OFFICE OF ADMINISTRATIVE HEARINGS
|
In the Matter of the PERA Salary Determinations Affecting Retired and Active Employees of the City of Allen Johnson, et al., Petitioners |
FINDINGS OF FACT, CONCLUSIONS AND RECOMMENDATION |
Administrative Law Judge Bruce H. Johnson (the ALJ) conducted
a hearing in this consolidated contested case proceeding on Thursday, September
30, 2010, and continuing on Thursday, October 14, 2010, in the Duluth City
Council Chamber, third floor,
Carla Heyl, Assistant Attorney General,[1] appeared
on behalf of the staff of the Staff of the Public Employees Retirement
Association (PERA or PERA Staff).
Elizabeth Storaasli, Storaasli, Knutson & Pommerville, Ltd., appeared
on behalf of a group of Petitioners, all retired
STATEMENT OF ISSUES
In the Notices of Hearing the PERA Board requested the ALJ to make
findings of fact, conclusions, and recommendations on the following issues:[3]
1. Are amounts paid by the
City of
2. Does the cash-out of
“personal leave days” under the terms of the applicable collective bargaining
agreements constitute salary for PERA purposes?
3. Are amounts paid by the
City of
4. Is PERA barred from taking
action to recover overpayments or reduce future benefits based upon any
applicable statute of limitations?
5. Is PERA barred from taking
action to recover overpayments or reduce future benefits based upon promissory
estoppel or any other related claim of reliance?
6. Is it reasonable for PERA
to rely upon the records submitted by the City of
The ALJ also addressed the following issues that were raised during the
course of the contested case proceedings:
7. Is PERA barred from taking
action to recover overpayments or reduce future benefits from City employees because
some or all of its interpretations of Minn. Stat. § 353.01, subd. 10,[4]
were interpretive rules, which were not formally adopted as such and which were
not exempt from adoption as long standing interpretations?
8. If City employees paid
federal and state income taxes on the City’s insurance supplement and deferred
compensation payments at the time when those payments were made, are those
payments then salary for PERA purposes?
SUMMARY
By stipulation of the parties, cashed-out “personal leave days” under
the terms of the applicable collective bargaining agreements constitute salary
for PERA purposes, and that determination is effective retroactively and applies
to all City firefighters, currently employed or retired, regardless of whether
or not they were parties to the Settlement Agreement.
The City did not take action to exercise an option granted to it by the
legislature to limit the ability of PERA to correct errors attributable to
incorrect eligible wage determinations so long as PERA’s salary adjustments
were in process as of May 23, 2009. PERA
is therefore not barred by any statute
of limitations from taking action to recover overpayments or reduce future
benefits. PERA is also not barred by the doctrines
of promissory or equitable estoppel from taking action to recover overpayments
or reduce future benefits.
PERA’s interpretation that the City’s contributions to family-dependent
hospital-medical premiums are excluded from PERA salary simply reflects the plain meaning of the statute. It is therefore not an interpretive rule. On the other hand, Minn. Stat. § 353.01,
subd. 10, is ambiguous about whether employer-paid deferred compensation must
be excluded from PERA salary. PERA’s
interpretation that the statute excludes such payments from treatment as PERA
salary is an interpretive rule which has never been formally adopted pursuant
to Minn. Stat. ch. 14 and which does not qualify as a
long standing interpretation. PERA
cannot therefore apply that interpretation to the Petitioners and other City
employees and use it in recalculating their retirement benefits, contributions,
and overpayments.
Nevertheless, looking forward, the ALJ concludes that PERA’s
interpretation that Minn. Stat. § 353.01, subd. 10(b)(2), correctly resolves
the ambiguity of whether employer-paid deferred compensation must be excluded
from PERA salary, and that amounts paid by the City deferred compensation on
which income taxes are actually deferred are “fringe benefits” within the
meaning of Minn. Stat. § 353.01, subd. 10(b)(2) are therefore excludable from
PERA salary.
Additionally, payments made by the City for employee deferred
compensation are salary for PERA purposes if City employees paid federal and
state income taxes on those payments at the time when the payments were made. A preponderance of the evidence established
that the City deferred compensation payments were frequently taxed as income
when those payments were made. Whenever
that occurred, those payments were no longer excludable fringe benefits but
rather became current wages. For that
reason alone, PERA must again recalculate the retirement benefits of City
employees using more accurate information and estimates of PERA salary.
It is not reasonable for PERA to rely upon the records the City
submitted to PERA for the purpose of making benefit adjustments because those
records included many deferred compensation payments on which employees paid
state and federal income taxes at the time when those payments were made. Payment of income taxes at that time, in
effect, converted those payments from excludable fringe benefits into current
wages. Although there may be significant
difficulties involved with arriving at reasonable estimates of PERA salary for some
periods, those difficulties are not insurmountable, and should place the burden
of arriving at more reasonable estimates on the City, which is statutorily required
to provide PERA with accurate reports of employee salary.
Based upon all of the proceedings herein, the Administrative Law Judge makes the following:
FINDINGS OF FACT
Prior Proceedings
1.
On March 12, 2009, the PERA staff sent written
notices to approximately 485 current and former City employees. The notices informed the recipients that PERA
Staff had determined that the City had erroneously reported certain amounts
paid to them between 1997 and 2008 as being “salary” for purposes of calculating
retirement plan contributions and benefits.[5] Those notices informed the employees that if
they disagreed with PERA’s salary eligibility determinations, they could file
Petitions for Review by filling out and submitting a form that PERA enclosed
with the letters.[6]
2.
Subsequently,
seventy of the current and retired City employees who received those letter
notifications filed Petitions for Review.[7]
3.
Thereafter, by action taken on May 14, 2009, the
PERA Board of Trustees referred those seventy matters to the Office of
Administrative Hearings (OAH) for the initiation of contested case proceedings
pursuant to Minn. Stat. § 356.96, subd. 12(b).
4.
On July 10, 2009, the PERA Staff issued seventy Notices
and Orders for Pre-Hearing Conference and Hearing (Notices of Hearing) in OAH
Docket Numbers 4-3600-20751-5 through 4-3600-20820-5. The Notices of Hearing scheduled a prehearing
conference before the ALJ on August 21, 2009, at the
5.
On August 13, 2009, the PERA Staff filed a
Petition for Consolidation of all seventy pending contested case proceedings—namely,
OAH Docket Nos. 4-3600-20751-5 through 4-3600-20820-5, inclusive.
6.
The ALJ convened the prehearing conference at
the
a.
Finding that all seventy contested case
proceedings involved common questions of law and possibly common questions of
fact, the ALJ ordered them consolidated for that purpose. They were also consolidated for purposes of discovery
and the filing and disposition of any dispositive motions.
b.
The ALJ granted PERA leave to add similarly
situated current or retired City employees as parties to the consolidated
proceeding by initiating separate contested case proceedings and serving those
parties with notices of hearing.
However, PERA stated for the record that upon final adjudication of the
issues, it planned to accord City employees who had not filed Petitions for Review
the same treatment as those who had filed Petitions for Review. PERA therefore indicated that it was unlikely
that it would seek to add additional parties.
c.
The ALJ ordered that any petitions for
intervention must comply with Minn. R. 1400.6200 and must be filed and served
on or before Friday, September 11, 2009.
d.
The ALJ directed that all discovery, including
responses or objections to timely requests for written discovery and
depositions, to be completed on or before November 30, 2009, and that any dispositive
motions and responses be filed by Friday, January 15, 2010.
e.
Finally, the ALJ allowed parties to accept
service by email.
7.
No Petitions to Intervene were received by
September 11, 2009.
8.
On that date, the Represented Petitioners filed
a motion for compulsory joinder of the City as a necessary party. PERA filed objections to that motion on
September 30, 2009. By Order issued on
October 20, 2009, the ALJ denied the motion for compulsory joinder of the City,
concluding that the ALJ lacked
jurisdiction to order the City’s participation as a party. The ALJ concluded that any issues raised by
Petitioners regarding their contractual relationships with the City were beyond
the scope of this proceeding.
9.
On
October 8, 2009, the ALJ issued a Protective Order limiting disclosure of
information protected by Minn. Stat. Ch. 13.
10.
On November 19, 2009, seven active City
firefighters filed a motion for summary disposition asserting that
compensation, which those firefighters had been receiving from the City at the end
of each year representing the value of personal leave they had not taken during
the year, did qualify as “salary” for purposes of calculating their PERA
benefits.
11.
Thereafter, on January 5, 2010, those seven
firefighters, PERA, and the Represented Petitioners all entered into a
Settlement Agreement, under which PERA agreed and stipulated that payments for
unused personal leave days, which were made pursuant to applicable collective
bargaining agreements, would be considered “salary” under Minn. Stat. § 353.01,
subd. 10. PERA further agreed that that
determination would be retroactive and would also apply to all City
firefighters currently employed or retired, regardless of whether or not they
were parties to the Settlement Agreement.
12.
On
December 2, 2009, the Represented Petitioners filed a motion to compel the City
to produce documents that the Represented Petitioners were seeking to obtain
from the City under subpoena. They also
requested recovery of attorney’s fees from the City and an extension of the
deadlines for conducting discovery and filing dispositive motions. By Order issued on January 7, 2010, the ALJ
denied the motion to enforce the subpoena because Minn. Stat. § 14.51 vests
exclusive enforcement of subpoenas in district court. Because the City was not a party, the ALJ
also denied the motion to compel discovery.
However, the ALJ did grant the motion to extend discovery until February
1, 2010, and to extend the deadline for dispositive motions until March 1,
2010.
13.
On December 31, 2009, PERA moved for summary
disposition on all remaining issues. It
contended that certain employer paid deferred compensation contributions and
insurance supplement payments were “salary” within the meaning of Minn. Stat. §
353.01, subd. 10. It likewise maintained
that neither a statute of limitations nor any available equitable remedy barred
PERA from making commensurate adjustments to the Petitioners’ past or future
benefits. PERA filed a memorandum of law
and several affidavits in support of its motion.[9]
14.
On February 15, 2010, the Represented
Petitioners also moved for a summary disposition. They, too, filed a memorandum of law and
several affidavits in support of their motion and in opposition to PERA’s
motion for summary disposition.
Petitioner Bryan F. Brown, Attorney at Law, appearing pro se, also filed a motion for summary
disposition. Mr. Brown’s motion
incorporated the Petitioner’s Memorandum by reference. On March 16, 2010, PERA filed a memorandum in
opposition to the Represented Petitioners’ motion for summary disposition.[10]
15.
On April 13, 2010, the ALJ conducted a hearing
on the pending motions for summary disposition at which counsel for the
represented parties, as well as some Petitioners appearing pro se, presented oral argument.
At the close of that hearing, the ALJ allowed the parties to supplement
the record with post-hearing submissions relating to certain specific issues
addressed during oral argument. On April
20, 2010, both PERA and the Represented Parties filed post-hearing submissions.[11]
16.
By
Order issued on May 20, 2010, the ALJ re-opened discovery until July 16,
2010. Discovery was reopened for the
sole purpose of allowing the parties to further develop the record regarding
the income tax treatment of amounts paid by the City of Duluth to the
Petitioners’ deferred compensation plans or family health insurance plans
during the period 1995 through September 2008.
The ALJ retained the pending motions for summary disposition under
advisement pending submission by the parties of further evidence pertaining to
that issue.
17.
Between May 20 and July 16, 2010, the
Represented Petitioners and PERA supplemented the record with additional
information regarding the tax treatment of amounts that the City paid on the
Petitioners’ behalf for deferred compensation accounts and family medical
insurance. On July 21, 2010, after
considering all of the evidence in the record, the ALJ concluded that a genuine
issue of disputed fact existed regarding the City’s tax treatment of the
payments in dispute. Accordingly, by
Order issued the ALJ denied all of the pending motions for summary disposition.
18.
On August 11, 2010, the ALJ issued an Order
scheduling an evidentiary hearing in this proceeding beginning for Thursday,
September 30, 2010, at the
19.
During the hearing on September 30, 2010, the
parties tendered their hearing exhibits and presented the testimony of several witnesses. However, one of PERA’s witnesses, City
Auditor Wayne Parson, was out of the state and therefore did not respond to the
subpoena that had been issued to him.
The ALJ therefore adjourned the hearing until Thursday, October 14,
2010, for the purpose of taking
20.
The evidentiary hearing reconvened on Thursday,
October 14, 2010, and counsel proceeded with the direct and cross-examination
of
21.
Exhibits 1 through 20 and 101 through 131 have
been received as evidence.
22.
The OAH hearing record closed on December 17, 2010,
when all of the parties’ post-hearing briefs were submitted.
Background
23.
PERA manages and administers pension plans for
public employees, including the PERA “general” plan (General Plan) and the PERA
Police and Fire Plan (P & F Plan). Minnesota Statutes chapters 353, 356 and 356A
govern the administration of those plans, which are “governmental plans”
pursuant to federal law. The PERA
retirement plans therefore have tax-deferred or “qualified” status, for both
federal and state income tax purposes, meaning that the contributions to these
plans and the income generated from those contributions are tax deferred until
the benefits are actually distributed to the employee.[12] It is only then that taxable events occur
with respect to benefit payments to employees.
24.
The amount of retirement benefits to which an
individual is entitled for PERA purposes is determined by a formula utilizing
years of services multiplied by a percentage factor for each year of service,
times the employee’s “high five” salary.[13]
25.
Minn. Stat. § 353.01, subd. 10(a), defines
“salary” for purposes of calculating PERA benefits. Subdivision 10(b) of that section describes
amounts to be excluded from salary for those purposes. Governmental subdivisions participating in
PERA are responsible for reporting “salary” and the correct employer and
employee PERA contributions.[14]
26.
The City is a governmental subdivision of the
state within the meaning of Minn. Stat. § 353.01, subd. 6(a), and is therefore an
employer that participates in PERA’s retirement program. As such, City employees, whose salary exceeds
$425 in any month and who are not specifically excluded by statute or who have
not declined optional participation, must participate in the PERA General Plan
or the P & F Plan, as appropriate.[15]
27.
Minn. Stat. § 353.27, subd. 4, requires the City
to remit to PERA the aggregate amount of the required employee and employer
contributions within 14 calendar days after each pay date. PERA accepts the salary reports of
participating employers at face value and assumes that they correctly reflect
applicable law.[16]
28.
During the period from 1995 through 2008, City
employees in five different bargaining units participated in PERA General and P & F
Plans. Those bargaining units were the
City of
29.
The Petitioners are current or former City employees
and were members of the CDSA, the CDCE, the Police Union, AFSCME, or the IAFF
during the period from 1995 through 2008.[18]
Legislative History of
30.
The
Legislature created the “public employes retirement association” in 1931 for
the purpose of creating and administering retirement and disability benefit
programs for “public employees,” whom the act identified as employees and
appointive and elective officers of counties, cities, villages, and school
districts.[19] Those benefit programs were funded by three
and one-half percent (3 ½%) contributions by those employees “of his or
her regular salary.”[20] As originally enacted, the legislation did
not include a definition of “salary.”[21]
31.
In
1933, the legislature amended the definitions section of the 1931 act to
include a Section 9, Paragraph 2, which set forth the following definition of
“salary”:
‘Salary’ shall mean the periodical compensation of any public employee
and shall also be deemed to mean ‘wages,’ and in the case of officers elected
to fee office, shall be deemed to include fees.[22]
Although placed in quotations,
like the definitions in the amendment, the legislature did not define “wages.”[23]
32.
In
1941, PERA’s governing legislation was recodified as Minn. Stat. ch. 353. However, the 1933 definition of salary remained
unchanged in the new Minn. Stat. § 353.01, subd. 10.[24]
33.
Between
1941 and 1973, additional amendments were made to Minn. Stat. § 353.01,
subd. 10. In 1973, the legislature
deleted some language from that subdivision that post-1941 amendments had
added. It also inserted the following
phrase that expanded the definition of “salary:”
‘Salary’ means the periodical compensation of any public employee,
before deductions for deferred compensation or supplemental retirement plans,
and also means “wages” and includes net income from fees.[25]
34.
In
1974, the legislature began adding language to Minn. Stat. § 353.01, subd. 10,
describing amounts excluded from the definition of “salary.”[26] In 1988 it enacted an amendment that inserted
yet another phrase that further expanded the definition of salary”:
‘Salary’ means the periodical compensation
of any a public employee, before deductions for deferred
compensation or, supplemental retirement plans, or other
voluntary salary reduction programs, and also means "wages" and
includes net income from fees.[27]
35.
No
material changes to Minn. Stat. § 353.01’s definition of salary occurred
until 1991 when Minn. Stat. §
353.01, Subd. 10(a) and (b) were amended to provide:
Subd. 10. Salary. (a) ‘Salary’ means the periodical compensation of a public employee, before deductions for deferred compensation, supplemental retirement plans, or other voluntary reduction programs, and also means “wages” and includes net income from fees. Fees paid to district court reporters are not salary. Unused annual or sick leave payments, in lump sum or periodic payments, are not salary. Severance payments, workers’ compensation payments, and all payments in lieu of any employer-paid group insurance coverage, including the difference between single and family rates that may be paid to a member with single coverage, are not salary. Before the time that all sick leave has been used, amounts paid to an employee under a disability insurance policy or program where the employer paid the premiums are salary, and, after all sick leave has been used, the payment is not salary.
(b) Except as provided in sections 353.86 or 353.87, compensation of any kind paid to volunteer ambulance service personnel or volunteer firefighters, as defined in subdivisions 325 and 36, is not salary.[28]
36.
In 1993, the legislature amended and reorganized
Minn. Stat. § 353.01, subd. 10(a) and (b), for the purpose of defining in
paragraph (a) everything that salary included
and defining in paragraph (b) everything that salary excluded.[29] “Employer-paid flexible spending accounts”
and “cafeteria plans” became statutory exclusions for the first time. “Fringe benefits” were not yet excluded. As amended, that section provided:
Subd. 10. Salary. (a) ‘Salary’ means the periodical compensation of a public employee, before deductions for deferred compensation, supplemental retirement plans, or other voluntary reduction programs, and also means “wages” and includes net income from fees.
(b) Salary does not mean fees paid to district court reporters, unused annual or sick leave payments, in lump-sum or periodic payments, severance payments, reimbursement of expenses, lump-sum settlements not attached to a specific earnings period, or workers' compensation payments. Salary does not mean employer-paid flexible spending accounts, cafeteria plans, health care expense accounts, day care expenses, or any payments in lieu of any employer-paid group insurance coverage, including the difference between single and family rates that may be paid to a member with single coverage.
37.
In
1994, the legislature again amended Minn. Stat. § 353.01, subd. 10(b). This time “employer-paid fringe benefits”
were also explicitly listed as a statutory exclusion for the first time. As amended, the statute provided:
(b) Salary does not mean:
(1) fees paid to district court reporters, unused annual or sick leave payments, in lump-sum or periodic payments, severance payments, reimbursement of expenses, lump-sum settlements not attached to a specific earnings period, or workers' compensation payments;
(2) employer-paid amounts used by an employee toward the cost of insurance
coverage, employer-paid fringe benefits, flexible spending accounts, cafeteria
plans, health care expense accounts, day care expenses, or any payments in lieu
of any employer-paid group insurance coverage, including the difference between
single and family rates that may be paid to a member with single coverage.
and certain amounts determined by the executive director to be ineligible;[30]
38.
In
2008, the legislature enacted Minn. Stat. § 353.01, subd. 10, in its current
form.[31] It provides in relevant part:
(a) Subject to the limitations of section 356.611, "salary" means:
(1) the periodic compensation of a public employee, before deductions for deferred compensation, supplemental retirement plans, or other voluntary salary reduction programs, and also means "wages" and includes net income from fees;
(2) for a public employee who is covered by a supplemental retirement plan under section 356.24, subdivision 1, clause (8), (9), or (10), which require all plan contributions be made by the employer, the contribution to the applicable supplemental retirement plan when an agreement between the parties establishes that the contribution will either result in a mandatory reduction of employees' wages through payroll withholdings, or be made in lieu of an amount that would otherwise be paid as wages;
* * *
(b) Salary does not mean:
(1) the fees paid to district court reporters, unused annual vacation or sick leave payments, in lump-sum or periodic payments, severance payments, reimbursement of expenses, lump-sum settlements not attached to a specific earnings period, or workers' compensation payments;[32]* * *
(2) employer-paid amounts used by an employee toward the cost of insurance coverage, employer-paid fringe benefits, flexible spending accounts, cafeteria plans, health care expense accounts, day care expenses, or any payments in lieu of any employer-paid group insurance coverage, including the difference between single and family rates that may be paid to a member with single coverage and certain amounts determined by the executive director to be ineligible.
* * *
The 1994 Legislative Study Committee
39.
The
1994 legislature enacted the following legislation establishing a Salary Study Committee
to recommend changes to definitions of “salary” in state public pension statutes:
In an effort to treat public employees in a fair and equitable manner and to protect the financial integrity of the public pension plans, the legislative commission on pensions and retirement shall establish an advisory committee to study the definitions of salary in chapters 353, 354, and 354A to determine the high-five average consecutive years of salary component for the formula used to calculate retirement annuities and disability benefits.
The advisory committee must be composed of at least three executive directors and executive secretaries of the seven public pension plans, and the chair, vice-chair, and executive director of the pension commission.
The advisory committee shall report its findings and recommendations to the pension commission by February 15, 1995.[33]
40.
That
Salary Study Committee was duly constituted and included a representative of
PERA. The Committee subsequently
submitted a report containing, among other things, the following:
The
committee identified several salary issues that were treated differently by
certain funds:
1) Employer matching
contributions to the Deferred Compensation Program (MSRS)
Committee
Recommendation: Should not be included
as salary. Generally, employer
contributions are not considered salary, stopping deductions on employer paid
deferred compensation amount would be consistent with this philosophy.
*
* *
In
compliance with the Laws of Minnesota, Chapter 528, Article 1, Section 13,
Subdivision 2, the committee offers this report, and requests passage of the
attached law which will put into law the committee’s recommendations.
BE
IT ENACTED BY THE LEGISLATURE OF THE STATE OF
Section 1.
Minnesota Statutes 1994, section 352.01, subdivision 13, is amended to
read:
Subd. 13
SALARY. ‘Salary’ means the periodical
compensation paid to any employee before deductions for deferred compensation,
supplemental retirement plans, or other voluntary salary reduction
programs. It also means wages and
includes net income from fees. Lump sum
sick leave payments, severance payments, lump sum annual leave payments and
overtime payments made at the time of separation from state service, payments
in lieu of any employer-paid group insurance coverage, including the difference
between single and family rates that may be paid to an employee with single
coverage, and payments made as an employer-paid fringe benefit and,
workers' compensation payments, employer contributions to a deferred
compensation or tax sheltered annuity program, and amounts contributed
under a benevolent vacation and sick leave donation program are not
salary.[34]
41.
Thereafter,
the 1995 legislature enacted the following amendment to Minn. Stat. §
352.01, subd. 13:
‘Salary’ means the periodical wages,
or other periodic compensation, paid to any an employee
before any deductions for deferred compensation, supplemental retirement
plans, or other voluntary salary reduction programs. It also means wages and includes
net income from fees. Lump sum sick
leave payments, severance payments, lump sum annual leave payments and overtime
payments made at the time of separation from state service, payments in lieu of
any employer-paid group insurance coverage, including the difference between
single and family rates that may be paid to an employee with single coverage,
and payments made as an employer-paid fringe benefit and,
workers' compensation payments, employer contributions to a deferred
compensation or tax sheltered annuity program, and amounts contributed
under a benevolent vacation and sick leave donation program are not salary. [35]
42.
Since at
least 1994, PERA has neither proposed nor sought an amendment specifically
excluding employer contributions to deferred compensation accounts from the
definition of “salary” in Minn. Stat. § 353.01, subd. 10(b).[36]
43.
Minn. Stat.
§ 352.01, subd. 13, is the only state retirement system legislation containing
that specific salary exclusion.
44.
Minn.
Stat. § 354.05, subd. 35, defines “salary” for purposes of calculating
disability and retirement benefits obtainable by teachers and other employees
covered by the Teachers Retirement Association (TRA). A 1989 amendment to that subdivision first
excluded from treatment as salary:
employer-paid amounts used
by an employee toward the cost of insurance coverage, employer-paid fringe
benefits, flexible spending accounts, cafeteria plans, health care expense
accounts, day care expenses, or any payments in lieu of any employer-paid group
insurance coverage, including the difference between single and family rates
that may be paid to a member with single coverage;[37]
45.
In
1992, the Executive Director of the TRA issued a letter advising all of the
state’s school districts that “employer matching contributions to deferred
compensation programs “are not eligible as salary for TRA purposes and TRA deductions
should not be withheld from them.”[38]
History of PERA’s Application of
46.
Since
before 1995 and continuing to the present, PERA’s Executive Director has
interpreted Minn. Stat. §353.01, subd. 10, as excluding employer-paid deferred
compensation from treatment as salary for purposes of calculating PERA
retirement and disability benefits.[39]
47.
The
July 1, 1993, edition of PERA’s Reporting
Manual for Payroll and Personnel Officers stated, among other things, that:
PERA contributions are to be made from total (gross) salary before
deducting deferred compensation or supplemental retirement plans, or other
voluntary reductions in salary.
That manual also identified
that “Salary Subject to PERA Withholding” included, among other things,
”[e]mployee-paid flexible spending accounts, cafeteria plans, health care
expense accounts, day care expenses, or an amount that reduces the employee’s
salary.” It further identified that
“Salary Not Subject to PERA Withholding” included, among other things,
”[e]mployer-paid flexible spending accounts, cafeteria plans, health care
expense accounts, day care expenses, or an amount paid to an employee to pay
for insurance premiums that is in addition to the employee’s regular salary.”[40]
48.
The
April 1994 edition of PERA “Phrase”
stated, among other things, that:[41]
In
most cases, an employee’s entire gross earnings are considered eligible for
PERA deductions. This is salary before
deductions for deferred compensation, supplemental retirement plans and other
voluntary reductions in salary.
Gross
salary includes an employee’s regular wages, overtime earnings, compensatory
time, holiday pay, retroactive wage settlements, merit increases and pay for used vacation.
There
are, however, some types of compensation which are not considered eligible for
PERA deductions and should not be reported on your Salary Deduction
Report. These include, but are not
limited to, unused sick leave and vacation pay, severance pay, retirement
incentive pay, retirement bonuses and lump-sum settlements not attached to
specific earnings periods. Also excluded
are compensation for incurred employee expenses (either in advance or as
reimbursement), workers’ compensation, long- or short-term disability insurance
payments, jury duty pay and charges assessed for personal use of a government
vehicle. Finally, any employer-paid
portions of flexible spending accounts is not considered salary for PERA
purposes.
The
table below lists compensation to employees
which is and is not PERA
deductible
|
Salary Earning, wages and overtime *
* * The employee-paid portion
of flexible spending accounts, cafeteria plans, health care expense accounts,
day care expenses or any amount that reduces the employee’s salary |
(Not) Salary *
* * All employer-paid portions
of flexible spending accounts, cafeteria plans, health care expense accounts,
day care expenses or an amount paid to an employee to pay for insurance
premiums that is in addition to the employee’s regular salary All payments made to an employee in lieu of employer-paid group
insurance including the difference between single and family rates |
49.
The
August 1994 edition of PERA “Phrase”
stated, among other things, that:[42]
It
is sometimes difficult to determine which employee earnings are eligible for
PERA withholding and which are not.
While association deductions are to be taken from gross salary, there
are some exceptions to that general rule that are designed to ensure all PERA
members receive equal treatment when it come time to calculate their pensions.
Recently,
PERA has found many employers reporting contributions that are not subject to
association withholdings. By law, some
forms of compensation must not be reported.
PERA withholdings cannot be
made on any amount that represents:
*
* *
·
Employer-paid
flexible spending accounts;
*
* *
In addition to these
categories of compensation, the 1994
·
Employer-paid
amounts used by an employee toward:
·
The
cost of insurance coverage;
·
Employer-paid
fringe benefits;
·
Cafeteria
plans;
·
Health
Care expense accounts;
·
Day
care expenses;
·
Any
payment in lieu of any employer-paid group insurance coverage (including the
difference between single and family rates that may be paid to a member with
single coverage);
*
* *
AND
·
Certain
amounts determined by PERA’s executive director to be ineligible.
* * *
50.
The
January 1995 edition of PERA “Phrase”
stated, among other things, that:[43]
Salary Subject
to PERA Withholding Is:
Ø
Earning,
wages, overtime and compensatory pay
*
* *
Ø
Employee-paid
flexible spending accounts, cafeteria plans, health care expense accounts, day
care expenses, or an amount that reduces the employee’s salary.
*
* *
Salary Not
Subject to PERA Withholding Is:
*
* *
Ø
Employer-paid
fringe benefits, flexible spending accounts, cafeteria plans, health care
expense accounts, day care expenses or any payments in lieu of any
employer-paid group insurance coverage, including the difference between single
and family rates that may be paid to a member with single coverage
Ø
Employer-paid
amounts used by an employee toward the cost of insurance coverage.
*
* *
51.
The
April 1, 1996, edition of PERA’s
Reporting Manual for Payroll and Personnel Officers stated, among other
things, that:
Generally, PERA-eligible earnings are considered gross salary and are
paid to employees for labor performed or services rendered. PERA contributions are to be made from total
(gross) salary before deducting deferred compensation as defined by Section 457
of the IRS Code, supplemental retirement plans, or other voluntary reductions
in salary.
That manual also identified
that “Salary Subject to PERA Withholding” included, among other things,
”[e]mployee-paid flexible spending accounts, cafeteria plans, health care
expense accounts, day care expenses, or an amount that reduces the employee’s
salary.” It further identified that
“Salary Not Subject to PERA Withholding” included, among other things,
”[e]mployer-paid flexible spending accounts, cafeteria plans, health care
expense accounts, day care expenses, or an amount paid to an employee to pay
for insurance premiums that is in addition to the employee’s regular
salary.” It also identified
“employer-paid amounts to be used by an employee toward the cost of insurance
coverage.[44]
52.
The
September 1999 edition of the PERA Employer
Manual stated, among other things, that:
The following lists identify earning that are and are not subject to
PERA withholding. While we have tried to
be as thorough as possible, the list is not comprehensive. An employer should contact PERA for
assistance if there are questions about whether a type of payment is or is not
eligible for PERA deductions.
Salary Subject to PERA
Withholding
·
Employee-paid
flexible spending accounts, cafeteria plans, health care expense accounts, day
care expenses, or an amount that voluntarily reduces the employee’s salary.
*
* *
Salary Not Subject to PERA
Withholding
·
Employer-paid
flexible spending accounts, cafeteria plans, health care expense accounts, day
care expenses, or any payments instead of employer-paid insurance coverage,
including the difference between single and family rates that may be paid to a
member with single coverage.
·
Employer-paid
amounts paid directly to and used by an employee toward the cost of insurance
coverage.[45]
*
* *
53.
The
July 2002 edition of the PERA Employer Manual
stated, among other things, that:
Below is a list of some of the types of salary payments that are subject
to PERA withholding. The list is not
meant to be all-inclusive. If you have
questions about any payment type, whether listed below or not, please contact
PERA.
·
Gross
earnings, wages, and overtime pay for services performed in an eligible
position during the coverage period being reported. Gross earnings must include compensation
treated as deferred income for federal or state income taxation or both.
*
* *
·
Employee-paid
amounts to flexible spending accounts, cafeteria plans, health care expense
accounts, day care expenses, or an amount that voluntarily reduces the
employee’s salary. Often these amounts
are not treated as income for federal taxation under Internal Revenue Code.
*
* *
By law, some forms of compensation are not subject to PERA deductions
and must not be reported as salary. PERA
withholding cannot be made on the following forms of compensation. Again, this list is not all-inclusive. If you have any questions, please contact
PERA.
·
Employer-paid
amounts to flexible spending accounts, cafeteria plans, health care expense
accounts, day care expenses, or any payments instead of employer-paid insurance
coverage, including the difference between single and family rates that may be
paid to a member with single coverage.
*
* *
·
Employer-paid
amounts paid directly to an employee to be used toward the cost of insurance
coverage regardless of whether the individual uses the full amount for
insurance coverage or receives cash for any unused allowance.[46]
54.
In
1992, the City of
55.
On June
16, 2004, Teddi Hayes, an accountant employed by the City of
I decided to request in writing a determination on whether an employer
contribution to deferred compensation is considered eligible earnings for PERA.
In the Employer Handbook under ‘Salary not subject to PERA Withholding’
there is a paragraph that states Employer-paid benefits….Deferred compensation
is not specifically mentioned.[48]
56.
Mr.
Marietta wrote the following handwritten comment on a copy of the email that he
received from Hayes:
Martin—
You
have an opinion?
Just
seems like a standard employer deferred comp. match and not PERA-eligible to
me.
Thanks
Bruce[49]
57.
By
letter dated June 25, 2004, Mr. Marietta stated the following in response to
Mr. Hayes’ earlier email message:
After
reviewing the information that you provided concerning the deferred
compensation match established in the labor agreement between the City and
Locals 120, 49, and 132, we find that our decision is the same as a previous
response dated May 19, 1992 (copy enclosed).[50]
58.
After
PERA initiated this proceeding, PERA staff obtained information that amounts
paid by other public employers, including the City of Virginia, Minnesota, the
Western Lake Superior Sanitary District (WLSSD), and the Duluth School District
(Independent School District 709), may also have made payments to their
employees that fall within Minn. Stat. § 353.01, subd. 10(b) exclusions from
PERA salary, as the PERA staff interpret those exclusions.[51]
59.
Although
deferred compensation is not specifically mentioned in the Employer
Manual—under the section titled “Salary Not Subject to PERA Withholding—PERA
considers employer-paid amounts to deferred compensation plans as payments
ineligible for PERA withholdings regardless of whether the employer payments
are processed through the City’s payroll system.[52]
60.
The
Legislative Auditor’s Financial Statement Audit of PERA for the year ending
June 30, 2009, contained the following finding and recommendation:
Prior Finding Not
Resolved: PERA did not have adequate
controls to ensure that employers reported and remitted the correct amount of
salaries and retirement contributions.
PERA did not have control procedures in place to ensure employers
reported amounts based on statutory requirements. This internal control weakness increased the
risk of pension contributions and retirement benefits being overstated or
understated.
In our audit report for the year ended June 30, 2008, we noted that the
City of
Employers are responsible to report members’ eligible salaries in
accordance with Minnesota Statutes.
According to the statute, employer-paid fringe benefits, including
employer contributions to flexible spending accounts, deferred compensation
plans, and insurance coverage, are excluded from the definition of salary. Although PERA provided extensive training to
employers on how to calculate and report salary information and pension
contributions, it did not verify that employers reported the correct base
salaries and pension contributions.
Recommendation
·
PERA should verify that participating
employers properly calculate and report eligible salaries and contributions.
61.
By
letter dated March 3, 2010, PERA submitted the following response to the
Legislative Auditor’s finding and recommendation:
Response: We have system controls
in place that ensure the contributions we receive are calculated correctly
based on the salary provided, but we have not had the authority in statute to
conduct compliance audits. We have had
an extensive training program that includes online information, employer
handbooks, quarterly newsletters and training sessions throughout the state,
and have introduced legislation that would give us authority to “establish
reporting procedures and methods as required to review compliance by employers
with the salary and contribution reporting requirements….” Should the legislation pass, we will be
allowed to review payroll records of participating employers.
We have been working with the Teachers Retirement Association to jointly
plan compliance audits of schools once we have authority in statute to do so. We will work with them for the next couple of
years on schools, then will broaden our scope to include other employers. During this past year we also restructured
the work done by staff so that we could free up the time of two employees to
handle compliance audits.[53]
62.
Over the years, PERA has published numerous
documents meant to provide guidance to its constituents regarding what should
or should not be included as salary for PERA benefit purposes. The only reference those documents have made
to “deferred compensation,” has been to Minn. Stat. § 353.01, subd. 10(a)’s
reference to “deductions for deferred compensation, supplemental retirement
plans, or other voluntary salary reduction programs.” None of those documents have specifically
identified employer deferred compensation payments as a form of compensation
not includable in salary for PERA purposes.[54] PERA has also never generally issued guidance
or expressed the position to its participating employers or members that payments
made by a public employer to be directed to employee deferred compensation
plans do not constitute salary for purposes of calculating PERA benefits.
63.
Unlike
the TRA,[55] PERA
has never issued written guidance to all of its participating employers
explicitly advising them of PERA’s interpretation that Minn. Stat. § 353.01,
subd. 10, excludes employer-paid deferred compensation from treatment as PERA
salary.
64.
The City’s Compliance with
65.
As a
governmental subdivision, the City’s contribution of public funds to deferred
compensation plans is addressed in statutes other than Minn. Stat. §
353.01. For example, Minn. Stat. §
356.24, subd. 1, provides in pertinent part:
It is unlawful for a school district or other governmental subdivision
or state agency to levy taxes for or to contribute public funds to a
supplemental pension or deferred compensation plan that is established,
maintained, and operated in addition to a primary pension program for the
benefit of the governmental subdivision employees.
The subdivision goes on to
enumerate fourteen exceptions to that prohibition, none of which are germane to
this proceeding.
66.
Notwithstanding
any other provision of law or charter to the contrary, no city, county, public
agency or instrumentality, or other political subdivision is required or
permitted to establish for any of its employees a local pension plan or fund
financed in whole or in part from public funds, other than:
(1) a
supplemental pension or deferred compensation plan authorized under section 356.24;
67.
The State Auditor performs annual audits of the
City’s finances, which include specific, separate payroll audits.[57] Because the State Auditor’s staff works
year-round to complete the audit, they have been given space in
68.
In a follow-up note to the audit for the year
ending December 31, 2001, the State Auditor noted that the deferred
compensation provisions in the Collective Bargaining Agreements (CBAs) might
violate Minn. Stat. § 356.24, which “restricts the amount an employer can
contribute, the plan that can be contributed to and what purposes those
contributions are for.” The note went on
to state that “[i]t appears that the contributions made by the City are not in
compliance with this statute.”[59] However, the City’s copy of that audit note
includes the hand-written note, “Resolved.”[60]
69.
The audit note was considered “resolved” when
Les Bass, who was then City Auditor, and Jackie Morris, who was then Manager of
Payroll/Personnel Systems, both discussed the issue with the State Auditor’s
staff in 2001. Both recalled that the
State Auditor’s Office focused on the questions of whether the deferred
compensation payments were included as income and whether matching payments
were required. When the City informed
the State Auditor’s staff that the City’s payments were included in the
employees’ gross wages and that no employee match was required, the State
Auditor listed the issue as “resolved.”[61]
70.
In its
annual audits of the City, the State Auditor’s Office did not address whether
the City’s payments to employee deferred compensation plans or for
family insurance coverage properly was considered salary for PERA reporting
purposes.[62]
City Employee Deferred Compensation Plan and Insurance Benefits
71.
Between 1995 and 2008, City employees
participated in deferred compensation plans underwritten by
72.
Between 1995 and 2008, the City did not make any
third-party medical insurance or health insurance products available to its
employees. Rather, the City maintained a
self-insured medical expense fund for employees—that is, the City transferred
funds out of its general fund into a special fund reserved for the payment of
claims.[64] Payment of claims was administered by a
third-party claims administrator. Each
year the City established the cost of employee and family coverage based on the
prior year’s claims experience. The City
itself fully funded the cost of its employees’ coverage. If employees elected to do so, they paid the
full additional cost of family coverage, by paying an annual family coverage
premium.[65]
73.
The City protected itself against the loss that
would occur if employee medical cost claims exceeded the amount placed annually
in the city’s special reserve fund by purchasing a re-insurance product, called
“stop loss insurance,” that indemnified the City against an overage of claims
that exceeded 110 percent of the projected amount of claims for the year.[66]
74.
Family
medical insurance coverage became progressively more expensive, and fewer City
employees opted to direct the City payments described in Findings 73 through 80,
below, to family medical insurance coverage.
Also, as the coverage became more expensive, more employees opted out
and provided family coverage through programs available to spouses or by
purchasing coverage in the private insurance market.[67] This exodus, in turn, further increased the
premiums for family coverage for employees who continued coverage by the City.
The City’s Collective Bargaining
Agreement from 1995 through 2008
75.
In 1994, during contract negotiations between
the City of
12.1 The employer shall allow an employee to participate in any deferred compensation plan of the employee’s choice which meets the following criteria:
a. It has been approved by the deferred compensation commission.
b.
It qualifies under the laws and regulations of
the
c. The employer can accomplish any record keeping, data processing, accounting, or administration of the plan by making a reasonable effort.
The employer shall not do any act to change, alter, amend or terminate any employee’s deferred compensation plan without first giving at least sixty (60) days’ written notice of its intention, and completing the processing of any grievance brought concerning the proposed action, unless law, ruling or order of the Internal Revenue Service requires it.
Beginning January 1, 1995,
the employer shall contribute $25 each month to any employee’s deferred
compensation plan which exists pursuant to this article. Beginning January 1, 1996, the amount of the
employer’s contribution shall be increased to a sum of $50 each month.[70]
76.
Article 12 of the 1997-1999 CBA between the City
and the CDSA contained essentially the same language as the 1995–1996 CBA, except that it increased
the monthly contribution to $75 per month in 1997, $100 per month in 1998 and
$125 per month in 1999. The CBA also
provided covered employees with the option of using that sum either as a
“contribution to a qualifying and approved deferred compensation plan, or for
contribution to family-dependent hospital-medical premium, whichever is
designated by the employee during the open window for insurance selection, or
at the time of a life event.”[71]
77.
In the 2000-2002 CBA, the amounts of the City’s
payments continued to increase until the benefit was $224 per month (plus an
additional $5 per month for employees enrolled in “plan 3 hospital-medical
insurance”) for either deferred compensation or toward family-dependent
hospital-medical premiums.[72] These amounts remained the same through 2006
and increased to a flat $229 per month in the 2007-2009 CBA between the City
and the CDSA.[73]
78.
From 1997 through 2008, the CBAs between the
City and the IAFF included the same provisions for employer payments to deferred
compensation plans or toward the cost of family-dependent hospital-medical
premiums in the same amounts as the provisions in the City’s CBAs with the CDSA.[74]
79.
From 1997 through 2008, the CBAs between the
City and the Duluth Police Union included the same provisions for employer
payments to deferred compensation plans or toward the cost of family-dependent
hospital-medical premiums as the provisions in the City’s CBAs with the CDSA.[75] However, the amounts of the City’s payments were
slightly lower from 1997 through 2006, and beginning in 2007 the amount of the
payments dropped to $75 per month.
80.
CBAs between the City and the CDCE during this
time period included similar provisions for employer payments to deferred
compensation plans or toward the cost of family-dependent hospital-medical premiums
as the provisions in the City’s CBAs with the CDSA, but the amounts were
different, starting at $75 per month in 1997 and increasing ultimately to $245
per month in the 2007-2009 CBA.[76]
81.
From 1995 through 2008, the CBAs between the
City and AFSCME included the same provisions for employer payments to deferred
compensation plans or toward the cost of family-dependent hospital-medical
premiums in the same amounts as the provisions in the City’s CBAs with the
CDSA.[77]
82.
With the exception of the first CBA between the
City and the CDSA, all subsequent CBAs between the City and its bargaining
units permitted employees to choose between the deferred compensation and the
insurance payment options. During the
years when the City’s CBAs provided for those payments, most employees chose to
direct the funds into deferred compensation plans.[78]
The City’s Treatment of the Bargained Payments as PERA Salary
83.
When the City was negotiating its 1995-1996 CBA
with the CDSA, John Hall, the President of the CDSA, asked Karl Nollenberger,
who was the City’s Chief Administrative Officer and who was negotiating the
contract for the City, whether the payments for either deferred compensation or
family medical coverage that the City was offering would be considered salary
for purposes of PERA. “[O]n more than
one occasion,” Nollenberger assured Hall that the payments would be considered
salary.[79]
84.
When the deferred compensation payments by the
City first became a part of the City’s CBAs, the City Auditor’s staff worked
directly with PERA staff to determine how to handle those payments in the
City’s payroll system.[80] The deferred compensation payments were
included in employees’ gross salary as part of total compensation and subject
to social security tax. The deferred
compensation payments made by the City, together with any employee
contributions were both shown on paystubs as deductions. PERA staff advised the City to include its
deferred compensation payments “in employees’ gross salary as part of total
compensation and subject to social security tax.”[81]
85.
During the
labor negotiations that occurred between 1995 and 2008, the City advised
members of its bargaining units that City payments to them for either
deferred compensation or family medical coverage would be considered salary for
purposes of PERA.[82]
Discovery and Reporting of Apparent City PERA Contribution Errors
86.
Wayne
Parson has been the Duluth City Auditor since May 2005. In that capacity, he oversees all of the
City’s accounting functions including accounts payable, financial reporting,
and processing the biweekly payroll for City employees. Before becoming City Auditor, Mr. Parson was
employed for twenty-three years as an auditor in the State Auditor’s Office. In that capacity he was assigned to the State
Auditor’s Duluth Office, which was responsible for performing audits of the
political subdivisions in northeastern
87.
On July 21, 2007, while Mr. Parson was reviewing
the final paycheck of an employee who had recently resigned, he noticed that
the City was paying an employer contribution to PERA on a payment made to the
employee for the bargained insurance supplement. Mr. Parson considered that to be odd and he contacted
Chris Arcand of the PERA staff to ascertain whether the City’s payments for
employee deferred compensation and family insurance supplement were considered
to be PERA-eligible earnings.[84]
88.
Subsequently, on July 31, 2007, Mr. Parson followed
up by sending the following e-mail message to Mr. Arcand:
Please see
attachments. My interpretation of the
information under ‘Salary not Subject to PERA Withholding’ in the PERA Employer
Manual is that these employer paid benefits are not PERA salary and accordingly
employee and employer PERA contributions should not be withheld/paid.[85]
89.
Mr. Arcand replied that he agreed with Mr.
Parson “that these are employer paid benefits, not employee-paid benefits ‘that
voluntarily reduce[d] the employee’s salary.’
Therefore they would not be eligible for PERA contributions.”[86]
90.
Mr. Parson advised his supervisor, Genie Stark, who
was then the City’s Finance Director, that there was a problem with the financial
data that the City was reporting to PERA.[87] He subsequently stated to then City
Administrator John Hall, that the deferred compensation payments were “not in
compliance.”[88] At that time, Mr. Hall was uncertain about what
Mr. Parsons meant about the payments not being “in compliance.”[89]
91.
In August 2007, Mr. Parson told Jackie Morris,
then the City’s Payroll Coordinator and Manager of Payroll/Personnel Systems,
that the City was incorrectly reporting its payments to employee deferred
compensation plans to PERA.[90]
92.
Ms. Morris believed that Mr. Parson’s opinion
about PERA treatment of the City’s deferred compensation payments was
incorrect, and she phoned PERA to obtain clarification. The individual whom she consulted at PERA
agreed that the City’s deferred compensation payments should be treated as PERA
salary.[91]
93.
Nevertheless, on or about August 1, 2007, Mr.
Parson, on his own initiative, directed Ms. Morris to stop reporting the City’s
deferred compensation/family medical coverage payments to PERA as part of
salary.[92] Mr. Parson communicated that decision to
Finance Director Genie Stark.[93] That decision was not communicated to PERA, any
other City official, or the City’s employees or retirees.[94]
94.
Thereafter, between August 1, 2007, and
September 15, 2008, neither Mr. Parson nor any other City official
investigated further to determine the extent of the City’s apparent
non-compliance with PERA policies.[95] During the same period no one on the PERA
staff followed up with the City to obtain further information on the extent of
the City’s apparent non-compliance.[96]
95.
After August 1, 2007, and through most of 2008,
PERA continued to send out retirement annuity estimates to City employees that
were based on PERA salary information, which continued to include the City’s
deferred compensation/family medical insurance payments.[97] During that period, PERA also held retirement
seminars for, and provided telephonic retirement advice to, City employees
during which PERA made no mention of potential recalculations of the retirement
benefits.[98]
96.
It was not until September 2008 that the issue
of the City’s apparent non-compliance with PERA’s policies on reporting of
salary resurfaced. In September 2008,
Mr. Parson had a meeting with Lisa Potswald, who had recently replaced Mr. Hall
as the City’s Chief Administrative Officer,[99] during
which Ms. Potswald expressed her concerns about the number of errors that were
occurring in the City’s payroll system.
She asked Mr. Parson about errors that had occurred in the past,
including the issues that had been raised with PERA in July 2007.[100]
97.
On September 15, 2008, Ms. Potswald, with Mr.
Parson’s assistance, sent a letter to Mary Most Vanek, PERA’s Executive
Director, informing Ms. Vanek “about an error made by the City … in the treatment of
certain employer-paid benefits as salary subject to PERA taxes.”[101] In her letter, Ms. Potswald referred to the
payments only as “insurance supplement payments”; she did not refer to any of
the payments as being for deferred compensation. The letter stated “[o]
98.
On September 18, 2008, PERA asked the City to
provide payroll information back to 2005 so that contributions to PERA could be
audited and recalculated.[103]
99.
On September 19, 2008, Mr. Parson emailed a
number of City documents to Mr. Arcand, along with a request to “direct any
inquiries regarding this issue directly to me and not to our payroll office.”[104]
100. On
October 8, 2008, Mr. Parson wrote a letter to Mr. Arcand of the PERA staff
stating:
I am writing to confirm the information required by PERA for refunding tax overpayments made by the City of
My
understanding of our discussions is that I will provide you with a listing of
these employer paid benefits by calendar year, by employee, including the
employee’s social security number in an Excel spreadsheet format. The amount listed for each employee will
represent the total payments to that employee for a given calendar year. These employer paid benefits were paid in
equal amounts over twenty-six pay periods per calendar year (bi-weekly payroll
cycle). These employer paid benefits
vary depending on the language in the various city bargaining agreements.
My
understanding is PERA will calculate the amount of tax overpayments based upon
the information submitted by the City referred to above. PERA will then refund the tax overpayments to the
City and will identify the portion of the refund that represents the employee
contributions. The City will then be
responsible for processing refunds for employee contributions to these
employees including the withholding of applicable state and federal income
taxes.
The City continues to investigate payroll records prior to 2005 and will
make a second tax overpayment submission to PERA at a later date, depending on
the information available.[105]
101. The City subsequently reported to PERA
information from City payroll records that were still available the amounts of
City-paid deferred compensation and insurance supplement payments it had made
to each of the City’s employees during the period from 2005 through September
18, 2008.
102. When the City reported the amounts of
City-paid deferred compensation payments and insurance supplement payments it
had made to each of the City’s employees from 2005 through September 2008, it
did not advise PERA that some of those payments were included in employees’
taxable income at the time those payments were made.[106]
The City’s Income Tax Treatment
of the Bargained-For Payments
103. Employer and employee contributions to a
deferred compensation plan are not subject to federal and state income tax at
the time those contributions are made.
Rather, compensation that is deferred is subject to income tax when the
benefits are later distributed to the employee.[107]
104. The City does not presently withhold any
federal or state income tax for its employees from the amounts that the City
pays them for employer-paid deferred compensation or for the employer-paid
insurance supplement.[108]
105. Larry Kroll is a summa cum laude graduate of the University of Minnesota-Duluth with
a B.A degree in accounting and business administration. He was an active Certified Public Accountant
(CPA) from approximately 1972 until 2003, when he asked to be placed on
inactive status. From 1981 to 2003, Mr.
Kroll was employed as Finance Director of Douglas County, Wisconsin, and in
that capacity placed government payroll systems in operation[109]
106. Mr. Kroll was engaged to analyze payroll and
tax documents that Petitioner Arthur Zylka received while employed by the City
of
107. Based on his analysis, it is Mr. Kroll’s
opinion that during tax years 2001, 2002, and 2003, the City’s contributions to
Mr. Zylka’s deferred compensation plan were treated by the City’s payroll
system as current taxable wages for federal and state income tax purposes and
were not accounted for as employer contributions to Mr. Zylka’s deferred
compensation plan.[112]
In other words, the City accounted for
those payments in its payroll system in the same way as it accounted for salary
increases based on longevity.[113] Moreover, there was nothing in the payroll
stubs and W-2 statements that Mr. Kroll examined to document that the City ever
directed its deferred compensation payments to Mr Zylka’s Section 457 deferred
compensation plan.[114]
108. It was Mr. Kroll’s further opinion that the
City’s payments to Mr. Zylka as insurance supplements to reduce the cost of
family medical coverage, which were made during the same period, were also
treated by the City’s payroll system as current taxable wages for federal and
state income tax purposes and were not accounted for as pre-tax benefits.[115]
109. Based on the City’s income tax treatment of
the payments described in Findings 105 and 106, it is Mr. Kroll’s opinion that
the amounts that the City reported to PERA as current salary during the during
tax years 2001, 2002, and 2003 were correct.[116]
110. Although Mr. Kroll did not conduct the same
kind of analysis of paystubs and tax documents received in evidence for other
Petitioners. Nevertheless, from
Mr. Kroll’s examination of some of the other Petitioners’ paystubs it
appeared that the City had prepared those paystubs and tax documents in the
same way it had prepared Mr. Zylka’s paystubs and tax documents.[117]
111. It is the opinion of Mr. Parson that PERA
salary should reflect employees’ taxable income.[118]
112. Because of payroll entry errors made in several
pay periods from 1995 through December 31, 2004,[119]
some or all of the total deferred compensation contributions for some City
employees, were taxed as current wages when the contributions were made and
those contributions were therefore not tax-deferred.[120]
113. Additionally, because of payroll entry
errors made in some pay periods from 1995 through December 31, 2004,[121]
some or all of the City’s insurance supplement payments to some City employees,
were taxed as current wages when the payments were made and those payment were
therefore not reported as pre-tax benefits.[122]
114. Between 1995 and 2007, the City changed
payroll systems periodically and experienced considerable difficulty when
changing from one system to another.
That was particularly true of payroll changes made in 1997 and
1998. The current City payroll system became
operational on January 1, 2005.
At that time, the memory capacity of the computer system that stored the
City’s payroll records became limited, and the City made the decision to retain
only summaries of past total payroll data but not payroll detail. When this occurred, the amounts of City
contributions to employee deferred compensation plans became merged with data
on other employee pre-tax and after-tax payroll reductions. The City did not retain paper copies of
employee paystubs or paychecks.[123] As a
result, it is now impossible for the City to accurately reconstruct individual employee
paystubs and other payroll records prior to 2005.[124]
115. Some of the Petitioners saved their City
paystubs for pay periods before January 1, 2005, while others did not. Some of the paystubs that were saved were
introduced as evidence. Other
Petitioners, particularly those who were not represented by counsel in this
proceeding, may have paystubs for pay periods before January 1, 2005, that were
not introduced as evidence in this proceeding.[125]
116. It is Mr. Parson’s opinion that between 1995
and December 31, 2004, the persons processing the City’s biweekly payroll
frequently made errors in preparing the payroll documents for City employees, and
that those errors resulted in deferred compensation contributions and insurance
supplement payments being taxed as current income in pay periods. Because of apparently random patterns of
errors and the absence of detailed pay records for that period, it is not possible
for the City to reconstruct how much of those nontaxable benefits were
improperly subject to federal and state income taxes.[126]
117. Between 1995 and August 1, 2007, because of the
random nature of payroll entry errors, the City’s payroll system sometimes
included the City’s deferred compensation and insurance supplement payments in
employees’ taxable income at the time the payments were made and at other times
excluded them from employees’ taxable income.[127]
118. Prior to the initiation of these proceedings, the City had
never informed PERA that on occasions the City had been including its deferred
compensation and family medical coverage payments in its employees’ taxable
income at the time those
payments were made. [128]
119. Therefore, the payroll information that PERA
used to recalculate the retirement benefits to City employees and the
overpayments for those employees was partly inaccurate.[129]
Consequences of PERA’s Recalculation of Benefits
120. The
City stopped reporting the City’s deferred compensation/family medical coverage
payments to PERA as part of salary beginning in August 2007. However, the City did not subsequently inform
its employees and retirees that the City’s prior payroll practices would likely
result in reductions of their PERA retirement benefits.[130]
121. Moreover, during the in-person training
sessions that PERA conducted for members between August 1, 2007, and March 9,
2009, PERA did not expressly advise attendees of its interpretation that Minn.
Stat. § 353.01, subd. 10, excluded employee-paid deferred compensation payments
as salary for PERA reporting purposes.[131]
122. In
mid-March 2009, PERA advised most City retirees that their benefits had been
recalculated and that they were liable for repayment of overpayments. The monthly reductions ranged from
approximately $50 per month to more than $200 per month. The overpayment amounts ranged from a couple
of thousand dollars to approximately $20,000.[132]
123. Approximately
485 retired City employees have received letters from PERA and the City of
124. Because of the retirement benefit
recalculations that PERA made in 2009 and the resulting reductions in
retirement benefits and obligations to repay past apparent overpayments,
several City employees have had to rejoin the work force to balance their
budgets.[134]
125. PERA
has never before contemporaneously reduced the retirement benefits of over 400
employees of a single participating employer.[135]
126. None of the City employees who retired
between 1995 and March 9, 2009, were advised by either the City or PERA that
City amounts that the City had reported to PERA may have been erroneous, and
that PERA might recalculate their annuities to a lesser amount and require
repayment of the difference.[136]
Many of the City employees who
retired or engaged in pre-retirement planning during that period relied on the
retirement information that they received from PERA the City and on the
retirement benefit calculations that PERA provided to them.[137]
127. PERA
knew or should have known on or after October 8, 2008, that the amounts of PERA eligible salary that the City had reported to
PERA for the period from 1995 through August 1, 2007, were likely inaccurate.
128. Some of the Petitioners may have retired
between October 8, 2008, and March 9, 2009.[138] If so, any retirement annuity estimates
provided to them by PERA staff were also based on the amounts that the City
actually provided to PERA from 1995 up to the date of their retirement. However, even though the City had reported
the apparent nature and scope of erroneous PERA payroll information, employees
retiring during that period were not advised by either the City or PERA that any
annuity estimates provided to them by PERA might be subject to recalculation to
a lesser amount.[139]
129. Since
at least 1995, whenever PERA has provided benefit estimates to members, it has
always explicitly stated that if there is any conflict between the estimate and
the law, the law controls. Although PERA
relies on participating employers, like the City, to provide accurate information
for the calculation of retirement benefits for members contemplating
retirement, PERA expressly informs members that the law must control if a
conflict or error in benefit calculation occurs.[140]
130. Between
1995 and March 9, 2009, PERA did not make representations or inducements to
City employees that the estimates of benefits that they had received or would
be receiving were firm estimates and not subject to recalculation.[141]
Statute of Limitations
131. Before
the 2009 Omnibus Pension Bill was enacted, there was no statute of limitations
for correcting errors attributable to incorrect eligible wage determinations. PERA therefore had the authority to collect
overpayments of the City’s employer PERA contributions and City employee PERA
deductions and adjust retiree benefits starting with 1995, the first year the
City paid deferred compensation benefits.[142]
132. The
2009 Omnibus Pension Bill[143]
provided a new, general statute of limitations for correcting errors
attributable to the definition of eligible salary. Under the Bill, the period of adjustment is
limited to the fiscal year in which PERA discovers the error, plus the two
immediately preceding fiscal years. The
provision applies to errors reported on or after May 23, 2009, the enactment
date of the legislation.[144]
133. The
new three-year statute of limitations does not apply to the City’s eligible
salary errors because these errors were already reported and “in process” prior
to enactment of the new legislation. But
in the same Act the legislature included special legislation that gave the City
the option of electing the new three-year statute of limitations to the extent
that adjustments were “in process” as of the date of the enactment. Specifically, the legislature provided :
APPLICATION OF PUBLIC EMPLOYEES RETIREMENT ASSOCIATION ERRONEOUS RECEIPTS AND DISBURSEMENTS PROVISION; ELECTION
(a) If adjustments under Minnesota Statutes, section 353.27, subdivision 7, due to invalid salary amounts are in process as of the effective date of this section for employees or former employees of a governmental subdivision, the governing body of the governmental subdivision may elect to have the statute of limitations under Minnesota Statutes, section 353.27, subdivision 7, paragraphs (c) and (g), apply to adjustments or corrections in process as of the effective date of Minnesota Statutes, section 353.27, subdivision 7, by a resolution of the governing body transmitted to the Public Employees Retirement Association executive director within 90 days after the effective date of this section.
(b) If the governing body of the governmental subdivision declines the treatment permitted under paragraph (a) or fails to submit a resolution in a timely manner, the statute of limitations does not apply to adjustments or corrections in process as of the effective date.[145]
134. In
the 2009 Omnibus Pension Bill, the legislature also provided special procedures
by which PERA and the City could correct employee deductions and employer
contributions attributable to errors in determining eligible salary reported
between January 1, 1997, and October 23, 2008, and to adjust related retiree
benefits. Under the special legislation,
the City could opt to use those special procedures to override other sections
of
135. Under the three-year statute of
limitations, the City’s retirees would not have had to pay fifteen years worth
of overpayments. Rather, the new
limitation would only have allowed PERA to recover only three years worth of
erroneous deductions from active members and retirees.[147]
136. The City did not pass a
resolution to elect the application of a three-year statute of limitations in
the instant matter.
Other Findings
137. These
Findings are based on all of the evidence in the record. Citations to portions of the record are not
intended to be exclusive references.
138. To
the extent that the Memorandum that follows explains the reasons for these
Findings of Fact and contains additional findings of fact, including findings
on credibility, the Administrative Law Judge incorporates them into these
Findings.
139. The
Administrative Law Judge adopts as Findings any Conclusions that are more
appropriately described as Findings.
Based on the above Findings of Fact, the Administrative Law Judge makes
the following:
CONCLUSIONS
1.
The
Administrative Law Judge and the PERA Board of Trustees have jurisdiction of
this proceeding pursuant to Minn. Stat. §§ 14.57 – 14.62 and Minn.
Stat. § 356.96, subd. 12(b).
2.
The Notices of
Hearing in this matter were proper, and all relevant substantive and procedural
requirements of law or rule have been fulfilled. This matter is properly
before the Administrative Law Judge and the PERA Board of Trustees.
3.
The unused
personal leave days of active City firefighters are “salary” within the meaning
of Minn. Stat. § 353.01, subd. 10, and that that determination is retroactive
and is applicable to all City firefighters currently employed or retired.[148]
4.
Before enactment
of the 2009 Omnibus Pension Bill,[149] there was no
statute of limitations for correcting errors attributable to incorrect eligible
wage determinations, and there was therefore no limit on PERA’s ability to
collect overpayments of employee deductions and employer contributions and
adjust retiree benefits based on past errors by participating employers in
reporting PERA eligible salaries.
5.
Among others, 2009
Minn. Laws, ch. 169, art. 4, sec. 11, enacted the following amendments to Minn.
Stat. § 353.27, subd. 7:
c)
Adjustments to correct employer contributions and
employee deductions taken in error from amounts which are not salary under
section 353.01, subdivision 10, must be made as specified in paragraph
(e). The period of adjustment must be limited to the fiscal year in which the
error is discovered by the association and the immediate two preceding fiscal
years.
*
* *
(g)
If the accrual date of any retirement annuity, survivor benefit, or disability
benefit is within the limitation period specified in paragraph (c), and an
overpayment has resulted by using invalid service or salary, or due to any
erroneous calculation procedure, the association must recalculate the annuity
or benefit payable and recover any overpayment as provided under subdivision
7b.
2009 Minn.
Laws, ch. 169, made Minn. Stat. § 353.27, subd. 7, as amended, effective on the
date following enactment, which was May 23, 2009. Because PERA had already made corrections of
the apparent erroneous PERA salary information reported by the City on or about
March 9, 2009, the new statute of limitations did not apply to those
corrections.
6.
However, 2009
Sec. 49. CITY OF
Subdivision 1. Application. Notwithstanding any provisions of Minnesota Statutes, section 353.27, subdivisions 7 and 7b, or Minnesota Statutes 2008, chapters 353 and 356, to the contrary, this section establishes the procedures by which the executive director of the Public Employees Retirement Association shall adjust erroneous employee deductions and employer contributions paid on behalf of active employees and former members by the city of Duluth and by the Duluth Airport Authority on amounts determined by the executive director to be invalid salary under Minnesota Statutes, section 353.01, subdivision 10, reported between January 1, 1997, and October 23, 2008, and for adjusting benefits that were paid to former members and their beneficiaries based upon invalid salary amounts.
Subd. 2. Refunds
of employee deductions. (a) The executive director shall refund to active
employees or former members who are not receiving retirement annuities or
benefits all erroneous employee deductions identified by the city of
(b) The refund payment for active
employees must be sent to the applicable governmental subdivision which must
pay the refunded employee deductions plus interest to the active members who
are employees of the city of
(c) Refunds to former members must be mailed by the executive director of the Public Employees Retirement Association to the former member's last known address.
Subd. 3. Benefit adjustments. (a) For a former member who is receiving a retirement annuity or disability benefit, or for a person receiving an optional annuity or survivor benefit, the executive director must:
(1) adjust the annuity or benefit payment to the correct monthly benefit amount payable by reducing the average salary under Minnesota Statutes, section 353.01, subdivision 17a, by the invalid salary amounts;
(2) determine the amount of the overpaid benefits paid from the effective date of the annuity or benefit payment to the first of the month in which the monthly benefit amount is corrected;
(3) calculate the amount of employee deductions taken in error on invalid salary, including interest at the rate specified in Minnesota Statutes, section 353.34, subdivision 2, from the date each invalid employee deduction was received through the date the annuity or benefit is adjusted as provided under clause (1); and
(4) determine the net amount of overpaid benefits by reducing the amount of the overpaid annuity or benefit as determined in clause (2) by the amount of the erroneous employee deductions with interest determined in clause (3).(b) If a former member's erroneous employee deductions plus interest determined under this section exceeds the amount of the person's overpaid benefits, the balance must be refunded to the person to whom the annuity or benefit is being paid.
(c) The executive director shall recover the net amount of all overpaid annuities or benefits as provided under subdivision 4.
Subd. 4. Employer
credits and obligations. (a) The executive director shall provide a credit
without interest to the city of
(b) The Public Employees Retirement
Association board of trustees shall determine the period of time and manner for
the collection of overpaid retirement annuities and benefits, if any, from the
city of
EFFECTIVE DATE.(a) This section is effective for the city of Duluth the day after the Duluth city council and the chief clerical officer of the city of Duluth timely complete their compliance with Minnesota Statutes, section 645.021, subdivisions 2 and 3, for members who are, and former members who were, employees of the city of Duluth.
(b) This section is effective for the Duluth Airport Authority the day after the Duluth Airport Authority and the chief clerical officer of the Duluth Airport Authority timely complete their compliance with Minnesota Statutes, section 645.021, subdivisions 2 and 3, for members who are, and former members who were, employees of the Duluth Airport Authority.
Sec. 50. APPLICATION OF PUBLIC EMPLOYEES RETIREMENT ASSOCIATION ERRONEOUS RECEIPTS AND DISBURSEMENTS PROVISION; ELECTION.
(a) If adjustments under Minnesota Statutes, section 353.27, subdivision 7, due to invalid salary amounts are in process as of the effective date of this section for employees or former employees of a governmental subdivision, the governing body of the governmental subdivision may elect to have the statute of limitations under Minnesota Statutes, section 353.27, subdivision 7, paragraphs (c) and (g), apply to adjustments or corrections in process as of the effective date of Minnesota Statutes, section 353.27, subdivision 7, by a resolution of the governing body transmitted to the Public Employees Retirement Association executive director within 90 days after the effective date of this section.
(b) If the governing body of the
governmental subdivision declines the treatment permitted under paragraph (a)
or fails to submit a resolution in a timely manner, the statute of limitations
does not apply to adjustments or corrections in process as of the effective
date.
EFFECTIVE
DATE. This section is effective the day after final enactment.
7.
However, the
City failed to elect to have the statute of limitations under Minnesota
Statutes, section 353.27, subdivision 7, paragraphs (c) and (g), apply to
adjustments or corrections in process as of the effective date of Minn. Stat.
§ 353.27, subd. 7 by passing a resolution of the City’s governing
body within 90 days after the effective date of 2009 Minn. Laws, ch. 169, art.
4, sec. 50. The statute of limitations
contained in Minn. Stat. § 353.27, subd. 7(c) and (g), therefore does not apply
to PERA’s recalculations of the salaries of City employees based on any
erroneous reports by the City for pay periods between January 1, 1997, and
October 23, 2008.[150]
8.
The Petitioners
have the burden to establish by a preponderance of the evidence that PERA is
barred from recalculating their retirement benefits by the doctrines of
promissory or equitable estoppel.[151]
9.
The Petitioners
failed to establish by a preponderance of the evidence that PERA is barred from
recalculating their retirement benefits by the doctrines of promissory or
equitable estoppel.[152]
10.
An agency policy
that makes specific a statute enforced or
administered by the agency is an interpretive rule that must be promulgated in
accordance with Minnnesota Statutes, Chapter 14, unless the policy simply
corresponds with the plain meaning of the statute at issue. However, if an agency policy purports
to interpret ambiguous governing legislation, the agency need not engage in
formal rulemaking if its interpretation is long standing.[153]
11.
The City’s
contributions to family-dependent hospital-medical premiums are “employer-paid
amounts used by an employee toward the cost of insurance coverage” within the
meaning of Minn. Stat. § 353.01, subd. 10(b) (2). PERA’s policy of excluding the City’s
contributions to family-dependent hospital-medical premiums from PERA salary corresponds with the plain meaning of Minn. Stat. §
353.01, subd. 10(b) (2), and is therefore not an interpretive rule.[154]
12.
Minn. Stat. §
353.01, subd. 10, is ambiguous about whether employer contributions to deferred
compensation plans are excluded from PERA salary. Interpreting
13.
Whenever the
City included its deferred compensation payments in employees’ taxable income,
those payments lost their character as fringe benefits and became current
wages.[156]
14.
The City’s
insurance supplement payments were PERA salary even when they were subject to
income taxes when made.[157]
15.
PERA bears the
burden in this proceeding of establishing by a preponderance of the evidence
that the recalculations of the Petitioners’ retirement benefits that PERA is
proposing were accurate, and not erroneous, recalculations.[158]
16.
A preponderance
of the evidence in this proceeding established that the information that the
City supplied about past deferred compensation payments was demonstrably
inaccurate because it included deferred compensation payments on which
employees paid income taxes at the time the payments were made.[159]
17.
Minn. Stat. §
353.27, subd. 11(b) provides:
(b) In the event payroll abstract records have been lost or destroyed, for whatever reason or in whatever manner, so that such schedules of salaries cannot be furnished therefrom, the employing governmental subdivision, in lieu thereof, shall furnish to the association an estimate of the earnings of any employee or former employee for any period as may be requested by the executive director. If the association is provided a schedule of estimated earnings, the executive director is authorized to use the same as a basis for making whatever computations might be necessary for determining obligations of the employee and employer to the general employees retirement plan, the public employees police and fire retirement plan, or the local government correctional employees retirement plan. If estimates are not furnished by the employer at the request of the executive director, the executive director may estimate the obligations of the employee and employer to the general employees retirement fund, the public employees police and fire retirement plan, or the local government correctional employees retirement plan based upon those records that are in its possession.
18.
Because information
that the City previously supplied to PERA about past deferred compensation
payments was demonstrably inaccurate, PERA’s recalculations of the obligations
of the City and its employees to the general employees retirement fund are also
inaccurate.
19.
Any Finding of
Fact more properly termed a Conclusion is adopted as such. Any Conclusion more properly termed a Finding
of Fact is adopted as such.
20.
These
Conclusions are reached for the reasons discussed in the Memorandum that
follows, which is hereby incorporated into these Conclusions.
Based upon the above Conclusions, the Administrative Law Judge makes the following:
RECOMMENDATIONS
The Administrative Law Judge respectfully recommends that the PERA Board
of Trustees:
(1) As a
consequence of PERA’s improper enforcement of an unadopted interpretive rule, REVISE
the most recent recalculations of City contributions and City employees’
contributions, overpayments, and retirement benefits to include as PERA salary employer
deferred compensation payments made from 1995 to the; or
(2) Alternatively,
MODIFY the recalculations of PERA retirement benefits of all other City
employees to include as PERA salary City deferred compensation contributions
that were included in employees’ taxable income at the time those contributions
were made; and
(3) Require
the City to provide PERA with more accurate estimates of its employees’
PERA-eligible salary for the period from 1995 to the present.
Dated: January 18, 2011
s/Bruce H. Johnson
|
BRUCE
H. JOHNSON Administrative
Law Judge |
Reported: Kirby A. Kennedy and Associates
Transcripts Prepared (Two Volumes)
NOTICE
This
Report is a recommendation, not a final decision. The PERA Board of
Trustees will make the final decision after
a review of the record. The Board may adopt, reject or modify
the Findings of Fact, Conclusions, and Recommendations contained herein.
Pursuant to
If the Board fails to issue a final decision within 90 days of the close of the record, this report will constitute the final agency decision under Minn. Stat. § 14.62, subd. 2a. The record closes upon the filing of exceptions to the report and the presentation of argument to the Board, or upon the expiration of the deadline for doing so. The Board must notify the parties and the Administrative Law Judge of the date on which the record closes.
MEMORANDUM
I. The parties share the burden of proof.
In March 12, 2009, the PERA staff sent written notices to approximately
485 current and former City employees informing them that the City had
erroneously reported certain amounts that the City had paid to them between
1997 and 2008 as being “salary” for purposes of calculating retirement
contributions and benefits.[160] Those notices informed the employees that if
they disagreed with PERA’s salary and benefit calculations, they could file
petitions for review by filling out and submitting an enclosed form.
Subsequently, 70 of the current and retired City employees who received
those letter notifications filed the attached petitions for review.[161] Thereafter, the PERA Board of Trustees
initiated contested case proceedings by issuing 70 notices of hearing and
filing them with OAH. Five of the six
issues raised by the PERA Board in the Notices of Hearing were primarily issues
of law. The sixth issue—whether it was
reasonable for PERA Staff to rely on salary information supplied by the City
was primarily an issue of fact.
In arguing that the Petitioners have the burden of proof with respect to
all disputed issues, the PERA staff relies on
First, although the Petitioners are identified as opposing parties by the Notices of Hearing, the PERA Board’s statement of the issues to be addressed by the ALJ are more in the nature of a request for advisory opinions. In other words, although the Notices of Hearing do not frame the issue as such, the outcome that both PERA and the Petitioners wish to have settled is whether or not PERA’s recalculation of the Petitioner’s retirement benefits was correct. It is ultimately the correctness of that recalculation that the PERA Staff proposes to have confirmed. However, a state agency cannot avoid its responsibility as the proponent of substantive agency action by the way it chooses to characterize the issues in notice of hearing in a contested case. The fact that PERA chose to seek confirmation of its recalculations by inviting the Petitioners to challenge them on a standardized form and chose to do so does not make the Petitioners proponents of anything substantively at issue.[162]
As to the ultimate issue—whether PERA has correctly recalculated the Petitioners’ retirement benefits—the Petitioners do not have the obligation, or in most cases the means, to correctly recalculate their own retirement benefits. The City has a statutory duty under Minn. Stat. § 353.28, subd. 1, to provide PERA with accurate information about the amounts of compensation paid to its employees that qualify as PERA salary, and PERA has the authority to enforce that obligation. PERA alone has the actuarial expertise to recalculate benefits using correct information. Thus, at least with regard to the ultimate issue here, a more realistic approach to allocating the burden of proof is to impose the burden on the Petitioners to establish by a preponderance of the evidence that the information or estimates on which PERA relied when recalculating their retirement benefits was demonstrably incorrect. If they are able to meet that burden, the burden then shifts to PERA to again recalculate the Petitioners’ retirement benefits using more correct information or estimates.
Further, Minn. R. 1400.7300, subp. 5, also provides that “[a] party asserting an affirmative defense shall have the burden of proving the existence of the defense by a preponderance of the evidence.” Here, the Petitioners are not uniquely disabled from meeting that burden in connection with their promissory and equitable estoppel defenses. Therefore, even though the PERA Board raised those issues in the first instance in the Notice of Hearing, those are generally held to be affirmative defenses. It is therefore not unreasonable to require the Petitioners bear the burden of proof and persuasion with respect to their defenses to recalculation.
Finally, during the hearing, PERA asserted and presented evidence that its interpretation that Minn. Stat. § 353.01, subd. 10(b)(2) excludes the City’s insurance supplement and deferred compensation from treatment as PERA salary constitutes a longstanding agency interpretation that is entitled to deference.[163] By letter dated October 21, 2010, the ALJ also invited the parties to address the related issue of whether PERA’s interpretation of that statute should be treated as an “interpretive rule” that has not been properly adopted in accordance with Chapter 14 of Minnesota Statutes. It is therefore reasonable to impose on PERA the burden of establishing that its interpretation of the statute is a longstanding agency interpretation, which would except PERA from having to formally adopt it as an interpretive rule.
II. PERA
is not barred from recalculating the retirement benefits of City employees by
any statute of limitations.
The time frame in which PERA can correct
erroneous contributions and recover overpaid benefits is set forth in Minn.
Stat. § 353.27, subd. 7(b). Before 1990,
that section contained a three-year statute of limitations but in that year was
amended to allow erroneous deductions to be refunded “at any time.”[164] In 1991, Minn. Stat. § 353.27, subd.
7(b) was further amended to require the suspension of benefits “until all
outstanding money has been recovered.”[165] Finally, in 2009, the legislature reversed
course and again amended the law to place a three-year limitation on the
correction of erroneous contributions and deductions and resulting
overpayments.[166] Although the legislature also enacted special
legislation giving the City the opportunity to opt into the three-year statute
of limitations, the City did not do so.
The City informed PERA of the error in its
financial reporting in 2008, and the errors occurred from 1996 to 2007. From 1996-2007, Minn. Stat. § 353.27 allowed
erroneous deductions to be refunded “at any time,” and it allowed the suspension
of benefits “until all outstanding money has been recovered.” No other statute of limitations applies.[167]
III. PERA is not barred from
recalculating the retirement benefits of City employees by the doctrines of
promissory and equitable estoppel.
A. As a matter of law, PERA
cannot be estopped from collecting overpayments from and reducing the
retirement benefits of City employees.
Three post-Mesaba appellate
decisions have further confirmed the efficacy of the “authorized-act”
limitation on in contexts similar to this case.
In Axelson v. Minneapolis
Teachers’ Retirement Fund Association,[173] a
teacher in the
Relying on Axelson, the Minnesota Court of Appeals in McGuire[178] held that PERA could not be estopped from rescinding unauthorized annuity benefits. McGuire resigned from his position as City Administrator of Bayport effective April 2005. PERA determined that McGuire was eligible for unreduced early-retirement benefits and began paying him retirement benefits on May 1, 2005. In July 2007, PERA notified McGuire that it was ceasing retirement payments effective September 1, 2007, and that it would recover all payments paid in the amount of $112,969.20, because McGuire had violated a statutory requirement that he completely and continuously separate for 30 days from employment as a public employee. McGuire petitioned the PERA Board of Trustees for review, arguing that he was never told about the 30-day requirement even though he attended a PERA-sponsored pre-retirement session and met twice with PERA staff. The PERA Board denied his petition and McGuire appealed to the court of appeals, arguing that PERA had abused its discretion by rescinding his payments without addressing his equitable estoppel claim. The court of appeals ruled in favor of PERA. Because McGuire had admitted that he had failed to meet the statutory requirements for receiving benefit payments, the court reasoned that the payments he received were unauthorized, and that estoppel could not be applied to require the agency to make unauthorized payments. Rescission of the erroneous payments was therefore unavailable as a remedy.[179]
In the Matter of the Appeal of Roger Ogren to the Board of Trustees of the State of Minnesota Teachers Retirement Association,[180] Ogren challenged the decision of the TRA, arguing that the doctrines of promissory and equitable estoppel precluded alteration of his retirement benefit from the amount calculated in his pre-retirement estimate statement.[181] The Court of Appeals reasoned that the threshold issue was whether the retirement association had the authority to pay Ogren the benefit amount calculated in the pre-retirement benefit estimates. The court found that the retirement association had to calculate Ogren’s “high-five average salary” using the statutory definition of “salary,” but the salaries used to produce his pre-retirement estimates included payments that were excluded from the statutory definition. The court concluded that the estimates were calculated improperly and could not be used to determine Ogren’s monthly annuity. The court wrote: “The retirement association does not have the authority to calculate Ogren’s ‘high-five average salary’ by using a different definition of ‘salary’ from that provided in Minn. Stat. § 354.05, subd. 35, so neither promissory nor equitable estoppel can be employed to vouchsafe the pre-retirement estimate provided by the association calculating Ogren’s retirement benefit.”[182]
In summary, regardless of the equities involved, the law continues to be that a government agency’s unauthorized act cannot be made effective by estoppel.[183] Here, the legislature has mandated how PERA must calculate members’ retirement benefits and has prescribed the procedure by which PERA must collect overpayments and correct erroneous contributions and deductions. The PERA Board has no authority to deviate from the statutory procedures when correcting erroneous deductions and contributions and overpayments to members as set forth in Minn. Stat. § 353.27, subd. 7, subd. 7a and subd. 7b.
B. Even if estoppel were
available, essential elements of estoppel are absent here.
There are occasions when the doctrine of estoppel can be applied against a governmental agency. When that occurs, a party seeking to invoke equitable estoppel against a government agency bears a “heavy burden of proof.”[184] The party asserting estoppel against a government agency must prove five elements: 1) that representations or inducements were made to the claimants; 2) that there has been reasonable reliance on those representations or inducements by the claimants; 3) that the representations or inducements involve some element of fault or wrongful conduct by the government agency; 4) that the claimant will be harmed if estoppel is not allowed; and 5) the equities of the case outweigh any public interest frustrated by the estoppel.[185]
Here, while Petitioners’ situation evokes sympathy, a preponderance of the evidence fails to establish at least two of the essential elements. It was Patricia Kapplehoff unchallenged testimony that whenever PERA provides benefit estimates to members, it always explicitly states that if there is any conflict between the estimate and the law, the law controls.[186] Although PERA relies on participating employers, like the City, to provide accurate information for the calculation of retirement benefits for members contemplating retirement, PERA expressly informs them that the law must control if a conflict or error in benefit calculation occurs. There was no evidence that PERA has ever made representations or inducements to City employees that the estimates of benefits that they received were certain and not subject to recalculation. Concomitantly, reliance on PERA’s benefit estimates and calculations was not reasonable.
Finally, the third essential element of estoppel appears to be missing here—namely, that the representations or inducements made involve an element of fault or wrongful conduct by the government agency against which estoppel is being sought. Here, the City had a statutory obligation to provide PERA with accurate salary information, and it was the City, not PERA, that provided PERA with erroneous salary information. Because PERA currently lacks both the authority and resources to audit and verify the salary information provided by participating employers, it cannot be said that PERA was at fault by relying on the information submitted by the City.
IV. PERA’s Interpretation of Minn. Stat. §
353.01, subd. 10(b)(2), as It Pertains to Employer-Paid Deferred Compensation,
is Unenforceable as an Unadopted Interpretive Rule
PERA argues that its interpretations that Minn. Stat. § 353.01, subd. 10(b)(2) must be given deference as a long-standing agency interpretation. However, for the reasons discussed below, the ALJ concludes that PERA’s interpretation of the statute, as it pertains to employer-paid deferred compensation, is not entitled to such deference. Rather, that interpretation represents an unenforceable, unadopted interpretive rule.
A. Agency interpretations of legislation
that they administer are normally considered to be interpretive rules that must
normally be formally adopted to be enforceable.
PERA argues that PERA’s interpretations of Minn. Stat. § 353.01, subd.
10, must be given deference.
every agency statement of general applicability and future effect, including amendments, suspensions, and repeals of rules, adopted to implement or make specific the law enforced or administered by that agency or to govern its organization or procedure.
Thus, the Minnesota Supreme Court has held that:
An agency interpretation that “make[s] specific the law enforced or administered by the agency” is an interpretive rule that is valid only if promulgated in accordance with the Act.[188]
However, there are two exceptions to that requirement of formal rule promulgation. The first is:
Not all interpretations, however, constitute interpretive rules.
If an agency's interpretation corresponds with the plain meaning of the rule it
construes, the agency is not deemed to have promulgated a new rule.[189]
Second, if a statute or rule is ambiguous
and the agency interpretation is a longstanding one, the agency is
not deemed to have promulgated a new rule.[190]
PERA’s
interpretations of Minn. Stat. § 353.01, subd. 10(b)(2), were clearly intended
to make specific a law that PERA administers.
Although
B. PERA’s interpretation that Minn. Stat. § 353.01, subd. 10(b)(2), excludes the City’s contributions to family-dependent hospital-medical premiums from PERA salary corresponds with the statute’s plan meaning and is not an interpretive rule.
Petitioner Bryan Brown argued that the way in which the City managed the hospital and medical costs of its employees did not constitute “insurance.” The ALJ disagrees, at least with respect to family and dependent hospital and medical costs, which are the only hospital and medical costs at issue here. The evidence established that employees had to bear the full cost of family coverage, by paying an annual family coverage premium set by the City and its third-party coverage administrator.[191] Insurance is “an agreement by which one party assumes a risk faced by another party in return for a premium payment.”[192] Although the City’s arrangement may have represented self-insurance, it was “insurance” within the meaning of that term. Minn. Stat. § 353.01, subd. 10 (b), expressly excludes “[e]mployer-paid amounts used by an employee toward the cost of insurance coverage.” PERA’s interpretation that the City’s contributions to family-dependent hospital-medical premiums is excluded from PERA salary simply reflects the plain meaning of the statute. It is therefore not an interpretive rule.[193]
C. However, Minn. Stat. § 353.01, subd. 10, is ambiguous about whether employer contributions to deferred compensation plans from PERA salary are excluded from PERA.
PERA’s governing legislation has defined the term “salary” for PERA’s purposes since 1933.[194] The legislature did not begin expressly excluding certain kinds of employer payments to public employees from treatment as PERA salary until four decades later in 1974. In 1973 the legislature amended Minn. Stat. § 353.01, subd. 10(a), to include “deductions for deferred compensation.” In other words, there still was nothing in the 1973 version of the statute that explicitly or implicitly excluded employer deferred compensation payments. In 1974, the legislature amplified the definition of salary in Minn. Stat. § 353.01, subd. 10(a), by amending it to read “before deductions for deferred compensation, supplemental retirement plans, or other voluntary salary reduction programs.”[195] Again, it would have been reasonable to infer in 1974 that “deductions for deferred compensation” included both employee and employer deferred compensation contributions because there was nothing in the statute even arguably excluding the latter.
Seventeen years later in 1991, the legislature began adding language to Minn. Stat. § 353.01, subd. 10, that described amounts that were to be excluded from PERA salary. Some exclusions were listed in paragraph (a); another was listed in a new paragraph (b). But none of exclusions explicitly or implicitly excluded employer-paid deferred compensation, and it would still be reasonable to infer that Minn. Stat. § 353.01, subd. 10(a) still covered both employee and employer deferred compensation contributions. In 1993, the legislature amended and reorganized Minn. Stat. § 353.01, subd. 10(a) and (b), by defining in paragraph (a) everything included in salary and defining in paragraph (b) everything excluded from salary.[196] However, there again was nothing the 1993 amendments that appeared to exclude employer-paid deferred compensation.
No version of Minn. Stat. § 353.01, subd. 10, has ever contained an explicit exclusion of employer deferred compensation contributions from PERA salary.[197] However, in 1994, the legislature added language to Minn. Stat. § 353.01, subd. 10(b), that first raised a question of whether employer deferred compensation payments were excludable from PERA salary. At that time, the legislature added an explicit exclusion of “employer-paid amounts used by an employee toward the cost of insurance coverage, employer-paid fringe benefits, flexible spending accounts, cafeteria plans.” To paragraph (b).[198] Thus, to arrive at a conclusion that employer-paid deferred compensation is excludable from PERA salary, one must necessarily interpret the terms “employer-paid fringe benefits, flexible spending accounts, [and] cafeteria plans” as implicitly embracing employer-paid deferred compensation. None of those three terms is defined in Chapter 353 or any other chapter of Minnesota Statutes. The question therefore became whether or not the legislature intended “employer-paid fringe benefits, flexible spending accounts, and cafeteria plans” to include employer deferred compensation payments.
There does not appear to be a clear consensus of everything that could be
a term “fringe benefit.” However, the
term generally appears to mean something of value, other than current wages or
salary, which an employee receives in consideration of employment. Many kinds of fringe benefits are valuable to
employees because they involve favorable income tax treatment. In that light, deferred compensation
contributions are generally considered to be fringe benefits because the
payments made into them are not subject to income taxation “until they are
distributed from the plan or made available to the participant or beneficiary.”[199] In other words, deferred contributions are
“deferred,” and not “current,” compensation or wages. Under that analysis, both employer and
employee deferred compensation contributions could be “fringe benefits.”
Since deferred compensation can be reasonably characterized as a fringe benefit, the question arose for the first time whether “deductions for deferred compensation, supplemental retirement plans, or other voluntary salary reduction programs” only embraced employee deferred compensation deductions. What became ambiguous was the term “voluntary.” One possible interpretation is that “voluntary” refers to the payment being made. Thus, an employee’s contribution could be considered “voluntary” because in most deferred compensation plans, the employee has discretion whether to make a contribution, and if so, how much, but the employer’s contribution could be considered “involuntary” because it is normally required by a CBA or other governing compensation plan.[200] However, another possible interpretation of “voluntary” is that it simply refers to the “program” as a whole. In other words, another reasonable interpretation is that the employer and employee deferred compensation contributions are both parts of a “voluntary program” to reduce current income taxes by deferring the taxable event into the future, both contributions are includable in PERA salary.[201] However, it is unnecessary to determine which interpretation of Minn. Stat. § 353.01, subd. 10, is correct in order to decide whether PERA’s policy to exclude employer contributions to deferred compensation plans from PERA salary is an unadopted interpretive rule. It is sufficient to establish that reasonable minds can differ on whether the legislature intended to include or exclude such payments, and that the statute is therefore ambiguous on that point.
D. PERA’s interpretation
that Minn. Stat. § 353.01, subd. 10(b)(2), excludes employer contributions
to deferred compensation plans from PERA salary does not qualify as a long
standing interpretation.
Because Minn. Stat. § 353.01, subd. 10(b)(2) is ambiguous about whether
employer-paid deferred compensation should be treated as PERA salary, PERA’s
interpretation that such payments are not PERA salary, even if correct, can be applied
only if that interpretation is a long standing one. PERA’s asserts that its Executive Director
has consistently interpreted Minn. Stat. § 353.01, subd. 10(b)(2), as excluding
employer-paid deferred compensation as salary, and that PERA Staff has, in
fact, been excluding such payments from treatment as PERA salary “dating prior
to 1995.”[202] That assertion was not challenged, and the
ALJ accepts it at face value, even though the testimony established that PERA
accepts the salary reports of participating employers at face value and merely
assumes that they correctly reflect applicable law.[203] The problem is that from 1995 until the July
31, 2007, email communication to the City, there was only one written
expression of that interpretation and policy to a single participating
employer—namely, an email to the City of
PERA recently responded to audit finding by the Legislative Auditor that PERA has had “an extensive training program that includes online information, employer handbooks, quarterly newsletters and training sessions throughout the state.” However, between 1993 and 2008 PERA’s Reporting Manual for participating employers and periodic newsletters to employers and members described amounts excluded from treatment as PERA salary. But in every such document placed into evidence PERA merely quoted the statutory language that “[e]mployer-paid fringe benefits, flexible spending accounts, [and] cafeteria plans” were not salary subject to PERA withholding.[204] Prior to July 31, 2007, PERA never once explicitly stated in a written communication disseminated generally to participating employers or members that employer-paid deferred compensation contributions were not subject to PERA withholding or that that was PERA’s interpretation of governing legislation.[205]
Cheryl Keating, the Manager of PERA’s Account Information Management
Division testified that it was her recollection that since 1992, PERA Staff had
occasionally received oral inquiries from participating employers about whether
employer deferred compensation payments were to be reported as PERA
salary. She further testified that those
employers were told that those amounts were not PERA eligible salary.[206] Yet she could only find a written record,
together with a written response from PERA, of only one such inquiry. That was an email inquiry from the City of
There was no evidence of how many oral inquiries on this subject have ever been made. Moreover, there is not even evidence that PERA ever communicated that interpretation to its own staff in written form. In Cable Communications,[210] the Minnesota Supreme Court denied long standing status of an agency interpretation of its governing legislation that the agency had never before formally asserted in a rule or in a contest case proceeding.[211] PERA’s history of communicating and applying the interpretation at issue here falls far short of that. Neither MSRS nor TRA exercised rulemaking authority to resolve any statutory ambiguity and definitively establish that employer-paid deferred compensation was to be excluded from salary when calculating retirement benefits. However, in 1995 MSRS sought and obtained statutory clarification in lieu of adopting a rule,[212] and in 1992 TRA established the existence of a long standing interpretation to that effect by issuing written guidance to all of its participating members.[213] PERA did none of those things and, as a consequence, has been improperly enforcing an unadopted interpretive rule. At best, PERA’s interpretation that Minn. Stat. § 353.01, subd. 10(b)(2) excluded employer-paid deferred compensation was almost exclusively communicated orally to a few participating employers and then only if and when specific inquiries were received.
Although not dispositive of this case, In the Matter of the
[T]he
* * *
The ALJ further concluded:[218]
[I]mplicit in the recognition of
case-by-case adjudications as an alternative to notice and comment rulemaking,
is that any incremental development of policy will involve similar
formality. It simply cannot be that the
occasional electronic mail message from Mr. Oelcker, or notes from a telephone
consultation with Ms. Drier, has the same regulatory significance as rules
promulgated by the agency following notice and comment rulemaking. As the record in this case makes clear, such
writings do not contain the “principles of law or policy lawfully declared by
the agency as the basis for its decisions in particular cases” and they are not
maintained by either MnDOT-OCIC or DOLI so as to permit interested persons to
petition for conversion of these informal writings into formal rules. A conclusion that senior labor investigators
could add to the classification rules in this way does considerable violence to
the scheme established by the Minnesota Legislature in Chapter 14. As the Minnesota Supreme Court has
written:
The
purpose of the Administrative Procedure Act is to ensure that we have a
government of law and not of men. Under that act, administrative officials are
not permitted to act on mere whim, nor their own impulse, however well
intentioned they might be, but must follow due process in their official acts
and in the promulgation of rules defining their operations.[219]
In view of the above, the ALJ concludes that PERA’s interpretation that Minn. Stat. § 353.01, subd. 10(b)(2), excludes employer-paid deferred compensation contributions does not qualify as a long standing agency interpretation of the statute that exempts PERA from formally promulgating that interpretation as an interpretive rule.
E. An agency interpretation of an ambiguous
statute that is not a long standing interpretation is unenforceable
In White Bear Lake Care Center, Inc. v. Minnesota Department of Public Welfare,[220] the Minnesota Supreme Court explained the consequences of failing to adopt an interpretive rule in formal rulemaking procedures:
The challenged practice is clearly within the statutory
definition of a ‘rule’: ‘[E]very agency
statement of general applicability and future effect, including the amendment,
suspension or repeal thereof, made to implement or make specific the law
enforced or administered by it or to govern its
organization or procedure.’ Minn.Stat. § 15.0411, subd. 3 (1980). Rules must be adopted in accordance with
specific notice and comment procedures established by statute, Minn.Stat. § 15.0412 (1980), and the failure to comply with
necessary procedures results in
invalidity of the rule.[221]
[Emphasis supplied.]
In 2001, the legislature enacted Minn. Stat. § 14.381, which approved the result in White Bear Care Center and in other appellate cases by creating a remedy to prevent agency attempts to “to enforce a policy, guideline, bulletin, criterion, manual standard, or similar pronouncement as though it were a duly adopted rule.” Subdivisions 1 and 2 provide:
Subdivision 1.Petition.
(a) A person may petition the Office of Administrative Hearings seeking
an order of an administrative law judge determining that an agency is enforcing
or attempting to enforce a policy, guideline, bulletin, criterion, manual
standard, or similar pronouncement as though it were a duly adopted rule. The
petition must be supported by affidavit and must be served upon the agency. The
agency shall respond in writing to the petition within ten working days. The
administrative law judge may order oral argument on the petition, but only if
necessary to a decision.
(b) An agency determination is not considered an unadopted rule when the
agency enforces a law or rule by applying the law or rule to specific facts on
a case-by-case basis.
Subd. 2. Order. The order of the administrative law judge
must direct the agency to cease enforcement of the unadopted rule that is the
subject of the petition. The order must be served upon the parties and the
legislative coordinating commission by first class mail and must be published by
the agency in the State Register. The decision of the administrative law judge
may be appealed under sections 14.44
and 14.45.
In summary, the law is clear. The interpretation of Minn. Stat.
§ 353.01, subd. 10, that PERA has applied to the Petitioners is an interpretive rule that is invalid because it has not
been promulgated in accordance with the Minn. Stat. Ch. 14. PERA’s subtraction of the City’s deferred
compensation payments from the PERA salary amounts of City employees should be
reversed.
V. The ALJ concludes that PERA’s
interpretation that
As discussed above,
between 1973 and 1994, Minn. Stat. § 353.01, subd. 10, necessarily included both employee and employer
contributions because there was nothing in the statute that could reasonably be
construed as excluding employer deferred compensation payments.[222] That changed in 1994 when the legislature
added an explicit exclusion of “employer-paid fringe benefits.” However, one could still reasonably argue
that the resultant possible exclusion of employer deferred compensation
contributions from PERA salary was an unintended consequence of the amendment
and not the legislature’s actual intent.
However, something else the legislature did in its 1994 session reduces
the persuasive force of that argument.
In 1994, the legislature established a Salary Study Committee comprised of legislators and representatives from the Legislative Pension Commission and the state public pension plans.[223] That study committee included representative from the Minnesota State Retirement System (MSRS) and PERA.[224] One of the issues that the Committee addressed was whether employer matching contributions to MSRS’ deferred compensation program should be considered salary for purposes of calculating MSRS benefits.[225] Among other recommendations, the Committee’s specifically concluded that employer contributions to the MSRS deferred compensation program:
[s]hould not be included as salary. Generally, employer contributions are not considered salary, stopping deductions on employer paid deferred compensation amount would be consistent with this philosophy.[226]
The Committee then recommended that the definition of salary in MSRS’
governing legislation—Minn. Stat. § 352.01, subd. 13—be amended to state “employer
contributions to a deferred compensation or tax sheltered annuity program, and
amounts contributed under a benevolent vacation and sick leave donation program
are not salary.”[227] The 1995 legislature accepted that
recommendation and enacted that amendment to Minn. Stat. § 352.01, subd.
13. What is puzzling is that, despite
PERA’s participation on the Committee, there was no recommendation for a
similar amendment to Minn. Stat. § 353.01, subd. 10(b). One could view that as an oversight. However, one could also view that as an
expression of legislative intent not to exclude employer-paid deferred
compensation from PERA salary.[228] In fact, the City of
Determining the scope of the legislature’s intent in excluding employer-paid fringe benefits from PERA salary in 1994 is difficult, and is something about which reasonable minds can differ. However, the Study Committee’s conclusion that employer deferred compensation contributions were generally “not considered salary,” and that “stopping deductions on employer paid deferred compensation amount would be consistent with [that] philosophy” indicates that the legislature’s failure to recommend a commensurate amendment to Minn. Stat. § 353.01, subd. 10, in 1995 was most likely an oversight, and that it intended both that subdivision and Minn. Stat. § 352.01, subd. 13, to be interpreted in the same way. Therefore, for the reasons discussed above, the ALJ agrees with PERA’s interpretation that employer deferred compensation payments fall within Minn. Stat. § 353.01, subd. 10(b)’s definition of “fringe benefit,” and that, taken as a whole, the statute excludes such payments from treatment as PERA salary.[230] However, even though PERA’s resolution of the statutory ambiguity may be correct, the agency cannot enforce it against City employees if that interpretation is not a long standing one.[231]
VI. PERA’s Benefit Recalculations
Were Based on Inaccurate PERA Salary Information
Nonetheless, even if PERA’s interpretation of Minn. Stat. § 353.01, subd. 10(b), were to be considered both correct and enforceable, the revised PERA salary information that the City provided to PERA included large amounts of deferred compensation payments on which income taxes were paid and which were therefore properly treatable as PERA salary. As a consequence, PERA’s recalculations of the Petitioners’ retirement benefits underestimated their PERA eligible salaries and were inaccurate, in part.
A. Whenever the City
included its deferred compensation payments in employees’ taxable income, those
payments became current wages.
As discussed above, the benefit to employees inherent in many common fringe benefits is favorable income tax treatment. In fact, “deferred compensation” is a term that draws its existence from income tax consequences. Put another way, the term deferred compensation has no meaning without reference to federal and state income tax laws:
Withholding
on Section 457 Plans
Amounts deferred into an eligible section 457(b) deferred compensation plan are not subject to income tax withholding until they are distributed from the plan or made available to the participant or beneficiary. * * *[232]
The evidence established that the deferred compensation plans maintained by individual City employees were established under section 457 of the Internal Revenue Code and were intended to be administered as such.[233] However, the evidence also established that on numerous occasions from 1995 to August 1, 2007, the City’s payroll system mistakenly caused the Petitioners and other City employees to pay income taxes on the City’s deferred compensation contributions at the time when those contributions were made, rather than allowing income taxation to be deferred until the benefits were later distributed.[234] When that occurred, in both a practical and legal sense those City payments lost their character as “fringe benefits” within the meaning of Minn. Stat. § 353.01, subd. 10(b)(2) and became current “salary” or “wages” within the meaning of Minn. Stat. § 353.01, subd. 10(b)(2).
PERA takes the position the tax consequences of the City’s payments are not within PERA’s purview, and that the tax treatment of those payments is immaterial.[235] In effect, it argues that the fact that the City’s payroll system called those payments “deferred compensation” is sufficient to require their exclusion. However, excluding those payments from PERA salary for that reason exalts form over substance. Employee-paid deferred compensation benefits are “fringe benefits” only if they are made in such a way that employees only pay income taxes on them at when deferred compensation is withdrawn from the plan. In other words, if employees pay income taxes on them at the time the employer pays them into a deferred compensation plan, income taxation is no longer deferred, and the payments are no longer “fringe benefits” in any reasonable sense of that term. When the City’s deferred compensation payments were prematurely included in employees’ taxable income at the time the payments were disbursed, they were no longer deferred compensation and became current “wages” within the meaning of Minn. Stat. § 353.01, subd. 10(a). The State Auditor’s staff may well had had that in mind when it resolved the audit finding that the City’s deferred compensation payments violated Minn. Stat. § 356.25. The City’s deferred compensation contributions were being taxed when made and therefore became current wages for employees. When those contributions were directed into employee deferred compensation plans, they could therefore have been seen as employee, rather than employer, contributions and not a violation of Minn. Stat. § 356.25.
B. The City’s insurance supplement payments were
PERA salary even when they were subject to income taxes when made.
Like deferred compensation, employer-paid medical insurance is generally recognized as a “fringe benefit.” Under the City’s CBAs with its employees, an employee could direct a specified monthly City payment either to a deferred compensation plan or toward the cost of family medical insurance coverage.[236] The evidence established that between 1995 and August 1, 2007, like the City’s deferred compensation contributions, insurance supplement payments to employees were frequently included in the employees’ taxable income and taxed.[237] The question therefore is whether insurance supplement payments that were immediately subject to income tax should also be treated as current salary or wages.
As discussed above, the ALJ has concluded that employer deferred compensation payments are also a fringe benefit within the meaning of Minn. Stat. § 353.01, subd. 10(b)(2), and are therefore excluded from treatment as PERA salary. However, the defining characteristic of deferred compensation and what makes employer-paid deferred compensation a fringe benefit is deferred income tax treatment. In fact, the only thing that distinguishes current wages from employer deferred compensation payments is the difference in income tax treatment. Current wages are subject to income tax at the time they are paid, and employer deferred compensation payments are not taxed until later on when the employee withdraws funds from the plan. In short, when employer-paid deferred compensation’s defining characteristic—deferred income tax treatment—is eliminated, the payment simply becomes current wages
However, a similar analysis of the City’s insurance supplement produces a different result with respect to consequences of tax treatment. Unlike employer-paid deferred compensation, what distinguishes employer insurance payments is the restrictions on their use, and not their income tax treatment. Unlike current wages, which an employee can use for any purpose, employer insurance payments can only be used to purchase insurance and nothing else. Employees normally have the option of treating employer medical insurance payments as a pre-tax benefit or having them income taxed when made and deducting them as medical expenses. However, regardless of their income tax treatment, they remain employer insurance payments that are explicitly excluded from PERA salary by Minn. Stat. § 353.01, subd. 10(b)(2). For example, if by contract the City were to eliminate that defining characteristic—that is, the restriction of their use to the purchase of insurance, then those payments would also become current wages. But nothing like that happened here.
Because employer insurance payments give an immediate financial benefit to employees in consideration of their employment, one could possibly argue that they also represent a form of current compensation or wages. But even it that view were correct, the legislature has, as a matter of policy, expressly excluded certain types of compensation from treatment as PERA salary. Among them are:
(b) Salary does not mean:
(1) the fees paid to district court reporters, unused annual vacation or sick leave payments, in lump-sum or periodic payments, severance payments, reimbursement of expenses, lump-sum settlements not attached to a specific earnings period, or workers' compensation payments;
(2) employer-paid amounts used by an employee toward the cost of insurance coverage … [Emphasis supplied.]
VII. PERA must recalculate City employee retirement benefits using more
accurate PERA salary information.
PERA bears the burden in this proceeding of establishing by a preponderance of the evidence that the recalculations of the Petitioners’ retirement benefits that PERA is proposing were accurate, and not erroneous, recalculations.[238] The Represented Petitioners argue that because in 2005 the City eliminated much of it payroll detail from prior years from its computer system and did not save paper copies of that detail, all payroll information prior to January 1, 2005, the information that the City provided to PERA is completely unreliable and should not form a basis for any PERA’s benefit recalculations. The ALJ disagrees, at least in part.
In recalculating the retirement benefits of City employees, PERA properly relied on any information that the City reported regarding past City insurance supplement payments as subtractions from previously-reported PERA salary.[239] The evidence only established that the information that the City supplied about past deferred compensation payments was demonstrably inaccurate because it included deferred compensation payments on which employees paid income taxes at the time the payments were made.[240] There was no showing that the City’s pre-2005 payroll data was materially erroneous in any other way. There is also the issue of PERA improperly subtracting all of the City’s deferred compensation contributions by applying an unadopted interpretive rule. Therefore, the ALJ therefore concludes that it is only necessary for PERA to again recalculate the retirement benefits if City employees based by including all or some employer deferred compensation payments as PERA salary.
It is not the duty or obligation of the Petitioners to come forward with more accurate payroll information. Rather, the City has a statutory responsibility to provide accurate salary information to PERA.[241] Although it may require a lengthy audit, Mr. Parson testimony established that the City has the ability to provide PERA with accurate information on the corrected PERA salary of its employees during the period from January 1, 2005, to August 1, 2007, and PERA should require the City to do so.[242] However, it appears to be no longer possible for the City to provide PERA with accurate PERA salary information for its employees during the period from January 1, 1995, through December 31, 2004.[243] Although Minn. Stat. § 353.27, subd. 11(b) allows PERA to estimate the obligations of employers and employees based on the records that are available, it would be arbitrary and capricious and an abuse of statutory discretion for PERA to recalculate Petitioners’ retirement benefit based on demonstrably inaccurate information. Some of the Petitioners retained paystubs from that period. A reasonable approach to establishing more correct PERA salary information for City employees might be for PERA to require the City to recalculate correct PERA salary information for the earlier years based on such paystubs as may still be available. PERA could then apply the percentage of correct PERA salary information established by those available paystubs for the period from January 1, 1995, through December 31, 2004, to the corrected PERA salary for all employees and all pay periods that the City previously reported for that period.
VIII. Conclusion
The ALJ concludes that no statute of limitations prevents PERA from recalculating the retirement benefits of City employees, and that the doctrines of promissory and estoppel do not prevent PERA from recalculating the Petitioners’ retirement benefits or from collecting overpayments from the Petitioners and other City employees. On the other hand, PERA’s interpretation that Minn. Stat. § 353.01, subd. 10, excludes employer-paid deferred compensation is an interpretive rule, which does not qualify as a long standing interpretation and which was not promulgated in accordance with the Minn. Stat. Ch. 14. That interpretation therefore cannot be applied to the Petitioners and other City employees and used in recalculating their retirement benefits. Additionally, a preponderance of the evidence established that the City deferred compensation payments were frequently taxed as income when those payments were made. Whenever that occurred, those payments were no longer excludable fringe benefits but rather became current wages. That is an additional reason why PERA must again recalculate the retirement benefits of City employees using more accurate information and estimates of PERA salary. Although there may be significant difficulties involved with arriving at reasonable estimates of PERA salary for the period 1995 though December 31, 2004, those difficulties are not insurmountable. Moreover, PERA should place most of the burden of arriving at more reasonable estimates on the City, where it statutorily belongs.
B. H. J.
[1] Ms. Heyl was substituted for Assistant Attorney Jon K. Murphy as counsel for the PERA Staff after the earlier proceedings on the parties’ cross-motions for summary disposition.
[2]
Specifically, Petitioners Paul Ostman, Doug Michog, John Edwards, Mark Behning,
Terry Purcell, Doug Belanger, Dave Salveson,
[3] In the Summary, Conclusions, and Memorandum that follow, the ALJ found it more convenient to address the issues raised by the Board in a somewhat different order than the order in which they were presented in the Notices of Hearing.
[4] Except where otherwise indicated, all references to Minnesota Statutes are to the 2009 Supplement.
[5] Copies of the notification letters sent to each of the seventy named Petitioners, as well as the Petitions for Review that each of them subsequently sent to PERA were attached to the respective Notices and Orders for Pre-Hearing Conferences and Hearings. The letter notification sent to Petitioner Allen Johnson and the Petition for Review that he submitted are representative of those documents, and for ease of reference, the ALJ has included them as Hearing Exhibits 18 and 19. See Ex. 18.
[6]
[7] See Ex. 19.
[8]
All subsequent hearings were conducted at the same location, hereafter referred
to as the “
[9] See PERA’s Memorandum in Support of Motion for Summary Disposition dated Dec. 31, 2009. During the October 14, 2010, hearing, the ALJ incorporated that memorandum into the OAH hearing record. All of PERA’s supporting affidavits were received as hearing exhibits.
[10] See Petitioner’s Memorandum in Support of Motion for Summary Disposition dated Feb. 17, 2010, and PERA’s Response in Opposition to Petitioner’s Motion for Summary Judgment dated Mar. 16, 2010. The ALJ also incorporated both of those memoranda into the OAH hearing record, and all of the Represented Petitioners’ supporting affidavits were received as hearing exhibits.
[11] PERA’s letter of April 20, 2010 (PERA Submiss.) and the Represented Petitioners’ letter of April 20, 2010 (Pet. Submiss.), respectively.
[12] See AFSCME
Council 614, 65 and 96, AFL-CIO v. Sundquist, 338 N.W.2d 560, 565 (
[13]
[14]
[15] Minn. Stat. § 353.01, subd. 2a(a).
[16] Tr. pp. 149-50, 169.
[17] Ex. 13, ¶ 3.
[18] See Notices of Hearing in OAH Docket Numbers 4-3600-20751-5 through 4-3600-20820-5, inclusive.
[19]
Act of April 24, 1931, ch. 307, sec. 1, 1931
[20]
[21]
[22]
Act of April 21, 1933, ch. 374, sec. 1, 1933
[23]
In fact, the term “wages” has remained in all successive versions of 1931
[24] See codification reference in Act of
March 9, 1945, ch. 78, sec. 1, 1945
[25]
Act of May 24, 1973, ch. 753, sec. 8, 1973
[26] See Act of March 23, 1974, ch. 229, sec.
3, 1974
[27]
See Act of May 4, 1988, ch. 709. art. 5, sec. 1, 1988
[28] See Act of May 31, 1991, ch. 341, sec 3,
1991
[29] See Act of May 17, 1993, ch. 307, art.
4, sec. 7, 1993
[30] See Act of April 26, 1994, ch. 528, art.
2, sec. 1, 1994
[31] See Act of May 27, 2008, ch. 349, art.
5, sec. 15, 2008
[32] The 2008 language of relevant portions of the subdivision remains in effect.
[33] Act of April 26, 1994, ch. 538, art. 1, sec 13, subd. 2,
1994 Minn. Laws 669, 675-76, codified as Minn. Stat. § 356.88, subd. 2 (1994).
[34] Ex. 20 (at Ex. A).
[35] See Act of May
30, 1995, ch. 262, art. 1, sec. 3, 1995
[36] Ex. 20, ¶11.
[37]
[38] Ex. 9.
[39] Ex. 14 and Ex. 20.
[40] Ex. 129 (at Ex. E-1).
[41] Ex. 129 (at Ex. E-5).
[42] Ex. 129 (at Ex. E-5).
[43] Ex. 129 (at Ex. E-5).
[44] Ex. 129 (at Ex. E-2).
[45] Ex. 129 (at Ex. E-3).
[46] Ex. 129 (at Ex. E-4).
[47] T. pp. 137, 141-42. Ms. Keating’s testimony regarding that 1992 inquiry was based solely on her recollection; she was unable to find documentation in PERA’s files to support how and when that inquiry was made.
[48] Ex. 8.
[49] Ex. 8.
[50] Ex. 7 (A copy of PERA’s May 19, 1992, correspondence was not attached to Ex. 7).
[51] Tr. p. 137.
[52] Ex. 7. A copy of PERA’s May 19, 1992 correspondence was not attached to Ex. 7.
[53] Ex. 20 (at Ex. B).
[54] Ex. 129 (at Exs. E-1 through E-7).
[55] See Finding 43, supra.
[56] Tr. pp. 163-64.
[57] Ex. 112, ¶ 1; Ex.131, ¶ 11.
[58] Ex. 112, ¶11.
[59] Ex. 129 (at Ex. B); see also Ex. 108, ¶ 6 and attachments.
[60]
[61] Ex. 108, ¶ 6; Ex. 111, ¶ 1. See also Ex. 112, ¶ 10; Ex. 131, ¶ 11.
[62] Tr. p. 362.
[63] Ex. 111, ¶ 9; see also 26 U.S.C. § 457.
[64] Ex. 108, ¶ 7; Ex. 130, ¶ 2. On occasions, the City Council apparently allowed the City to maintain a negative fund balance. See Exs. 108 and 112.
[65] Exs. 108, ¶ 9; Ex. 111, ¶ 12; Ex. 130, ¶¶ 2-4.
[66] Ex. 130, ¶ 2.
[67] Ex.108, ¶ 9.
[68] Ex. 131, ¶ 2.
[69]
[70] Ex. 13 (at Ex. 5f); Ex. 129 (at Ex. A).
[71] Ex. 13 at (Ex. 5e).
[72]
[73]
[74]
[75]
[76]
[77]
[78] Ex. 111 at ¶ 12.
[79] Ex. 131, ¶¶ 2, 3 and 5.
[80] Exs. 108, ¶ 4; Ex. 111, ¶ 2.
[81] Ex. 108, ¶ 4.
[82] Ex. 101, ¶ 3;
[83] Tr. pp. 258-60.
[84] Tr. pp. 260, 266, 347.
[85] Ex. 14, (at Ex. 8); Tr. p. 261.
[86]
[87] Tr. p. 343.
[88]
Ex. 131, ¶ 12; Tr. p. 261.
[89]
[90] Ex. 111, at ¶ 14.
[91]
[92] Ex. 111, ¶ 14; Tr. 349-50, 349-50.
[93] Tr. 353-54.
[94] Tr. p. 356-57.
[95]Tr. p. 266.
[96] Tr. pp. 172, 180.
[97]
Ex. 125, ¶¶ 3, 7.
[98] Tr. pp 146-147.
[99] Mr. Hall retired on April 28, 2008. Ex. 131, ¶ 1.
[100] Tr. pp. 266-67.
[101] Ex. 129 (at Ex. E-19); Tr. pp. 262-63.
[102]
[103] Ex. 111, ¶ 15 and attachment; Ex. 123, ¶ 11; Ex. 3.
[104] Ex. 14; Ex. 127; Tr. pp. 365.
[105] Ex. 127.
[106] Tr. p. 348. The evidence did not establish when the City provided PERA with data about the amounts City-paid deferred compensation and insurance supplement payments made during the period 1995 through December 31, 2004.
[107] Tr. pp. 135.
[108] Tr. pp. 269-70.
[109] Tr. pp. 43-46.
[110] Tr. pp. 48.
[111] Ex. 120.
[112] Tr. pp. 59-61, 85, 89.
[113] Tr. pp. 69-70; see also testimony of W. Parson, Tr. p. 289, 348.
[114] Tr. p. 86.
[115] Tr. pp. 66-67, 79-80.
[116] Tr. pp. 70.
[117] Tr. pp. 71.
[118] Tr. pp. 390.
[119]
Tr. pp. A
[120] Tr. pp. 374-90.
[121]
Tr. pp. A
[122] Tr. pp. 374-90.
[123] Ex 111, ¶¶ 16-18.
[124]
[125] Ex. 103; Ex. 104; Ex. 105; Ex. 107; Ex. 109; Ex. 110; Ex. 117; Ex. 119.
[126] Tr. pp. 390-94, 403-04, 406.
[127] Id; compare Ex. 106, ¶ 4; Ex. 109, ¶ 3; Ex. 112, ¶ 12.
[128] Ex. 14 (at Ex. 8); Ex. 129 (at Ex. E-19).
[129] See Findings 98 through 110, below.
[130] Tr. pp. 356-57, 359-60.
[131] Tr. pp. 146-147.
[132] Ex. 101, at ¶¶ 5-6; Ex. 113, ¶ 8; Ex. 114, ¶ 13; Ex. 115, ¶ 4; Ex. 121, ¶ 3; Ex. 122, ¶ 5; Ex. 123, ¶ 11. Petitioner Bryan Brown, who was the Duluth City Attorney from 2000-2008, was not part of a collective bargaining unit but was also paid deferred compensation which was included in salary for PERA purposes. His retirement benefit was also reduced, but he was notified of the reduction in 2008, several months earlier than the other retirees. See Ex. 130, ¶¶ 7-9.
[133] Pet. Mem. in Support of Mot. for Sum. Disp., p. 2; Tr. pp. 358.
[134] Tr. pp. 195-196.
[135] Tr. pp. 150-51, 171-72.
[136] Ex. 101.
[137] Tr. pp 246-49.
[138] The evidence failed to identify who, if any, retired during that period.
[139] Ex. 115, ¶ 5; Tr. pp146-47.
[140] Tr. pp. 173-176.
[141]
[142] Ex. 14 at Ex. 14.
[143]
Act of May 22, 2009, ch. 169, art. 4, secs. 11, 49-50. 2009
[144] Ex. 14, citing ch. 169, art. 4, sec. 11, subds. 7(c) and 7(g).
[145]
[146]
[147] See Trans. at pp. 182-183.
[148] Finding 10.
[149]
Act of May 22, 2009, ch. 169, art. 4, secs. 11, 49-50. 2009
[150] See also Part II of the Memorandum that follows.
[151] See Part I of the Memorandum that follows.
[152] See Part III of the Memorandum that follows.
[153]
Mapleton Community Home, Inc. v.
Minnesota Department of Human Services, 391 N.W.2d 798, 801 (
[154] See Part IV-B of the Memorandum that follows.
[155] See Parts IV-C, IV-D, and IV-E of the Memorandum that follows.
[156] See Part V-A of the Memorandum that follows.
[157] See Part V-B of the Memorandum that follows.
[158] See Part I, supra.
[159] See Part VI of the Memorandum that follows.
[160] Finding 1.
[161] Finding 2.
[162]
See
[163] Tr. pp. 121-26; see also PERA’s Post-Hearing Memorandum dated November 23, 2010 (PERA Post-Hrg. Mem.) at pp. 13-14.
[164]
[165]
Act of June 5, 1991, ch. 341, sec. 11; 1991
[166]
Act of May 22, 2009, ch. 169, art. 4, sec. 11; 2009
[167]
See Lucas v. American Family Ins. Co.,
403 N.W.2d 646, 650 (
[168]
In the Matter of the Application for PERA
Retirement Benefits of Michael A. McGuire, 756 N.W. 2d 517, 519 (
[169]
205 N.W. 444 (
[170]
[171] 258 N.W.2d 877, 880 (
[172] See, McGuire, 756 N.W.2d at 520, citing Mesaba, 258 N.W.2d at 879.
[173]
Axelson v.
[174] See, Axelson, 544 N.W.2d at 298-299.
[175]
Axelson v.
[176] 544 N.W.2d at 302.
[177] 544 N.W.2d 297, 299-300 (1996).
[178] 756 N.W. 2d 517.
[179] 756 N.W.2d at 520.
[180]
1997 WL 118254, CO-96-1390, (
[181] 1997 WL 118254.
[182] 1997 WL 118254, *3.
[183] See, McGuire, 756 N.W.2d at 520.
[184]
Brown v.
[185] Brown, 368 N.W.2d at 910.
[186] Tr. pp. 173-176 (Finding 129).
[187] In re Abbott’s Estate, 6 N.W.2d 466,
467 (
[188]
Mapleton Community Home, Inc. v.
Minnesota Department of Human Services, 391 N.W.2d 798, 801 (
[189]
[190]
[191] Finding 71; see also Ex. 108, ¶ 9; Ex. 111, ¶ 12; Ex. 130, ¶¶ 2-4.
[192] Black’s Law Dictionary 802 (7th ed. 1999).
[193] Mapleton Community Home, supra, 391 N.W.2d at 801.
[194] Findings 28 through 31.
[195] Finding 32.
[196] Finding 34.
[197] See generally Findings 28 through 36.
[198] Finding 35.
[199] Ex. 5, p. 3-11.
[200] This is the way that PERA now interprets the statute. See , e.g., Memorandum of Law in Support of PERA’s Motion for Summary Disposition dated December 31, 2009, (PERA’s Summ. Disp. Mem.) at p. 15.
[201] See further discussion in Part V, below.
[202] PERA Post-Hrg. Mem.) at pp. 13-14, citing Ex. 14 and Ex. 20.
[203] Finding 25.
[204] Finding 48; see also Findings 45, 46, 47, 49, 50, and 51.
[205]
[206] Tr. pp. 136-37.
[207] Findings 53 , 54, 55, and 56.
[208] Finding 55.
[209] Finding 92.
[210] Supra at n. 189.
[211] 356 N.W.2d at 667.
[212] Findings 38 and 39.
[213] Finding 43.
[214] OAH No. 8-3001-17706-2, September 28, 2009.
[215] At p. 43.
[216]
Citing, Dullard v.
[217]
Citing, In the Matter of the Application of Crown CoCo, 458 N.W.2d at 138;
[218] At p. 45.
[219] Citing,Monk
& Excelsior, Inc. v.
[220]
319 N.W.2d 7 (
[221]
[222] See discussion in Part IV-B, supra.
[223] Finding 37.
[224] Ex. 20 (at Ex.A).
[225] Ex. 37.
[226] Ex. 38.
[227]
[228] For example, a material difference might have been that MSRS was the sole provider of deferred compensation plans for state employees, while there were a variety of such plans available to employees of political subdivisions.
[229] See Finding 55.
[230] As discussed above, the fact that PERA’s interpretation of an ambiguous statute may be correct does not excuse it from failing to communicate its interpretation to participating employers and members. See discussion in Part IV, supra.
[231] Mapleton Community Home, supra, 391 N.W.2d at 801).
[232] Ex. 5 at p. 3-11.
[233] Finding 70.
[234] Findings 103 through 117.
[235] PERA Post-Hrg. Mem. at p. 18; PERA’s Reply Memorandum at p. 1; Tr. p. 133.
[236] Findings 74-81.
[237] Findings 108, 111.
[238] See Part I, supra.
[239] Finding 113.
[240] Findings 103-114, 117.
[241]
[242] Findings 100, 114.
[243]