New York Law Review

Tag: pension law

  • Lynch v. City of New York, 23 N.Y.3d 758 (2014): Interpreting Pension Statutes and ITHP Contributions

    Lynch v. City of New York, 23 N.Y.3d 758 (2014)

    Retirement and Social Security Law § 480(b) only applies to temporary ITHP (Increased-Take-Home-Pay) programs in place as of 1974 for Tier 1 and 2 members of public employee retirement systems, and does not require public employers to pay any portion of a Tier 3 employee’s pension contribution.

    Summary

    This case concerns whether New York City must make ITHP pension contributions for police officers and firefighters appointed after July 1, 2009, who are Tier 3 members of the NYC pension funds. The Court of Appeals held that Section 480(b) of the Retirement and Social Security Law only applies to temporary programs in place in 1974 for Tier 1 and 2 members, and not to Tier 3 employees. Thus, the City can deduct 3% from Tier 3 employees’ wages for pension contributions. The Court emphasized the legislative history and the overall design of the tiered pension system to reach its conclusion, emphasizing cost-saving measures.

    Facts

    Prior to July 1, 1973, employees joining the City retirement system were classified as Tier 1, and those joining between July 1, 1973 and July 26, 1976 were Tier 2. Legislation in 1963 allowed the City to assume a portion of police and fire employees’ annuity contributions, increasing their take-home pay (ITHP). This ITHP benefit was temporary and extended annually. The 1973 pension reforms created Tier 2 and extended temporary benefits for *present* members of existing (Tier 1) systems. In 2009, the Governor vetoed a bill extending Tier 2 coverage to police officers and firefighters appointed from July 1, 2009, through June 30, 2011, leading these employees to become Tier 3 members. Tier 3 required employees to contribute 3% of their annual wages to their pensions.

    Procedural History

    The Patrolmen’s Benevolent Association (PBA) and other unions sued the City, alleging violations of Retirement and Social Security Law § 480(b) and other laws. Supreme Court initially ruled that the City violated § 480(b). The Appellate Division modified, holding the City violated § 480(b) and was liable for conversion of wages. The Court of Appeals granted the City’s motion for permission to appeal.

    Issue(s)

    Whether Retirement and Social Security Law § 480(b) requires the City of New York to make Increased-Take-Home-Pay (ITHP) pension contributions on behalf of New York City police officers and firefighters appointed on or after July 1, 2009, who are Tier 3 members.

    Holding

    No, because Section 480(b) only encompasses temporary programs in place as of 1974 for Tier 1 and 2 members of a public employee retirement system, and does not obligate a public employer to pay any portion of a Tier 3 public employee’s statutorily required pension contribution.

    Court’s Reasoning

    The Court reasoned that while § 480(b) does not explicitly limit its application to specific tiers, its legislative history indicates it was intended to extend temporary benefits for “present members” of programs in place in 1974. At that time, the ITHP programs for NYC police officers and firefighters applied only to Tier 1 and 2 employees. The court emphasized that the legislature would have had to *include* this benefit for tier 3 employees to make it available to them; instead they required them to contribute 3% of their wages. Making ITHP permanent for Tier 1 and 2 members did not implicitly expand coverage to Tier 3. The Court cited the Governor’s veto of extending Tier 2 status to lessen pension costs and the implausibility of silently undoing that veto by creating a non-contributory pension for Tier 3 members. The Court also considered related Administrative Code provisions and legislative memoranda that consistently referred to ITHP benefits for Tier I and II members only. Regarding § 508-a, referencing ITHP in connection with death benefits for survivors of tier 3 employees, the Court noted that this section uses the qualifier “if any”, suggesting that ITHP was not automatically applicable to tier 3 members. In sum, the court found that interpreting § 480(b) to apply to Tier 3 employees would be inconsistent with the overall design of the tiered pension system and the cost-saving reforms implemented over time. As the Governor’s Approval Memorandum for section 480(b)’s predecessor stated, this provision was meant to “extend temporary retirement benefits for present members” of the programs to which it referred (Governor’s Approval Mem, Bill Jacket, L 1973, ch 383 at 2, 1973 McKinney’s Session Laws of NY at 2343).

  • Koch v. New York City Dept. of Educ., 98 N.Y.2d 573 (2002): Inclusion of ‘Per Session’ Pay in Teacher Pension Calculations

    Koch v. New York City Dept. of Educ., 98 N.Y.2d 573 (2002)

    ‘Per session’ compensation earned by New York City public school teachers for additional hourly work, such as teaching summer school, is considered part of their pensionable salary base when calculating retirement benefits.

    Summary

    This case concerns whether “per session” compensation, which New York City teachers earn for hourly work outside their regular duties (e.g., summer school), should be included in the calculation of their retirement benefits. The teachers argued that this compensation is part of their pensionable salary, while the Board of Education (BOE) contended it is not. The New York Court of Appeals held that per session earnings should be included in the calculation of teachers’ pension benefits, finding no statutory basis to exclude it and emphasizing that the Legislature’s exclusion of specific compensation types implies the inclusion of others not listed.

    Facts

    New York City public school teachers could earn extra compensation through “per session” employment, including teaching summer school or leading extracurricular programs. Teachers applied for these positions annually, with the BOE limiting participation and setting compensation ceilings. The BOE’s expenditures on per session work amounted to hundreds of millions of dollars annually. A group of teachers sued, arguing that their per session earnings should be considered when calculating their retirement benefits.

    Procedural History

    The teachers sued the New York City Board of Education, seeking a declaration that per session earnings should be included in their base salary calculations for retirement. The Supreme Court ruled in the teachers’ favor. The Appellate Division affirmed this decision. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether “per session” compensation earned by New York City public school teachers is considered part of their “salary” for the purpose of calculating retirement benefits under the relevant provisions of the Administrative Code of the City of New York and the Retirement and Social Security Law.

    Holding

    Yes, because the relevant statutes do not explicitly exclude per session compensation from the calculation of retirement benefits, and the Legislature’s specification of exclusions implies that items not excluded are intended to be included. Moreover, per session work has become a “regular” component of the New York City system of public education.

    Court’s Reasoning

    The Court of Appeals conducted a de novo review, rejecting deference to the NYCTRS’s interpretation. The Court highlighted that the statutes creating Tiers I and II of the retirement system do not define “salary,” necessitating an examination of legislative history and intent. The court noted that the legislative intent behind the NYCTRS was to provide “an income related to actual earnings during employment.” The court found it significant that while the Legislature had explicitly excluded certain types of payments (e.g., lump sum payments for unused sick leave, termination pay) from the salary base used to calculate retirement benefits in Retirement and Social Security Law § 431, it did not exclude per session compensation. The Court reasoned that “where the Legislature lists exceptions in a statute, items not specifically referenced are deemed to have been intentionally excluded.” The Court also noted that the nature and implementation of per session activities, as well as the BOE’s commitment of significant resources to these programs, demonstrate that they have become a “regular” part of the New York City system of public education. This “regular” nature aligns with the definition of “wages” as “regular compensation” in the statutes governing Tiers III and IV of the retirement system. The Court emphasized that the inclusion of per session compensation did not violate the public policy against inflating earnings in the final years of public service, given the BOE’s oversight and the statutory limitations on annual salary increases. The Court found the potential for abuse curtailed by the regulations of the Chancellor of the New York City School Board and the BOE’s oversight. As the court stated, “the highly regulated nature of per session activities prevents artificial manipulation of total compensation in the preretirement period.”

  • Nogas v. New York State Employees’ Retirement System, 69 N.Y.2d 656 (1986): Constitutionality of Tiered Pension Systems

    Nogas v. New York State Employees’ Retirement System, 69 N.Y.2d 656 (1986)

    A public employee’s pension rights are fixed by the laws and conditions existing when membership in the pension system commences; a legislative package offering temporary Tier II benefits followed by Tier III benefits does not violate the state constitution if the employee joins after the law’s enactment but before the Tier III implementation date.

    Summary

    This case concerns whether Chapter 890 of the Laws of 1976, which provided Tier II retirement benefits until December 31, 1976, and Tier III benefits thereafter for certain public employees, violated Article V, § 7 of the New York State Constitution. The plaintiffs, public employees hired between July 27, 1976, and December 31, 1976, argued that their conversion from Tier II to Tier III benefits unconstitutionally diminished their pension rights. The Court of Appeals held that because the employees joined the retirement system after Chapter 890 was enacted, their pension rights were established under the terms of that law, which included the transition from Tier II to Tier III. Therefore, no constitutional violation occurred.

    Facts

    The plaintiffs, Nogas and Waterhouse, were public employees who became members of the New York State Employees’ Retirement System between July 27, 1976, and December 31, 1976. Tier II benefits were initially extended to them, but they automatically transitioned to Tier III benefits on January 1, 1977, under Chapter 890 of the Laws of 1976. Chapter 890 was enacted to bridge a gap between the expiration of Tier II and the implementation of Tier III retirement benefits, creating a package where certain employees would receive Tier II benefits temporarily before transitioning to Tier III.

    Procedural History

    The plaintiffs initiated an action seeking a declaratory judgment that their conversion to Tier III benefits was unconstitutional. The trial court ruled in favor of the plaintiffs, declaring that they were entitled to permanent Tier II status. The Appellate Division reversed, holding that the transition to Tier III did not violate the constitutional protection because Chapter 890 was in effect when the plaintiffs became members of the Retirement System. The plaintiffs appealed to the Court of Appeals based on a substantial constitutional question.

    Issue(s)

    Whether Chapter 890 of the Laws of 1976 unconstitutionally diminished or impaired the pension rights of public employees who joined the Retirement System between July 27, 1976, and December 31, 1976, by providing for a transition from Tier II to Tier III retirement benefits.

    Holding

    No, because the employees’ pension rights were established by the laws and conditions in effect when they became members of the system, which included the provision for a transition from Tier II to Tier III benefits, there was no unconstitutional diminishment or impairment.

    Court’s Reasoning

    The Court reasoned that Article V, § 7 of the New York Constitution protects public employees from the diminishment or impairment of pension rights that are fixed and determined at the time membership commences. The court emphasized that the plaintiffs’ rights were fully established by Chapter 890, which was in effect when they joined the Retirement System. This law created a “complementary and prospective condition” in a definite pension package: Tier II benefits “only until December thirty-first, nineteen hundred seventy-six” (L 1976, ch 890, § 4; Retirement and Social Security Law § 451) and thereafter Tier III benefits.

    The Court distinguished this case from prior decisions such as Public Employees Fedn. v Cuomo, 62 N.Y.2d 450 (1984), where subsequent legislation diminished benefits after a system was already in place. Here, the transition to Tier III was part of the initial legislative package. The Court emphasized that “membership in any pension or retirement system of the state or of a civil division thereof shall be a contractual relationship, the benefits of which shall not be diminished or impaired” (NY Const, art V, § 7 [emphasis in original]). Because the terms of the contract (Chapter 890) included the transition, there was no impairment.

    The Court also considered the legislative intent, noting that the legislative history of Chapter 890 confirmed that the law created a complementary package under which new employees would receive Tier II rights only until Tier III could be made operational. As the Court stated, the new law was designed to give retirement systems “sufficient time to implement the new retirement plan.”

  • Sochor v. International Business Machines Corp., 60 N.Y.2d 254 (1983): Enforceability of Inchoate Pension Rights by a Judgment Creditor

    Sochor v. International Business Machines Corp., 60 N.Y.2d 254 (1983)

    A judgment creditor cannot compel a judgment debtor’s employer to pay out retirement benefits when the debtor has not yet elected to receive them and the retirement plan’s terms require such an election.

    Summary

    Betty Jean Sochor, a judgment creditor, sought to collect support arrears from her former husband, Joseph Sochor, by levying his inchoate rights under IBM’s Retirement Plan. Joseph had not yet elected to receive benefits or applied for them. The New York Court of Appeals held that Betty could not compel IBM to pay out benefits because Joseph had not yet exercised his rights under the plan, and he was not a party to the action. The court reasoned that the husband’s rights were contingent on his election and application, which the court could not force him to make.

    Facts

    Betty Jean Sochor obtained a default judgment against her former husband, Joseph Sochor, for $15,858.48 in support arrears. Joseph was a former employee of IBM from 1942 to 1971 and was a participant in IBM’s Retirement Plan, a non-contributory plan funded solely by IBM. Joseph was eligible for reduced monthly benefits at age 55 or normal benefits at age 65, but only if he elected to receive them and made the required application. Joseph had not made an election or application. The plan also contained an anti-alienation clause preventing benefits from being subject to encumbrances.

    Procedural History

    Betty Jean Sochor commenced a special proceeding against IBM under CPLR 5225(b) to enforce the judgment. The Supreme Court ruled against the wife. The Appellate Division reversed. The New York Court of Appeals reversed the Appellate Division, reinstating the Supreme Court’s order.

    Issue(s)

    Whether a judgment creditor can reach a judgment debtor’s inchoate rights under a non-contributory retirement plan, where the debtor has not elected to receive benefits and the plan requires such an election.

    Holding

    No, because the judgment debtor’s right to receive payment of benefits depends on his making an election to receive benefits and filing an application, neither of which had occurred.

    Court’s Reasoning

    The court determined that Joseph Sochor had no proprietary interest reachable by his former wife under CPLR 5225(b) until he made an election and application to receive retirement benefits. The court emphasized that no provision was made for allocating any portion of the Plan’s assets to any employee, and the rights of the employees are only to receive payments from the assets of the Plan generally in specified amounts on meeting the requirements set forth in the Plan. The court lacked the authority to compel Joseph to make an election or file an application in a proceeding where he was not a party. The court distinguished the case from community property cases, stating those cases are not authority for according the wife the right, in a noncommunity property State, to exercise her husband’s prerogative to elect and choose benefits and to make application for their payment. As the court stated, “the rights granted to a former employee are personal to him and may neither be exercised nor forfeited in any proceeding to which the affected employee is not a party.” Furthermore, the court noted that requiring an application for benefits creates significant procedural protections for the trustees of the Plan, i.e., to eliminate, so far as practicable, factual issues as to whether an effective election has been made to receive early retirement benefits. The court explicitly declined to address the applicability of ERISA.

  • Weber v. New York State Teachers’ Retirement System, 41 N.Y.2d 748 (1977): Restrictions on Receiving Retirement Benefits During Continued Public Employment

    Weber v. New York State Teachers’ Retirement System, 41 N.Y.2d 748 (1977)

    A public employee is not entitled to receive a full state retirement allowance from the State Employees’ Retirement System while continuing in public employment, even if they are also entitled to a separate retirement allowance from a private plan due to a university merger.

    Summary

    Weber, a tenured professor at the State University at Buffalo, sought to collect a full retirement allowance from the State Employees’ Retirement System based on prior county hospital employment, in addition to a retirement allowance from a private plan connected to the university. The Court of Appeals held that Weber was not entitled to receive the full state allowance while continuing his public employment at the university. The statute merging the University of Buffalo into the State University did not guarantee the right to collect a retirement allowance despite continued public employment. The court also found no constitutional violation in denying the full allowance, as no vested right to collect a pension while remaining in public service ever existed.

    Facts

    Weber was a tenured professor at the medical school of the State University at Buffalo. He previously held a position at a county hospital, making him a member of the State Employees’ Retirement System. When the University of Buffalo merged into the State University, a statute allowed university employees to remain in their existing private retirement plan “as though no merger had occurred”. Weber elected to continue in the pre-merger private plan. He sought to receive a full retirement allowance from the State system based on his county employment, in addition to his benefits from the private university plan, while continuing his employment at the State University.

    Procedural History

    The lower courts ruled against Weber’s claim. The Appellate Division order was affirmed by the Court of Appeals.

    Issue(s)

    Whether a public employee is entitled to receive a full retirement allowance from the State Employees’ Retirement System after retiring from a position he had simultaneously held at a county hospital, while continuing public employment at the State University.

    Holding

    No, because the statute merging the University of Buffalo into the State University does not explicitly or implicitly guarantee the right to collect a retirement allowance despite continued public employment. Furthermore, under the governing statute, Weber never had a right to collect a State pension while remaining in public employment.

    Court’s Reasoning

    The court reasoned that the statute merging the University of Buffalo into the State University (L 1962, ch 980) allowed university employees to remain in their existing private retirement plan “as though no merger had occurred” to protect accumulated interests in the existing plan. However, this did not grant a right to retire from a county position and collect a retirement allowance while continuing public employment at the State University. The court emphasized that “the statute makes no explicit mention of such a right, nor may it be implied from the general statutory language preserving the rights of employees of the University of Buffalo.” Since Weber remained in public service, he was not entitled to receive a full State allowance under Retirement and Social Security Law, § 101, subd a. The court distinguished cases like Roddy v. Valentine and People ex rel. Mulvey v. York, noting that those cases predate constitutional protection of State retirement benefits and involved situations where continued public employment was not prohibited at the time of retirement. The court concluded that there was no constitutional violation because “Under the governing statute petitioner never, however, had a right to collect a State pension while remaining in public employment.”

  • Sgaglione v. Levitt, 37 N.Y.2d 507 (1975): Protecting Pension Fund Investment Discretion Under the Non-Impairment Clause

    Sgaglione v. Levitt, 37 N.Y.2d 507 (1975)

    A state law mandating the State Comptroller to invest pension funds in specific securities violates the New York State Constitution’s non-impairment clause by removing a safeguard integral to the security of pension benefits, even if the intent is to address a financial emergency.

    Summary

    This case concerns the constitutionality of a New York State law requiring the State Comptroller to invest retirement funds in bonds of the Municipal Assistance Corporation (MAC) to aid New York City’s financial crisis. Civil service employees’ organizations challenged the law, arguing it violated the non-impairment clause of the New York State Constitution. The Court of Appeals held that the mandatory investment provision was unconstitutional because it stripped the State Comptroller of the discretion to make prudent investment decisions, thereby impairing the security of the funds guaranteeing pension benefits. The court emphasized the importance of protecting the integrity of the sources of pension funds.

    Facts

    New York City faced a severe financial crisis. The State Legislature enacted the Financial Emergency Act, which included a provision (Section 14) mandating the State Comptroller, as trustee of state employee retirement funds, to purchase $125 million in MAC bonds at face value. The State Comptroller, under existing law, had discretion to invest retirement funds in authorized securities. The plaintiffs, civil service employee organizations, challenged the constitutionality of Section 14. The Municipal Assistance Corporation (MAC) was created to provide financial assistance to New York City.

    Procedural History

    The case originated in Special Term, where the court granted summary judgment, declaring Section 14 of the New York State Financial Emergency Act constitutional. The plaintiffs appealed directly to the New York Court of Appeals under the state constitution and CPLR. The Court of Appeals reversed, modifying the judgment to declare Section 14 unconstitutional.

    Issue(s)

    Whether a state law mandating the State Comptroller to purchase bonds of a specific entity (MAC) with retirement funds, thereby removing the Comptroller’s investment discretion, violates the non-impairment clause (Article V, Section 7) of the New York State Constitution, which protects the benefits of membership in any pension or retirement system.

    Holding

    Yes, because the non-impairment clause protects not only the benefits themselves but also the security and integrity of the funds from which those benefits are derived. Mandating a specific investment, regardless of its soundness, impairs that security by removing the safeguard of independent judgment in investment decisions.

    Court’s Reasoning

    The Court reasoned that the non-impairment clause of the New York Constitution protects the contractual relationship of pension benefits. Implicit in this protection is the safeguarding of the sources of funds for those benefits, including reserve funds and the discretion of the trustee to make sound investments. The court acknowledged the legislature’s power to expand or restrict the types of investments the Comptroller could make. However, it distinguished this from the power to mandate specific investments, stating that “the Legislature is powerless in the face of the constitutional nonimpairment clause to mandate that he mindlessly invest in whatever securities they direct, good, indifferent, or bad.” The Court emphasized the importance of the Comptroller’s independent judgment in ensuring the security of retirement funds. The Court noted that the fact the legislature found it necessary to *mandate* the investment, rather than relying on the Comptroller’s discretion, was significant. The court rejected the argument that the size of the mandated investment was immaterial, warning that allowing even a small mandated investment could lead to further erosion of the principle. The court stated, “The ultimate difference is between authority to invest and a mandatory direction to invest in certain securities, and in certain minimum amounts, whether or not the State Comptroller deems it advisable.” It cited Birnbaum v. New York State Teachers Retirement System (5 NY2d 1, 11) noting the court’s role in upholding the Constitution, even in times of crisis. The Court held that the provision was unconstitutional as it violated the non-impairment clause by compromising the integrity of the pension funds.

  • Central School District No. 2 v. New York State Teachers’ Retirement System, 23 N.Y.2d 213 (1968): Board Discretion in Setting Contribution Rates

    23 N.Y.2d 213 (1968)

    The New York Court of Appeals held that the New York State Teachers’ Retirement System’s Retirement Board has broad discretion, within statutory limits, to determine the actuarial assumptions and methods used to compute employer contribution rates to ensure the system’s financial soundness.

    Summary

    Central School District No. 2 challenged the contribution rates set by the New York State Teachers’ Retirement System for the fiscal years 1959-1965, arguing they were excessive and improperly calculated. The school district argued the Retirement Board exceeded its statutory authority by including certain items in its actuarial calculations, such as reserves for future interest deficits and actuarial losses. The Court of Appeals affirmed the dismissal of the petition, holding that the Board acted within its permissible statutory limits in setting the contribution rates, emphasizing the Board’s responsibility to maintain the system’s long-term financial stability. The court deferred to the Board’s expertise in actuarial matters.

    Facts

    Several school districts in New York State participated in the New York State Teachers’ Retirement System. The Retirement Board administered the system, which consisted of several funds used to provide benefits for public school teachers. The local school districts, as employers, contributed to the Pension Accumulation Fund, which funded pension benefits. These contributions were made up of a normal contribution, a deficiency contribution, and a special deficiency contribution. The school districts challenged the rates for these contributions, asserting that the Board’s calculations were improper and led to excessive payments.

    Procedural History

    The school districts initiated an Article 78 proceeding challenging the contribution rates. Special Term agreed with the defendants and dismissed the petition. The Appellate Division affirmed the dismissal, holding that the proceeding was not timely brought. The Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether the Retirement Board exceeded its statutory authority in continuing deficiency contributions for the fiscal years 1963 and 1964.
    2. Whether the special deficiency contribution rate set by the Board in 1958 exceeded the rate authorized by statute.
    3. Whether the normal contribution rate fixed by the Board for 1965 was excessive because it included unauthorized components.

    Holding

    1. No, because the Board appropriately considered the fund’s liability for future interest deficits in calculating the deficiency balance.
    2. No, because the Board correctly determined the special deficiency contribution rate.
    3. No, because the term “total liabilities” is broad enough to encompass each of the items contested by the petitioners (reserve against interest deficits, reserve against future actuarial losses, and the “Death-Gamble” liability).

    Court’s Reasoning

    The Court reasoned that the Board had the authority to include the estimated cost of future interest deficits in the deficiency balance, as these were a part of the fund’s total liability. The Court emphasized that the statute requires the Board to determine the deficiency balance based on the “total pension liability on account of all contributors and beneficiaries.” It rejected the argument that the deficiency contribution was limited to meeting the liabilities of teachers employed before the system’s inception. The Court also found that the special deficiency contribution rate was properly calculated based on a 30-year amortization period, and the rate did not need to be adjusted as teachers’ salaries increased. Regarding the normal contribution rate for 1965, the Court held that the Board could include reserves for future interest deficits, actuarial losses, and the “Death-Gamble” liability in its calculations. The Court emphasized that the Board has broad discretion in determining the actuarial assumptions and methods used to compute contribution rates to ensure the system’s financial soundness. The court noted that the Board’s actions were conservative, assuring beneficiaries of sufficient funds while protecting school districts from high future contributions.