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City of Philadelphia v. Workers' Compensation Appeal Board

IN THE COMMONWEALTH COURT OF PENNSYLVANIA


March 27, 2009

CITY OF PHILADELPHIA, PETITIONER
v.
WORKERS' COMPENSATION APPEAL BOARD (GREVY), RESPONDENT

The opinion of the court was delivered by: Judge Cohn Jubelirer

Submitted: December 5, 2008

BEFORE: HONORABLE BONNIE BRIGANCE LEADBETTER, President Judge, HONORABLE RENÉE COHN JUBELIRER, Judge, HONORABLE JOSEPH F. McCLOSKEY, Senior Judge.

OPINION

City of Philadelphia (Employer) petitions for review of two orders of the Workers' Compensation Appeal Board (Board). Employer first petitions for review of the April 12, 2004 order of the Board, which affirmed a Workers' Compensation Judge's (WCJ) decision and order awarding Employer an offset/credit for service-connected disability pension benefits paid to Daniel Grevy (Claimant), but remanded the matter for a determination as to the amount of the offset/credit to which Employer was entitled pursuant to Section 204(a) of the Workers' Compensation Act (Act).*fn1

Employer also petitions for review of the April 22, 2008 order of the Board, which affirmed the WCJ's decision and order on remand concluding that Employer was entitled to an offset/credit of 73.149 percent of the service-connected disability pension benefits paid to Claimant. On appeal, Employer essentially argues that it is entitled to a dollar-for-dollar offset/credit for 100 percent of the pension benefits paid to Claimant because such benefits were paid to Claimant in lieu of workers' compensation. Because we agree with the Board that Employer is only entitled to take an offset/credit to the extent that it funded Claimant's service-connected disability pension benefits, and not for the entire amount of the pension benefits paid to Claimant, we affirm the Board's orders.

The relevant facts in this case are as follows. On August 2, 1999, Claimant sustained puncture wounds to his left upper back, arm, and lung as a result of being stabbed by an inmate while working as a correctional officer for Employer. Due to his injuries, Claimant was unable to return to work. Employer issued a Notice of Compensation Payable (NCP) acknowledging liability for Claimant's injuries.*fn2

Employer continued paying Claimant his regular wages in lieu of workers' compensation until February 19, 2001, when Claimant was separated from his employment due to his injuries. Following Claimant's separation from his employment, Employer began paying Claimant total disability workers' compensation benefits at the rate of $506.07 per week.

Claimant subsequently applied for service-connected disability pension benefits. As part of the application process, Claimant signed a document entitled "Agreement re: Workmen's Compensation" (Pension Agreement), which indicated that Employer would be entitled to an offset/credit against any award of workers' compensation benefits for pension benefits paid.*fn3 On August 16, 2001, Employer's Board of Pensions and Retirement (Board of Pensions) awarded Claimant service-connected disability pension benefits. Claimant's pension benefits were made retroactive to the date of his separation. Claimant began receiving $2,153.07 per month (or $496.86 per week) in pension benefits, which was $9.21 less than what he was receiving per week in workers' compensation benefits. After Claimant was awarded pension benefits, Employer ceased paying workers' compensation benefits to Claimant.*fn4

On September 26, 2001, Claimant filed a Petition to Reinstate Compensation Benefits (Reinstatement Petition I) and a Petition for Penalties (Penalty Petition I). Claimant filed a second Petition to Reinstate Compensation Benefits (Reinstatement Petition II; with Claimant's Reinstatement Petition I, Reinstatement Petitions) and a second Petition for Penalties (Penalty Petition II; with Claimant's Penalty Petition I, Penalty Petitions) on November 6, 2001. In his Reinstatement Petitions and Penalty Petitions, Claimant alleged that Employer violated the Act by ceasing payment of his workers' compensation benefits without following the proper procedures. Claimant further alleged that he was entitled to reinstatement of his workers' compensation benefits, assessment of a penalty against Employer, and unreasonable contest attorney's fees. Employer filed responsive answers denying the allegations contained in Claimant's Reinstatement Petitions and Penalty Petitions. Employer also filed a Petition to Modify Compensation Benefits (Modification Petition) on December 18, 2001, seeking an offset/credit against Claimant's workers' compensation benefits for the service-connected disability pension benefits that were paid to Claimant.

Employer's Modification Petition was consolidated with Claimant's Reinstatement Petitions and Penalty Petitions, and the matter was assigned to a WCJ for disposition. The WCJ held several hearings at which the parties were given the opportunity to present evidence in support of, or in opposition to, the Reinstatement Petitions, Penalty Petitions, and Modification Petition.

In support of his Reinstatement Petitions and Penalty Petitions, Claimant testified on his own behalf. Claimant testified regarding his injury, his receipt of workers' compensation benefits, and his later receipt of service-connected disability pension benefits. (WCJ Hr'g Tr. at 6-13, Feb. 14, 2002.)

In support of its Modification Petition, and in opposition to Claimant's Reinstatement Petitions and Penalty Petitions, Employer presented the testimony of James Kidwell, Acting Executive Director of the Board of Pensions. Mr. Kidwell testified that Claimant, who is a member of Pension Plan J, was required to contribute 3.75 percent of his social security covered wages, or 6 percent of his wages if he earned more than what was covered by social security, to Employer's pension fund during the course of his employment. (WCJ Hr'g Tr. at 32, Apr. 18, 2002.) Mr. Kidwell explained that Claimant's eligibility for service-connected disability pension benefits is not dependent on his years of service and that the amount of benefits that Claimant is receiving is equivalent to 70 percent of his final compensation (i.e., "[his] rate of pay at separation or [his] last full one year of payment"). (WCJ Hr'g Tr. at 34.) Mr. Kidwell also explained that an individual who has been awarded a service-connected disability pension has the option of withdrawing his contributions or leaving them in Employer's pension fund to provide survivorship benefits. (WCJ Hr'g Tr. at 35-36.) According to Mr. Kidwell, Claimant elected to leave his contributions, which totaled $24,782.92, in Employer's pension fund to provide survivorship benefits for his wife. (WCJ Hr'g Tr. at 36-38, 49.) Mr. Kidwell further testified that Employer is the majority contributor to the pension fund and that the exact amount of Employer's contributions fluctuates from year to year. (WCJ Hr'g Tr. at 56-58.) Mr. Kidwell explained that Employer's funding of the pension fund is governed by the Municipal Pension Plan Funding Standard and Recovery Act (Act 205).*fn5 (WCJ Hr'g Tr. at 57.) Mr. Kidwell also explained that, pursuant to Act 205, Employer must contribute a minimum amount each year based on an actuarial evaluation and that it has been Employer's practice to contribute more than the minimum amount required under Act 205. (WCJ Hr'g Tr. at 59.) In addition to Mr. Kidwell's testimony, Employer also introduced into evidence the Pension Agreement and a document outlining the contributions to Employer's pension fund for the fiscal year ending June 30, 2000.

On July 31, 2003, the WCJ issued a decision and order in which he concluded that Employer's payment of service-connected disability pension benefits to Claimant was in lieu of workers' compensation and that Employer was entitled to a dollar-for-dollar offset/credit against workers' compensation for the pension benefits paid to Claimant. (WCJ Decision, Conclusions of Law (COL) ¶ 3, July 31, 2003.) The WCJ also concluded that Employer violated the Act by ceasing payment of Claimant's workers' compensation benefits without obtaining or filing a supplemental agreement, final receipt, notice, or order from the Bureau of Workers' Compensation and, thus, awarded a penalty of $5,000.00. (COL ¶ 2.) The WCJ further concluded that Employer's contest was unreasonable in part and, thus, awarded attorney's fees to Claimant's counsel in the amount of $500.00. (COL ¶ 5.) Accordingly, the WCJ dismissed Claimant's Reinstatement Petitions, granted Claimant's Penalty Petitions, and granted Employer's Modification Petition.

Claimant appealed the WCJ's decision and order to the Board, arguing that the WCJ erred in concluding that Employer was entitled to a dollar-for-dollar offset/credit for 100 percent of the pension benefits paid to Claimant when Section 204(a) of the Act only permits an employer to take an offset/credit for pension benefits to the extent that the employer funded such benefits. On April 12, 2004, the Board, agreeing with Claimant, issued an opinion and order that affirmed the WCJ's grant of Employer's Modification Petition due to Employer's entitlement to an offset/credit, but remanded the matter to the WCJ to determine the amount of the offset/credit to which Employer was entitled pursuant to Section 204(a). (Board Op. at 5, Apr. 12, 2004.)

On remand, Employer presented the testimony of Douglas Rowe, an actuary who was assigned to review and audit Employer's pension plans, and introduced several letters, with attachments, from Mr. Rowe to Employer's counsel summarizing Mr. Rowe's actuarial findings. Mr. Rowe ultimately testified that he had calculated Employer's contribution rate to Claimant's pension plan as 73.149 percent. (WCJ Hr'g Tr. at 25-26, Feb. 28, 2006; Letter from Mr. Rowe to Martin G. Malloy, Employer's counsel (Dec. 8, 2005) at 1, Ex. No. E-3.) The WCJ accepted Mr. Rowe's testimony as credible and found that Employer contributed 73.149 percent of Claimant's pension benefits. (WCJ Decision, Findings of Fact (FOF) ¶ 13, July 13, 2007.) The WCJ, thus, concluded that Employer was entitled to a 73.149 percent offset/credit. (COL ¶ 2, July 13, 2007.)

Claimant appealed the WCJ's remand decision and order, arguing that the WCJ erred in basing his determination on Mr. Rowe's testimony because Mr. Rowe did not testify as to Employer's actual contributions and because Mr. Rowe failed to consider the effect of the contributions made by the Commonwealth under Act 205. Employer also appealed the WCJ's remand decision and order, contending that the WCJ erred by failing to award Employer a dollar-for-dollar offset/credit for 100 percent of the service-connected disability pension benefits paid to Claimant.*fn6 The Board concluded that Mr. Rowe's testimony providing actuarial estimates was sufficient and that he did take into account the Commonwealth's contributions. (Board Op. at 5, Apr. 22, 2008.) Further, the Board rejected Employer's argument that Employer was entitled to a dollar-for-dollar offset/credit for 100 percent of the pension benefits paid to Claimant. (Board Op. at 8.) Consequently, the Board affirmed the WCJ's decision and order on remand. Employer now petitions this Court for review of the Board's April 12, 2004 and April 22, 2008 orders.*fn7

Before this Court, Employer argues that the Board erred in reversing*fn8 and remanding the WCJ's initial decision and order where the WCJ "properly found [that Claimant's] service-connected disability pension represented payments in lieu of workers' compensation awarding [Employer] with a dollar for dollar credit for pension benefits paid." (Employer's Br. at 14.) Employer also argues that the Board erred in affirming the WCJ's remand decision and order "where he denied [Employer's] right to a dollar for dollar credit."*fn9 (Employer's Br. at 14.) Employer relies on City of Philadelphia v. Workers' Compensation Appeal Board (Hunter), 912 A.2d 889 (Pa. Cmwlth. 2006), and Murphy v. Workers' Compensation Appeal Board (City of Philadelphia), 871 A.2d 312 (Pa. Cmwlth. 2005), for the proposition that payments of service-connected disability pension benefits are payments in lieu of workers' compensation. Employer contends that Claimant is not entitled to receive both service-connected disability pension benefits and workers' compensation benefits for the same injury. Although it is not entirely clear from Employer's brief, we believe that Employer is essentially arguing that it is entitled to a dollar-for-dollar offset/credit for 100 percent of the service-connected disability pension benefits paid to Claimant because those benefits were paid to Claimant in lieu of workers' compensation.

In 1996, the General Assembly, through Act 57, amended Section 204(a) of the Act to specifically allow an employer to take an offset/credit against a workers' compensation award for pension benefits paid to a claimant "to the extent funded by the employer directly liable for the payment of compensation."*fn10 Section 3 of Act 57. Prior to the amendments to Section 204(a), employers were allowed to take an offset/credit for pension benefits, as long as those benefits were paid in lieu of workers' compensation, and were not in the nature of deferred compensation.

E.g., Toborkey v. Workmen's Compensation Appeal Board (H.J. Heinz), 655 A.2d 636, 641 (Pa. Cmwlth. 1995) (denying the employer an offset/credit where pension benefits were in the nature of deferred compensation, and not in lieu of workers' compensation); Murhon v. Workmen's Compensation Appeal Board (Kawecki Berylco, Inc.), 618 A.2d 1178, 1181-82 (Pa. Cmwlth. 1992) (allowing the employer an offset/credit where disability pension benefits were paid in lieu of workers' compensation). This Court previously explained the effects of the amendments to Section 204(a) in City of Philadelphia v. Workers' Compensation Appeal Board (Andrews), 948 A.2d 221 (Pa. Cmwlth. 2008). There, Employer sought to take an offset/credit for 100 percent of the service-connected disability pension benefits that were paid to the claimant in that case, Cynthia Andrews (Andrews). Id. at 224. The WCJ, after giving Employer numerous opportunities to present evidence regarding the extent that it funded Andrews' pension benefits, determined that Employer had failed to prove that it was entitled to an offset/credit. Id. at 225. The Board affirmed the WCJ's decision on appeal. Id. at 226. Employer subsequently petitioned this Court for review and, relying primarily on Hunter and Murphy, raised arguments similar to those which it advances in the present case. In addressing Employer's arguments, this Court explained:

Both of these cases [Hunter and Murphy] do hold that Employer may offset a claimant's workers' compensation benefits in light of her receipt of a service-connected disability pension as the payments made pursuant to the pension plan are in lieu of compensation. Employer's reliance on these cases is misplaced, however, as the claimants in those cases were injured prior to the effective date of Act 57.

Claimant sustained her injury on May 30, 2000, well after the effective date of Act 57. Consequently, pursuant to Sections 32.1 and 33 of Act 57, amended Section 204(a) of the Act controls her entitlement to workers' compensation benefits, or, more accurately, Employer's ability to offset the same. As indicated in Section 204(a) of the Act and Section 123.8(b) of the Act 57 Regulations, Employer may take a credit for Claimant's receipt of pension benefits in defined-benefit and defined-contribution plans to the extent it funded those benefits. The Employer's right to a pension offset in post-Act 57 cases no longer turns on whether the pension constitutes payments in lieu of compensation. Nor does it matter, contrary to Employers' [sic] assertion, that the pension is a service-connected disability pension. In so holding, we do not suggest in any fashion that Hunter or Murphy, or any of the cases that predated those opinions that discussed the issue of whether a claimant's pension benefits were paid in lieu of compensation as opposed to deferred compensation, are no longer good law. The scope of those cases, however, is limited to matters wherein the claimant was injured prior to the effective date of Act 57.

In order to take advantage of amended Section 204(a) of the Act allowing for Employer to offset Claimant's workers' compensation benefits in light of Claimant's receipt of a pension, [Employer] needed to present evidence as to the extent it funded the pension plan.

Id. at 226-28 (emphasis added). Because Employer failed to present any evidence establishing the extent to which it funded Andrews' pension benefits, we concluded that Employer was properly denied an offset/credit. Id. at 228.

Based on Andrews, it is clear that where an injury occurs on or after the effective date of Act 57, our precedent, such as Hunter and Murphy, which apply the "in lieu of compensation" standard, are inapplicable. Instead, under amended Section 204(a), an employer is entitled to an offset/credit for any type of pension benefits paid to a claimant, but the amount of the offset/credit which an employer may take is limited to the extent the employer funded such benefits.*fn11 For example, if an employer proves that it funds 70 percent of a claimant's pension benefits, the employer is entitled to take a dollar-for-dollar offset/credit equal to 70 percent of the claimant's pension benefits against the claimant's workers' compensation benefits. See 34 Pa. Code § 123.1 (providing that "[o]ffsets shall be dollar-for-dollar and calculated as set forth in §§ 123.4-123.11"); 34 Pa. Code § 123.8 (providing that "[w]orkers' compensation benefits otherwise payable shall be offset by the net amount an employe receives in pension benefits to the extent funded by the employer directly liable for the payment of workers' compensation").

Employer argues that the present case should be distinguished from Andrews. Employer contends that the holding in that case was based on the understanding that the purpose behind amending Section 204(a) was to prohibit employers from using an employee's own pension contributions to satisfy its workers' compensation obligations. Employer asserts that because the recipient of a service-connected disability pension has the option of withdrawing his contributions or using his contributions to purchase survivorship benefits, Employer is not using the recipient's own pension fund contributions to satisfy its workers' compensation obligations.

Thus, according to Employer, Section 204(a) is irrelevant in cases such as this one. What Employer fails to recognize, however, is that Andrews also involved service-connected disability pension benefits, and there, we held that amended Section 204(a) governed Employer's right to an offset/credit. We did observe in Andrews that one of the purposes behind the amendments to Section 204(a) was to prohibit employers from utilizing an employee's own pension fund contributions to satisfy its workers' compensation obligations. Andrews, 948 A.2d at 227. However, we did not state, nor did we imply, that an employer must be using an employee's pension fund contributions to satisfy its workers' compensation obligations in order for amended Section 204(a) to be applicable. Such an interpretation would have been contrary to the plain language of the Act. When a claimant's work injury occurs on or after the effective date of Act 57, amended Section 204(a) is applicable and controls an employer's entitlement to an offset/credit.

Here, Claimant's injury occurred on August 2, 1999, which was well after the effective date of Act 57, and therefore, amended Section 204(a) is controlling. Under amended Section 204(a), Employer is entitled to an offset/credit for the service-connected disability pension benefits that it paid to Claimant. Thus, the WCJ did not err in granting Employer's Modification Petition due to Employer's entitlement to an offset. However, amended Section 204(a) expressly limits the amount of the offset/credit which Employer is entitled to take to the extent that Employer funded Claimant's service-connected disability pension benefits. Because the WCJ initially determined that Employer was entitled to a dollar-for-dollar offset/credit for 100 percent of the pension benefits paid to Claimant without considering the extent to which Employer funded Claimant's pension benefits, the WCJ erred. Therefore, we conclude that the Board properly affirmed the WCJ's initial decision and order granting Employer's Modification Petition due to Employer's entitlement to an offset and remanded the matter to the WCJ to render a determination as to the extent of the offset to which Employer was entitled in light of amended Section 204(a).

In cases such as this one, which involve a defined benefit plan,*fn12 "an employer cannot provide evidence of actual contributions for the use of an individual member" and, therefore, must "meet its burden of proof . . . with expert actuarial testimony." Pennsylvania State University v. Workers' Compensation Appeal Board (Hensal), 911 A.2d 225, 232 (Pa. Cmwlth. 2006); see also Andrews, 948 A.2d at 227 (stating that "[w]here there is a defined-benefit plan, an employer cannot meet its burden of establishing the amount of its offset absent actuarial testimony"). If the actuarial testimony is accepted as credible, it is legally sufficient to establish the extent of an employer's funding for offset/credit purposes. Hensal, 911 A.2d at 232.

The record reveals that, after the matter was remanded to the WCJ, Employer presented the actuarial testimony of Mr. Rowe. Mr. Rowe testified that, in order to calculate Employer's funding to Pension Plan J for each year, he first took Employer's normal cost as a percentage of Employer's payroll and added it to the amortization payment (the amount Employer must pay each year to bring its assets up to its liabilities) as a percentage of payroll to arrive at Employer's total costs. (WCJ Hr'g Tr. at 22-23, Feb. 28, 2006.) He then added the employee's normal cost to Employer's total costs and divided that figure by Employer's total costs to ascertain Employer's contribution rate. (WCJ Hr'g Tr. at 23.) Mr. Rowe then averaged the contribution rates for each year to determine Employer's overall contribution rate. (WCJ Hr'g Tr. at 23-24.) Mr. Rowe testified that he first calculated Employer's overall contribution rate as 72.78 percent, as indicated in his October 25, 2005 letter. (WCJ Hr'g Tr. at 23; Letter from Mr. Rowe to Employer's counsel (Oct. 25, 2005) at 1, Ex No. E-2.) In arriving at this figure, Mr. Rowe used the contribution rate from 1987 for the years from 1986 though 1981 because information for those years was not available. (WCJ Hr'g Tr. at 23-24; Letter from Mr. Rowe to Employer's counsel (Oct. 25, 2005) at 1, Ex No. E-2.) However, Mr. Rowe was later provided with information for 1985 and 1981 and, based on this new information, determined that Employer's overall contribution rate was 73.149 percent, as indicated in his December 8, 2005 letter. (WCJ Hr'g Tr. 25-26; Letter from Mr. Rowe to Employer's counsel (Dec. 8, 2005) at 1, Ex. No. E-3.) The WCJ accepted Mr. Rowe's testimony as credible. The WCJ is "the ultimate finder of fact and exclusive arbiter of credibility and evidentiary weight." Department of Public Welfare/Western Center v. Workers' Compensation Appeal Board (Cato), 911 A.2d 241, 246 (Pa. Cmwlth. 2006) (quoting Daniels v. Workers' Compensation Appeal Board (Tristate Transp.), 574 Pa. 61, 76, 828 A.2d 1043, 1052 (2003)). As Mr. Rowe's testimony was accepted as credible, it is sufficient to support the WCJ's determination that Employer is entitled to a 73.149 percent offset/credit.*fn13 Therefore, we conclude that the Board did not err in affirming the WCJ's decision and order granting Employer an offset/credit for 73.149 percent of the pension benefits paid to Claimant.

Accordingly, the Board's orders are affirmed.

ORDER

NOW, March 27, 2009, the orders of the Workers' Compensation Appeal Board in the above-captioned matter are hereby affirmed.

RENÉE COHN JUBELIRER, Judge


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