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Donald Horner v. Workers' Compensation Appeal

June 14, 2011

DONALD HORNER, PETITIONER
v.
WORKERS' COMPENSATION APPEAL BOARD (LIQUOR CONTROL BOARD), RESPONDENT



The opinion of the court was delivered by: Patricia A. McCULLOUGH, Judge

Submitted: February 4, 2011

BEFORE: HONORABLE BONNIE BRIGANCE LEADBETTER, President Judge HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE JOHNNY J. BUTLER, Judge

OPINION BY JUDGE McCULLOUGH

Donald Horner (Claimant) petitions for review of the September 13, 2010, order of the Workers' Compensation Appeal Board (Board), which affirmed the decision of a workers' compensation judge (WCJ) denying Claimant's petition to review benefit offset (review offset petition). We affirm.

Claimant was employed by the Pennsylvania Liquor Control Board (Employer) since 1974. During this employment, Claimant routinely paid into the pension system administered by the State Employees Retirement System (SERS). Claimant sustained a work-related injury in January, 2003. On January 16, 2003, Employer issued a notice of compensation payable acknowledging the injury and a compensation rate of $675.00 per week based upon an average weekly wage of $1,067.30. Claimant subsequently opted for disability retirement status, and he began receiving a monthly disability pension of $2,906.31. (WCJ's Decision, November 14, 2006 (2006), Findings of Fact Nos. 1-3, 10, 26.)

In April 2005, Employer sent Claimant a notice of pension benefit offset of $1,881.81 per month, or $433.60 per week, thereby reducing Claimant's workers' compensation benefits to $241.40 per week. Claimant filed a review offset petition, and the case proceeded with hearings before the WCJ. Claimant testified that Employer deducted pension contributions from his paychecks throughout the course of his employment. Claimant indicated that he was never informed where his pension money was invested, what type of plan Employer utilized, or the amounts contributed by Employer. (2006 Findings of Fact Nos. 6, 26-29.)

Employer presented the deposition testimony of Linda Miller, Director of SERS Benefits Determination Division. Miller testified that Employer's plan was a defined benefit plan consisting of regular deductions from Claimant's gross salary (originally 5% and later 6.25%), contributions from Employer, and investment income. Miller indicated that Employer's contributions varied over the years and were based on actuarial recommendations. Additionally, Miller explained that Claimant's pension benefit amount is calculated by the following formula: two percent times total years of service, times final average salary, times a class-of- service multiplier, which results in a maximum account value that Claimant receives monthly as a single life annuity. Miller noted that, using this formula, Claimant's monthly pension benefit was calculated at $2,906.31. (2006 Findings of Fact Nos. 8-10.)

Miller then explained how Employer calculated the offset. Miller noted that Employer began by applying an interest rate of 8.5%, which was based on an actuarial assumption, to Claimant's total contributions. This calculation yielded a figure of $29,969.32, which was subtracted from Claimant's maximum account value of $368,699.14. After an annuity factor was applied, Employer calculated its annual contribution rate to be $22,581.76, or $1,881.81 per month. On cross-examination, Miller acknowledged that she was not an actuary or an accountant. (2006 Findings of Fact Nos. 10-11.)

Employer also presented the deposition testimony of John Wolford, Section Chief for Disability Processing in the Pennsylvania Bureau of Commonwealth Payroll Operations. Wolford testified that his office is responsible for reductions/adjustments to payments to injured employees. Wolford indicated that his office processed Employer's payroll and made the necessary retirement deductions from each employee's gross earnings. (2006 Finding of Fact No. 13.)

Finally, Employer presented the deposition testimony of Brent Mowery, an actuary with Hays Group, a consulting firm that regularly assists SERS. Mowery confirmed that Employer's pension plan was a defined benefit plan, that an individual employee does not have a specific investment account, and that the plan's assets are commingled. Mowery testified that, under this type of plan, an actuarial determination is necessary to ascertain the amount Employer needs to contribute to adequately fund the plan and that these amounts vary from year to year.*fn1 Mowery explained the formula as follows: first, determine the overall funding requirement for the plan; second, take the employee contributions and attribute an appropriate amount of investment income; and, finally, subtract that result from the present value of the employees' total benefit rights. Mowery noted that this formula resulted in the information in the spreadsheet identified by Wolford. Mowery indicated that a periodic investigation of the actuarial experience supported continued use of an assumed 8.5% investment rate of return, which rate has been adopted by SERS for more than ten years. (2006 Findings of Fact Nos. 18-24.)

In his 2006 decision, the WCJ generally credited the testimony of Miller, Wolford, and Mowery and concluded that Employer was entitled to an offset. However, noting a lack of evidence regarding the investment rates of return prior to 1996 (Mowery testified in 2006 that the 8.5% rate had been used for the past ten years), the WCJ concluded that the amount of the offset could not be determined from the record. Therefore, the WCJ ordered the record on the review offset petition reopened in order for the parties to present additional evidence regarding these rates and the amount of Employer's offset.*fn2

Both Claimant and Employer appealed to the Board. The Board agreed with the WCJ and issued an order remanding the matter to the WCJ to reopen the record and make necessary credibility determinations, findings of fact, and conclusions of law concerning the amount of Employer's offset.

On remand, Claimant presented the testimony of Nathan Kolbes, a pension actuary. Kolbes testified that neither Miller nor Wolford presented any documentation of the actual contributions Employer made to the pension plan or the time of year such contributions were made. Hence, Kolbes opined that there was no actuarial basis for determining the extent to which Employer funded the pension for purposes of the offset. Kolbes also opined that the method used by Employer to determine Claimant's contributions, which involved estimates because of a lack of information for several years, was not appropriate. Although Kolbes did not dispute Mowery's use of the particular income rate assumption, he indicated that the same did not shed any light on the amounts actually contributed by Employer. Kolbes suggested that additional ...


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