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Rolf Larsen v. State Employees' Retirement

May 20, 2011

ROLF LARSEN, PETITIONER
v.
STATE EMPLOYEES' RETIREMENT
SYSTEM, : RESPONDENT :



The opinion of the court was delivered by: Opinion BY Senior Judge Kelley

Argued: April 5, n2011

BEFORE: HONORABLE RENEE COHN JUBELIRER, Judge HONORABLE JOHNNY J. BUTLER, Judge HONORABLE JAMES R. KELLEY, Senior Judge

Rolf Larsen (Claimant) petitions for review of an order of the State Employees' Retirement Board (SERB) denying his requests: (1) to use his termination date as his effective date of retirement; and (2) to have the amounts paid to him as unvouchered expense allowances included as compensation and in the calculation of his final average salary. We affirm.

The stipulated facts in this matter are as follows.*fn1 Claimant's date of birth is August 26, 1934. (SF 2) Claimant became a member of the State Employees' Retirement System (SERS) on January 7, 1974, when he became a Judge for the Court of Common Pleas of Allegheny County. (SF 5) Claimant served as a Justice on the Pennsylvania Supreme Court from the beginning of 1978 through June 3, 1994. (SF 6) Claimant made retirement contributions to SERS during his tenure as a

Court of Common Pleas Judge and from his assumption of office as a Justice until June 3, 1994, the date the Court of Judicial Discipline issued an interim order suspending Claimant without pay. (SF 8; 9) Claimant has a total of 22.3138 years of credited service with SERS. (SF 12)

Throughout his service as a Court of Common Pleas Judge and Justice, Claimant received a salary established by law. (SF 34) As a Justice, Claimant received payments for unvouchered expenses each year from 1978 through October 1993. (SF 41)

On September 7, 1979, SERS issued Management Directive 570.8, Amended, which applies to all SERS members, which in part permitted the filing of a conditional retirement application for any involuntarily terminated State employee who wished to file a grievance or take court action regarding his or her dismissal from State employment.*fn2 (SF 42; 44) By letter dated June 17, 1994, David A.

Frankforter with the Administrative Office of Pennsylvania Courts (AOPC), advised Claimant to contact the SERS Regional Counseling Center for the Pittsburgh area and Claimant was provided with the Center's address and phone number. (SF 47) However, Claimant did not personally contact SERS until he did so through counsel in October 2001. (SF 49) Claimant completed an application for retirement in the SERS Regional Counseling Center for the Pittsburgh area on November 18, 2001, selecting a maximum single life annuity for his monthly benefits. (SF 50) Claimant, through counsel, requested that his retirement application be treated retroactively to June 3, 1994. (SF 52)

After determining that Claimant's pension was not subject to forfeiture, SERS approved Claimant's retirement application but denied, with appeal rights, Claimant's request for retroactive retirement benefits, inter alia. (SF 54) By letter of February 11, 2002, SERS provided Claimant with information regarding his retirement account and his initial annuity payment. (SF 55) By letter dated February 13, 2002, Claimant requested information regarding the computation of his monthly retirement benefit. (SF 56) Claimant also, through counsel, filed a timely appeal with regard to the effective date of retirement, as well as the calculation of his final average salary, which did not include the unvouchered expense allowances Claimant received as a Justice. (SF 57) SERS' appeals committee denied Claimant's appeal and Claimant further appealed to SERB. (SF 59; 60)

The following findings were made by SERB. Claimant was not provided with materials typically given to retiring members of the Judiciary when he was terminated from office. It is the policy of SERS' field program not to initiate contact with members; therefore, they did not initiate contact with Claimant following his termination.

A conditional retirement application preserves a member's right to a benefit effective one day after the member terminates if the application is filed within 90 days of termination or to the date the application is filed if it is filed later than 90 days after termination. When a member files a conditional retirement application, he establishes his effective date of retirement and his right to receive benefits retroactive to that effective date, but a benefit is not paid to him until the application is finally exercised, after his termination is deemed to be final. No one from AOPC ever provided Claimant with a conditional retirement application or information regarding Management Directive 570.8. Neither conditional retirement applications nor Management Directive 570.8 is discussed in the SERS member handbook.

Claimant was not aware of the existence of a conditional retirement application until July 2002, when he read about it in SERS' answer to his appeal. Claimant testified that he did not file for retirement benefits because if he did, he would lose standing to appeal any and all present and future removals from office.

The general policy of SERS is to consider compensation as that which was provided in return for services rendered by a State employee. Retirement covered compensation is salary paid to the member. At the time Claimant was a Justice, he received unvouchered expense allowances. Unvouchered expenses were not included with the Justices' salary check but were a separate check provided to reimburse them for business expenses that they incurred in the course of their duties. Justices received two W-2 forms: one for their salary; and one entitled "expense allowance" for their nonvouchered expense monies, including car allowances. The General Assembly legislatively began requiring a vouchered expense plan on July 1, 1994.

SERS' long standing position has been that unvouchered expenses received by the Judiciary are not retirement-covered compensation, but those received by the General Assembly pursuant to the Public Official Compensation Law*fn3 (POCL) are retirement covered compensation. This is because the unvouchered expenses received by the General Assembly are considered to constitute money statutorily paid as compensation in lieu of a salary increase in order to constitutionally equate compensation of the members of the General Assembly during the transitional years when salary increases were granted mid-term. These particular legislative expense allowances are the only unvouchered expense allowances that SERS treats as compensation for purposes of the Retirement Code.

Because AOPC believed that unvouchered judicial expenses were not considered compensation by the POCL, AOPC did not report those amounts to SERS and employee and employer contributions were not deducted from those amounts. Unvouchered expenses are not considered compensation by SERS for purposes of determining a pensioner's final average salary calculation.

By opinion dated May 27, 2009, the Hearing Examiner recommended to SERB that Claimant's request for a retroactive effective date of retirement be denied and that his effective date of retirement remain November 19, 2001. The Hearing Examiner further recommended that SERB deny Claimant's request that his unvouchered expense allowances be included in the calculation of his compensation for purposes of determining his final average salary. Both Claimant and SERS filed exceptions to the Hearing Examiners' opinion.

Upon review, SERB determined that Claimant was first officially removed from office on June 13, 1994, by the Court of Common Pleas of Allegheny County and thus this is his official date of termination. Claimant did not fulfill his statutory duty of completing his retirement application within 90 days of his date of termination in order to establish the first day following his date of termination as his effective date of retirement. Thus, the effective date of Claimant's retirement is the date of his retirement application or November 19, 2001. Unvouchered expense allowances received annually by the Judiciary through line item budget appropriations do not constitute compensation for purposes of calculation of a retiree's final average salary. Finally, SERB determined that Claimant was provided a fair and impartial administrative hearing.

Accordingly, SERB denied Claimant's appeal. This appeal followed.*fn4 Herein, Claimant raises the following issues for review:*fn5

1. Whether SERB erred in refusing to consider Claimant's judicial unvouchered expense income as "compensation" under the State Employees' Retirement Code (Retirement Code),*fn6 and in excluding said income from the pension related calculation of his final average salary.

2. Whether Claimant is entitled to have his initial termination date serve as his effective retirement date.

I. UNVOUCHERED EXPENSE ALLOWANCES

In support of the first issue raised, Claimant argues that unvouchered expense income is compensation that should be included in his final average salary. Unvouchered expense payments are remuneration as shown by the relevant statutory language, which strongly suggests a legislative intent to set broad parameters for what constitutes remuneration. Claimant contends that since the General Assembly excluded refunds for expenses, contingency and accountable expense allowances from the definition of remuneration, it is clear that the General Assembly understood those payments to fall within the ambit of the broader term. Claimant argues that SERB erroneously draws a distinction between expense payments and remuneration; however, given the set amount of unvouchered expense payments received by Claimant and the absolute discretion he had over these funds, it is certainly logical to conclude that those payments were and would be considered part and parcel of the compensation received by him for the performance of his judicial duties.

Claimant argues further that if the General Assembly intended that expense payments are not remuneration solely because they do not represent payment for services, there would be no purpose served by the General Assembly's identification of certain categories of expense payments to be excluded. Claimant contends that if the General Assembly intended to exclude unvouchered expenses, it could have explicitly done so, and since it did not, one must assume that the General Assembly intended for such expenses to be remuneration.

Claimant contends that SERB erroneously equates unvouchered expenses with contingency expense allowances; however, that term is not defined in the Retirement Code. Claimant contends that the record shows that the unvouchered expense payments received by Claimant had no connection to expenses incurred by him; therefore, he did not have to account for such expenses. Thus, Claimant argues, the income Claimant received as ...


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