Opinion ID: 2111011
Heading Depth: 2
Heading Rank: 1

Heading: The Board's Assignments of Error

Text: The primary issue before the Court in this consolidated appeal is whether Mr. Myers and Mr. Burton (jointly the Appellees) are entitled to receive the benefit of a legislative modification to the PERS which was in existence for approximately one year in the middle of their respective tenures as State employees. Specifically, the Board contends that both circuit courts erred in ruling that the Appellees are entitled to a benefit afforded to PERS participants by the 1988 amendment to West Virginia Code § 5-5-3, given that the Legislature effectively repealed that benefit in 1989. In granting each Appellee the benefit of the 1988 amendment, both circuit courts relied on Booth v. Sims, 193 W.Va. 323, 456 S.E.2d 167 (1995), in which this Court explained that State employees who substantially participate in a public employee retirement pension plan have a constitutionally protected property interest in the plan's benefits. Resolution of this issue, therefore, requires a close analysis of the relevant statutes and case law.
The West Virginia Public Employee Retirement Act, West Virginia Code §§ 5-10-1 to -55 (2006), establishes the PERS and sets forth guidelines for calculating a PERS member's retirement annuity. Under this Act, the monthly benefit paid to a retired PERS member is based on two factors: the member's final average salary and their credited service, i.e. the length of their qualified service as a public employee. W. Va.Code § 5-10-22(a). [3] As it pertains to this case, the calculation of a member's final average salary is determined by averaging the highest annual compensation received by a member . . . during any period of three consecutive years of credited service contained within the member's ten years of credited service immediately preceding the date his or her employment with a participating public employer last terminated. W. Va.Code § 5-10-2(13)(A). In the instant cases, the Appellees seek to increase their final average salaries, thereby ultimately increasing their monthly pension payments, by adding the amount of the lump sum payment each received for unused annual leave to the calculation of their final average salary. Pursuant to West Virginia Code § 5-3-3, a State employee who is a member of any of the various State retirement plans, including PERS, may request to be paid, in a lump sum, for any accrued and unused annual leave that remains as of the date of his or her retirement. [4] [H]owever, lump sum payment for unused, accrued leave of any kind or character may not be a part of final average salary computation. Id. Thus, as it currently stands, the plain language of West Virginia Code § 5-5-3 expressly prohibits employees from including their lump sum payments in their final average salary calculation. The Appellees, however, argue that they are entitled to include their annual leave lump sum payments in their final average salary calculation, because of a version of the Code that was in effect from July 1988 until July 1989. The Legislature first enacted West Virginia Code § 5-5-3 in 1986, approximately ten years after Mr. Myers, and thirteen years after Mr. Burton, had begun working for the State. In relevant part, the original statute simply provided that members of state retirement plans could elect to receive a lump sum payment for unused leave time at the conclusion of their employment. W. Va.Code § 5-5-3 (1986). This original version of the statute was silent as to whether the amount of this lump sum payment could be used in calculating a member's final average salary. The following year, in March 1987, the Legislature amended this section of the Code to clarify that no employee retirement contributions should be taken from this lump sum payment. Specifically, the 1987 amendment added the following provision: no deductions may be made for contributions toward retirement from lump sum payments for unused, accrued annual leave, since no period of service credit is granted in relation thereto, and where any such deduction of employee contribution may have been heretofore made, a refund of such shall be granted the former employee and made by the head of the respective former employer spending unit. W. Va.Code § 5-5-3 (1987). Thus, the Legislature indicated that lump sum payments of annual leave were not to be treated in the same manner as an employee's salary for purposes of retirement contributions. One year later, in March 1988, the Legislature again amended this section of the Code. This time, the revision provided that even though no retirement contributions were to be withdrawn from the lump sum payments, those payments could, in fact, be included in the calculation of an employee's final average salary. The statute, as amended in 1988, provided as follows: Every eligible employee, as defined in section one of this article, at the time his or her active employment ends due to resignation, death, retirement or otherwise, may be paid in a lump sum amount, at his or her option, for accrued and unused annual leave at the employee's usual rate of pay at such time. The lump sum payment shall be made by the time of what would have been the employee's next regular pay day had his employment continued. In determining the amount of annual leave entitlement, weekends, holidays or other periods of normal, noncountable time shall be excluded, and no deductions may be made for contributions toward retirement from lump sum payments for unused, accrued annual leave, since no period of service credit is granted in relation thereto; however, such lump sum payment is to be a part of final average salary computation; and where any such deduction of employee contribution may have been heretofore made, a refund of such shall be granted the former employee and made by the head of the respective former employer spending unit: Provided, That the superintendent of the department of public safety shall make deductions for retirement system contributions of member of the department, since retirement benefits are based on cumulative earnings rather than period of service. W. Va.Code § 5-5-3 (1988) (emphasis added). This version of the statute became effective on July 1, 1988. The following year, the Legislature amended the statute once again, this time removing the provision stating that such lump sum payment is to be part of final average salary computation and replacing it with the provision that such lump sum payment may not be a part of final average salary computation. W. Va.Code § 5-5-3 (1989). Thus, the Legislature effectively repealed the 1988 amendment permitting annual leave lump sum payments to be included in an employee's final average salary calculation. This change became effective on July 8, 1989. West Virginia Code § 5-5-3 was amended once more in 2005, but the relevant aspects of the statute remained the same. Thus, as of the date of each of the Appellees' respective retirements, the statute provided that employees could not include their lump sum payments for unused, accrued annual leave in their final average salary computations. The question before the Court, therefore, is whether the Appellees are entitled to the benefit that was afforded under the 1988 version of West Virginia Code § 5-5-3, which was enacted more than ten years after each had begun working for the State, but was effectively repealed approximately twenty years before either Appellee retired. To answer this question, the Court must turn to its case law.
In Dadisman v. Moore, 181 W.Va. 779, 384 S.E.2d 816 (1988), the Court recognized that, by participating in a public retirement plan, public employees obtain constitutionally protected contractual rights. Id. at 789-90, 384 S.E.2d at 826-27. The Court therefore held that [r]etired and active PERS plan participants have contractually vested property rights created by the pension statute, and such property rights are enforceable and cannot be impaired or diminished by the State. Id. at Syl. Pt. 16, 384 S.E.2d 816. As a result, [t]he realization and protection of public employees' pension property rights is a constitutional obligation of the State. The State cannot divest the plan participants of their rights except by due process, although prospective modifications which do not run afoul of the federal or State impairment clauses are possible. Id. at Syl. Pt. 18, 384 S.E.2d 816. Several years later, in Booth v. Sims, 193 W.Va. 323, 456 S.E.2d 167 (1995), the Court expounded upon the principles established in Dadisman, and clarified that even employees who are not yet eligible to retire can have constitutionally protected, or vested, rights to their expected pension plan benefits. Id. at 337, 456 S.E.2d at 181. Once a member's rights to his or her pension benefits are vested, the Legislature is constitutionally prohibited from reducing that member's benefits, unless he or she acquiesces to the change or unless the Legislature provides just compensation. Id. at 339, 341-42, 456 S.E.2d at 183, 185-86. To determine whether a member has a vested right in a pension plan, the Court in Booth focused on the employee's expectation of, and reliance on, receiving the promised benefits. Id. at 337, 456 S.E.2d at 181. Specifically, the Court explained that employees have legitimate expectations that the government will not detrimentally alter the pension scheme once the employee has spent sufficient time in the system to have relied to his or her detriment. Id. at Syl. Pt. 6, 456 S.E.2d 167, in part. Accordingly, [w]hen considering the constitutionality of legislative amendments to pension plans, an employee's eligibility for a pension does not determine whether he or she has vested contract rights. The determination of an employee's vested contract rights concerns whether the employee has sufficient years of service in the system that he or she can be considered to have relied substantially to his or her detriment on the existing pension benefits and contribution schedules. Id. at Syl. Pt. 3, 456 S.E.2d 167. The question, therefore, in considering whether the Legislature can reduce a particular employee's pension benefits, is whether the employee has substantially relied to his or her detriment on the existing benefits. Id. The Court recognized that an employee's membership in a pension system and his or her forbearance in seeking other employment are sufficient to show that the employee has so relied. Id. at 337, 456 S.E.2d at 181, and Syl. Pt. 7, in part. Consequently, the Court concluded that after ten years of state service detrimental reliance is presumed. Id. at 340, 456 S.E.2d at 184, and Syl. Pt. 15, in part. The Legislature, however, may still make changes to a pension plan that only affect new employees or employees with so few years of service that they cannot be said to have substantially relied to their detriment. Id. Whether an employee has participated for a substantial enough period to be found to have substantially relied on the pension plan, or whether other evidence indicates that they actually relied to their detriment on such a plan, is to be decided on a case-by-case basis. Id. In sum, the Court in Booth explained that [w]hen a public employee has devoted substantial service to the state that translates into substantial detrimental reliance, the State must provide just compensation for any pension expectancy it eliminates. 193 W.Va. at 339, 456 S.E.2d at 183. Thus, the Court held in syllabus point nineteen: The pension rights of all current state pension plan members who have substantially relied to their detriment cannot be detrimentally altered at all, and any alterations to keep the trust fund solvent must be directed to the infusion of additional money. Detrimentally alter means the legislature cannot reduce the existing benefits (including such things as medical coverage) of the pension plan or raise the contribution level without giving the employee sufficient money to pay the higher contribution. Should the legislature seek to reduce certain advantages of a pension plan, it must offer equal benefits in their place as just compensation. 193 W.Va. 323, 456 S.E.2d 167, Syl. Pt. 19. In 1999, the Court had the opportunity to apply the principles set forth in Booth to the Legislature's 1988 and 1989 amendments to West Virginia Code § 5-5-3. Adams v. Ireland, 207 W.Va. 1, 528 S.E.2d 197 (1999). In Adams, PERS member Donald Adams retired in 1996 after almost thirty-six years of employment with the State. Id. at 4, 528 S.E.2d at 200. Accordingly, like the Appellees in the instant case, Mr. Adams had contributed to PERS for over ten years prior to the 1988 amendment to West Virginia Code § 5-5-3. Unlike the Appellees in the instant case, however, in 1988, Mr. Adams was fifty-two-years-old and eligible for an early retirement incentive package that had just been enacted by the Legislature. Id. Employees who elected to participate in this early retirement package were required to make such election known by December 31, 1988. Id. Mr. Adams declined the early retirement package in order to continue working for the State in the expectation that he would have a higher final average salary in the future by accruing additional unused leave time which, under the 1988 Amendment, could be added to his final average salary computation. Id. When Mr. Adams finally retired in 1997, the Board, acting pursuant to the 1989 Amendment, refused to include Mr. Adams' lump sum payment for his unused leave time in the calculation of his final average salary. Mr. Adams appealed, asserting that in 1988 he made a decision to continue his employment with the State in reliance upon the 1988 version of W. Va.Code 5-5-3, and expected that he would be able to add his accrued but unpaid leave to his final average salary when he retired. . . . Id. at 5, 528 S.E.2d at 201. Nevertheless, the circuit court affirmed the Board's decision finding, among other things, that the 1989 Amendment to § 5-5-3 was not an unconstitutional impairment of Mr. Adams' contract with the State, because it was not a substantial impairment. Id. On appeal, this Court reversed the circuit court's decision, applying the analysis set forth in Booth. The Court found that [t]he length of time that a public employee pension statute was in effect is not the controlling factor in determining whether a subsequent statutory amendment has unconstitutionally impaired a public employee's contract. Id. at 8, 528 S.E.2d at 204. Instead, the determinative factor, as set forth in Booth, is whether the employee may be said to `have substantially relied to their detriment' on the statute. Id. Thus, the Court in Adams directed the circuit court, on remand, to focus on whether Mr. Adams had actually substantially participated in the public employee's retirement system, or whether the appellant relied to his detriment on the 1988 version of W. Va.Code § 5-5-3. Id. The Court clearly indicated that, should the evidence support Mr. Adams's contention that he actually substantially relied on the 1988 amendment to West Virginia Code § 5-5-3 in prolonging his retirement, he would have a constitutionally protected property interest in that benefit, which the Legislature could not remove without just compensation.
Relying on Booth, the Appellees in the instant appeal argue that they are entitled to the benefit bestowed by the Legislature in the 1988 version West Virginia Code § 5-5-3. They point out that, at the time the 1988 amendment was enacted, each had devoted substantial service to the state by having worked for the State for more than ten years. See Booth, 193 W.Va. at 340, 456 S.E.2d at 184, and Syl. Pt. 15. They argue that, under Booth, the length of their service alone entitles each to the presumption of detrimental reliance; in turn, this reliance means that each Appellee had a vested right to the benefits of the plan at the time of the 1988 amendment. See id. at 337, 456 S.E.2d at 181, and Syl. Pt. 3. The Appellees contend that, as a consequence, the Legislature could not eliminate any of their pension benefits without providing just compensation. See id. at 341, 456 S.E.2d at 185, and Syl. Pt. 19. Because no just compensation has been provided for the benefit eliminated by the Legislature's 1989 amendment to West Virginia Code § 5-5-3, the Appellees argue that they are entitled to the original benefit as set forth in the 1988 amendment. Alternatively, the Appellees each argue that, even if the presumption of detrimental reliance is inapplicable in this case, each has shown, through his decision to remain employed by the State for his entire career, actual detrimental reliance on the PERS and, thus, each is entitled to the benefit of the 1988 amendment. Each Appellee points to his testimony, before the hearing officer, that he had received and turned down job offers during his career with the State, which the Court in Booth cited as a basis for showing detrimental reliance. The Board, on the other hand, argues that the presumption of detrimental reliance discussed in Booth is inapplicable under these facts, because the benefit at issue was only in effect for one year. Thus, the Board contends that neither Appellee could have relied to his detriment on that benefit for ten or more years, as required to be entitled to the presumption. Moreover, the Board contends that, in each case, the Appellee has failed to establish actual detrimental reliance on the 1988 amendment because, unlike the plaintiff in Adams, neither Mr. Burton nor Mr. Myers was eligible to retire during the 1988-1989 time period. The Board asserts that while both of the Appellees may have relied on the PERS as a whole, neither presented any evidence to show actual reliance on this specific benefit in the continuation of their State employment. Thus, because neither Appellee can show substantial reliance to his detriment on the benefit at issue, the Board asserts that the Appellees have failed to establish that they have a constitutionally protected property interest in that benefit. In considering these issues below, each of the circuit courts concluded that the Appellees are entitled to the benefit of the 1988 amendment, but for different reasons. In Mr. Myers's case, the circuit court agreed with the Board that the presumption of detrimental reliance did not apply, given that the benefit was in effect for such a short period, but found that the facts in the case were sufficient to show that Mr. Myers had actually substantially relied to his detriment, thereby entitling him to the benefit. On the other hand, the circuit court in Mr. Burton's case concluded that the presumption of detrimental reliance is applicable in this case and, thus, that Mr. Burton was entitled to that presumption given that he had been employed by the State for over ten years when the 1988 benefit was enacted. Moreover, it found that Mr. Burton had also presented sufficient facts to show actual detrimental reliance and, thus, it reversed the Board's decision on that ground as well. Turning first to whether the Appellees are entitled to a presumption of detrimental reliance, the Court recognizes that the language of Booth can be construed in such a manner as to support both the Board and the Appellees' respective positions. Nevertheless, the Court finds that the Appellees' requested interpretation produces an absurd result. In Booth, the Court focused on the rights of an employee who has relied, for a substantial period of time, on a promise by the Legislature that he or she will receive certain benefits at retirement. The Court in that case sought to ensure that employees would be able to rely on promised benefits in planning for their futures. Thus, the Court held that once an employee has relied on the promise of certain benefits, the Legislature cannot simply take them away without providing something of equal value. Moreover, because many employees may not be able to produce tangible evidence to show that they relied, to their detriment, on any specific promised benefit, the Court further held that such reliance may be presumed after an employee has worked for the State for a significant period of time, which the Court reasoned to be ten years or more. In the instant case, however, the benefit at issue was only promised for one year. The Appellees reason that because they had worked for the State for more than ten years prior to the promise being made, they are entitled to the presumption of detrimental reliance for all of the benefits promised under the plan at that time. The Court does not agree. Although the Appellees may have substantially relied on the pension plan for more than ten years prior to this amendment, they had not relied on a pension plan that included the promise of being able to include the amount of a lump sum payment for unused annual leave in their final average salary calculation. Consequently, the Appellees cannot be presumed to have relied to their detriment on that particular benefit, given the short duration of its existence. The Order of the Circuit Court of Kanawha County granting such presumption to Mr. Burton, therefore, is reversed. Thus, to prevail in this matter, the Appellees must be able to show actual detrimental reliance on the 1988 amendment, similar to the reliance alleged by the employee in Adams. This is a factual question that requires the Court to afford deference to the Board's findings. Indeed, this Court will not set aside the Board's factual findings unless they are [c]learly wrong in view of the reliable, probative and substantial evidence on the whole record or [a]rbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion. W. Va.Code § 29A-5-4(g)(5) & (6). In reviewing the evidence presented by the Appellees at their respective hearings before the Board's hearing officer, the Court cannot find that the Board clearly erred in concluding that neither Appellee had established actual detrimental reliance on this particular benefit. While both Appellees clearly relied throughout their years of employment on the PERS as a whole, neither presented any specific evidence indicating that they relied to their detriment on this specific provision. Unlike the plaintiff in Adams, neither of the Appellees in this case was eligible to retire during the year this benefit was in effect and, thus, unlike Mr. Adams, neither of the Appellees could have based any retirement decision on the promise contained in the 1988 amendment. Indeed, neither Appellee introduced any evidence to show that he made any decision whatsoever on the basis of that particular promised benefit. Under these facts, the Court cannot find that the Board clearly erred in ruling that the Appellees failed to show actual detrimental reliance. The circuit courts, therefore, erroneously failed to defer to the factual findings of the Board, and their Orders are reversed on this basis. Thus, because the Appellees are not entitled to a presumption of detrimental reliance and failed to establish actual detrimental reliance, the Court reinstates the Board's decisions that neither Appellee is entitled to include the amount of their lump sum payments for unused annual leave in the calculation of their final average salaries.