BOROUGH OF ELLWOOD v. ELLWOOD CITY POLICE

• Decision Date: 02 June 2003
• Citation: 573 Pa. 353,825 A.2d 617
• Parties: BOROUGH OF ELLWOOD CITY, a Municipal Corporation, Appellee, v. ELLWOOD CITY POLICE DEPARTMENT WAGE AND POLICY UNIT, Appellant.
• Court: Pennsylvania Supreme Court

825 A.2d 617

573 Pa. 353

BOROUGH OF ELLWOOD CITY, a Municipal Corporation, Appellee, v. ELLWOOD CITY POLICE DEPARTMENT WAGE AND POLICY UNIT, Appellant.

Supreme Court of Pennsylvania.

Argued September 11, 2002.

Decided June 2, 2003.

Sean Thomas Welby, Gary M. Lightman, Harrisburg, for Ellwood City Police Dept. Wage and Policy Unit. Richard D. Miller, Edward Leymarie, Ellwood City, for Borough of Ellwood City, a Municipal Corp.

Before ZAPPALA, C.J., and CAPPY, CASTILLE, NIGRO, NEWMAN, SAYLOR and EAKIN, JJ.

OPINION

Justice SAYLOR.

In the arena of municipal police pension contributions and funding, we consider an asserted conflict between the terms of a collective bargaining agreement and requirements of the Police Pension Fund and Municipal Pension Plan Funding Standard and Recovery Acts.

In January of 1999, the Borough of Ellwood City (the "Borough") began withholding, via payroll deduction, contributions to the police pension plan from its employee police officers, at a rate of five and six-tenths percent of each officer's gross monthly wages. Such action was based upon an actuarial valuation report for the plan, prepared pursuant to the Borough's obligations under the Municipal Pension Plan Funding Standard and Recovery Act,¹ also known as Act 205. The report indicated that there was a shortfall of monies available to meet annual obligations in the amounts of approximately $14,000 for 1998 and $28,000 for 1999, and that to meet financial requirements, members must contribute five and six-tenths percent of their salaries for 1999. The report also reflected a prevailing surplus, measured by comparison of the actuarial value of plan assets with actuarially accrued liabilities. Significantly, despite such a surplus, a pension fund may be incapable of meeting present obligations absent an infusion of monies, since Act 205 effectively caps the amount of a surplus that can be utilized to meet financial requirements in any given year at ten percent. See 53 P.S. § 895.302(c).

The bargaining unit for Ellwood City's police officers, the Ellwood City Police Department's Wage and Policy Unit (the "Bargaining Unit"), filed a grievance pursuant to the statutory provisions relating to collective bargaining by police officers and fire fighters, known as Act 111.² The grievance challenged the contributions on the ground that they violated the parties' 1998 collective bargaining agreement (the "CBA"), which precludes employee contributions to the police pension fund absent a determination that the fund is actuarially unsound.³ In this regard, the Bargaining Unit asserted that: the term "actuarial soundness" had been equated to the enjoyment of an "existing negative unfunded actuarial liability" in a previous grievance arbitration that occurred in 1992; such decision was made part of the CBA via a general incorporation of awards provision;⁴ and, accordingly, the prevailing surplus (or negative unfunded actuarial liability) unequivocally established the actuarial soundness of the pension plan. In response, the Borough relied on the provisions of the Police Pension Fund Act (Act 600), see supra note 1, requiring police pension fund members to contribute an amount between five and eight percent of their monthly compensation, prior to contribution of the remainder of needed annual contributions (as determined by an actuary) by the municipality. See 53 P.S. § 772. While Act 600 does authorize reduction or elimination of member contributions, the Borough emphasized the limited conditions under which Act 600 authorizes this to occur, as follows:

(c) If an actuarial study shows that the condition of the police pension fund of any borough, town, township or regional police department is such that payments into the fund by members may be reduced below the minimum percentages hereinbefore prescribed, or eliminated, and that if such payments are reduced or eliminated contributions by the borough, town, township or regional police department will not be required to keep the fund actuarially sound, the governing body of the borough, town, township or regional police department may, on an annual basis, by ordinance or resolution, reduce or eliminate payments into the fund by members.

53 P.S. § 772(c). Pursuant to this provision, a term of the CBA requiring Act 600 compliance,⁵ the limiting provision of Act 205, see 53 P.S. § 895.302(c), and the prescription of Act 205 that its terms control notwithstanding any agreement or directive to the contrary,⁶ the Borough contended that the elimination of employee contributions was statutorily proscribed.

The dispute proceeded to arbitration, at which, following a hearing, an award was issued sustaining the grievance. In his decision, the arbitrator adopted the Bargaining Unit's position that the interpretation of actuarial soundness from the 1992 arbitration—focusing solely upon the predomination of actuarially determined assets over liabilities—controlled.⁷ In this regard, the arbitrator emphasized that, since the issuance of the 1992 arbitration award, the relevant terms of the CBA had been reaffirmed on multiple occasions via the collective bargaining process. He therefore determined that the members of the Bargaining Unit could not be required to contribute to the pension fund in the circumstances presented.

The Borough then filed a petition to vacate the award in the court of common pleas, contending that the arbitrator exceeded his authority, because Act 600 and Act 205 prohibit the elimination of police officer contributions to a pension where Borough contributions are required to maintain actuarial soundness on broader terms than the mere maintenance of assets exceeding liabilities. The common pleas court, however, denied relief on the petition, indicating that the record did not demonstrate that the arbitrator's award directed the Borough to make contributions. See, e.g., Borough of Ellwood City v. Ellwood City Police Dep't Wage and Policy Unit, No. 10904 of 1999, slip op. at 13 (C.P. Lawrence Dec. 21, 2000) ("Based on the understanding that a pension plan with a surplus of assets over liabilities, resulting in a negative unfunded actuarial liability of more than $60,000.00 would require no contributions for the year, the [c]ourt concludes that the arbitrator's award did not violate Act 600 nor did it mandate any illegal action by the Borough").

In its further appeal to the Commonwealth Court, the Borough maintained its position that the arbitrator exceeded his authority by mandating what was tantamount to an illegal act in eliminating employee contributions to the plan, thereby forcing the municipality to supply the necessary funding. In this regard, the Borough highlighted that the common pleas court's decision gave no account for Act 205's effective proscription against utilization of more than ten percent of surpluses in meeting annual financial requirements of the plan. The Commonwealth Court agreed that the existence of a surplus in the pension fund by itself is insufficient as a basis for reducing or eliminating employee contributions; rather, it found that such action must be grounded upon an actuarial report prepared in accordance with Act 205, which sets forth the minimum funding requirements for municipal pension plans. See Borough of Ellwood City v. Ellwood City Police Dep't Wage and Policy Unit, 786 A.2d 342, 348 (Pa.Cmwlth.2001)

. In this regard, the Commonwealth Court cited its previous decision in Borough of Doylestown v. Doylestown Borough Police Assoc., 732 A.2d 701, 704 (Pa.Cmwlth.1999) (recognizing that "[b]y mandating that only Act 205 reports are to be used to determine a [p]lan's financial soundness and its financial requirements, [Section 302 of Act 205, 53 P.S. § 895.302] required that the `actuarial study' used in Act 600 be used to determine if member contributions could be reduced or eliminated."). The court also highlighted Act 205's admonition that its provisions control notwithstanding an agreement to the contrary. See Borough of Ellwood City, 786 A.2d at 346-47 (citing 53 P.S. § 895.301(a)). Distinguishing a line of cases addressing the principle that a party cannot object to the legality of a provision to which it voluntarily agreed during the collective bargaining process under Act 111, see, e.g., Fraternal Order of Police v. Hickey, 499 Pa. 194, 452 A.2d 1005 (1982) (plurality opinion); Grottenthaler v. Pennsylvania State Police, 488 Pa. 19, 410 A.2d 806 (1980); Upper Chichester Twp. v. PLRB, 153 Pa.Cmwlth. 446, 621 A.2d 1134 (1993), the Commonwealth Court reasoned that where Act 600 and Act 111 apply, the provisions of the former serve to limit the authority granted under the latter respecting arbitration. See id. at 347-48 (citing Swatara Twp. v. Swatara Twp. Police Dep't, 164 Pa. Cmwlth. 378, 382, 642 A.2d 660, 662 (1994)). The court thus concluded that the arbitrator had exceeded his authority by issuing an award inconsistent with the relevant statutory framework, reversed the common pleas court's order, and vacated the arbitration award. See id.

This Court allowed appeal to examine a municipality's statutory obligations in conjunction with a long-standing term of a collective bargaining agreement that has been interpreted through arbitration. Per this Court's prior decisions, our review is in the nature of narrow certiorari, which limits the inquiry to matters implicating the jurisdiction and authority of the arbitrator, the regularity of the proceedings, and the vindication of constitutional rights. See Pennsylvania State Police v. Pennsylvania State Troopers' Ass'n (Betancourt), 540 Pa. 66, 71, 656 A.2d 83, 85 (1995)

.

Generally, Act 111 establishes a right to collectively bargain concerning the terms and conditions of employment, see 43 P.S. § 217.1, and is designed to alleviate labor strife in occupations involving critical government functions by, inter alia, providing an expedited means of dispute resolution, with limited...