AGO 1976 No. 1 - Jan 12 1976
RETIREMENT ‑- PENSIONS ‑- SALARIES AND WAGES ‑- COMPENSATION ‑- INCLUSION OF TERMINAL LEAVE OR SEVERANCE PAY IN COMPUTING PENSIONS OR RETIREMENT ALLOWANCES
(1) Terminal leave or severance payments for unused sick leave or vacation leave are not to be included in determining the salary or compensation base upon which retirement allowances or pensions are to be computed under the laws governing the Washington law enforcement officers' and firefighters' retirement system (chapter 41.26 RCW) or either of the two judicial retirement systems (chapters 2.10 and 2.12 RCW); however, such payments are to be included in determining the salary or compensation base upon which retirement allowances or pensions are to be computed under the laws governing the Washington public employees' retirement system (chapter 41.40 RCW), the Washington state teachers' retirement system (chapter 41.32 RCW) and the Washington state patrol retirement system (chapter 43.43 RCW).
(2) Where terminal leave or severance payments for unused sick leave or vacation leave are to be included in determining the salary or compensation base upon which retirement allowances or pensions are to be computed, the only such payments 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.
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January 12, 1976
Honorable John A. Bagnariol
State Representative, 11th District
Olympia, Washington 98504
Cite as: AGO 1976 No. 1
By letter previously acknowledged, you have requested our opinion on a question which we paraphrase as follows:
To what extent are a retiring public employee's terminal leave or severance payments for unused sick leave or vacation leave to be included in determining the salary or compensation base upon which his retirement allowance or [[Orig. Op. Page 2]] pension is to be computed under the laws governing the following state retirement systems:
(1) The Washington law enforcement officers' and fire fighters' retirement system ‑ chapter 41.26 RCW;
(2) The Washington public employees' retirement system ‑ chapter 41.40 RCW;
(3) The Washington state teachers' retirement system ‑ chapter 41.32 RCW;
(4) The judges' retirement systems provided for in chapters 2.10 and 2.12 RCW; and
(5) The Washington state patrol retirement system ‑ chapter 43.43 RCW?
We answer this question in the manner set forth in our analysis.
Your question quite obviously encompasses all of the major state retirement systems. Each of these retirement systems, as you know, is governed by a separate set of statutes within which there is, in each case, a distinct provision setting forth the method by which retirement benefits are to be calculated.
With respect to the law enforcement officers' and fire fighters' retirement system (LEFF) benefits1/ are calculated on the basis of a percentage of the retiring members' "final average salary" which is defined by RCW 41.26.030(12) as follows:
"'Final average salary' means (a) for a member holding the same position or rank for a minimum of twelve months preceding the date of retirement, thebasic salary attached to such same position or rank at time of retirement; (b) for any other member, including a civil service member who has not served a minimum of twelve months in the same position or rank preceding the date of [[Orig. Op. Page 3]] retirement, the average of the greatestbasic salaries payable to such member during any consecutive twenty-four month period within such member's last ten years of service for which service credit is allowed, computed by dividing the totalbasic salaries payable to such member during the selected twenty-four month period by twenty-four; (c) in the case of disability of any member, the basic salary payable to such member at the time of disability retirement; (d) in the case of a member who hereafter vests pursuant to RCW 41.26.090, the basic salary payable to such member at the time of vesting." (Emphasis supplied.)
"Basic salary," in turn, is defined by RCW 41.26.030(13) to mean:
". . . the basic monthly rate of salary or wages, including longevity pay but not including overtime earnings or special salary or wages, upon which pension or retirement benefits will be computed and upon which employer contributions and salary deductions will be based."
In the case of the public employees' retirement system (PERS) the key term, upon which retirement benefits depend, is "average final compensation."2/ As defined in RCW 41.40.010(15) this term means:
". . . the annual average of the greatest compensation earnable by a member during any consecutive two year period of service for which service credit is allowed; or if he has less than two years of service then the annual average compensation earnable during his total years of service for which service credit is allowed." (Emphasis supplied.)
[[Orig. Op. Page 4]]
"Compensation earnable," in turn, is defined by RCW 41.40.010(8) as:
". . . salaries or wages earned during a payroll period for personal services and where the compensation is not all paid in money maintenance compensation shall be included upon the basis of the schedules established by the member's employer: . . ."
Under the statutes governing the Washington state teachers' retirement system (TRS), retirement benefits are computed on the basis of a percentage of the "average earnable compensation" for the retiree's two highest compensated consecutive years of service.3/ "Earnable compensation," under RCW 41.32.010(11), means:
". . . all salaries and wages paid by an employer to an employee member of the retirement system for personal services rendered during a fiscal year. In all cases where compensation includes maintenance the board of trustees shall fix the value of that part of the compensation not paid in money: . . ."
Pension benefits for state court judges covered by chapter 2.12 RCW are calculated as a percentage of "the monthly salary they were receiving as a judge at the time of their retirement." See, RCW 2.12.030. Under chapter 2.10 RCW, which covers those judges not subject to chapter 2.12 RCW, benefits are calculated on the basis of a percentage of "final average salary." See, RCW 2.10.110 and 2.10.130. This term is defined in RCW 2.10.030(9) as follows:
"'Final average salary' means (a) for a judge in service in the same court for a minimum of twelve consecutive months preceding the date of retirement, the salary attached to the position held by the judge immediately prior to retirement; (b) for any other judge, the average monthly salary paid over the highest twenty-four month period in the last ten [[Orig. Op. Page 5]] years of service."
Lastly, the Washington state patrol retirement system (WSPRS) generally calculates retirement benefits as a percentage of "average final salary"4/ which is defined by RCW 43.43.120(14) as:
". . . the average monthly salary received by a member during his last two years of service or any consecutive two year period of service, whichever is the greater, as an employee of the Washington state patrol; or if he has less than two years of service, then the average monthly salary received by him during his total years of service."
II.Response to Question Posed:
A.Judges Retirement Systems:
We may quickly dispose of your question insofar as it relates to the two retirement systems for state court judges which are provided for by chapters 2.10 and 2.12 RCW. Under each law, the retirement benefits to be paid are based exclusively upon thesalary or monthly salary paid to the judge by reason of his position at the time of his retirement or, in certain cases, the averagemonthly salary paid to the retiring judge over a specified twenty-four month period. That salary, in the case of all three classes of judges covered by either of these pension systems,5/ is specifically fixed by statute at [[Orig. Op. Page 6]] a given annual sum, payable in regular monthly installments as services are rendered, and includes no terminal leave payments of any kind upon termination of service. See, RCW 2.04.090 (supreme court), RCW 2.06.060 (court of appeals), and RCW 2.08.090 (superior courts); accord, Article IV, §§ 13, 14 and 30 of the state constitution under which such judges are only to receive for their services such salaries or compensation as shall have been prescribed by law. Therefore, the simple answer to this portion of your question is that terminal leave or severance payments for unused sick leave or vacation leave play no part in the computation of retirement allowances or pensions under either judicial retirement system.
B.Law Enforcement and Fire Fighters' Retirement System:
Likewise, it is our opinion that such terminal leave or severance payments have no relevance with respect to benefits paid under the laws governing this retirement system for county and municipal law enforcement officers and fire fighters, as codified in chapter 41.26 RCW ‑ but for a somewhat different reason.
Unlike supreme, appeals and superior court judges, we understand that most of the personnel covered by this system do in fact receive, as a part of their compensation plans, leave benefits in the form of so many days of vacation or sick leave for each month of service or the like. And, in many cases, that leave may be translated into cash payments upon termination to the extent it has been accrued but not used during the terminating employee's period of active employment service.6/ Nevertheless, by reason of the definition of "basic salary" set forth in RCW 41.26.030(13),supra, such payments, if made, will not be relevant to the calculation of the terminating employee's retirement benefits.
Again, this definition reads as follows:
"(13) 'Basic salary' means the basic monthly rate of salary or wages, including longevity paybut not including overtime earnings orspecial salary or wages, upon [[Orig. Op. Page 7]] which pension or retirement benefits will be computed and upon which employer contributions and salary deductions will be based." (Emphasis supplied.)
While, as we will note below, the phrase "salary or wages" is broad enough to include terminal leave or severance pay for accrued but unused vacation or sick leave earned during the course of one's employment with a public agency in the absence of a qualifying statute to the contrary, such payments are, undoubtedly, a "special" form of salary or wages. Therefore, they fall within the scope of the express exclusionary language of RCW 41.26.030(13) which we have above underscored.
C. Public Employees' and Teachers' Retirement Systems:
We will treat these two retirement systems together because of the similarity of their respective statutes. Under both chapter 41.32 and 41.40 RCW, the statutory scheme involves an averaging of the "earnable compensation" (RCW 41.32.010(11) or "compensation earnable" (RCW 41.40.010(8)) of the retiring employee during his two highest compensated consecutive years of covered service. Likewise, in each case, the above quoted term is defined to encompass the "salaries" and/or "wages" of the employee for personal services rendered by him in his capacity as an employee of the state agency or political subdivision by which he was employed during the measuring period.
Two basic questions thus arise. The first is whether the phrase "salaries and wages" is broad enough to cover terminal leave or severance pay for vacation or sick leave;7/ [[Orig. Op. Page 8]] and the second (assuming a positive answer to the first) involves the ascertainment of the proper time period to be used in crediting such pay as a part of the retiring employee's "average" compensation earnable (or earnable compensation).
This office, in an opinion dealing specifically with the phrase "compensation earnable" as defined in RCW 41.40.010(8) for the purposes of PERS, has previously answered the first of these two questions in the affirmative. See, letter opinion dated May 15, 1972, to the prosecuting attorney of Grant county [[to Paul Klasenan Informal Opinion, AIR-72539]](copy enclosed) where, at page 2, we said:
"Under Article VIII, §§ 5 and 7 of the Washington constitution, any lump sum payments to a separating employee for accrued vacation or the likemust be regarded as compensation for services previously rendered; otherwise, the payments would constitute an unconstitutional gift of public moneys.8/
"For this reason, any such payments must also be regarded as constituting 'compensation earnable' for purposes of the retirement law. We understand that this has been the standard interpretation given by the administrators of the retirement system since its inception, and we believe that this approach is legally proper."
Likewise, in AGO 63-64 No. 61 [[to E.B. Rogel, Secretary-Manager, Teachers' Retirement System on October 1, 1963]](copy enclosed), we stated that the term "earnable compensation" under RCW 41.32.010(11), supra, includes such monetary payments as may be made by a school district for the purchase of tax deferred annuities for its teachers,9/ saying (at p. 5):
[[Orig. Op. Page 9]]
"Obviously, for the constitutional reasons heretofore noted, the employer's annuity purchase payments are a form of 'compensation.' As for being a form of 'salaries and wages,' it is of course basic that in the absence of a contrary expression of legislative intent (and none here appears) words used in a statute are to be given their usual and ordinary meaning. Crown Zellerbach Corp. v. State, 53 Wn. (2d) 813, 328 P. (2d) 884 (1958).
"The word 'salary' is defined in Webster's Third New International Dictionary (1963 ed.) as:
"'a fixed payment at regular intervals for services.'
"Black's Law Dictionary, quoted with approval in Maes v. City of New Orleans, (La.) 97 So. (2d) 856 (1957), defines 'salary' simply as:
"'A reward or recompense for services performed.'
"Accordingly, it is our opinion that employer's annuity purchase payments, as authorized by § 10, chapter 10, Laws of 1963, Ex. Sess.,supra, should be taken to constitute a form of 'earnable compensation' under . . . [what is now codified as RCW 41.32.010(11)]."
This general view of the scope of "salaries and wages" is likewise supported by numerous cases from other jurisdictions. Thus, a sick leave allowance has been held to be encompassed within the term "wages" inBarrett v. California Unemployment Insurance Appeals Board, 12 Cal.Rptr. 356, 190 C.A.2d 854 (1961) and Temple v. Pennsylvania Department of Highways, 445 Pa. 539, 285 A.2d 137 (1971). Vacation pay has similarly been held to be encompassed by the term "wages" inGeremia v. Administrator, Unemployment Compensation Act, 146 Conn. 264, 150 A.2d 203 (1959);Carter v. Board of Review Under Oklahoma Employment Security Act, 323 P.2d 362 (1958); and Textile Workers Union of America, CIO v. Williams Port Textile Corp., 136 F.Supp. 407 (D.C. Pa. M.D. 1955).
[[Orig. Op. Page 10]]
InHebbler v. New Orleans Fire Department, 299 So.2d 825 (La. App. 1974), in the context of a firemen's pension law, the phrase "salaries and wages" was held to include not only base pay but overtime and holiday pay as well ‑ in the absence of a statutory limitation such as we have previously noted in RCW 41.26.030(13),supra.
Other cases of similar import include the following:
(1)Matlock v. Industrial Commission, 70 Ariz. 25, 215 P.2d 612 (1950), in which the court held that the term "wages" was broad enough to cover such incidental benefits as the value attributable to supplying a worker with a house, utilities, milk, eggs and meat.
(2)State v. Abbott, 48 A.2d 745 (Del. 1946), where the court held that in computing the pension benefit of a state patrolman, the amount paid to him as incentive pay for acquiring special skills constituted "salary" for purposes of the applicable retirement act.
(3) Our own case ofSkrivanich v. Davis, 29 Wn.2d 150, 186 P.2d 364 (1947), in which the term "wages" was held to extend so far as to encompass the payment of a pre‑agreed portion of the profits of a fishing excursion to the men who worked on the fishing boat.
Because RCW 41.26.030(13), supra, specifically excludes overtime earnings or other "special salary or wages" we have earlier concluded that terminal leave or severance payments should not be considered in determining the "basic salary" of a retiring law enforcement officer or fire fighter ‑ and, hence, his retirement allowance or pension under chapter 41.26 RCW. Conversely, however, this limiting language does not appear in either RCW 41.32.010(11) or RCW 41.40.010(8), as above quoted. Therefore, on this aspect of your question (following the lead of our earlier opinions as above noted) it is our opinion that for the purposes of both the public employees' and the teachers' retirement systems a retiring member's terminal leave or severance pay for accumulated but unused vacation leaveis to be considered in determining the salary or compensation base upon which his retirement allowance or pension is to be computed ‑ as is similar severance pay for accumulated but unused sick leave in the case of those local, but not state, employees who receive such pay under their particular compensation plans.
[[Orig. Op. Page 11]]
Having so concluded, however, we must now resolve the second question above alluded to; that of the proper time period to be used in crediting such pay for retirement purposes. Isall of the amount paid to a retiring employee for unused vacation or sick leave to be included in the computation ‑ or only some ‑ i.e., that which is paid for leave actually earned during the two year period being utilized to determine "average final compensation" in each particular case?
It is, we think, a quite logical extension of the above discussed cases to regard the special forms of compensation with which they were concerned as having been earned at the time they accrued and not at the time they are paid. In other words, their ultimate monetary value (if any) should be looked upon as a part of the "salaries" and/or "wages" accruing to the employee for the week, month or other pertinent time period during which the services for which they are ultimately paid were, in fact, rendered.
This being so it follows, in our opinion, that under both RCW 41.40.010(15),supra, and the comparable provisions of chapter 41.32 RCW, the correct approach to be taken in factoring in any terminal leave or severance pay received by an employee at the time of his retirement is to look not to the total amount received but, instead, only to that paid for accrued but unused days of leave which were actually earned during the measuring two year period. Thus, for example, if a terminating employee had compensation for a total of sixty days of unused sick leave payable to him but had only earned twenty-four of those days during the two year period being used to establish his retirement base, any benefit calculation keyed to the average compensation earnable during those two years would include only the amount of terminal leave pay attributable to the twenty-four days. Leavetaken during the two year period would, however, not have to be deducted if the employee had a sufficient amount standing to his credit at its commencement to cover such absences ‑ based upon a premise that the first leave earned is to be regarded as the first leave used.
An approach quite similar to the above, we note, has been used in connection with the federal bankruptcy laws. Those laws allow a workman to receive a priority for compensation earned during the three month period immediately preceding [[Orig. Op. Page 12]] his employer's declaration of bankruptcy.10/ In one case, several employees were granted vacation credits during July of each year. However, these credits were earned during the whole year. The court, in considering whether a full year's vacation payments were entitled to the priority (because July had fallen within the three month period), determined that only one‑fourth of the vacation pay earned during the whole year was so entitled ‑ for the reason that only one‑fourth of it had been earned during the three month period in question. U.S. v. Munro-Van Helms Company, 243 F.2d 10 (1957).
D.Washington State Patrol Retirement System:
As earlier indicated, retirement benefits under this system are generally calculated as a percentage of "average final salary" which is defined by RCW 43.43.120(14) as:
". . .the average monthly salary received by a member during his last two years of service or any consecutive two year period of service, whichever is the greater, as an employee of the Washington state patrol; or if he has less than two years of service, then the average monthly salary received by him during his total years of service."
The language of this statute is, of course, quite similar to that of RCW 2.10.030(9),supra, with respect to those members of the judicial retirement system established by chapter 267, Laws of 1971, Ex. Sess., who do not hold the same judicial position during the entire twelve consecutive months prior to their retirement; i.e., (repeated for ease of reference):
"'Final average salary' means . . . (b) for any other judge, the average monthly salary paid over the highest twenty-four month period in the last ten years of service."
On the other hand, state patrol officers (unlike judges) do earn and accumulate both annual vacation leave and sick leave and, under RCW 43.01.041, are entitled to cash out their accumulated but unused annual vacation leave upon terminating their employment with the state. Thus, these [[Orig. Op. Page 13]] personnel fall in between those considered in the portion of this opinion which dealt with the two judicial retirement systems (pp. 5 and 6, above) and that which dealt with the public employees' and teachers' retirement systems (pp. 7 to 12).
In fact, we are advised that the administrative practice under RCW 43.43.120,supra, over the years, has been to include a retiring state patrolman's severance pay in determining his "final average salary" for pension purposes under RCW 43.43.120(14),supra. During those years this statute has been amended in other respects without, however, any repudiation of this practice by the legislature. See, in particular, § 1, chapter 12, Laws of 1969, reducing the term of the measuring period from five years to two. Thus, this resulting administrative construction would undoubtedly be given great credence by the courts if the matter were now to be litigated. As was explained inBradley v. Dept. of Labor and Ind., 52 Wn.2d 780, 786, 329 P.2d 196 (1958):
". . . Where a statute is ambiguous, construction placed upon it by the officer or department charged with its administration is not binding on the courts but is entitled to considerable weight in determining the legislative intention, and the persuasive force of such interpretation is strengthened when the legislature, by its failure to amend or by amending some other particular without repudiating the administrative construction, silently acquiesces in the administrative interpretation. White v. State, 49 Wn. (2d) 716, 306 P. (2d) 230." (Emphasis supplied.)
Viewed in this light, it is our opinion that the mere fact that RCW 43.43.120(14) uses the term salary alone, and not in conjunction with the term wages, does not constitute sufficient evidence of a legislative intent to exclude terminal leave payments in fact made to retiring state patrolmen.11/ In thus generally answering this final part [[Orig. Op. Page 14]] of your question in the affirmative, however, we must, of course, here add the same basic qualification that we established above in reviewing the laws governing the public employees' and teachers' retirement systems. Thus, as there, it is only that severance pay which relates to leave actually earned during the two year period being used to compute "average final salary" in each case that is to be factored into the computation.
This completes our consideration of the several parts of your question, as above set forth, and we hope that this opinion will be of some assistance to you.12/
Very truly yours,
PHILIP H. AUSTIN
Deputy Attorney General
WAYNE L. WILLIAMS
Assistant Attorney General
*** FOOTNOTES ***
1/See, RCW 41.26.100, RCW 41.26.130 and RCW 41.26.160.
2/See, RCW 41.40.185, RCW 41.40.190, RCW 41.40.220 and RCW 41.40.235.
3/See, RCW 41.32.497, RCW 41.32.498, etc.
4/See, RCW 43.43.260. However, benefits for service incurred disability are, instead, based upon a fraction (1/2) of the member's "existing wage during the time the disability continues in effect." RCW 43.43.040.
5/Chapter 2.10 RCW covers all supreme, appeals and superior court judges first appointed or elected on or after August 9, 1971, and such other judges as have elected to transfer into the system established by the law which this chapter codifies ‑ chapter 267, Laws of 1971, Ex. Sess. Chapter 2.12 RCW covers those pre‑August 19, 1971 supreme, appeals or superior court judges who have not so transferred their memberships.
6/Accord, AGO 63-64 No. 97 [[to Cliff Yelle, State Auditor on April 8, 1964]], copy enclosed.
7/Again, as in the case of county or municipal law enforcement officers and fire fighters, most members of PERS and TRS do accumulate both annual vacation leave and sick leave during the course of their employment. For state employees such annual leave ‑ but not sick leave ‑ is convertible into severance pay upon termination under RCW 43.01.041. In the case of most county or other municipal employees, both types of leave may be thus converted if the governing local compensation plan so provides. Accord, AGO 63-64 No. 97,supra; but see, RCW 28A.58.100(2)(f) with respect to sick leave for school district employees.
8/Accord, Bakenhus v. Seattle, 48 Wn.2d 695, 296 P.2d 536 (1956), in which the court held similarly with respect to public employees' pensions themselves.
9/See, RCW 28A.58.560.
10/11 U.S.C. § 104(a)(2).
11/Unlike supreme, appeals and superior court judges who, as we have seen, do not in any case receive such payments so as to give rise to any possibility of their inclusion, by either legislative or administrative action, in the compensation base upon which pensions are computed under RCW 2.10.030(9), supra.
12/If the legislature desires to change any of the results we have reached in this opinion by adopting more restrictive definitions of "average final compensation" or the like, it will be quite free to do so as to all new employees coming into membership in a given system after the effective date of the amendment. In the case ofexisting employees, on the other hand, any such change in the pension statutes themselves could be subject to an "impairment of contract" challenge underBakenhus v. Seattle, 48 Wn.2d 695, 296 P.2d 536 (1956), and related cases. See, AGLO 1973 No. 79 [[to A. N. Schinpoch, Chairman, Legislative Budget Committee on July 23, 1973 an Informal Opinion, AIR-73579]], copy enclosed. If limited tofuture leave accumulations, however, it is possible that such a change could be constitutionally sustained even as to such existing employees ‑ and we would most certainly try to defend such legislation if passed by the legislature and later challenged. Alternatively, the legislature could probably solve the problem without amending any of the pension statutes by, instead, modifying the laws relating to leave benefits, in some appropriate manner.