City of Butler v. BUTLER POLICE DEPT.

• Decision Date: 18 July 2001
• Citation: 780 A.2d 847
• Parties: CITY OF BUTLER, Appellant, v. CITY OF BUTLER POLICE DEPARTMENT, FRATERNAL ORDER OF POLICE, LODGE # 32.
• Court: Pennsylvania Commonwealth Court

780 A.2d 847

CITY OF BUTLER, Appellant, v. CITY OF BUTLER POLICE DEPARTMENT, FRATERNAL ORDER OF POLICE, LODGE # 32.

Commonwealth Court of Pennsylvania.

Argued May 7, 2001.

Decided July 18, 2001.

Michael D. Hnath, Butler, for appellant.

Eric C. Stoltenberg, Harrisburg, for appellee.

BEFORE: DOYLE, President Judge, KELLEY, J., and FLAHERTY, Senior Judge.

DOYLE, President Judge.

The City of Butler (City) appeals from the order of the Court of Common Pleas of Butler County, which denied a petition to vacate specific sections of an Act 111¹ interest arbitration award that eliminated contributions by the City of Butler police officers to the City's police pension fund. The sole issue on appeal is whether an Act 111 arbitration panel may eliminate the obligation of police officers to contribute to their pension plan if that plan has a substantial unfunded actuarial liability.² The relevant facts are not at issue. The police officers and the City were parties to a collective bargaining agreement (CBA) that expired on December 31, 1999. Throughout 1999, the City and the Fraternal Order of Police, Lodge # 32 (FOP), the exclusive collective bargaining unit for the police officers, bargained for a new CBA. The parties reached an impasse and an Act 111 interest arbitration ensued.³

Earlier, in April of 1999, the City obtained its most recent Actuarial Valuation Report for its police pension fund, prepared in conformance with the requirements of Act 205.⁴ The report indicated that, as of January 1, 1999, there was an unfunded actuarial accrued liability of over $500,000.⁵

A three-year arbitration award, adopted by a majority of the panel members,⁶ was issued on July 19, 2000, establishing new provisions governing certain wages, hours, pensions and other terms and conditions of employment. The City has appealed only the provision relating to pensions, which states:

7. Pension. Based on the actuarial information presented during the course of the arbitration, it appears that pension contributions by police officers may be reduced. Therefore, effective July 1, 2000, contributions by police officers shall be eliminated.

(Reproduced Record (R.R.), page 10a.)

The City appealed to the Court of Common Pleas of Butler County, which denied the appeal and affirmed the award. Common Pleas determined that, because the City could voluntarily eliminate member contributions under the Third Class City Code,⁷ it was within the province of the arbitrators also to determine that those contributions could be eliminated. The appeal by the City to this Court ensued,⁸ and the City requests that we set aside paragraph 7 of the award and order the Butler police officers to resume their contributions to the pension fund.

Under our limited review of an Act 111 interest arbitration award, for this Court to set aside a provision of an award, the arbitration panel must have either mandated an illegal act or granted an award which addresses issues outside of and beyond the terms and conditions of employment. Town of McCandless v. McCandless Police Officers Association, 677 A.2d 879 (Pa.Cmwlth.1996), petition for allowance of appeal denied, 547 Pa. 760, 692 A.2d 568 (1997). Because Section 1 of Act 111 specifically includes the subject of "pensions" as a bargainable issue, 43 P.S. § 217.1, the City's challenge to paragraph 7 of the award is grounded on the premise that eliminating contributions by police officers is an illegal act because it conflicts with the provisions of the Third Class City Code, Section 6 of the Police Pension Fund Act (commonly known as Act 600)⁹ by analogy, and Act 205 (the Municipal Pension Plan Funding Standards and Recovery Act).¹⁰

We observe that, once the subject matter of a term of employment is included in a collective bargaining agreement, it becomes, like any other contractual provision, binding on the parties to the agreement unless set aside by the courts.

Because cities are created by the Commonwealth, a city, as a non-sovereign, has only those powers authorized by the Legislature. Washington Arbitration Case, 436 Pa. 168, 259 A.2d 437 (1969), superceded by statute on other grounds; Local 1400, Chester City Fire Fighters Ass'n v. Nacrelli, 30 Pa.Cmwlth. 242, 373 A.2d 472 (1977). Thus, our analysis must focus on whether the City is authorized to take the action mandated by the arbitration panel in order to determine whether the award exceeds the authority of the arbitrators.

I. Third Class City Code

The City argues that Section 4301 of the Third Class City Code, provides that there must be a pension fund and clearly provides that the members are required to make contributions to that fund Cities shall establish, by ordinance, a police pension fund, to be maintained by an equal and proportionate monthly charge against each member of the police force, which shall not exceed annually four per centum of the pay of such member and an additional amount not to exceed one per centum of the pay of such member to be paid by such member or the municipal corporation to provide sufficient funds for payments required by subsection (d) of section 4303 to surviving spouses ... which fund shall at all times be under the direction and control of council....

53 P.S. § 39301. Additional monies in the form of contributions are required under Section 4303(b), which states in pertinent part:

(b) In addition to the retirement allowance which is authorized to be paid from the police pension fund by this act, and notwithstanding the limitations therein placed upon such retirement allowances and upon contributions, every contributor who shall become entitled to the retirement allowance shall also be entitled to the payment of a "service increment" in accordance with and subject to the conditions hereinafter set forth.

* * * *

(2) Each contributor ... shall pay into the retirement fund a monthly sum in addition to his or her retirement contribution, which shall be equal to one-half of one per centum of his or her salary: Provided, That such payment shall not exceed the sum of one dollar ($1.00) per month: And provided, That such service increment contribution shall not be paid after a contributor has reached the age of sixty-five years.

* * * *

(5) All members of the police force who are not contributors to the retirement fund and all those employed by the city after the effective date of this amendment, if required to become contributors to the retirement fund, shall be subject to the provisions of this act.

53 P.S. §§ 39303(b)(2) and (b)(5). Based on these statutory provisions, the City contends that there is no express authority to reduce member contributions, much less eliminate them, to an underfunded pension plan. It analogizes these sections of the Third Class City Code to Section 6 of Act 600,¹¹ whereby townships, towns and boroughs are directly precluded from reducing or eliminating member contributions to a plan unless an actuarial study reflects that contributions from neither the members nor the municipality are required to keep the fund actuarially sound.

The FOP counters that Section 4301 of the Third Class City Code does not mandate employee contributions, but only sets limits in the event that contributions are made. 53 P.S. § 39301. It also maintains that Act 600 provisions, discussed and analogized by the City, are inapplicable to a Third Class City. We must agree. The language of the cited sections of the Third Class City Code expressly provides a contribution ceiling but contains no contribution floor, neither expressly nor by implication. Further, a perusal of the complete Third Class City Code reveals no reference to either specific permission or specific prohibition relevant to elimination of a member's contributions. We hold, therefore, because the City could, under the provisions of the Third Class City Code, voluntarily eliminate member contributions, the pension provision contained in the arbitration panel's award did not order the City to perform an illegal act.

II. Act 600: Police Pension Fund Act

As to Section 6 of Act 600, 53 P.S. § 772, which the City essentially argues should be read in pari materia with the Third Class City Code to effectuate legislative intent, we must agree with the FOP that the provisions of Act 600 are inapplicable to the City. Section 1 of Act 600, 53 P.S. § 767, expressly limits the authority under that act to boroughs, towns, townships and regional police departments, and we therefore find that Act 600 is simply inapposite to the appeal presently before the Court.

III. Act 205: The Municipal Pension Plan Funding Standard and Recovery Act

The City next asserts that the City's pension plan is a distressed plan¹² under Act 205, and argues that Act 205 prohibits alterations in the pension plan without adherence to certain statutory requirements, including an estimate of the effect of a proposed plan modification, that is, the cost to the plan in the future. The City argues that, in this case, no such cost estimate has been produced, nor was one available to the arbitration panel, and therefore the arbitration panel exceeded its authority because it could not have voluntarily relieved the officers of a duty to contribute to the pension plan without following the statutorily prescribed procedures. It particularly directs this Court to Doylestown v. Doylestown Police Ass'n, 732 A.2d 701 (Pa.Cmwlth.1999), petition for allowance of appeal denied, 563 Pa. 666, 759 A.2d 388 (2000).

In Doylestown, the Borough of Doylestown and the Police Association were parties to a collective bargaining agreement that tied member contributions to the maximum permitted by Act 600. Contribution levels, under this agreement, were to be determined on an annual basis. In 1996, the plan actuary determined that contributions of 5% were required for the 1997 actuarial year. The Police Association disagreed, contending that the plan was actuarially sound and that no contributions were...