Improper Calculations Can Result in Retirement Pay Expectation Disappointment
The Public School Employees’ Retirement System (PSERS) is the Commonwealth’s agency that administers the defined benefit plan for public school employees. As a participant in this system, there is a new Pennsylvania Supreme Court ruling that you should be aware of for properly estimating retirement distribution. This decision provides guidance regarding compensation that falls outside traditional standard wages.
A Case Overview of Whalen v. PSERS
In Whalen v. PSERS, 2021 WL 6063055 (Pa. Supreme. Ct. 2021), the Court ruled unanimously that a lump sum payment does not constitute “salary” for the purposes of calculating a final average salary when the payment was not explicitly structured as part of the employee’s salary and does not demonstrate the payment’s relation to that of the employee’s pay scale.
In Whalen, a school principal brought an age discrimination case against his employer. The claim was ultimately settled for $15,000, and the principal retired the same year as he received the settlement. The agreement stated that the payment was considered to be payment of back salary that the employee would have had but for the alleged illegal age discrimination. Despite that portion of the settlement agreement, PSERS did not include the $15,000 as part of his final salary calculation, and instead, based his pension only on his wages for the years in question.
Defining the PSERS Settlement’s Compensation Type
Ultimately, the question turned to whether the settlement given was intended to be a corrective measure that made the employee whole after suffering an adverse employment event or an “arbitrary” settlement amount that was not related to the principal’s salary or wages but simply a settlement of the claim. Under PSERS, lump-sum settlements or damage awards are not included in the employee’s average salary computation. However, compensation for lost wages due to improper employment actions are to be included in the computation in order to make the employee whole.
The Pennsylvania Commonwealth Court sided with the Plaintiff and found that the award was to be included in the final retirement calculation. The Supreme Court, as noted above, reversed the Commonwealth Court’s decision, as there was nothing in the agreement that specifically tied the $15,000 in question to a specific salary. Even if it was expected to be a replacement for salary, the language of the agreement made it clear that it covered a period of at least 3 years, so the proposal from the employee that all $15,000 be included in the salary of his final year of employment, was not justified.
Did the PA School Board Compensate Incorrectly?
Did the Board err by determining that the money Whalen received in settlement of his age discrimination action did not represent retirement covered compensation for purposes of calculating his final average salary? The Retirement Code defines “compensation,” as any remuneration received as a school employee excluding reimbursements for expenses incidental to employment and excluding any bonus, severance payments, any other remuneration or other emolument received by a school employee during his school service which is not based on the standard salary schedule under which he is rendering service. The Court found that this lump sum agreement did not qualify as salary for services rendered.
Crucially, the Supreme Court reached this conclusion even though the actual agreement stated that it was the intention of the parties that this payment be included in the final salary determination. The court reasoned the parties stated intent was irrelevant when it was clear that the award was not in any way structured or tied to an actual salary scale, additionally taking into account the fact that the Plaintiff’s salary for the remainder of 2014 did not change, as well.
When Should I Contact an Education Attorney?
Based on this decision, any school district entering into a settlement with an employee regarding an issue of employee compensation needs to be aware of how PSERS will view the award payments. If it is the intent of the parties that the payments be included in the PSERS retirement calculation, the payment must be explicitly tied to the employee’s salary scale, with calculations that demonstrate how the payments were reached and adjustments going forward of said calculations are necessary. A lump sum settlement will not be included, even if the parties said they intended for it to be treated as part of the FAS calculations.
Consult with your solicitor on this issue to make sure your compensation settlement will be treated by PSERS as the parties intend.