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City of Erie v. Fraternal Order of Police

June 5, 2009


The opinion of the court was delivered by: Judge Simpson

Argued: May 4, 2009



Under review is a grievance arbitration award ordering the City of Erie (City) to reinstate a Partial Lump Sum Deferred Option Plan (PLSDO), described below, for the benefit of its police bargaining unit. The City assigns error in the arbitration award on three grounds: the arbitrator lacked jurisdiction; the award violates the law; and, alternatively, the parties' agreement with regard to the PLSDO lacked a meeting of the minds. Discerning no merit in the City's assertions, we affirm.

I. History

The origins of this case relate back to 2001. In that year, an interest arbitration panel issued an award in favor of the Fraternal Order of Police, Lodge No. 7 (Union) that included a Deferred Retirement Option Plan (DROP). The DROP allowed police officers who achieved the age and years of service for retirement to make an election after they became eligible to retire and up to three years before retiring to drop from the pension plan, continue to work and be paid until they retire. See City of Erie v. Haas Mem'l Lodge #7 Fraternal Order of Police, 811 A.2d 1071 (Pa. Cmwlth. 2002), appeal denied, 573 Pa. 692, 825 A.2d 640 (2003) (Erie I). The City appealed to the Court of Common Pleas of Erie County (trial court).

On review, the trial court rejected the City's assertions the arbitration panel failed to consider the DROP's impact on the stability of the Police Pension Plan in violation of the Municipal Pension Plan Funding Standard and Recovery Act (hereinafter "Act 205").*fn1 Specifically, the trial court found an actuarial report referred to the DROP in its valuation of the Police Pension Plan. It also appeared to the trial court that an actuarial expert testified. The trial court therefore denied the City's petition to set aside the arbitration award.

The City appealed. Initially, we determined the certified record lacked a cost estimate as required by Act 205. Erie I. In addition, the absence of transcripts from the arbitration proceedings made it impossible to verify the actuary's testimony. Consequently, we concluded the record lacked support for the conclusion the arbitration panel must have considered expert testimony in its award. Id. Accordingly, we reversed.

The Union appealed our decision in Erie I to the Supreme Court. While the appeal petition was pending, the City and the Union entered into settlement negotiations. The City proposed the current PLSDO. As part of its proposal, the City included a proposed amendment to the City's Pension Plan Ordinance (Pension Ordinance), which detailed the PLSDO provisions. After modifications, the Union ultimately approved the proposed PLSDO.

For its part, the City retained an expert in tax law and municipal pension plans. Upon review, the expert submitted to the Police Pension Board a proposed amendment to the Pension Ordinance. The expert and the City believed the proposed amendment sufficiently addressed the Board's concerns regarding possible tax consequences of the PLSDO on the Pension Plan.

The City thereafter adopted the PLSDO ordinance in 2003. The PLSDO allows:

participants who had reached certain age and length of service requirements to select a "pension look-back date" which preceded their actual termination date by 12, 24, or 36 months. For purposes of pension calculation, the pension look-back date would be used as the effective date for the participant's retirement benefits. The participant would continue to work for the City, but no longer accrue seniority or service credit. The participant was required to continue contributing to his/her pension plans between the look-back date and the date of employment termination. Following the participant's termination of employment, he/she would receive his/her normal retirement benefits determined as of the pension look-back date, as well as a lump sum cash distribution equal to the participant's monthly retirement benefit, multiplied by the number of months elected in the PLSDO.

City of Erie v. Dep't of Auditor Gen., 961 A.2d 234, 235 (Pa. Cmwlth. 2008) (Erie II). In February 2005, the City reinstated its Pension Ordinance in its entirety so as to include the PLSDO.

Because the City receives state aid under Act 205, the Auditor General conducted an audit of the City's aggregate pension plan for the compliance period January 1, 2003 through December 31, 2004. See Section 402 of Act 205, amended by the Act of July 11, 1990, P.L. 505, 53 P.S. §895.402. The Auditor General concluded that employees selecting the PLSDO should be treated as having terminated their employment as of their look-back dates rather than their actual retirement dates. Therefore, employees electing the PLSDO were not active employees for purposes of Act 205 funding and the City was not entitled to state aid for these pension payments. As a result, the Auditor General recommended the City repay approximately $900,000 it received from the Commonwealth to aid in the funding of its police and firefighter pension plans. The City filed exceptions to the Auditor General's recommendation, which a hearing officer denied.

The City appealed to this Court. Using a statutory construction analysis, we determined the PLSDO participants experienced no limitation in job duties after electing the PLSDO and had not completed their careers as of their look-back dates. As such, they were "active" employees for purposes of Act 205. Thus, the City was not required to reimburse the Commonwealth for the state aid it received for PLSDO participants. Erie II. The Auditor General filed a petition for allowance of appeal with the Supreme Court. The petition remains pending.

After the Auditor General's report but before our decision in Erie II, the City repealed the PLSDO ordinance. The City did not negotiate with the Union over the repeal and, consequently, the Union filed a grievance against the City. The resulting arbitration award is the subject of this appeal.

II. Arbitration Proceedings

The City initially challenged the arbitrator's jurisdiction over the Union's grievance. It asserted the parties' collective bargaining agreement (CBA),*fn2 did not incorporate the Pension Ordinance. Since the arbitration was limited to disputes concerning provisions of the CBA, and the Pension Ordinance is not part of the CBA, the City maintained the arbitrator lacked jurisdiction. Alternatively, the City argued that even if the CBA incorporated the Pension Ordinance, the parties assumed the PLSDO ...

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