Bohlen v. DiNapoli

• Decision Date: 13 February 2020
• Docket Number: No. 6,6
• Citation: 34 N.Y.3d 434,143 N.E.3d 1094,121 N.Y.S.3d 216
• Parties: In the Matter of Bruce D. BOHLEN, et al., Respondents, v. Thomas P. DINAPOLI, in His Capacities as the Comptroller of the State of New York and the Administrative Head of the New York State and Local Employees’ Retirement System, et al., Appellants.
• Court: New York Court of Appeals Court of Appeals

34 N.Y.3d 434

143 N.E.3d 1094

121 N.Y.S.3d 216

In the Matter of Bruce D. BOHLEN, et al., Respondents,

v.Thomas P. DINAPOLI, in His Capacities as the Comptroller of the State of New York and the Administrative Head of the New York State and Local Employees’ Retirement System, et al., Appellants.

No. 6

Court of Appeals of New York.

February 13, 2020

Letitia James, Attorney General, Albany (Sarah L. Rosen- bluth, William E. Storrs, Barbara D. Underwood, Jeffrey W. Lang and Victor Paladino of counsel), for appellants.

DeGraff, Foy & Kunz, LLP, Albany (George J. Szary of counsel), and Port Authority of New York and New Jersey, Law Department, New York City (Stephen Marinko of counsel), for respondents.

OPINION OF THE COURT

FAHEY, J.

Government pensions are based on employees' regular average salaries. All New York State employees rely on the integrity of the pension system. The protection against its manipulation is one of the Comptroller's primary responsibilities.

Here, we uphold a determination of the Comptroller's Office that a Port Authority compensation adjustment program artificially enhanced certain employees' final average salaries so as to increase their retirement benefits, and that payments made pursuant to the program were not pensionable compensation under Retirement and Social Security Law § 431(3), which provides that "any additional compensation paid in anticipation of retirement" must be excluded from final average salary calculations.

I.

Bruce Bohlen and ten other employees of the Port Authority of New York and New Jersey ("petitioner employees" or "the executive employees") held executive positions at the agency in the aftermath of the terrorist attacks of September 11, 2001. The Port Authority is a participating employer in the New York State and Local Employees' Retirement System ("the Retirement System").

In 2002, the Port Authority's Board of Commissioners approved participation in a statutory retirement incentive program that offered additional pension benefits to certain public employees if they retired before the end of the year (see L 2002, ch 69). The purpose of the retirement incentive was "to achieve cost-savings for public employers and to avoid layoffs of public employees in th[e] time of fiscal need" following the September 11 attacks (L 2002, ch 69, § 2). Petitioner employees, as key executives, were exempted from the retirement incentive program, by determination of the Port Authority's Executive Director.

In the same year, petitioner employee Louis LaCapra, the agency's Chief Administrative Officer, recommended to the Executive Director "a compensation adjustment program" that would "achieve [an] equivalent level of pension benefit for" employees, including LaCapra himself, who would be exempted from the retirement incentive. A Retirement System member's pension benefit depends upon their final average salary, i.e., "the average salary earned by ... a member during any three consecutive years which provide the highest average salary" ( Retirement and Social Security Law § 443[a] ). LaCapra suggested a salary increase to replicate the level of pension benefit that the executive employees would not otherwise be able to receive. The Executive Director adopted the recommendation, describing the proposal to the Board as a "retention program."

In December 2002, petitioner employees signed letter agreements acknowledging their exemption from the retirement incentive and their acceptance of the "retention program," which was described as being "designed to provide a limited number of staff members with a ‘parity’ benefit." Petitioner employees were not required to remain with the Port Authority for any particular period of time after the end of the year in order to receive the salary increases. If the key employees "remain[ed] employed for three additional years, [their] pension calculation[s] ... would be roughly equivalent to the calculation[s] if [they] had been eligible to retire with the incentive at the present time." The executive employees received the promised pay raises, which ranged from 4.5% to 11% of salary and were included in biweekly payroll checks, for periods ranging from nine months to ten years.

Initially, eight petitioner employees who retired were awarded benefits that included the pay raises in the calculations of their final average salaries. In 2012, however, LaCapra and the remaining two petitioner employees submitted retirement applications, and subsequently all petitioner employees received determination letters from the Retirement System, stating that the compensation adjustment payments should have been, or (in the case of the last three) would be, excluded from final average salaries for pension calculation purposes. The Retirement System explained that the allowances were "retention payments made to delay retirement," and constituted "compensation paid in anticipation of eventual retirement." In that regard, Retirement and Social Security Law § 431 provides that "[i]n any retirement or pension plan to which the state or municipality thereof contributes, the salary base for the computation of retirement benefits shall in no event include ... any additional compensation paid in anticipation of retirement " ( Retirement and Social Security Law § 431[3] [emphasis added] ).

Petitioner employees requested a hearing and reconsideration, the cases were consolidated, and the employees agreed to be bound by the Comptroller's ultimate determination of petitioner Bohlen's challenge. Petitioner employees maintained that the payments were designed to discourage, rather than encourage, retirement and hence, as they saw it, were not made "in anticipation of retirement." They also argued that the application of Retirement and Social Security Law § 431(3) to the six petitioner employees, including Bohlen, who had joined the Retirement System before the statute's June 17, 1971 effective date, violates Article V, § 7 of the State Constitution.

The Hearing Officer found that the Port Authority had given "each of the applicants additional compensation to increase their final average salaries so that their pensions would equal what their pensions would have been had they been eligible for the retirement incentive and taken it in December 2002." The Hearing Officer ruled that the Retirement System had acted reasonably in excluding the allowance payments from final average salary, concluding that the Retirement System "had the authority to determine what payments were excludable as ... made in anticipation of eventual retirement ..., whether the applicant joined the Retirement System before or after the effective date of § 431." The Executive Deputy Comptroller adopted these findings and conclusions and denied petitioner employees' applications for reconsideration.

II.

Petitioners, who comprise the surviving executive employees and the beneficiaries of two of the executive employees who have died, commenced this CPLR article 78 proceeding in Supreme Court, challenging the determination of the Comptroller's Office. Petitioners sued that Office; the Retirement System; the Comptroller, Thomas P. DiNapoli, who is also the administrative head of the Retirement System; and the Executive Deputy Comptroller, Colleen C. Gardner. Petitioners argue that the Comptroller's decision is not supported by substantial evidence and that the statute does not apply to the employees who had joined the Retirement System prior to June 17, 1971. Supreme Court transferred the matter to the Appellate Division pursuant to CPLR 7804(g).

The Appellate Division annulled the Comptroller's determination, granted the petition, and remitted the matter to the Retirement System (164 A.D.3d 1038, 83 N.Y.S.3d 366 [3d Dept. 2018] ). The Court concluded that the "payments are more appropriately characterized as ... made to delay petitioners' retirements, not to artificially inflate their final average salary in anticipation of retirement" ( 164 A.D.3d at 1040, 83 N.Y.S.3d 366 ) and found it "telling that both the Retirement System and the Hearing Officer ... characterized the payments as having been made ‘in anticipation of eventual retirement’ (emphasis added)" ( id. ).

Two dissenting Justices would have confirmed the Comptroller's determination. The dissent reasoned that "[a]lthough the ... payments were clearly intended to induce petitioners to remain employed ..., the ... record evidence amply supports the conclusion that the primary purpose ... was to provide petitioners with an elevated level of compensation in retirement, whenever that might be" ( 164 A.D.3d at 1042–1043, 83 N.Y.S.3d 366 [Clark, J., dissenting] ). The dissenting Justices also rejected petitioners' contention based on Article V, § 7 of the State Constitution, noting the absence of a vested right (see id. at 1043–1044, 83 N.Y.S.3d 366 [Clark, J., dissenting] ).

Respondents appealed as of right, pursuant to CPLR 5601(a). We now reverse.

III.

We must determine whether the Comptroller's determination is supported by substantial evidence (see CPLR 7803[4] ; Matter of Pell v. Board of Educ. of Union Free School Dist. No. 1 of Towns of Scarsdale & Mamaroneck, Westchester County , 34 N.Y.2d 222, 231, 356 N.Y.S.2d 833, 313 N.E.2d 321 [1974] ). As the Appellate Division has often reiterated, " ‘the Comptroller is vested with exclusive authority to determine applications for retirement benefits and such determination, if supported by substantial evidence, must be upheld’ " ( Matter of Chichester v. DiNapoli , 108 A.D.3d 924, 925, 969 N.Y.S.2d 600 [3d Dept. 2013], quoting Matter of Davies v. New York State & Local Police & Fireman Retirement Sys., 259 A.D.2d 912, 913, 686 N.Y.S.2d 882 [1999], lv denied 93 N.Y.2d 810, 694 N.Y.S.2d 633, 716 N.E.2d 698 [1999] ). As such, we must decide whether there is substantial evidence in the record to support the determination of the Comptroller's Office that the compensation adjustment payments constituted "additional compensation...