christiana, APPELLANT, Pro se.

For Public School Employes’ Retirement Board, APPELLEE: Louis J. Sheehan, Esquire. For Attorney General’s Office, APPELLEE: Ernest D. Preate, Jr., Esquire.

JUDGES: MR. CHIEF JUSTICE ROBERT N. C. NIX, JR., FLAHERTY, ZAPPALA, CAPPY, CASTILLE, MONTEMURO, JJ. Mr. Justice Montemuro, who was sitting by designation, did not participate in the decision of this case.

OPINION BY: ZAPPALA

OPINION

[**940]   [*134]  OPINION

JUSTICE ZAPPALA

DECIDED: JANUARY 18, 1996

Appellant, Robert D. Christiana, is a former superintendent of the Upper St. Clair School District. Prior to his retirement, the School District had purchased certain annuities for Christiana. Christiana requested that the amounts paid for the annuities be included by the Public School Employes’ Retirement System (PSERS) in its calculation of his final average salary for retirement purposes. After an administrative hearing, the Public School Employes’ Retirement Board (Board) entered an order directing that the annuities were not to be included in the computation of his retirement benefits. The Commonwealth Court affirmed the Board’s order in an en banc decision. We granted Christiana’s petition for allowance [***2]  of appeal and now affirm.

The Board’s opinion set forth detailed factual findings that are summarized as follows. Christiana was hired as the superintendent by the School District in July of 1979 at a starting salary of $ 52,000. He had been employed previously by school districts in  [**941]  Michigan and New York in various positions and had served as the superintendent of Pennsylvania’s Springfield Township School District. Christiana’s salary was increased over the next few years:

1980-1981 $ 58,000

1981-1982 $ 63,500

1982-1983 $ 65,723

1983-1984 $ 71,000

In the next five years, the School District reported the following figures as Christiana’s salary to PSERS:

[*135]  1984-1985 $ 71,000

1985-1986 $ 71,000

1986-1987 $ 71,000

1987-1988 $ 74,000

1988-1989 $ 80,000

Beginning with the 1984-1985 school year, the School District also expended funds to purchase single premium annuities for Christiana. The School District did not report the expenditures as part of Christiana’s salary to PSERS or pay retirement contributions on those amounts. The minutes of Upper St. Clair School Board’s meetings at which the annuity payments were addressed indicate [***3]  that the annuity payments were to be made for purposes of purchasing prior years’ seniority pension credit. 1 The minutes reflect the costs of the annuity purchases:

FOOTNOTES

1 The minutes also indicate that the annuity payments were “in lieu of salary increases.” For the school year 1987-1988, in which Christiana also received a salary increase of $ 3,000, the minutes state that “in lieu of any additional salary increase,” the School District shall purchase a single premium annuity for purposes of purchasing prior years’ seniority pension credit at a cost of $ 9,500.

1984-1985 $ 5,000

1985-1986 $ 7,000

1986-1987 $ 10,000

1987-1988 $ 9,500

By early November of 1988, the School Board was apprised of Christiana’s intention to retire at the end of the 1988-1989 school year. On November 14, 1988, the School Board adopted a resolution relating to Christiana’s anticipated retirement:

RESOLVED, That for the 1988-89 school year, the salary for the Superintendent shall be $ 80,000; and further,

[***4]

RESOLVED, That commencing with the retirement of the Superintendent on June 30, 1989, the Blue Cross/Blue Shield or equivalent medical and hospitalization benefits applicable to building administrators shall be continued for the Superintendent until his attaining age 65, and for his wife Nancy, until her attaining age 65, at District expense; and further,

RESOLVED, That the District shall reimburse the Superintendent during the 1988-1989 school year for costs incurred  [*136]  for the services of a financial planner, such reimbursement not to exceed $ 2,000; and further,

RESOLVED, That the District shall purchase for the Superintendent three years’ pension credit under the State Retirement Plan for his service in the United States Air Force as permitted by the laws of Pennsylvania; and further,

RESOLVED, That the District shall provide the Superintendent with an annuity or other equivalent payment at a cost to the District of $ 19,200 for purposes of purchasing for the Superintendent pension credit under the State Retirement Plan for service as an educator in positions prior to his employment under the Pennsylvania retirement system, as permitted [***5]  by the laws of Pennsylvania; . . .

The annuity payment of $ 19,200 for the 1988-1989 school year became problematic due to changes in the federal tax code that were effective as of January 1, 1989. In response, the School Board rescinded the resolution of November 14, 1988, and adopted a second resolution on January 9, 1989. The resolution split the $ 19,200 payment into two separate payments of $ 9,500, which was backdated to the 1988 calendar year, and of $ 9,700, which was to be made at or prior to Christiana’s retirement date of June 30, 1989:

MOTION: By Wellington: WHEREAS, the Board of School Directors at its regular meeting on November 14, 1988, adopted certain resolutions relating to the salary and the benefits payable to or for the benefit of the Superintendent; and

WHEREFORE, prior to the adoption of such resolutions it was represented to the Superintendent that the Board would consider  [**942]  modification to those resolutions after the Superintendent and the District had an opportunity to consult with their respective advisors, and such consultations have taken place and the Board is prepared to make certain modifications;

NOW, THEREFORE,  [***6]  BE IT RESOLVED, that with the consent and agreement of the Superintendent, the resolutions  [*137]  adopted by the Board at its November 14, 1988, meeting relating to the salary and benefits payable to or for the benefit of the Superintendent be and are hereby rescinded and the following resolutions are adopted in their place and stead:

RESOLVED, that for the 1988-89 school year, the salary for the Superintendent shall be $ 80,000; and further,

RESOLVED, that commencing with the retirement of the Superintendent on June 30, 1989, the Blue Cross/Blue Shield or equivalent medical and hospitalization benefits then applicable to Building Administrators shall be continued for the Superintendent until his attaining age 65, and for his wife, Nancy, until her attaining age 65, at District’s expense . . .

RESOLVED, that the District shall reimburse the Superintendent during the 1988-89 school year for costs incurred for the services of a financial planner, such reimbursement not to exceed $ 2,000; and further,

RESOLVED, that the District, in recognition of the superior manner in which the Superintendent has performed his duties and responsibilities,  [***7]  shall provide the Superintendent in calendar year 1988 with additional compensation in the amount of $ 9,500; and further,

RESOLVED, that the District shall, at or prior to the retirement of the Superintendent on June 30, 1989, pay to or on behalf of the Superintendent additional compensation in the amount of $ 9,700 plus an amount necessary to purchase for the Superintendent three years’ pension credit under the State Retirement Plan in recognition of his service in the United States Air Force, as permitted by the laws of Pennsylvania.

Pursuant to this resolution, the School District purchased an annuity in the amount of $ 9,500. The annuity payment was not reflected in Christiana’s regular salary. The $ 9,700 payment made in 1989 was treated differently, however. Christiana received that payment directly, but the School District in turn reduced his monthly take-home pay and used the payroll  [*138]  deductions to purchase the 1989 annuity. From March of 1989 through June of 1989, the School District reported additional remuneration of $ 8,730 to PSERS that reflected the payroll changes.

Christiana submitted an application for retirement to PSERS on August 8, 1989. On [***8]  January 19, 1990, PSERS sent a letter advising the School District that after review of the School Board’s minutes of November 14, 1988, and January 9, 1989, the $ 8,730 reported did not appear to be Christiana’s normal salary and that the amount could not be used in calculating his retirement benefits. The School District was requested to submit a form to reflect this change in the reported salary.

The School District did not comply with the request. Instead, a form was sent increasing the salary report by the sum of $ 970 -the difference between the $ 9,700 annuity purchase for 1989 and the $ 8,730 originally reported as salary. In a letter dated February 9, 1990, the School District’s business manager noted the correction and indicated that in addition, the report for the fourth quarter of 1988 had failed to report a payment of $ 9,500 to Christiana. The letter stated that the School District viewed the payments as merit increases. On February 27, 1990, PSERS requested a copy of the School District’s merit pay policy. The School District did not respond.

On December 19, 1990, PSERS informed Christiana that his request to include the $ 9,500 for the 1987-1988 school year and the [***9]  $ 9,700 for the 1988-1989 school year in its calculation of his final average salary for retirement purposes had been denied. An administrative hearing was held on September 11, 1991, before a hearing examiner to consider whether the $ 19,200 should be considered as compensation under the Public  [**943]  School Employees’ Retirement Code. 2 PSERS learned then that the School District had purchased annuities for Christiana during the four previous school years (1984-1988). At the hearing, Christiana sought for the first time to add  [*139]  each of those annuity purchases to the salary amounts reported by the School District to PSERS. Christiana’s take-home pay did not reflect those payments, and as noted earlier, the School District never included any of the annuity purchases in its salary reports to PSERS during those four years.

FOOTNOTES

2 Act of October 2, 1975, P.L. 298, as amended, 24 P.S. §§ 8101-8104.

The hearing examiner recommended that the $ 19,200 should be excluded from the calculation of Christiana’s final average salary [***10]  because the amount was properly characterized as nonincludable “severance payments” under the Retirement Code. The hearing examiner also recommended that the four annuity payments made during 1984-1988 be included in the calculation of final average salary as compensation.

The Board determined that Christiana had not properly raised the issue relating to the four annuity purchases in the earlier years, but nevertheless addressed the issue because there were sufficient facts on the record for its resolution. The Board concluded that the nonsalary reduction tax shelter annuity payments were not includable as Retirement Code compensation because they were nonstandard and/or nonregular remuneration as well as being bonuses and fringe benefits. The $ 19,200 annuity purchases in the 1988-1989 school year were found not to be includable in Retirement Code compensation because the payments were components of a severance package and were also characterized as nonincludable bonuses and fringe benefits. On June 24, 1993, the Board entered an order directing that none of the annuity purchases were to be included as Retirement Code Compensation. The Commonwealth Court affirmed the Board’s order.  [***11]  HN1

On appeal from a final adjudication of an administrative board, our scope of review is limited to a determination of whether the board committed an error of law, whether there has been a violation of constitutional rights, or whether necessary factual findings are supported by substantial evidence. Estate of McGovern v. State Employees’ Retirement Board, 512 Pa. 377, 517 A.2d 523 (1986). The issue raised in this appeal is whether the Board committed an error of law in determining that the annuity payments were not compensation  [*140]  for purposes of computing final average salary under the Retirement Code.

Section 8102 of the Retirement Code defines the following relevant terms:

HN2“Compensation.” Pickup contributions plus any remuneration received as a school employee excluding refunds for expenses incidental to employment and excluding any severance payments.

“Final average salary.” The highest average compensation received as an active member during any three nonoverlapping periods of 12 consecutive months with the compensation for part-time service being annualized on the basis of the fractional portion of the school year for which credit is received;  [***12]  except, if the employee was not a member for three such periods, the total compensation received as an active member annualized in the case of part-time service divided by the number of such periods of membership; and, in the case of a member with multiple service credit, the final average salary shall be determined by reference to compensation received by him as a school employee or a State employee or both.

“Pickup contributions.” Regular or joint coverage member contributions which are made by the employer for active members for current service on and after January 1, 1983.

“Severance payments.” Any payments for unused vacation or sick leave and any additional compensation contingent upon retirement including payments in excess of the scheduled or customary salaries provided for members within the same governmental entity with the same educational  [**944]  and experience qualifications who are not terminating service.

24 Pa.C.S.A. § 8102.

The regulations promulgated under the Retirement Code further refine the definition of “compensation:”

HN3Excludes a bonus, severance payment or other remuneration or similar emoluments received by a [***13]  school employee during his school service not based on the standard salary  [*141]  schedule for which he is rendering service. It shall exclude payments for unused sick leave, unused vacation leave, bonuses for attending school seminars and conventions, special payments for health and welfare plans based on the hours employed or any other payment or similar emoluments which may be negotiated in a collective bargaining agreement for the express purpose of enhancing the compensation factor for retirement benefits.

22 Pa. Code § 211.2.

The restrictive definitions of compensation under the Retirement Code and regulations reflect the Legislature’s intention to preserve the actuarial integrity of the retirement fund by “excluding from the computation of employes’ final average salary all payments which may artificially inflate compensation for the purpose of enhancing retirement benefits.” Dowler v. Public School Employes’ Retirement Board, 153 Pa. Commw. 109, 620 A.2d 639 (1993); Laurito v. Public School Employes’ Retirement Board, 146 Pa. Commw. 514, 519, 606 A.2d 609, 611 (1992).

In Laurito v. Public School Employes’ Retirement Board, the Commonwealth Court affirmed [***14]  a decision of the Retirement Board that refused to include a salary increase for the purposes of computation of retirement benefits for an elementary middle school principal. Dr. Angelo Laurito retired after 42 years of service with the Northern Cambria School District. Laurito’s annual salary was negotiated each year with the school district. For the 1984-1985 school year, his salary was $ 32,600. On July 25, 1985, the school board awarded him a $ 16,000 “salary adjustment” for the 1985-1986 school year. In addition, Laurito was granted a leave of absence for the 1985-1986 school year, and his July 1, 1986 resignation for retirement purposes was accepted.

PSERS notified Laurito that the $ 16,000 increase would not be included as compensation for retirement purposes. The Retirement Board upheld the determination, concluding that the claimed salary adjustment was a severance payment. The Commonwealth Court affirmed on appeal, finding that the  [*142]  record failed to establish that Laurito’s salary increase was customary for an individual of similar experience within the school district. The court concluded that the school board’s actions were tantamount to a severance agreement, stating [***15]

We find especially persuasive the observation made by the board that the $ 16,000 payment in the final year of service provided a mechanism for the school district to recognize Laurito’s devoted service, as well as to remedy the perceived inequity of a below-average salary throughout a working lifetime, by effectuating an inflated final salary for purposes of retirement benefits.

146 Pa. Commw. at 519-20, 606 A.2d at 611-12.

In Dowler v. Public School Employes’ Retirement Board, the Commonwealth Court held that a payment made pursuant to a retirement agreement was not compensation despite the personnel director’s performance of consulting services. William Dowler was employed for over seventeen years as the personnel director at the West Chester Area School District before his retirement on July 1, 1988. In addition to his other duties, Dowler conducted all of the school district’s labor negotiations in the first three years of his employment. The school district hired private contractors to conduct labor negotiations thereafter.

On November 17, 1987, Dowler and the school district entered into an agreement concerning his retirement. Dowler was to be placed on a [***16]  reduced work schedule from January 1, 1988, to July 1, 1988. He was to be compensated during that time as if he were working a five-day schedule and his duties would include training a replacement and assisting with negotiations. In addition,  [**945]  funds were to be given to Dowler on January 1, 1988, to purchase credit for his military services in an amount not to exceed $ 15,000.

For the first time in Dowler’s experience, three labor contracts expired at the end of June, 1988. Dowler assisted in the negotiations while working full-time as the personnel director. A new director was not hired until May, 1988. The school district paid $ 14,854.08 to Dowler, which he used to  [*143]  purchase retirement credit for military service. PSERS concluded that the amount was a severance payment and did not include it as part of Dowler’s final average salary in computing his retirement compensation.

Dowler appealed the determination, asserting that he did not receive the benefit of his agreement because he was not given the opportunity to work half-time at full pay. The Board concluded that the money represented a severance payment and dismissed the appeal. The Commonwealth Court affirmed, stating

HN4

Under [***17]  the Code, all payments, other than for regular professional salary, which are part of an agreement in which a professional member agrees to terminate school service by a date certain, are prima facie severance payments. The claimant may rebut a prima facie case only by showing that the payment is in accord with the scheduled or customary salary scale within the School District for personnel with the same educational and experience qualifications who are not terminating service.

153 Pa. Commw. at 115-16, 620 A.2d at 643.

In furtherance of its responsibility to ensure the actuarial soundness of the retirement fund, the Board has determined that it is statutorily required to exclude nonregular remuneration, nonstandard salary, fringe benefits, bonuses, and severance payments from inclusion as compensation under the Retirement Code. The Board has developed the concepts of “standard salary” and “regular remuneration” as part of its understanding of compensation.

Based upon its interpretation of the Retirement Code and accompanying regulations, HN5standard salary and regular remuneration are defined by the Board as take-home cash, including, among others, (i) amounts withheld [***18]  for tax remittances; (ii) amounts picked up as contributions to PSERS; and (iii) amounts appropriately deferred in qualifying deferred compensation programs, and excluding, fringe benefits, bonuses, severance payments, and non-salary  [*144]  reduction Internal Revenue Code § 403(b) tax sheltered annuities.

Christiana v. Public School Employees’ Retirement Board, 166 Pa. Commw. 300,    , 646 A.2d 645, 649-50 (1994) (emphasis supplied).

The nonsalary reduction tax sheltered annuities purchased for Christiana during the four consecutive school years beginning in 1984-1985 were found by the Board to be nonstandard salary, nonregular remuneration and bonuses or fringe benefits under this analysis. 3 The $ 19,200 in annuity purchases, which the School District authorized after being advised of Christiana’s impending retirement, were excluded as being part of a severance package.

FOOTNOTES

3 Such annuities are distinguishable from the annuity contracts purchased under a deferred compensation program authorized under the Fiscal Code, Act of March 30, 1811, P.L. 145 as amended, 72 P.S. §§ 4521.1 – 4521.2. Income deferred under programs authorized thereunder is included as regular compensation for the purpose of computing deductions for employe contributions to retirement and pension programs and for the purpose of computing retirement and pension benefits. 72 P.S. § 4521.1(e). Christiana’s assertion that the annuity purchases made on his behalf qualified for treatment as deferred compensation under this provision fails to recognize this distinction and is unsupportable.

[***19]  Christiana had received salary increases for the first three years after he became superintendent for the Upper St. Clair School District. Over a four-year period, Christiana’s annual salary increased from $ 58,000 to $ 71,000. When his salary for 1984-1985 was under consideration, members of the School Board expressed concern that an additional increase would generate negative publicity. A newspaper reporter’s comment that Christiana’s salary at that time exceeded that of Pennsylvania’s Governor was repeated in the headlines of a local newspaper. Unwilling to confront public scrutiny  [**946]  of a salary increase, the School Board elected to freeze Christiana’s salary and purchased a single premium annuity for the purpose of purchasing prior years’ seniority pension credit.

Richard J. Mancini, the School District’s business manager, testified that Christiana was the highest paid school superintendent in Western Pennsylvania, including the City of Pittsburgh  [*145]  School District which was ten times the size of Upper St. Clair’s School District. Mancini indicated that the single premium annuity was considered as a way to handle adverse public reaction because responses to salary surveys would not [***20]  include that amount. He considered the annuity purchases to be compensation.

Nevertheless, the record establishes that the School District did not report the annuity payments to PSERS as compensation paid to Christiana and did not pay pickup contributions on those amounts. In fact, the School District continued to purchase single premium annuities even when salary increases were approved in subsequent years. In the 1987-1988 school year, Christiana’s salary was increased to $ 74,000 and a single premium annuity in the amount of $ 9,500 was purchased. His salary was then increased to $ 80,000 in the following year in which an additional $ 9,500 was earmarked for an annuity purchase.

With respect to the $ 19,200 annuity payment, the School Board’s resolutions indicate that it was part of a comprehensive salary and benefits package developed after notice of Christiana’s impending retirement. The School Board’s initial resolution dated November 14, 1988, contemplated a salary increase to $ 80,000, payment for services of a financial planner not to exceed $ 2,000, continuing medical benefits for Christiana and his wife until age 65, the purchase of three years’ pension credit for military [***21]  service 4, and the $ 19,200 annuity purchase. On January 9, 1989, the resolution was rescinded. A second resolution was adopted which incorporated all of the earlier provisions, but split the $ 19,200 into two separate annuity purchases.

FOOTNOTES

4 The amount expended by the School District for this purchase was approximately $ 21,000. Christiana did not seek to include this amount in the computation of his retirement benefits.

The Commonwealth Court concluded that the Board did not err in excluding the annuity payments from the calculation of Christiana’s final average salary. As to the 1988-1989 salary and benefits package, the court found that the record was devoid of any evidence that the package was in accord with the  [*146]  District’s regular and standard yearly compensation practices, particularly those involving Christiana himself over the ten-year term of his employment.

We find that the Commonwealth Court did not err in concluding that none of the annuity purchases were includable as compensation for purposes of [***22]  determining Christiana’s final average salary. There is substantial evidence in the record to support the Retirement Board’s conclusions that the annuity payments were remuneration that was not based on the standard salary schedule for which Christiana was rendering service, and that the $ 19,200 payment was a severance payment. Therefore, under the Retirement Code and applicable regulations, the annuity payments were properly excluded from the computation of Christiana’s final average salary.

The order of the Commonwealth Court is affirmed.

Mr. Justice Montemuro, who was sitting by designation, did not participate in the decision of this case.

166 Pa. Commw. 300, *; 646 A.2d 645, **;
1994 Pa. Commw. LEXIS 436, ***

ROBERT D. CHRISTIANA, Petitioner v. PUBLIC SCHOOL EMPLOYES’ RETIREMENT BOARD, Respondent

  1. 1745 C.D. 1993

COMMONWEALTH COURT OF PENNSYLVANIA
166 Pa. Commw. 300; 646 A.2d 645; 1994 Pa. Commw. LEXIS 436
March 2, 1994, ARGUED

July 28, 1994, FILED
SUBSEQUENT HISTORY: Petition for Allowance of Appeal and/or Cross-Petition Granted December 7, 1994.

PRIOR HISTORY:  [***1]  APPEALED From File No. 117-16-8296. State Agency, Public School Employes’ Retirement Board.

COUNSEL: Reed B. Day for petitioner.

Louis J. Sheehan, Assistant Counsel, for respondent.

JUDGES: BEFORE: HONORABLE DAVID W. CRAIG, President Judge, HONORABLE JAMES GARDNER COLINS, Judge, HONORABLE BERNARD L. McGINLEY, Judge, HONORABLE DAN PELLEGRINI, Judge, HONORABLE ROCHELLE S. FRIEDMAN, Judge, HONORABLE JAMES R. KELLEY, Judge, HONORABLE SANDRA SCHULTZ NEWMAN, Judge.

OPINION BY: JAMES R. KELLEY

OPINION

[*302]   [**646]  OPINION BY JUDGE KELLEY

Robert D. Christiana, the former Superintendent of the Upper St. Clair School District (District) appeals from an order of the Public School Employes’ Retirement Board (Board) which denied the inclusion of certain annuities purchased for Christiana by the District in the calculation of his final average salary under the Public School Employes’ Retirement Code (Retirement Code). 1

FOOTNOTES

1 Act of October 2, 1975, P.L. 298, as amended, 24 P.S. §§ 8101 – 8104.

The Board made extensive findings of fact. Those findings relevant to the present [***2]  appeal may be summarized as follows. Christiana was first employed by the District in July, 1979 at the initial salary of $ 52,000. Christiana’s salaries for the subsequent school years were:

1980-1981 $ 58,000
1981-1982 $ 63,500
1982-1983 $ 65,723
1983-1984 $ 71,000

[*303]  The following amounts were initially reported to the Public School Employes’ Retirement System (PSERS) as Christiana’s salary for the next five school years:

1984-1985 $ 71,000
1985-1986 $ 71,000
1986-1987 $ 71,000
1987-1988 $ 74,000
1988-1989 $ 80,000

In November 1988, the Upper St. Clair School Board (School Board) became aware of Christiana’s intention to retire from his position at the end of the 1988-1989 school year. Christiana formally retired in August, 1989.

At its November 14, 1988 meeting, the School Board adopted resolutions concerning the 1988-1989 salary and benefits payable to  [**647]  or for the benefit of Christiana. Among the resolutions was one which directed the District to provide Christiana “with an annuity or other equivalent payment at a cost to the District of $ 19,200 for the purposes of purchasing for the Superintendent pension credit under the State Retirement Plan [***3]  … .”

On January 9, 1989, the School Board met and rescinded its resolutions of November 14, 1988, adopting the following relevant resolutions in their place:

RESOLVED, that the District, in recognition of the superior manner in which the Superintendent has performed his duties and responsibilities, shall provide the Superintendent in calendar year 1988 with additional compensation in the amount of $ 9,500; and further,

RESOLVED, that the District shall, at or prior to the retirement of the Superintendent on June 30, 1989, pay to or on behalf of the Superintendent additional compensation in the amount of $ 9,700 plus an amount necessary to purchase for the Superintendent three years’ pension credit under the State Retirement Plan in recognition of his service in the United States Air Force, as permitted by the laws of Pennsylvania. 2

FOOTNOTES

2 The amount necessary to purchase the pension credit for military service was slightly in excess of $ 20,000; however, Christiana does not seek to characterize this expenditure as “compensation” under the Retirement Code.

[***4]   [*304]  Pursuant to this resolution, the District purchased an annuity for Christiana in the amount of $ 9,500, but this expenditure was not directly reflected as Christiana’s regular salary. 3 In contradistinction, the District in 1989 directly paid Christiana an additional $ 9,700 which increased his regular salary from $ 80,000 to $ 89,700. The $ 9,700 was separately accounted for and deducted from Christiana’s take-home salary. The District purchased an annuity for Christiana with the payroll deductions.

FOOTNOTES

3 This annuity, and all others subsequently referred to, were purchased by the District pursuant to Internal Revenue Code § 403(b) which grants special tax advantages to school employees with respect to annuities purchased for them by their tax-exempt employers.

The District reported to PSERS a total of $ 8,730 in payroll deductions starting in March 1989, through and including June 1989, to reflect the additional compensation called for by the January 9, 1989 School Board resolution. 4 After review of the School Board [***5]  meeting minutes and resolutions, on January 19, 1990, PSERS declined to accept or recognize the reported $ 8,730 for retirement credit purposes.

FOOTNOTES

4 The $ 8,730 in payroll deductions reported to PSERS represented a $ 970 shortfall from the $ 9,700 deduction authorized by the School Board.

By letter to PSERS dated February 9, 1990, the District resubmitted Christiana’s reported salary for the 1988-1989 school year. The letter broadened the reporting period to encompass deductions made between January 1, 1989 and June 30, 1989, and adjusted the total salary accordingly. The letter read, in part:

On the original 1st quarter report $ 970.00 of additional compensation was not reported in February, 1989.

Further, in reviewing the report for the 4th quarter of 1988 we discovered that a payment of $ 9,500.00 to Dr. Christiana was also not reported.

The District views these payments as merit increases, no different than merit pay which is paid in accordance with  [*305]  our negotiated agreement with the teachers of  [***6]  the School District.

At the administrative hearing held September 11, 1991 before a hearing examiner to consider the issue of whether the $ 19,200 (comprised of $ 9,500 + $ 9,700) (Enhancement II) paid to Christiana in the 1988-1989 school year should be considered Retirement Code compensation for the purposes of calculating the final average salary, PSERS was made aware that additional remuneration was awarded to Christiana not only in his final year of service but also for the four previous school years (1984-1988) (Enhancement I). At the hearing, for the first time Christiana sought to add Enhancement I to the salaries previously reported to PSERS for the respective years for inclusion as Retirement Code compensation.

[**648]  According to the relevant School Board meeting minutes, the Enhancement I payments were intended to compensate Christiana “in lieu of salary increases” for the given years. The pertinent resolutions directed that the District purchase a single premium annuity for Christiana for the purposes of purchasing prior years seniority pension credit at the following amounts:

1984-1985 $ 5,000
1985-1986 $ 7,000
1986-1987 $ 10,000
1987-1988 $ 9,500

None [***7]  of these amounts were reflected in Christiana’s take-home pay, nor were the amounts formally reported to PSERS as salary.

The hearing examiner recommended that Enhancement II be excluded from the calculation of Christiana’s final average salary because the amounts were properly characterized as non-includable “severance payments” under the Retirement Code. The hearing examiner recommended further that Enhancement I be included in the calculation of final average salary because such amounts were properly characterized as includable Retirement Code compensation. Christiana appealed to the Board.

Concerning Enhancement I, the Board concluded that Christiana’s non-salary reduction tax shelter annuity payments  [*306]  may not be included in Retirement Code compensation because such payments are non-standard and/or non-regular remuneration as well as being bonuses and fringe benefits. Similarly, the Board concluded that the Enhancement II payments were components of a severance package none of which may be included in Retirement Code compensation because such payments must be characterized as non-includable bonuses and fringe benefits. It is from that order that Christiana now appeals to this court.

[***8]  On appeal, Christiana argues (1) that he is entitled to have his final average salary adjusted in order to receive retirement credit for single premium tax-sheltered annuities purchased for him by his employer in lieu of salary increases; (2) that PSERS may not sua sponte utilize statistical and public policy considerations when denying a claim for retirement benefits which were not raised before the hearing examiner; (3) that the Board denied Christiana due process by overruling the hearing examiner without providing Christiana reasonable notice and an opportunity to be heard; and, (4) that the Board denied Christiana due process by commingling the prosecutorial and adjudicative functions in determining Christiana’s eligibility for benefits.

We note that HN1our scope of review from adjudications of administrative boards is limited to a determination of whether the board committed an error of law, whether constitutional rights were violated, or whether necessary findings of fact are supported by substantial evidence. Finnegan v. Public School Employes’ Retirement Board, 126 Pa. Commonwealth Ct. 584, 560 A.2d 848 (1989).

Christiana first [***9]  argues that the Board erred in failing to give effect to the relevant portions of the Fiscal Code of the Commonwealth 5 which expressly authorize the inclusion of tax-deferred income as credit for customary retirement plans. For five years, Christiana argues, the District purchased qualified tax-deferred annuities for Christiana in accordance with the HN2Fiscal Code, which provides in relevant part:

[*307]  The state treasurer shall pay all grants, salaries, annuities, gratuities, and pensions established by law … the treasurer or other officer in charge of payrolls for any … political subdivision may make systematic investments in mutual funds, savings accounts or government bonds or make premium payments on life insurance or annuity contracts to any institution or company licensed and authorized … to accept depositsfor the purpose of funding a deferred compensation program for employes.

72 P.S. § 4521 (emphasis provided by Christiana).

Moreover, Christiana asserts, the Fiscal Code authorizes the purchase of annuities through a deferred compensation program:

[**649]  HN3(a) The governing body of any … political subdivision may, by contract, agree with any employe  [***10]  to defer, a portion of that employe’s compensation and may subsequently, with the consent of the employe, purchaseannuity contracts … .

* * *

(e) Such deferred compensation program shall be in addition to, and not a part of, any other retirement benefit program provided by law for employes of the … political subdivision. Income deferred under programs authorized by this act shall continue to be included as regular compensation for the purpose of computing deductions for employe contributions to retirement and pension programs and for the purpose of computing retirement and pension benefits earned by any employe.

72 P.S. § 4521.1(a), (e), (emphasis provided by Christiana).

Christiana maintains that these provisions of the Fiscal Code permit the use of tax-deferred annuity payments which may be purchased by deferring a portion of an employee’s compensation. Such deferred income, Christiana contends, is then to be included in the computation of the employee’s retirement and pension benefits.

FOOTNOTES

5 Act of March 30, 1811, P.L. 145, as amended, 72 P.S. §§ 4521 – 4521.2.

[***11]  We cannot disagree with Christiana’s reading of the Fiscal Code provision set forth above. However, his argument continues,  [*308]  advancing the assertion that the Board erred by characterizing the annuities as non-salary reduction purchases, or non-regular remuneration, thus rendering such payments ineligible for inclusion as compensation under its interpretation of the Retirement Code.

HN4Section 8102 of the Retirement Code sets forth the following relevant definitions:

“Compensation.” Pickup contributions plus any remuneration received as a school employee excluding refunds for expenses incidental to employment and excluding severance payments.

HN5Final average salary.” The highest average compensation received as an active member during any three nonoverlapping periods of 12 consecutive months … .

HN6Pickup contributions.” Regular or joint coverage member contributions which are made by the employer for active members for current service on and after January 1, 1983.

HN7Severance payments.” Any payments for unused vacation or sick leave and any additional compensation contingent upon retirement including payments in excess of the scheduled or customary [***12]  salaries provided for members within the same governmental entity with the same educational and experience qualifications who are not terminating service.

24 P.S. § 8102.

HN8Section 211.2 of Title 22 of the Pennsylvania Code expands upon the definition of Retirement Code compensation, in pertinent part:

Excludes a bonus, severance payment or other remuneration or similar emoluments received by a school employe during his school service not based on the standard salary schedule for which he is rendering service. It shall exclude payments for unused sick leave, unused vacation leave, bonuses for attending school seminars and conventions, special payments for health and welfare plans based on the hours employed or any other payment or similar emoluments  [*309]  which may be negotiated in a collective bargaining agreement for the express purpose of enhancing the compensation factor for retirement benefits.

22 Pa. Code § 211.2 (emphasis added).

Accordingly, the Board has developed general concepts in understanding the Retirement Code’s meaning of “compensation”: “standard salary” and “regular remuneration”. Based upon its interpretation of the Retirement Code and accompanying regulations,  [***13]  standard salary and regular remuneration are defined by the Board as take-home cash, including, among others, (i) amounts withheld for tax remittances; (ii) amounts picked up as contributions to PSERS; and (iii) amounts appropriately deferred in qualifying deferred compensation programs, and excluding, fringe benefits, bonuses, severance payments, and non-salary reduction Internal Revenue Code § 403(b) tax sheltered  [**650]  annuities. Board’s opinion, June 24, 1993, pp. 16-17 (emphasis added).

Based on its interpretation of the guiding statutes and regulations, the Board characterized both Enhancement I and II payments to Christiana as non-standard salary, non-regular remuneration, bonuses and fringe benefits. Additionally, the Board characterized Enhancement II as part of a severance payment. Therefore, the Board denied the inclusion of both the Enhancement I and Enhancement II annuity payments in the calculation of Christiana’s final average salary.

HN9The Board is charged with the execution and application of the Retirement Code and the Board’s interpretation should not be overturned unless it is clear that such construction is erroneous. Panko v. Public School Employees’ Retirement System, 89 Pa. Commonwealth Ct. 419, 492 A.2d 805 (1985). [***14]  Accordingly, our review of the record suggests that the Board did not err in excluding the annuity payments from the calculation of Christiana’s final average salary.

In each of the school years in which Christiana received an Enhancement I payment, the School Board adopted resolutions which directed that “in lieu of a salary increase” for that year, Christiana would benefit from the purchase of a single  [*310]  premium annuity for the purpose of purchasing prior years seniority pension credit. Christiana testified that the Enhancement I annuity payments were used as a means of rewarding Christiana without representing to the taxpayers of Upper St. Clair that his “salary” was substantially increased each year. (Original Record, Transcript of Hearing held September 11, 1991, at pp. 16-18.) Christiana testified he believed that his total compensation included his base reported salary, plus the additional amounts provided for the purchase of the annuities. (Id. at pp. 25-26.) The District’s business manager at the time, Richard Mancini, testified that in his opinion “there was no doubt” the annuity payments were compensation. (Id. at p. 67.)

Referring to the first annuity payment of  [***15]  $ 5,000 in 1984-1985, Dina J. Fulmer, a School Board member at the time testified as follows:

Q: What did you understand this $ 5,000 to be?

A: It was a — well, a reward for his performance. It was a way of compensating him which would not get our name in the paper again.

* * *

Q: Why were the words in lieu of a salary increase chosen?

A: Well, in lieu of means instead of or actually in place of being that lieu is the French word for place. Rather than increasing his base salary, we just decided to purchase this annuity.

(Id. at pp. 83, 85.)

However, regardless of Christiana’s or the District’s contradictory understanding, the record reveals that the District did not pay pickup contributions on the annuity purchases made on behalf of Christiana beginning with the 1984-1985 school year. 6 Further, in its reports to PSERS, the District did not  [*311]  report the Enhancement I payments as compensation paid to Christiana, nor did the District initially report any of the $ 19,200 Enhancement II payment to PSERS, as compensation or otherwise. Lastly, despite its apparent unwillingness to formally raise Christiana’s base salary in the face of public opposition, Christiana [***16]  did in fact receive two regular salary increases totalling $ 9,000 during the five year period under consideration.

FOOTNOTES

6 Section 8102 of the Retirement Code defined “pickup contributions” as regular or joint coverage member contributions which are made by the employer for active members for current service on and after January 1, 1983.

With respect to Enhancement II alone, the record also supports the findings of the Board that the payments constituted part of a severance package. Christiana testified the Board was made aware of his intention to retire prior to their November, 1988 negotiations concerning his 1988-1989 salary and benefits. (Id. at 47-48.) What emerged from those deliberations were resolutions directing (i) that the District, “in recognition of the superior manner in which the Superintendent  [**651]  has performed his duties”, pay Christiana additional compensation in the amount of $ 9,500 in 1988; and (ii) that the District pay Christiana an additional $ 9,700 at or prior to his retirement. (Original Record,  [***17]  PSERS Exhibit #10B.)

While the record is silent as to whether Enhancement II was made contingent on Christiana’s retirement, it is at the very least payment “in excess of the scheduled or customary” salary Christiana had enjoyed. Further, the final year salary and benefits package, of which Enhancement II was a part, included employer provided amounts for a financial planner, continuing medical coverage for Christiana and his wife, and a one-time offering of a salary reduction tax sheltered annuity. We find the record devoid of any evidence that Christiana’s final year package was in accord with the District’s regular and standard yearly compensation practices, particularly those involving Christiana himself over the ten year term of his employment.

HN10The Retirement Code indicates that the General Assembly wishes to exclude from the computation of employees’ final average salary all payments which may artificially inflate compensation for the purpose of enhancing retirement benefits.  [*312]  Dowler v. Public School Employes’ Retirement Board, 153 Pa. Commonwealth Ct. 109, 620 A.2d 639 (1993).

Christiana next argues that the Board erred by  [***18]  sua sponte utilizing financial statistics and public policy considerations not considered before the hearing examiner in denying Christiana’s claim for retirement benefits. We disagree.

HN11The Board, and not the hearing examiner, is the final fact finder in these cases. Dowler. As such, the Board may take official notice of facts which are obvious and notorious to an expert in the agency’s field and those facts contained in the agency’s files. Falasco v. Pennsylvania Board of Probation and Parole, 104 Pa. Commonwealth Ct. 321, 521 A.2d 991 (1987).

Next, Christiana asserts that in overruling the recommendations of the hearing examiner, the Board denied Christiana reasonable notice and an opportunity to be heard. Christiana contends that the Board made its determination in this matter without his participation and based its decision on facts and issues Christiana never had the opportunity to address.

HN12The Administrative Agency Law, 2 Pa.C.S. § 504, states that “no adjudication of a Commonwealth agency shall be valid as to any party unless he shall have been afforded reasonable notice and an opportunity to be heard.” Christiana was presented [***19]  with just these very opportunities and exploited them by filing a brief and reply brief prior to the hearing; attending the hearing and presenting evidence; and, filing exceptions to the hearing examiner’s recommendations, followed by a response to the exceptions filed by PSERS. Our review of the record indicates that the Board studied the complete record, including the arguments advanced by Christiana, in reaching its decision.

Lastly, Christiana raises a due process challenge concerning the alleged commingling of prosecutorial and adjudicative functions between the PSERS and the Board. However, Christiana failed to raise this issue before the Board.

[*313]  We have held that HN13commingling claims may be waived if they are not raised before the administrative board. Newlin Corp. v. Department of Environmental Resources, 134 Pa. Commonwealth Ct. 396, 579 A.2d 996 (1990). 7 Unless a claimant can offer a convincing reason for failing to raise the claim before the Board, the commingling issue is waived. Dowler. Here, Christiana has not offered any explanation for failing to raise this issue below.

FOOTNOTES

7 HN14Pennsylvania Rule of Appellate Procedure 1551 states, in part, that:

no question shall be heard or considered by the court which was not raised before the government unit except (1) Questions involving the validity of a statute … (3) Questions which the court is satisfied that the petitioner could not by the exercise of due diligence have raised before the government unit.

[***20]  Accordingly, the order of the Board is affirmed.

JAMES R. KELLEY, Judge

[**652]  ORDER

NOW, this 28th day of July, 1994, the order of the Public School Employes’ Retirement Board, dated June 24, 1993, is hereby affirmed.

JAMES R. KELLEY, Judge

Top of Form

669 A.2d 1098, *; 1996 Pa. Commw. LEXIS 10, **

  1. VERNON R. WYLAND, Petitioner v. PUBLIC SCHOOL EMPLOYES’ RETIREMENT BOARD, Respondent
  2. 566 C.D. 1995

COMMONWEALTH COURT OF PENNSYLVANIA
669 A.2d 1098; 1996 Pa. Commw. LEXIS 10
October 17, 1995, Argued

January 8, 1996, Decided

January 8, 1996, FILED
SUBSEQUENT HISTORY:  [**1]  Petition for Allowance of Appeal Denied August 5, 1996, Reported at: 1996 Pa. LEXIS 1604.

PRIOR HISTORY: APPEALED From No. File no. 480-24-6298. State Agency: Public School Employes’ Retirement Board.

DISPOSITION: Affirmed.

COUNSEL: Dee Lafferty Pugh for petitioner.

Louis J. Sheehan, Assistant Counsel, for respondent.

JUDGES: BEFORE: HONORABLE DAN PELLEGRINI, Judge, HONORABLE JAMES R. KELLEY, Judge, HONORABLE GEORGE T. KELTON, Senior Judge.

OPINION BY: JAMES R. KELLEY

OPINION

[*1100]  OPINION BY JUDGE KELLEY

FILED: January 8, 1996

Dr. Vernon R. Wyland, the former Superintendent of the Garnet Valley School District (school district) appeals from the order of the Public School Employes’ Retirement Board (board) adopting a hearing examiner’s calculation of his final average salary used to determine his retirement benefits under the Public School Employees’ Retirement Code (Retirement Code). 1 We affirm.

FOOTNOTES

1 24 Pa.C.S. §§ 8101 – 8534.

The relevant facts as found by the hearing examiner, and adopted by the board, may be summarized as follows. Wyland became a member of the Public School Employes’ Retirement System (PSERS) by virtue of his employment [**2]  with the Shaler Area School District on June 1, 1983. On July 1, 1987, he began service with the Garnet Valley School District as the District Superintendent for the 1987-1988 school year, at an annual salary of $ 65,000. On December 16, 1988, his annual salary for the 1988-1989 school year was increased to $ 70,200, retroactive to July 1, 1988. On March 28, 1990, Wyland’s annual salary for the 1989-1990 school year was increased to $ 74,412, retroactive to July 1, 1989. Wyland’s annual salary for the 1990-1991 school year was increased to $ 94,481 as of June 30, 1991.

During the 1989-1990 school year, the school district experienced a prolonged labor action with intense teacher contract negotiations which continued until a new contract was signed in June of 1990. During the labor action, the teachers went out on strike for a period of 25 to 30 days. As a result of the contract negotiations and work stoppage, Wyland became the target of community pressures and antagonisms and he also became the subject of a vote of “no confidence” from the teachers.

During the same period, the school district was engaged in a building program involving the construction of a new middle school building [**3]  and other renovations. At that time, the Garnet Valley Board of School Directors (school board) was sensitive to the adverse public reaction to cost overruns associated with the building program. The teachers’ contract negotiations and public reaction to the work stoppage contributed to a significant turnover in the composition of the school board. Six school board members changed as a result of resignations, and new members who were appointed came to the school board predisposed against Wyland as a result of the labor situation and the cost overruns.

As a result, in November of 1990, Wyland was informed by the president of the school board that his contract would not be extended beyond its expiration date of June 30, 1991. Because the school board did not want to take public action on their decision, Wyland was asked if he would rather resign from his position. Wyland concluded that it would be best to resign as he felt it would be easier to tell prospective employers that he had resigned, rather than to say that his contract had not been extended.

After negotiations regarding the terms of Wyland’s resignation, on November 21, 1990, the president of the school board sent him a letter [**4]  outlining the terms under which he could resign. The letter stated, inter alia:

3)

The [School] Board guarantees the payment to you of your full salary through June 30, 1991. That salary will not be reduced between now and June 30, 1991.

(a) Your annual raise, ordinarily effective January, 1991, will be deferred. As part of your salary, and in lieu of the annual raise in January, the [School] Board will purchase from you all unused vacation days credited to your account as of June 30, 1991 … .

(b)

Additionally, at the conclusion of your contract on June 30, 1991, the [School] Board, as part of your annual raise, will pay you for all unused sick days then credited to your account … .

(c)

Notwithstanding Paragraphs 3(a) and 3(b), you have agreed to reimburse the District for its share of the retirement cost allocable to the inclusion of that portion of your salary  [*1101]  represented by payments under Paragraph 3(a) and 3(b).

Wyland accepted the proposed terms as outlined in the letter.

On November 26, 1990, Wyland submitted his letter of resignation, contingent upon the school board’s acceptance of the proposed terms in [**5]  the president’s letter. At its regular meeting on November 27, 1990, the school board accepted Wyland’s resignation effective June 30, 1991. The school board did not take a public vote regarding the content and financial terms of the November 21, 1990 letter to avoid disclosure of their action.

By letter dated June 20, 1991, Wyland submitted a memorandum to the school district’s director of business and support services which summarized his accumulated vacation days and sick days. On June 25, 1991, Wyland and the school board president signed a letter of agreement which contained identical terms as outlined in the letter of November 21, 1990.

On June 28, 1991, the school district issued Wyland a check in the amount of $ 20,069.40 as payment for his unused sick days, vacation days and comp days. The payroll document computing Wyland’s vacation and sick days noted that the payment was to be considered compensation as per the November 21, 1990 letter of agreement. As required by the letter of agreement, Wyland reimbursed the school district for its share of the retirement costs allocable to the inclusion of the $ 20,069.40 payment.

On June 28th, Wyland also entered into an agreement [**6]  with the school district releasing the school district from any future liability concerning his resignation, in exchange for the payment of $ 20,069.40. The agreement referred to this payment as a “severance payment”. Wyland was required to sign the release agreement in order to receive the $ 20,069.40 payment. He signed the release agreement and received the payment.

On September 17, 1991, PSERS received a retirement application from Wyland with an effective date of retirement of June 29, 1991. PSERS contacted the school district regarding the $ 20,069.40 payment to Wyland. The school district sent PSERS a copy of the minutes of the school board meeting in which Wyland formally submitted his resignation, and indicated that no information from his personnel file could be released without his written consent. PSERS then informed the school district that in the absence of any written evidence concerning the reason for the payment, the $ 20,069.40 would not be used to calculate Wyland’s retirement benefits. Wyland was sent copies of both letters from PSERS, but his consent for the release of information from his personnel file was never requested by PSERS.

Initially, Wyland’s retirement [**7]  benefits were calculated by PSERS using a “final average salary” of $ 79,698. However, without the necessary documentation, the $ 20,069.40 was removed from PSERS’ computation of his final average salary. As a result, his retirement benefits were recalculated using a final average salary of $ 73,008. By letter dated April 8, 1992, PSERS informed Wyland that his benefits had been recomputed, and that he was required to repay $ 7,619.03 that he had received in overpayment.

By letter dated April 23, 1992, Wyland requested that PSERS include the $ 20,069.40 in its calculation of his final average salary. On July 1, 1992, PSERS notified Wyland that its Appeals Committee had denied his request. By letter dated July 28, 1992, Wyland requested an administrative hearing.

On July 6, 1993, a hearing was scheduled and held before an independent hearing examiner. Based on the evidence presented at the hearing and the briefs and motions submitted by the parties, the hearing examiner concluded that the $ 20,069.40 paid to Wyland was a severance payment, and should not be considered in the calculation of his final average salary. In this regard, the hearing examiner specifically found the following:  [**8]

  1. At the time of the November 21, 1990 agreement, [the school district] was under a great deal of political pressure due to the recent teacher strike and cost overruns at the middle school project and [Wyland]’s raise was motivated by [the school district]’s need for [Wyland]’s cooperation.
  2. The November 21, 1990 agreement was designed as a buyout of [Wyland]’s  [*1102]  vacation and sick days, both items regularly purchased by [the school district] at the end of a superintendent’s term, and both items that would not normally be considered standard salary.
  3. Both [Wyland] and [the school district] represented to the general public that [Wyland]’s pay for the 1990-1991 school year was $ 74,412.00, and it would be unfair to now allow [Wyland] to claim a higher pay for retirement purposes.
  4. The November 21, 1990, agreement required [Wyland] to reimburse [the school district] for its share of the retirement cost allocable to the inclusion of the $ 20,069.40 payment into [Wyland]’s salary. With a regular salary increase this retirement cost would have been the responsibility of [the school district].
  5. [Wyland] was required [**9]  to sign the June 28, 1991, release agreement in order to receive the $ 20,069.40 payment and the release agreement referred to the money as a severance payment.

The hearing examiner also found, inter alia, that: the payment was not based on the standard salary schedule for which Wyland was rendering service; the payment was not made under the school district’s scheduled or customary salary scale; and, the payment was made contingent upon Wyland’s “retirement” as that term includes terminations which result in the immediate receipt of a pension.

Both Wyland and PSERS filed exceptions to the hearing examiner’s decision with the board. The board adopted the hearing examiner’s findings of fact and conclusions of law, and affirmed the hearing examiner’s decision. Wyland then filed a petition for review in this court appeal.

On appeal, Wyland claims: (1) the board erred in determining that the $ 20,069.40 payment in his final year of employment constituted severance pay rather than compensation, thereby reducing his final average salary used for the calculation of his retirement benefits; and (2) his due process rights were denied by PSERS’ failure to request information from [**10]  him before eliminating the $ 20,069.40 from its calculation of his final average salary, and by the commingling of the prosecutorial and adjudicative functions of PSERS and the board.

We note that HN1our scope of review from adjudications of administrative boards is limited to a determination of whether the board committed an error of law, whether constitutional rights were violated, or whether necessary findings of fact are supported by substantial evidence. Christiana v. Public School Employees’ Retirement Board, 166 Pa. Commw. 300, 646 A.2d 645 (Pa. Cmwlth. 1994); Dowler v. Public School Employes’ Retirement Board, 153 Pa. Commw. 109, 620 A.2d 639 (Pa. Cmwlth. 1993). Because the board is charged with the execution and application of the Retirement Code, the board’s interpretation should not be overturned unless it is clear that its construction of the Retirement Code is erroneous. Christiana.

Wyland first argues that the board erred in determining that the $ 20,069.40 payment in his final year of employment constituted a severance payment rather than compensation. In particular, Wyland claims that: there is no evidence that the increase was paid contingent upon his retirement; there is no substantial evidence [**11]  that it was payment for his unused vacation or sick time; his resignation at the end of his contract term cannot be considered to be his “retirement”; the increase was consistent with the school district’s compensation plan; and it made his salary comparable to other superintendents in Delaware County.

HN2Both the Retirement Code and the applicable regulations contain restrictions on the types of compensation that may be used in calculating an employee’s final average salary. Hoerner v. Public School Employes’ Retirement Board, 655 A.2d 207 (Pa. Cmwlth. 1995). The purpose of these restrictions is to ensure the actuarial soundness of the retirement fund by preventing employees from artificially inflating compensation as a means of receiving greater retirement benefits. Id.

HN3Section 8102 of the Retirement Code sets forth the following relevant definitions:

“Compensation.” Pickup contributions plus any remuneration received as a school employee excluding refunds for expenses  [*1103]  incidental to employment and excluding any severance payments.

“Final average salary.” The highest average compensation received as an active member during any three nonoverlapping [**12]  periods of 12 consecutive months … .

“Pickup contributions.” Regular or joint coverage member contributions which are made by the employer for active members for current service on and after January 1, 1983.

“Severance payments.” Any payments for unused vacation or sick leave and any additional compensation contingent upon retirement including payments in excess of the scheduled or customary salaries provided for members within the same governmental entity with the same educational and experience qualifications who are not terminating service.

24 Pa.C.S. § 8102 (emphasis added).

HN4Title 22 Pa. Code § 211.2 also defines compensation as follows:

Compensation – Excludes a bonus, severance payment or other remuneration or similar emoluments received by a school employe during his school service not based on the standard salary schedule for which he is rendering service. It shall exclude payments for unused sick leave, unused vacation leave, bonuses for attending school seminars and conventions, special payments for health and welfare plans based on the hours employed or any other payment or similar emoluments which may be negotiated [**13]  in a collective bargaining agreement for the express purpose of enhancing the compensation factor for retirement benefits. (Emphasis added.)

HN5Whether or not a payment must be considered a severance payment is a question of law. Dowler. Under the Retirement Code, all payments, other than those for regular professional salary, which are part of an agreement in which a professional member agrees to terminate school service by a date certain, are prima facie severance payments. Id. A claimant may rebut a prima facie case only by showing that the payment is in accord with the scheduled or customary salary scale within the school district for personnel with the same educational and experience qualifications who are not terminating service. Id.

In this case, both the hearing examiner and the board were presented with the letters of agreement between Wyland and the school board president dated November 21, 1990 and June 25, 1991 which stated, inter alia, that Wyland would be paid for all of his unused vacation and sick days in lieu of his annual raise, and that he would reimburse the school district for its share of the retirement cost allocable to the inclusion [**14]  of this amount. The hearing examiner and the board were also presented with an agreement between Wyland and the school board president dated June 28, 1991 which stated that the parties had reached certain agreements concerning the termination of his employment and severance payments, the terms of which were embodied in the letter of June 25. The hearing examiner and the board were also presented with documentation that Wyland was paid $ 20,069.40 by the school district for 62 unused vacation and comp days, and 93 unused sick days. Clearly, such evidence is sufficient to support the board’s conclusion that the $ 20,069.40 paid to Wyland constituted a severance payment as it is defined in the Retirement Code.

Wyland is essentially asking this court to reweigh the conflicting evidence presented to the hearing examiner and the board, and to only accept that evidence which contradicts the plain meaning of the contents of the foregoing documents. However, HN6questions of resolving conflicts in the evidence, witness credibility, and evidentiary weight are properly within the exclusive discretion of the fact finding agency, and are not usually matters for a reviewing court.  [**15] Herzog v. Department of Environmental Resources, 166 Pa. Commw. 114, 645 A.2d 1381 (Pa. Cmwlth. 1994). Moreover, “this court ‘may not substitute its judgment for that of an administrative agency acting within its discretion in the field of its expertise upon substantial evidence … .'” Dowler, 620 A.2d at 644 (citation omitted). The hearing examiner and the board rejected Wyland’s claims regarding this evidence. On  [*1104]  appeal, we will not substitute our judgment nor reweigh this evidence.

Wyland next claims that his right to due process and fundamental fairness was denied by PSERS’ failure to formally request information from him before eliminating the $ 20,069.40 from its calculation of his final average salary, and by the commingling of prosecutorial and adjudicative functions by PSERS and the board. He first argues that his vested property rights to his pension were reduced by PSERS in an arbitrary manner, without notice and without a chance to respond, thereby violating his due process rights.

HN7The Administrative Agency Law, 2 Pa.C.S. § 504, states that “no adjudication of a Commonwealth agency shall be valid as to any party unless he shall have been afforded reasonable notice and an opportunity to be heard.”  [**16]  Wyland was afforded these opportunities and exercised them before the hearing examiner and the board in this case.

As the claimant in Hoerner, we note that Wyland has failed to cite any authority for the proposition that he was entitled to a “pre-reduction” hearing before PSERS in this case. The determination of Wyland’s final average salary and the calculation of benefits is simply the result of a staff function performed by PSERS.

Wyland could, and did, appeal the initial determination of his retirement benefits to PSERS’ appeal committee and, ultimately, to the board. He filed a brief and a reply brief prior to the hearing before the hearing examiner, attended the hearing and presented evidence, and filed exceptions to the hearing examiner’s determination with the board. HN8As Wyland was given notice and a hearing prior to the final determination of his retirement benefits, and there exists no authority for a hearing in connection with PSERS’ initial review, this claim is meritless. See Stone & Edwards Insurance Agency, Inc. v. Department of Insurance, 538 Pa. 276, 648 A.2d 304 (1994) (The initial denial of an insurance license application was the result of a staff function [**17]  performed by the Pennsylvania Insurance Department; as this decision could be appealed to the Insurance Commissioner who would conduct a hearing before the final determination, applicants were not entitled to notice and a hearing prior to the initial denial of a license application).

Finally, Wyland argues that the commingling of the prosecutorial and adjudicative functions by PSERS and the board is violative of his due process rights. In support of his position, Wyland relies on the case of Lyness v. State Board of Medicine, 529 Pa. 535, 605 A.2d 1204 (1994). In Lyness, our Supreme Court stated:

In the modern world of sprawling governmental entities akin to corporations it would be both unrealistic and counterproductive to insist that administrative agencies be forbidden from handling both prosecutorial and adjudicatory functions, where such roles are parcelled out and divided among distinct departments or boards. Efficiency and cost-effectiveness are certainly desirable ends. Indeed, each administrative board and judge is ultimately a subdivision of a single entity, the Commonwealth of Pennsylvania, but this does not render their collective work as prosecutors, investigators [**18]  and adjudicators constitutionally infirm, nor create an imminent threat of prejudice.

What our Constitution requires, however, is that if more than one function is reposed in a single administrative entity, walls of division be constructed which eliminate the threat or appearance of bias. … [A] “mere tangential involvement” of an adjudicator in the decision to initiate proceeding is not enough to raise the red flag of procedural due process. … Our constitutional notion of due process does not require a tabula rasa. … However, where the very entity or individuals involved in the decision to prosecute are “significantly involved” in the adjudicatory phase of the proceedings, a violation of due process occurs.

Lyness, 529 Pa. at 546-47, 605 A.2d at 1209-10 (citations omitted).

Thus, HN9where “walls of division” are erected between the parties completing disparate functions within an administrative agency, no due process violation will be found. See, e.g., Stone & Edwards Insurance;  [*1105]  Office of Disciplinary Counsel v. Duffield, 537 Pa. 485, 644 A.2d 1186 (1994).

Even if we were to adopt Wyland’s position that the initial determination and review [**19]  of his retirement benefits by PSERS and the board constitute “prosecutorial” and “adjudicative” functions, there has been no showing by Wyland of a commingling of these functions as proscribed by Lyness. Wyland’s initial application was reviewed by a supervisor in the retirement processing section of PSERS. When he was dissatisfied with the determination of his benefits, Wyland requested PSERS’ appeals committee to review his claim. When he was dissatisfied with the appeals committee’s decision, Wyland submitted a request to the legal division of PSERS for a hearing before a hearing examiner. The independent hearing examiner conducted the hearing and made a recommendation to the board, which was the final arbiter. The board was not involved in the adjudication until Wyland appealed the decision of the hearing examiner to the board. Such a procedure does not involve the commingling of prosecutorial and adjudicative functions, and does not violate due process. See Duffield.

Unquestionably, under Lyness, HN10the mere possibility of bias under Pennsylvania law is sufficient to “raise the red flag” of the protections offered by the procedural guaranty of due process. Stone &  [**20]  Edwards Insurance. However, the appearance of bias proscribed by Lyness must be one which arises from an actual environment of commingled functions. Id. Wyland has not advanced a claim of the actual commingling of functions in the manner in which PSERS and the board conduct their investigations, prosecutions and adjudications. In the absence of any actual commingling, which would give rise to an appearance of bias, Wyland’s unsubstantiated claim of commingling is meritless. Id.

Accordingly, the order of the board is affirmed.

JAMES R. KELLEY, Judge

ORDER

NOW, this 8th day of January, 1996, the order of the Public School Employes’ Retirement Board, dated January 27, 1995, at No. 480-24-6298, is affirmed.

JAMES R. KELLEY, Judge

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Louis Sheehan

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Louis Sheehan
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