UNITED POLICE SOCIETY OF MT. LEBANON; RETIRED POLICE OFFICERS; MARK KUBIT, MARY EICHINGER, JOHN MICHALEC, DAVID WHITE, LES PALOMBINE, MARY SUE JOYCE, WILLIAM LAURENCE, KEVIN MACKEN, TOM GIANNI, ROBERT GEHRMANN, PAT O'DONNELL, AND BLAISE LAROTONDA
MT. LEBANON COMMISSION; STEPHEN M. FELLER; MT. LEBANON PENSION PLAN ADMINISTRATOR; MUNICIPALITY OF MT. LEBANON; APPEAL OF: UNITED POLICE SOCIETY OF MT. LEBANON; UNITED POLICE SOCIETY OF MT. LEBANON; RETIRED POLICE OFFICERS; MARK KUBIT, MARY EICHINGER, JOHN MICHALEC, DAVID WHITE, LES PALOMBINE, MARY SUE JOYCE, WILLIAM LAURENCE, KEVIN MACKEN, TOM GIANNI, ROBERT GEHRMANN, PAT O'DONNELL, AND BLAISE LAROTONDA
MT. LEBANON COMMISSION; STEPHEN M. FELLER; MT. LEBANON PENSION PLAN ADMINISTRATOR; MUNICIPALITY OF MT. LEBANON; APPEAL OF: LES PALOMBINE AND ROBERT GEHRMANN
Argued April 8, 2014,
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Appeal from the Order of the Commonwealth Court entered July 16, 2012 at No. 1602 CD 2011, reversing the Order of the Court of Common Pleas of Allegheny County entered July 28, 2011 at No. SA-07-793. Appeal allowed: September 10, 2013 at 366 WAL 2012. Trial Court Judge: Judith L. A. Friedman, Judge. Intermediate Court Judges: Dan Pellegrini, President Judge; Renee Cohn Jubelirer, Judge; Rochelle S. Friedman, Senior Judge. .
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Appeal from the Order of the Commonwealth Court entered July 16, 2012 at No. 1602 CD 2011, reversing the Order of the Court of Common Pleas of Allegheny County entered July 28, 2011 at No. SA-07-793. Appeal allowed: September 10, 2013 at 364 WAL 2012. Trial Court Judge: Judith L. A. Friedman, Judge. Intermediate Court Judges: Dan Pellegrini, President Judge; Renee Cohn Jubelirer, Judge; Rochelle S. Friedman, Senior Judge.
24 WAP 2013
For Les Palombine, Robert Gehrmann, APPELLANTS: Ronald P. Koerner, Esq.
For Municipality of Mt. Lebanon; Mt. Lebanon Commission; Stephen M. Feller; Mt. Lebanon Pension Plan Administrator, APPELLEES: Christian Charles Antkowiak, Esq., Buchanan Ingersoll & Rooney, P.C.; Joseph F. Quinn, Esq. Buchanan Ingersoll & Rooney, P.C.
For United Police Society of Mt. Lebanon, APPELLEE: Ronald Ryan Retsch, Esq.; Eric Carl Stoltenberg, Esq., Lightman Welby Stoltenberg & Caputo
23 WAP 2013
For United Police Society of Mt. Lebanon, APPELLANT: Eric Carl Stoltenberg, Esq., Lightman Welby Stoltenberg & Caputo
For Mt. Lebanon Commission, et al., APPELLEE: Christian Charles Antkowiak, Esq., Buchanan Ingersoll & Rooney, P.C.; Joseph F. Quinn, Esq., Buchanan Ingersoll & Rooney, P.C.
For Les Palombine, Robert Gehrmann, APPELLEES: Ronald P. Koerner Esq.
BEFORE: CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, STEVENS, JJ. Former Justice McCaffery did not participate in the decision of this case. Messrs. Justice Saylor and Baer, Madame Justice Todd and Mr. Justice Stevens join the opinion. Mr. Chief Justice Castille files a dissenting opinion in which Mr. Justice Eakin joins.
Section 305(a) of the Municipal Pension Plan Funding Standard and Recovery Act (" Act 205" ) requires a municipality to obtain a complete and accurate cost estimate before the municipality adopts any benefit plan modification so as to have accurate information with respect to the plan's solvency. 53 P.S. § 895.305. The requirements of Act 205 apply notwithstanding any municipal ordinance, resolution, or agreement to the contrary. 53 P.S. § 895.301(a). At the same time, however, a municipal employer's unilateral change of a mandatory subject of bargaining, without first negotiating with the union, interferes with the employees' collective bargaining rights, and thus constitutes an unfair labor practice under the law
known as Act 111.
Borough of Ellwood City v. Pennsylvania Labor Relations Board, 606 Pa. 356, 998 A.2d 589, 595 (Pa. 2010) (" Ellwood City v. PLRB"
This case concerns a conflict at the intersection of these two pillars of public labor law, caused here when a municipality submitted to the actuary making the cost study required by Act 205 incomplete and/or inaccurate information (although the municipality disputes this characterization). That information concerned a police pension plan term that the municipality had adopted pursuant to a collective bargaining agreement (" CBA" ). Thereafter, the municipality administered the plan term along the lines of the incomplete or inaccurate assessment that resulted from the incomplete or inaccurate information submitted to the actuary, in effect unilaterally modifying both the plan and the CBA. The Commonwealth Court here ultimately determined that because Act 205 has statutory primacy over any CBA, the plan must be administered as understood by the actuary when it made its Act 205 cost study, even if this effectively alters a bargained-for term of the parties. We now reverse and remand.
The Mt. Lebanon Police Officer's Pension Plan (" Plan" ) provides for cost-of-living adjustments (" COLAs" ) to augment pension benefits for retirees. As originally agreed to for the Plan years 2000-03 (" 2000 Plan" ) by the United Police Society of Mt. Lebanon (" Union" ) and the Municipality of Mt. Lebanon (" Municipality" ), retired plan participants are eligible for yearly COLAs of 2% of the participant's final average monthly compensation until such time as the participant's benefits equal 90% of his or her final average monthly compensation. Section 4.09 of the Plan. This provision does not differentiate between regular retiree participants and early retiree participants. Id. In 2004, the COLA was changed for some early retirees, specifically those with fewer than 20 years of service, to reduce the benefit from 2% of the retiree's final average monthly compensation to 2% of the actual early retirement benefits (" 2004 Plan" ). However, no adjustment was made in the Plan with respect to the COLA cap of 90% of the participant's final average monthly compensation for any participant.
In 1999, the Municipality's Assistant Manager informed the actuary performing the cost estimate for the 2000 Plan that COLA payments to all participants would be capped at 15% in total increases, instead of informing the actuary that COLA payments would be capped at 90% of the participant's final average monthly compensation as specifically stated in Section 4.09 of the Plan. The Municipality's Assistant Manager apparently arrived at the 15% amount based on the difference between the base benefit of a regular retiree (75% of the regular retiree's final average monthly compensation) and the COLA cap of 90% of the retiree's final average monthly compensation, or 15%. The actuary's subsequent cost estimate regarding the financial health of the 2000 Plan (and thereafter, the 2004 Plan) was made based on the information provided by the Municipality's Assistant Manager; that is, the actuary applied a 15% COLA cap for both
regular and early retirees. However, the base benefit of an early retiree's pension could be as low as 50% of the early retiree's final average monthly compensation. Moreover, after the 2004 amendments to the Plan, early retirees' COLA increases were linked not to their final average monthly compensation, but to their actual early retirement benefits.
In accordance with its interpretation of the Plan and the accompanying Act 205 actuarial cost estimate, the Municipality began capping COLA increases for early retirees at no more than 15% above the actual early retirement benefits; in some cases, this resulted in pension caps well below 90% of the retiree's final average monthly compensation as specified in Section 4.09 of the Plan. Subsequently, in 2006, the Union, thirteen retired officers, and a number of unspecified, active officers filed a grievance with the Plan Administrator concerning the Municipality's calculation of the duration of COLA benefits. On January 15, 2007, the Plan Administrator issued a " Notice of Denial" indicating that the claim was not ripe for review for the unspecified, active officers, and was untimely and, therefore, waived for the thirteen retired officers. On March 1, 2007, an appeal of the Notice of Denial was filed with the Mt. Lebanon Commission (" Commission" ) as the body designated by the Plan to hear appeals from decisions of the Plan Administrator pursuant to Section 8.08(c) of the Plan. The Commission affirmed the denials.
On appeal, the Allegheny County Court of Common Pleas (" trial court" ) concluded that the heart of the dispute was the method of calculating the maximum pension benefit for each officer pursuant to the COLA formula, and for this reason determined that the case was ripe. Accordingly, the trial court remanded the matter to the Commission to correctly calculate the COLA benefits before the court could address issues of timeliness.
After hearing testimony and argument, the Commission issued a decision on February 8, 2011. The Commission posed the question before it as follows: should an early retiree be " treated the same as a normal retiree ; that is, [he or she] should receive a COLA benefit up to a 15% maximum," or should " an early retiree receive [a] 2% COLA increase per year until the early retiree receives 90% of [his or her] Final Average Monthly Compensation." Findings and Conclusion of [the Mt. Lebanon] Commission, dated 2/8/11 (" Commission Decision" ), at 2, ¶ 7 (emphasis added). The Commission posed the question in this way based on its observation that a regular retiree's normal benefit is 75% of his or her final average monthly compensation, whereas an early retiree's benefit could be as low as 50% of his or her final average monthly compensation. Using this circumstance as its touchstone, the Commission observed that if both regular and early retirees received COLA increases to up to 90% of their final average monthly compensations, a regular retiree's COLA increases could constitute no more than 15% of his or her final average monthly compensation, while an early retiree's
COLA increases could potentially rise to as much as 40% of his or her final average monthly compensation, if that early retiree started at a baseline benefit of 50% of his or her final average monthly compensation. Id. at ¶ ¶ 4 and 7.
Ultimately, the Commission determined that it was " required to adopt the interpretation that the COLA is limited to a total of 15%" for both regular and early retirees. Id. at ¶ 8. This determination was based not on the above understanding of perceived unequal treatment of regular and early retirees, but rather on the following analysis: " State law [Act 205] requires that a cost study be performed before any plan amendment can be adopted, and the only cost study that was carried out in this case assumed that the COLA was limited to 15%. The Commission is not at liberty to adopt any other interpretation." Id. The Commission's conclusion that it was without liberty to reach a determination that was contrary to the Plan as understood by the Act 205 actuary when it made its cost study was, in turn, based on
Borough of Ellwood City v. Ellwood City Police Department Wage and Policy Unit, 573 Pa. 353, 825 A.2d 617 (Pa. 2003) ("
Ellwood City v. Police Department" ). In that case, we explained that because " the General Assembly has bounded bargaining over and modification of pension benefits by a requirement of actuarial soundness as contemplated by Act 205," the " power of the judiciary" is " constrained" from taking action that would interfere with any mandate found in Act 205. Id. at 623--24. The Commission ultimately concluded: " As there was only one cost study relative to the COLA provision of the Plan, the Commission is bound to accept the interpretation of the COLA that is consistent with the study." Commission's Decision at 7, ¶ 30 (emphasis added).
Although the Commission's determination was based on such a legal precept as understood by the Commission, several of its ancillary factual findings are also relevant to our inquiry, as they were to the other reviewing tribunals below. Relevantly, the Commission found that the Assistant Manager of the Municipality, Ms. Marcia Taylor, who was charged with administration of the Plan, was present and had participated in the 1999 negotiations with the Union that had resulted in the adoption of the COLA. It was she who had reported to Mockenhaupt Benefits Group (" Mockenhaupt" ), the benefits consulting firm that performed the actuarial study of the Plan modifications adopted in 1999, that the COLA increases had a blanket 15% cap. Ms. Taylor reported this information in a good faith belief that this was how the COLA was to be implemented for all retirees. The 1999 negotiations did not include a separate discussion of how the COLA cap should apply to early retirees. Although the 2004 amendments to the Plan did specifically address COLA increases for early retirees, those amendments " did not address the issue in this case, i.e., how long an early retiree may receive the COLA." Id. at 5, ¶ 18. The Mockenhaupt cost study for the 2004 Plan amendments applied a 15% COLA cap to all retirees, as had the 1999 cost study.
Following the Commission's decision, the Union, Palombine, and Gehrmann appealed to the trial court, which reviewed the matter pursuant to the standard set forth in Section 754(b) of the Local Agency Law, 2 Pa.C.S. § 754(b). Concluding that
the Commission's decision was not in conformance with law and that certain necessary findings of fact were not supported by substantial evidence, the trial court reversed.
The trial court's conclusion that the Commission's decision lacked support in the law was based on the court's determination that Act 205 does not require the implementation of a pension plan based on mistaken or inaccurate information simply because that was the information supplied by the municipality to the actuary doing the Act 205 study. The court noted that there is no remedy set forth in Act 205 that would support this result; rather, the only remedy the court perceived in Act 205 was the authorization of a mandamus action when the municipality fails to meet its minimum funding for a pension plan. See 53 P.S. § 895.306. The court also noted that the plainly stated legislative intent of Act 205 -- and this remedy of mandamus -- was to insure that municipal pension plans are not underfunded. See 53 P.S. § 895.306(a). The court then observed that there was no issue concerning the underfunding of the Plan before the Commission. The only issue before that body, as the court determined, was whether a municipality was relieved under Act 205 from implementing the plain language of its pension plan merely because it had provided incomplete information to the Act 205 actuary. The court concluded that Act 205 does not relieve the municipality from its obligations under a pension plan, where, as here, there was no evidence that the implementation of the plan would affect the plan's actuarial soundness. For this reason, among others, the court disagreed with the Commission's reliance upon
Ellwood City v. Police Department.
The trial court also concluded that there was not substantial evidence supporting the Commission's salient finding of fact that Ms. Taylor had " interpreted" the Plan, with respect to early retirees, in good faith. After quoting extensively from the record before the Commission, the court noted that Ms. Taylor had admitted in her testimony before the Commission " that her calculation was not an interpretation of the words of the Plan." Trial Court Opinion, dated 12/2/11, at 40. Further, the court observed that her testimony, as well as that of the Mockenhaupt actuary who had performed the relevant Act 205 cost studies, revealed that Ms. Taylor had " merely assumed that there was a 15% limit on the COLA for [e]arly [r]etirees, an assumption that is nowhere to be found within the four corners of the CBA or the Plan." Id. Going further, the court determined that " Ms. Taylor ignored the clear and unambiguous language of the Plan that all retirees were 'participants,' entitled to COLA increases until their pension payment reached 90% of [their final average monthly compensation]." Id. at 41 (emphases in original). To the extent that Ms. Taylor's testimony constituted parol
evidence concerning an interpretation of a contractual term, the court opined that such testimony was not relevant or appropriate when the relevant language of the Plan is plain and unambiguous.
For the above reasons, the trial court concluded that (1) Act 205 did not require the adoption of a 15% cap on COLA increases for early retirees; (2) Act 205 did not prohibit the implementation of the Plan as written; and (3) Pennsylvania law does not permit municipalities to benefit from their own mistakes to the detriment of innocent pensioners. Accordingly, the trial court ordered the Municipality and its Plan Administrator to calculate and pay COLAs in accordance with the plain language of the Plan, which allows all participants to receive COLA increases until the participant receives 90% of her or his final average monthly compensation.
The Municipality appealed, and the Commonwealth Court reversed. United Police Society of Mt. Lebanon v. Mt. Lebanon Commission, 49 A.3d 4 (Pa. Cmwlth. 2012). The Commonwealth Court disagreed with the trial court regarding the question of whether Act 205 had been violated and, in so doing, emphasized the primacy of Act 205 over pension plans, in particular, the requirement that before there can be any modification to a pension plan there must be a " complete and accurate" cost study performed. Id. at 10, quoting 53 P.S. § 895.305(e). Further, the Commonwealth Court appeared to disagree with the trial court's determination that the Plan language regarding COLA caps was plain and unambiguous, and apparently agreed with the Commission that the relevant language was subject to interpretation. The court concluded that because the Union's interpretation of the Plan had not been subject to a cost study under Act 205, the Plan could not be implemented pursuant to Act 205. Id. at 13. However, because the Municipality's interpretation of the COLA cap provision had been scrutinized under an Act 205 cost study, the court determined that this interpretation must prevail, as " the statute [Act 205] must be given effect." Id., quoting Ellwood City v. Police Department, 825 A.2d at 622.
The Commonwealth Court additionally summarized its analysis as follows:
There is no dispute that the cost estimate was performed with these assumptions [i.e., the information provided by the Municipality to the actuary] and at a time when the plan language was not yet in existence. There also is no evidence in the record that the Officers bargained for their particular interpretation of the COLA prior to the adoption of the plan language, although that language can be reasonably interpreted in the manner that they now propose. There is no evidence that any bad faith was involved by the parties or that the Municipality promised to provide the COLA pursuant to the interpretation that Union and Officers are now advocating. In short, there is no evidence in the record that, prior to the adoption of the language in the Ordinance, the Municipality specifically promised to calculate the COLA for early retirees differently than they would for normal retirees. This is, therefore, not a case of fundamental unfairness where a retroactive advantage is attempted to be gained when a fundamental
term of an agreement is later found to be altered by an existing statute.
See Ellwood City [v. Police Department], 573 Pa. at 369, 825 A.2d at 626--27 (Castille, J., concurring and dissenting).
We granted the separate appeals of the Union and retired-Officers Palombine and Gehrmann, agreeing to review the following issues:
a. Whether a municipality that collectively bargains to provide a particular pension benefit improvement, and confirms its bargain by legislatively adopting the benefit in its Pension Ordinance (and numerous subsequent amendments), may subsequently refuse to provide the benefit because one of its managers directed the Plan Actuary to perform an Act 205 cost estimate on the effect of adding a different and lesser benefit.
b. Did the Commonwealth Court err in reversing the trial court's conclusion that the Respondent municipality acting through Marcia Taylor disregarded the clear language of Section 4.09 of the pension plan by terminating Officers Gehrmann's and Palombine's two percent (2%) cost of living payments before they ...