The Fight Goes On: Overtime and Final Average Salary - Tier 4 and Tier 6 members

I previously posted a write up concerning the compensation base (Final Average Salary: FAS) used by NYCERS to compute Tier 4 retirement benefits. For most retirees this is the most important component in their retirement calculation.

In the posting I referred to a member I was helping with her dispute with NYCERS over the calculation of her compensation base to be used in her retirement benefit calculation. This member is currently working in a classic part-time title. This dispute was the reason I began to dig into the statutory definition for the Tier 4 FAS. The posting was the result of that research.

The dispute was caused by the fact that the member did not have five years of continuous full-time service to be used in the calculation of her FAS. This is a situation that occurs much more often for women than men because of child care responsibilities that fall on women for the most part and also the care of aging parents. The part-time law, that was passed in 1992, was aimed at fixing these types of problems (Chapter 749/Laws of 1992).

Through correspondence and in-person meetings with NYCERS the member clearly pointed out the statutory provisions she wanted applied to her case. On March 20, 2019, the NYCERS Deputy General Counsel, Maya Khodos, sent the member a final decision on the dispute and notified her of her right to file an Article 78 within four months of the letter’s date. We have the King v. NYCERS decision to thank for the clear appeal notice.

The key paragraph in the letter is listed below:

“NCERS is unable to perform a calculation of your Final Average Salary (FAS) pursuant to New York Administrative Code (Ad. Code) section 13-638.4(e)(14)(ii) using the years of 2000 through 2005 as you requested because such a calculation is contrary to the law. A six-year average calculation pursuant to Ad. Code 13-638.4(e)(14)(ii) may only be performed using part­time service. Full-time service is defined by this statute as City-service rendered in a title in which a person is regularly scheduled to work at least eighteen hundred twenty-seven hours per year. Your service, as reported by your agency, was full-time from 2000 to 2005.”

The key sentence in this paragraph is “A six-year average calculation pursuant to Ad. Code 13-638.4(e)(14)(ii) may only be performed using part­time service.”.

If that were a correct statement, I am fairly certain that Ms. Khodos would have stated the statutory language for restricting the six year calculation to only part-time service. She, however, did not state any statutory basis. That is because there is none. Based on my over 30 years of experience working at NYCERS I know this statement is clearly incorrect. Note: the “(ii)” references in the paragraph are incorrect. They should be “(i)(B)”. The “(ii)” reference covers Tier 6 members.

This member will now have to file an Article 78 in order to fight for her pension rights. My opinion is that NYCERS is stonewalling the member and wants her to just go away. NYCERS is denying a benefit without statutory authority.

This issue not only affects this member. It will affect any Tier 4 member who may have a better six year average FAS than a FAS based on a 110% limited 36 month service period.

Section 13-638.4(e)(14) (NYC Admin Code) is the primary definition of the FAS for all Tier 4 members. It was enacted in 1992 in response to the Doctors Council court decision. Prior to that Section 608 (NYS RSSL) was the controlling statute in 1992 it was amended to refer to the new Section 13-638.4. I have included the text of this section at the end. You can read it for yourself and see that there is no part-time service limitation placed on the six year calculation.

NYC Admin Code Section 13-638.4.e.(14)

(For Tier 4 Members)

(i) Subject to the provisions of subdivision f of this section and the provisions of subdivision c of section six hundred eight of the RSSL, where those provisions are applicable, and notwithstanding the provisions of subdivision a of section six hundred eight of the RSSL,

for a tier IV member of NYCERS

who is not a New York city revised plan member (as defined in subdivision m of section six hundred one of the RSSL) or

for a tier IV member of BERS

who is not a New York city revised plan member,

the term "final average salary", as used in article fifteen of the RSSL,

shall be equal to the greater of:

(A) one-third of the highest total wages earned by such member during any continuous period of employment for which the member was credited with three years of service credit;

provided that if the wages earned during any year of credited service included in the period used to determine final average salary exceeds the average of the wages of the previous two years of credited service by more than ten percent,

the amount in excess of ten percent shall be excluded from the computation of final average salary; or

(B) the total wages earned during any six consecutive years from service for which the member received service credit divided by the amount of such service credit earned during that six-year period,

(added as of April 1, 2012 and if limiting benefits, is not applicable to Tier 4 members)
provided, however, that "wages", as used in this paragraph, shall mean the applicable provisions and limitations of the term "wages", as defined in subdivision 1 of section six hundred one of the RSSL.

(For Tier 6 Mmebers)

  (ii) Subject to the provisions of subdivision f of this section where those provisions are applicable, and notwithstanding the provisions of subdivisions a and c of section six hundred eight of the RSSL,

for a tier IV member of NYCERS

who is a New York city revised plan member as defined in subdivision m of section six hundred one of the RSSL) or

a tier IV member of BERS

who is a New York city revised plan member,

the term "final average salary", as used in article fifteen of the RSSL,

shall be equal to

one-fifth of the highest total wages earned by such member during any continuous period of employment for which the member was credited with five years of service credit;

provided that if the wages earned during any year of credited service included in the period used to determine final average salary exceeds the average of the wages of the previous four years of credited service by more than ten percent,

the amount in excess of ten percent shall be excluded from the computation of final average salary,

provided further that "wages", as used in this paragraph, shall mean the applicable provisions and limitations of the term "wages", as defined in subdivision l of section six hundred one of the RSSL.

Overtime and Final Average Salary - Tier 4 and Tier 6 members

All NYCERS pensioners who retired under Tier 4 with significant over time earnings included in their benefit calculation should ask NYCERS to review their final average salary (FAS) computation and the time period used in that calculation.

As a starting point NYCERS will need to do a month by month earnings determination over at least an seven year period prior to retirement. It maybe longer depending on the member's earnings history. NYCERS will then have to do a month by month FAS computation and spot the best month. Generally this may satisfy NYCERS obligation to the member. If the member, however, can target a given day, then NYCERS will have to check that day. This a great deal of work but most members have simple earnings histories that will be easy to handle.

NYCERS has traditionally (Section 608.a - RSSL) used the last 36 months before retirement or the best three consecutive years as the time period for the FAS calculation. It appears to me that this position is incorrect based on the analysis below.

I began looking at this issue when it came to my attention that NYCERS was giving a member a hard time over over her FAS because she was a part timer with several breaks in her employment with the city.

Based on this analysis Tier 4 retirees are entitled to a sliding 36 month period rather than a fixed three calendar year period. This may increase the FAS amount for some retirees and in turn increase their annual pension benefit.

Analysis

In 1992, the NYS legislature passed a new law (Chapter 749/Laws of 1992) which addressed problems with pension benefits for NYC part time workers. Previously the Court of Appeal had found that the city and NYCERS had violate the pension rights of part time city workers (i.e. doctors, nurses, and others). In order to correct the past wrongs and to avoid more litigation the city and DC-37(Doctors Council) agreed to sponsor Chapter 749.

Specifically one of the issues that law dealt with was the definition of "final average salary" (FAS) used in computing Tier 4 retirement benefits. The existing statute for Tier 4 (Section 608 of the NYS RSSL) which defined FAS was modified (S.608.d) by redirection to a newly created section, S.13-638.4 of the NYC Admin Code.

Listed at the bottom of this post is the portion of Section 13-638.4 which deals with the FAS for Tier 4 and Tier 6 members. The portion of the code marked "(i)" applies to Tier 4 members and "(ii)" applies to Tier 6 members.

Tier 4

In the sub-portion marked "(A)" is a new three year service credit compensation definition. The sub-portion marked "(B)" is a new compensation definition directed at members who have significant breaks in service.

Part "(A)"

Part "(A)" puts in place the following phrase

"any continuous period of employment for which a member was credited with 3 years of service credit".

This phrase replaces the following wording found in Section 608 of the RSSL

"any three consecutive years".

This new language provided NYCERS with a mechanism to compute a fair compensation base for retirement benefits when dealing with members working less than 1827 hours a year. FAS was now defined as one third of the highest total wages earned during any period of employment with three years of credited service. Part "(A)" also has a 2 year service credit look back with a 110% earnings limit.

The "three consecutive years" language of Section 608 unfairly cuts the benefit of part times. For example if a member works 1/2 time, their FAS would 1/2 the amount of a full time worker. A full time worker with 20 years and a FAS of $50,000 would retire at $20,000/yr. A half time worker with 20 years would have a FAS of only $25,000 according to Section 608 and in turn retire at $10,000/yr.

However, this new language also clearly unhinges the definition for FAS from hard calendar years. This has the effect of benefiting full time workers with significant overtime earnings when computing their FAS. Under this section a member is entitled to shift the start and end dates of his/her three years of service credit to maximize his/her FAS. The member is no longer locked into three continuous hard calendar years.

I have to admit I never focused on this subtle change in the new part-time law. NYCERS has continued to use the old Section 608 statutory interpretation since 1992. NYCERS, for better or worse, is required to to correct a benefit calculation if it is not correct. Just ask any Tier 3 disability pensioner who has been caught in the Workers Comp trap.

Part "(B)"

The sub-portion marked as "(B)" was a very creative solution to provide an alternative definition for members who might not have a continuous period of employment where they were credited 3 years of continuous service credit. The most obvious case of this would be women working part time who had multiple maternity leaves.

The definition of FAS under Part "(B)" is the total wages earned during any six consecutive years of where the member received service credit divided by the service earned during the six years. It has no two year 110% look back limit.

Tier 6

In 2012 Section 13-638.4 was significantly updated with the passage of Tier 6, Chapter 18 of the Laws of 2012. Chapter 18 was designed to reduce pension benefits and in turn reduce the city and state's pension costs. Chapter 18 is a clumsy, opaque, and in many ways punitive piece of legislation. It is unclear why it was not structured in as a totally new tier as was done with the 1983 Tier 4 legislation. Tier 6 is generally an overlay on top of Tier 4. As an example Tier 6 members are embedded in Tier 4 and referred to as Tier 4 revised plan members.

The deinition of FAS in tier 6 is one fifth the highest total wages earned during any period of employment with five years of credited service. It also has a 2 year service credit look back with a 110% earnings limit, It also has new limitations on the definition of wages.

Unfortunately, there is no Tier 6 equivalent to the part "(B)" definition for the Tier 4 FAS. This leaves members with significant breaks in employment at risk and NYCERS with no clear direction on how to deal with their FAS calculation.

NYC Admin Code Section 13-638.4.e.(14)

(For Tier 4 Members)

(i) Subject to the provisions of subdivision f of this section and the provisions of subdivision c of section six hundred eight of the RSSL, where those provisions are applicable, and notwithstanding the provisions of subdivision a of section six hundred eight of the RSSL,

for a tier IV member of NYCERS

who is not a New York city revised plan member (as defined in subdivision m of section six hundred one of the RSSL) or

for a tier IV member of BERS

who is not a New York city revised plan member,

the term "final average salary", as used in article fifteen of the RSSL,

shall be equal to the greater of:

(A) one-third of the highest total wages earned by such member during any continuous period of employment for which the member was credited with three years of service credit;

provided that if the wages earned during any year of credited service included in the period used to determine final average salary exceeds the average of the wages of the previous two years of credited service by more than ten percent,

the amount in excess of ten percent shall be excluded from the computation of final average salary; or

(B) the total wages earned during any six consecutive years from service for which the member received service credit divided by the amount of such service credit earned during that six-year period,

(added as of April 1, 2012 and if limiting benefits, is not applicable to Tier 4 members)
provided, however, that "wages", as used in this paragraph, shall mean the applicable provisions and limitations of the term "wages", as defined in subdivision 1 of section six hundred one of the RSSL.

(For Tier 6 Mmebers)

  (ii) Subject to the provisions of subdivision f of this section where those provisions are applicable, and notwithstanding the provisions of subdivisions a and c of section six hundred eight of the RSSL,

for a tier IV member of NYCERS

who is a New York city revised plan member as defined in subdivision m of section six hundred one of the RSSL) or

a tier IV member of BERS

who is a New York city revised plan member,

the term "final average salary", as used in article fifteen of the RSSL,

shall be equal to

one-fifth of the highest total wages earned by such member during any continuous period of employment for which the member was credited with five years of service credit;

provided that if the wages earned during any year of credited service included in the period used to determine final average salary exceeds the average of the wages of the previous four years of credited service by more than ten percent,

the amount in excess of ten percent shall be excluded from the computation of final average salary,

provided further that "wages", as used in this paragraph, shall mean the applicable provisions and limitations of the term "wages", as defined in subdivision l of section six hundred one of the RSSL.