The opinion of the court was delivered by: WEBER
For the years 1963, 1964 and 1965, plaintiff and her husband (now deceased) filed joint income tax returns showing and paying tax liability of $1,265.97, $1,136.39 and $840.89 for those years. In 1967, plaintiff filed claims for refunds in the amounts of $1,132.28, $1,001.61 and $840.89 respectively for each of those years on the grounds that plaintiff's husband was entitled to, but did not take a weekly sick pay deduction of $100 from income received from his former employer, Eastern Gas and Fuel Associates. The claim being denied, this suit was filed.
The claim is made under Sec. 105(d) of the Internal Revenue Code of 1954, which provides that gross income does not include amounts received by an employee through accident and health insurance if such amounts constitute wages or payments in lieu of wages for a period during which the employee is absent from work on account of sickness. Sec. 105(e) further provides that amounts received under an accident or health plan for employees shall be treated as amounts received through accident and health insurance. A limit of $100 per week is applied to the exclusion.
The sole issue between the parties is whether the payments received by the husband were made pursuant to a "plan" for the continuation of wages during a period of disability, or were merely discretionary payments. Both parties have moved for summary judgment.
1. As of May 31, 1962, Mr. Stewart's employer, Eastern Gas and Fuel Associates had in effect a "Retirement Plan for Salaried Employees." Section IV of that Plan, captioned "Normal Retirement Date" provides for normal retirement at age 65, an option to continue until age 68, and continued employment after age 68 with the approval of the Trustees. Section V of that Plan, captioned "Early Retirement Date and Benefit" provides in sub-sec. (1) that an employee with 20 years service may, with the consent of the employer, retire after age 55; or with 30 years service retire after age 60. Sub-sec. (2) provides that if an employee who has attained age 55 furnishes evidence of disability satisfactory to the retirement committee he shall be entitled to retire and receive a benefit equal to the value of his Early Retirement Benefit.
3. Prior to May 31, 1962, Eastern had a policy of consenting to Early Retirement at age 55 under its Retirement Plan and of adding to the retirement benefit provided by the Plan a supplemental benefit whenever an employee's job was eliminated by internal reorganization.
4. There was no plan or practice in Eastern of eliminating a job position when the incumbent became disabled so that he could qualify for early retirement.
5. On June 1, 1962, Mr. Stewart's job position was eliminated by internal reorganization.
6. As of May 31, 1962, Mr. Stewart had been a salaried executive of Eastern with a continuous employment record of 32 years.
7. Sometime in 1961, Mr. Stewart had suffered a severe paralysis which required hospitalization and subsequent therapy.
8. On April 25, 1962, the general manager of Eastern announced that Mr. Stewart is being given a leave of absence for reasons of health.
9. On May 22, 1962, by an inter-office memo to Mr. Stewart, entitled "Early Retirement -- May 1, 1963; Leave of Absence June 1, 1962 to April 30, 1963" notified Mr. Stewart that he was granted a leave of absence from June 1, 1962 to April 30, 1963 and would be placed on retirement beginning May 1, 1963. This notice did not specify the subsection of Sec. V, Early Retirement, under which the benefits would be paid but merely stated that "Your retirement benefits are covered by Eastern's Retirement Plan for Salaried Employees, a copy of which has been furnished to you * * *".
10. The Notice of May 22, 1962, instructed Mr. Stewart that he would be supplied retirement forms to be filled out and returned after the first of the year.
11. The notice of May 22, 1962, stated that during his leave of absence beginning June 1, 1962, Mr. Stewart would be paid 40% of his ...