PENSIONS ‑- RETIREMENT ‑- PUBLIC EMPLOYEES' RETIREMENT SYSTEM ‑- TEACHERS' RETIREMENT SYSTEM ‑- LIABILITY FOR ADDED PENSION COSTS
Payment of a lump sum amount to a retiree for accrued annual leave at the time of his or her termination of employment does not constitute a salary increase for the purposes of § 34, chapter 52, Laws of 1982, 1st Ex. Sess. or § 2, chapter 10, Laws of 1982, 1st Ex. Sess. relating to employer liability for increased retirement benefit costs under the laws governing the Public Employees' Retirement System and the State Teachers' Retirement System, respectively.
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May 27, 1982
Honorable Joe Taller
Office of Financial Management
House Office Building
Olympia, Washington 98504
Cite as: AGO 1982 No. 6
By recent letter you requested our opinion on several questions relating to public employees' retirement benefits under § 34, chapter 52, Laws of 1982, 1st Ex. Sess. (SB 4640) and the comparable language of § 2, chapter 10, Laws of 1982, 1st Ex. Sess. (SSHB 987). Specifically, you asked:
"1. Assume an employee who is a member of PERS I terminates with intent to retire June 30, 1982 and receives a lump sum cash out of accrued annual leave July 15, 1982. Is that lump sum cash out included in the employee's AFC? Is the employer liable under SB 4640 for the retirement benefit cost resulting from that cash out?
"2. Assume an employee who is a member of PERS I terminates with intent to retire September 30, 1982. This employee receives a lump sum cash out of accrued annual leave pursuant to a written contract October 15, 1982. Is the lump sum cash out included in the employees's AFC? Is the employer liable for the retirement benefit cost resulting from the cash out?
[[Orig. Op. Page 2]]
"3. To what extent are your answers regarding SB 4640 applicable to TRS I and TRS II members and their employers under SSHB 987 (Chapter 10, Laws of 1982, 1st Extraordinary Session)?"
We answer your questions in the manner set forth in our analysis:
Questions (1) and (2):
The full text of § 34, chapter 52, Laws of 1982, 1st Ex. Sess., to which your first two questions refer, reads as follows:
"The department of retirement systems shall make a review of each member employed by an employer being retired on and after July 1, 1982, and whose benefits are determined by RCW 41.40.185. The purpose of the review is to identify any retiree whose average compensation earnable for purposes of determining retirement benefits exceeds the average annual compensation during the two-year period immediately preceding the years used in computing retirement benefits by more than the percentage increase determined in subsection (1) of this section.
"(1) For the retiree's average final compensation period, the basis for making the comparison required by this section shall be a percentage increase equal to one percentage point in excess of each of the average percentage general salary increases granted during such average final compensation period to all employees of that employer who are members of the retirement system under this chapter, adjusted for incremental increases for seniority and/or performance, and staff position changes.
"(2) For all retirees identified in this section, the department shall calculate the increase in the basic retirement benefit which results fromany increase in salary granted an employee in excess of the authorized salary increase. The department will then, utilizing tables developed by the state actuary, determine the extra pension cost attributable to exceeding such average and shall bill the retiree's employer, who shall remit [[Orig. Op. Page 3]] the entire amount determined to the retirement system within thirty days, except that the director is empowered to omit billing for an amount less than fifty dollars.
"(3) Any post-retirement increases resulting from the excess benefit identified in subsection (2) of this section shall be billed to the last employer as they occur on the basis set forth in subsection (2) of this section." (Emphasis supplied)
The basic difference between your first two questions involves, merely, the date of separation from service for the purpose of retirement; i.e., June 30, 1982 on the one hand (prior to the effective date of chapter 52,supra, and September 30, 1982 on the other. As those questions are further stated, however, we need not here resolve the issue thus raised in order, ultimately, to answer either question.
We have already concluded, in previous opinions, that a lump sum payment made to a retiring employee for accrued annual leave is, within certain limits, to be included in determining the salary or compensation base upon which his or her retirement allowance (or pension) is to be computed under the laws governing both the Washington Public Employees' Retirement System (chapter 41.40 RCW) and the Washington State Teachers' Retirement System (chapter 41.32 RCW). See, AGO 1976 No. 1 and AGLO 1980 No. 11, copies enclosed, as well as the intervening (and consistent) ruling of the Washington Supreme Court in Washington Ass'n of County Officials, et al. v. Washington Public Employees' Retirement System Board, et al., 89 Wn.2d 729, 575 P.2d 230 (1978).1/ Accordingly, tothat extent, the initial segments of both of your questions are answerable in the affirmative; i.e., in each instance, the lump sum cashout you have described, if lawfully granted, is to be included in the employee's "average final compensation" as that term is defined in RCW 41.40.010(15)(a) for the purposes of PERS Plan I.
Having so concluded on that point, however, we nevertheless [[Orig. Op. Page 4]] respond to the second part of your first two questions in the negative. The matter of potential employer liability, under § 34, chapter 52,supra, is covered by subsection (2) of that enactment. Here repeated for ease of reference, that subsection reads as follows:
"(2) For all retirees identified in this section, the department shall calculate the increase in the basic retirement benefit which results fromany increase in salary granted an employee in excess of the authorized salary increase. The department will then, utilizing tables developed by the state actuary, determine the extra pension cost attributable to exceeding such average and shall bill the retiree's employer, who shall remit the entire amount determined to the retirement system within thirty days, except that the director is empowered to omit billing for an amount less than fifty dollars." (Emphasis supplied)
Thus, it is not every increase in a retiree's "basic retirement benefit" resulting from a significant increase in "average final compensation" which triggers an employer's liability for costs. Instead, such liability is only triggered where the precipitating cause of the AFC (and, hence, benefit)2/ increase is an ". . . increase in salary granted an employee in excess of the authorized salary increase. . . ."
Clearly, a lump sum payment to a retiree for accrued annual leave is a part of his or her "compensation earnable"‑-which is why we ruled as we did in AGO 1976 No. 1 and AGLO 1981 No. 11, supra. But it is equally clear, in our opinion, that such a lump sum payment for accrued, and unused, annual leave which has already been lawfully earned3/ is not the same thing as a salary increase.
This question raises the same issues as your first two questions‑-but in the context of another act of the 1982 legislature. We have reference to § 2, chapter 10, Laws of 1982, [[Orig. Op. Page 5]] 1st Ex. Sess. (SSHB 987) which relates to those retiring under RCW 41.32.497 or RCW 41.32.498 as members of the Washington State Teachers' Retirement System.
Section 2, chapter 10,supra, is, however, in all material respects identical to the above‑quoted language of § 34, chapter 52.
We therefore have no hesitation in advising you that our answers to your first two questions, above,4/ are equally applicable in this instance.
This completes our consideration of your questions. We trust that the foregoing will be of assistance to you.
Very truly yours,
KENNETH O. EIKENBERRY
PHILIP H. AUSTIN
Deputy Attorney General
*** FOOTNOTES ***
1/The pertinent limitation on the foregoing, as explained in both opinions, is that the only payments which are thus to be included are those reflecting such leave actually earned‑-but not taken‑-during the time period being utilized in each case to determine the appropriate salary or compensation base for retirement purposes.
2/See, RCW 41.40.185.
3/We also, of course, assume for purposes of this opinion the legality, under all applicable statutes, of the lump sum payment per se.
4/I.e., that the lump sum payments (if lawfully made) are to be included in computing the employee's pension but that the employer is not liable, under the subject law (in this case, § 2(2), chapter 10,supra) for the retirement benefit cost resulting from that cashout.