Opinion ID: 2582628
Heading Depth: 3
Heading Rank: 4

Heading: McMullen's Vested Benefits at the Time of His Enrollment in the Retirement System

Text: McMullen maintains that the statutory regime in effect when he was enrolled entitles him to include his cashed-in leave when calculating his benefits. McMullen relies on our opinion in Flisock v. State, Division of Retirement and Benefits. In Flisock, we considered a school superintendent's claim that under the Teachers' Retirement System, his cashed-in leave should be included when calculating his retirement benefits notwithstanding the legislature's attempt to prohibit this practice. [17] Flisock argued that the legislature's effort to remove cashed-in leave from the definition of base salary violated his rights under article XII, section 7 of the Alaska Constitution. [18] The Teachers' Retirement Board had ruled that because Flisock did not accumulate the leave he cashed in until after the statutory change, the change did not impair any benefits he actually had at the amendment's effective date. [19] We rejected the board's approach, noting that we had consistently held that an employee's retirement benefits were controlled by the system as it was when the employee enrolled in the system and not as it was upon his retirement. [20] We therefore concluded that if Flisock had a right when he enrolled in the system to include cashed-in leave as part of his base salary, it was irrelevant whether he accrued the leave he ultimately cashed in before or after the statutory changes. [21] To determine whether Flisock ever had such a right, we looked to the statute in effect at the time of his enrollment and to the agency's practices. [22] We observed that under the TRS retirement statute, a member was entitled at retirement to a monthly benefit equal to `two percent of the member's average base salary during any three school years of membership service times the years of credited service, including credited fractional years, divided by 12.' [23] At the time of Flisock's enrollment, base salary was defined as any remuneration accrued under a contract to a teacher for professional services rendered during any school year; for purposes of sec. 50 of this chapter, base salary accrued includes any payments made after June 30 of a school year for services rendered before the end of the school year.[ [24] ] We noted that the statute nowhere excluded payments for cashed-in leave. [25] We next looked to the practice concerning cashed-in leave in 1969. We remarked that the state had offered no evidence that the division's practice in 1969 was to exclude payments for unused leave, and we observed that there was some evidence that in 1969 cashed-in leave was used when calculating base compensation. [26] We therefore held that Flisock was entitled to use cashed-in leave when calculating his compensation. [27] McMullen argues that under Flisock, he, too, is entitled to include his cashed-in leave when calculating his benefits. He reasons that, like the operative statute in Flisock, the relevant statute here did not exclude cash-ins from the definition of compensation in 1969. McMullen is correct that cashed-in leave was not excluded from the definition of compensation at the time of his enrollment in the retirement system. When McMullen began his employment with the state, compensation for purposes of the system was defined as: the total remuneration paid to an employee by the employers for personal services rendered during the period considered as credited service, including cost-of-living adjustments or differentials and including monetary value, as determined by the board, of subsistence and maintenance provided by the employers in partial payment for services, but excluding retirement and other welfare benefits financed by the employers.[ [28] ] But the bare fact that the statute did not expressly exclude cashed-in leave from the definition of compensation is not enough to support McMullen's argument. As already noted above, our decision in Flisock relied on two factors: (1) the division's failure to offer evidence that it excluded payments for unused leave; and (2) the presence of some evidence establishing that cashed-in leave had actually been counted. Flisock thus stands for the proposition that, under the employer's originally established practices, the employee must actually have been entitled to the benefit that the state's subsequent action allegedly diminished. As a result, McMullen must show not only that the original statute did not exclude cashed-in leave from the definition of compensation, but also that, like Flisock, under the law or policies that originally applied to him, he actually was entitled to cash in accrued leave. The board found that McMullen never actually had such a right. Our careful review of the record reveals that substantial evidence supports the board's factual findings. The board found that in 1976 and 1977 two collective bargaining units negotiated agreements that included the right for their members to cash in leave. The board found that McMullen was not in the category of employees who were entitled to cash in leave under these collective bargaining agreements. The record supports these findings. The record shows that in 1969, state employees were not permitted to cash in accrued leave while they were still employed. Documents in the record reveal that the Supervisory Unit employees and the General Government Unit employees later negotiated the right to cash in accrued leave and that these rights became effective in 1976 and 1977. McMullen acknowledged that he was not a member of either of these units. McMullen maintained at the board hearing that the Department of Administration allowed some employees to cash in leave even if they were not covered by the collective bargaining agreements. But though McMullen argues to the contrary in his brief, he conceded at the board hearing that he was not among those employees. The board also found that in 1977 the legislature amended the definition of compensation to exclude cashed-in leave. [29] Between the time when the collective bargaining agreements became effective and the legislature amended the definition of compensation, the Department of Administration's director of retirement and director of finance disagreed about whether the leave cash-ins counted as compensation. The attorney general's office issued a memo supporting the finance director's position that leave cash-ins were compensation. The timing of the legislature's action suggests that it was motivated by a desire to prohibit the use of cash-ins to inflate an employee's retirement benefits. Not only did the board find that the availability of leave cash-in was nonexistent for McMullen at all times before the legislature amended the definition of compensation, the board also found that McMullen did not have any reasonable expectation that he would be able to include cashed-in leave when calculating his retirement benefits. McMullen stated at the hearing that during the collective bargaining negotiations in 1976, he considered the possibility that he might one day become eligible to cash in leave. But he admitted that it never occurred to him that cashed-in leave might be included when calculating retirement benefits. Indeed, he acknowledged that he didn't think of leave cash-ins as applying to [retirement benefits] until [he] was sent a copy of the Flisock decision. Flisock was decided in 1991  fourteen years after the legislature amended the law to bar a practice that could conceivably have given McMullen a vested right before then, but only if it had actually extended to him. The record amply supports the board's finding that during the period that preceded the legislature's exclusion of cashed-in leave from the definition of compensation McMullen never acquired a reasonable expectation of being able to include cashed-in leave when calculating his retirement benefits. The board issued an evenly split decision that had the effect of affirming the administrator's ruling. Because McMullen was not eligible to cash in leave when the legislature amended the definition of compensation and because he could not then have reasonably expected to be able to include cash-ins when calculating retirement benefits, the prevailing board members concluded that McMullen had no right to include his cashed-in leave when his retirement benefits were later calculated. We agree. Before the legislature amended the law in 1977, neither by law nor by practice did McMullen actually acquire a right to have his cashed-in leave included as part of his compensation. He therefore had no right that could have been impaired when the legislature excluded cashed-in leave from the definition of compensation. Accordingly, the division's refusal to allow McMullen to include his cashed-in leave when calculating his retirement benefits does not violate article XII, section 7 of the Alaska Constitution.