Waters v. State Employees' Retirement Bd.

• Decision Date: 31 July 2008
• Docket Number: No. 1885 C.D. 2007
• Citation: 955 A.2d 466
• Parties: Sylvia A. WATERS, Petitioner v. STATE EMPLOYEES' RETIREMENT BOARD, Respondent.
• Court: Pennsylvania Commonwealth Court

955 A.2d 466

Sylvia A. WATERS, Petitioner v. STATE EMPLOYEES' RETIREMENT BOARD, Respondent.

No. 1885 C.D. 2007

Commonwealth Court of Pennsylvania.

Argued April 7, 2008.

Decided July 31, 2008.

Reargument Denied September 26, 2008.

Paul E. Waters, Harrisburg, for petitioner.

M. Catherine Nolan, Harrisburg, for respondent.

BEFORE: McGINLEY, Judge, PELLEGRINI, Judge, and LEAVITT, Judge.

OPINION BY Judge LEAVITT.

Sylvia A. Waters petitions for review of an order of the State Employees' Retirement Board (Board) denying her request to receive a service-connected disability supplement under the State Employees' Retirement Code¹ (Retirement Code), which guarantees the member a payment of seventy percent of her final average salary where the disability is caused by a compensable work-related injury. The Board adopted the opinion and recommendation of the Hearing Examiner that this supplement is available only where the member is actually receiving workers' compensation disability benefits. The principal issue we consider is whether the Board erred because it did not give due consideration to the version of the Retirement Code that was in effect at the time Waters suffered her service-connected disability.

The history of this case is long, complex and involves both the workers' compensation and retirement statutes. On July 30, 1985, while employed by the Pennsylvania Department of Health, Waters sustained a work-related injury. Pursuant to a Notice of Compensation Payable describing her injury as low back pain with radicular symptoms, Waters began receiving total disability benefits under the Workers' Compensation Act² in the amount of $336 per week.

The Retirement Code provides a disability annuity to State employees who become unable to work for any reason, provided they have enough service time. Section 5308(c) of the Retirement Code, 71 Pa.C.S. § 5308(c); Dingel v. State. Employees' Retirement System, 62 Pa. Cmwlth. 79, 435 A.2d 664, 666 (1981). Where the disability results from a work-related injury, the Retirement Code augments the disability annuity as necessary to ensure the State employee's disability annuity equals seventy percent of her final average salary. Section 5704(f) of the Retirement Code, as it was worded at the time Waters was injured, stated as follows:

(f) Supplement for service connected disability.—If a member has been found to be eligible for a disability annuity and if the disability has been found to be a service connected disability, such member shall receive a supplement equal to 70 [percent] of his final average salary less the sum of the annuity as determined under subsection (a) and any payments paid or payable on account of such disability under the [Workers' Compensation Act], the act of June 21, 1939 (P.L. 566, No. 284), known as The Pennsylvania Occupational Disease Act, and the Social Security Act (49 Stat. 620, 42 U.S.C. § 301 et seq). Such supplement shall continue as long as he is determined to be disabled on account of his service connected disability in accordance with the Workers' Compensation Act, or The Pennsylvania Occupational Disease Act.

71 Pa.C.S. § 5704(f). The State Employees' Retirement System (SERS) granted Waters a temporary service-connected disability annuity. However, it did not pay Waters the Section 5704(f) supplement, even though her disability was service-related, because her disability annuity and workers' compensation disability benefit in combination exceeded seventy percent of her final average salary.³

On June 10, 1994, SERS informed Waters that her disability was approved as total and permanent. Certified Record (C.R.) Exhibit SERS-8.⁴ As such, Waters was no longer required to provide periodic medical documentation of her disability.

In 2001, Waters' counsel wrote to SERS requesting a determination of the amount of Waters' Section 5704(f) supplement that she would receive after she exhausted her workers' compensation disability benefits. On June 18, 2001, Linda Miller, Director of the Benefit Determination Division for SERS, responded that Waters would not be eligible for a Section 5704(f) supplement if her workers' compensation benefits were discontinued. Miller's letter explained that Waters' disability annuity and workers' compensation totaled more than seventy percent of her final average salary when she retired, and "the 70 [percent] test was based on the original award amount." C.R. Exhibit SERS-12.

After Waters left the Department of Health, she worked for Swatara Township and for the Pennsylvania Human Relations Commission. This employment disqualified her from continuing to receive total disability workers' compensation benefits; she was, however, eligible for partial disability workers' compensation benefits.⁵ Under Section 306(b)(1) of the Workers' Compensation Act, partial disability benefits are limited to 500 weeks. 77 P.S. § 512(1). Waters' 500 weeks of partial disability expired in July 2002.

Waters then filed a reinstatement petition alleging that her condition had worsened, thereby entitling her to total disability workers' compensation benefits. On October 12, 2005, WCJ James Deeley denied her reinstatement petition. The WCJ found Waters to be principally disabled by fibromyalgia and abdominal problems, which were not work-related. With respect to her work injury, the WCJ found that Waters "could have continued at partial earning capacity" and that she "continues to have some disability related to the back injury." C.R. Exhibit SERS-3; WCJ Decision, Oct. 12, 2005, at 9, Conclusions of Law 3-4. However, he did not find an increase in disability arising from her work injury and, therefore, denied her request for reinstatement of total disability benefits.

Waters appealed, and the Workers' Compensation Appeal Board affirmed. Waters then appealed to this Court. However, she withdrew her appeal when the parties entered into a Compromise and Release (C & R) Agreement, in which she released the Department of Health from any further liability in return for a payment of $1,250. The C & R Agreement included the following language:

[t]he parties agree that the lump sum payment of $1,250.00 covers the period from July 29, 2002 through the present, and includes any and all future benefits payable.

C.R. Exhibit CL-9 at 3. In a November 22, 2006, decision, WCJ David Weyl approved the C & R Agreement.

In February 2006, Waters' counsel wrote to SERS requesting a service-connected disability supplement pursuant to Section 5704(f) of the Retirement Code. He explained that with the loss of Waters' workers' compensation benefits, her annuity was no longer equal to seventy percent of her final average salary. By letter dated April 11, 2006, SERS denied the request, stating as follows:

Since she was entitled to and receiving more than 70 [percent] of her [Final Average Salary], she was not entitled to the supplement for service-connected disability at the time of her retirement and is not at this time.

C.R. Exhibit SERS-14.

Waters appealed. On May 22, 2006, the SERS Appeals Committee denied the appeal, explaining that Waters "does not qualify to receive the supplement when her workers' compensation benefit is discontinued because the 70 [percent] test was based on the original workers' compensation award amount." C.R. Exhibit SERS-16. Waters then requested an administrative appeal to the Board.⁶

On February 1, 2007, a hearing was held before a Hearing Examiner. Waters presented William Nast, Jr., Esq., to testify as an expert in statutory construction. Nast explained that under Section 5704(f) of the Retirement Code, if an employee has a service-connected disability, she is entitled to receive at least seventy percent of her final average salary for life. Section 5704(f), as amended in 2002, now reads as follows:

(f) Supplement for service connected disability.—If a member has been found to be eligible for a disability annuity and if the disability has been found to be a service connected disability and if the member is receiving workers' compensation payments for other than medical benefits, such member shall receive a supplement equal to 70 [percent] of his final average salary less the sum of the annuity as determined under subsection (a) and any payments paid or payable on account of such disability under the . . . Workers' Compensation Act, the act of June 21, 1939 (P.L. 566, No. 284), known as The Pennsylvania Occupational Disease Act, and the Social Security Act (49 Stat. 620, 42 U.S.C. § 301 et seq.). Such supplement shall continue as long as he is determined to be disabled and is receiving workers' compensation payments for other than medical benefits on account of his service connected disability in accordance with the Workers' Compensation Act or The Pennsylvania Occupational Disease Act. If the member has received a lump sum workers' compensation payment in lieu of future weekly compensation payments, the length in weeks and calculation of the service connected disability supplement shall be determined by dividing the lump sum payment by the average weekly wage as determined by the Workers' Compensation Board.

71 Pa.C.S. § 5704(f) (as amended by the Act of April 23, 2002, P.L. 272) (emphasis added). Under the 2002 version of Section 5704(f), the employee must be receiving workers' compensation payments for other than medical benefits to qualify for the supplement. In Nast's opinion, this represented a substantive change in the law.⁷ He further opined that under the contract theory of retirement compensation, the 2002 changes cannot be applied to Waters, who retired in 1986. Nast believed that Waters is entitled to seventy percent of her final average salary, regardless of whether she receives workers' compensation benefits, because the pre-2002 version of Section 5704(f) applies to her.

Waters testified on her own behalf. She explained that based on the language of Section 5704(f) of the Retirement Code and...