Opinion ID: 2058528
Heading Depth: 1
Heading Rank: 2

Heading: The $1,940 Question: The Benefit Package Payments

Text: On its appeal the Board challenges the Superior Court's determination that the benefit package payments are earnable compensation and must be included in the pension base. These payments were made pursuant to article XIX of the collective bargaining agreement between SAD 54 and its teachers: ARTICLE XIXINSURANCE A. The [SAD 54] Board agrees to provide for each teacher $1940 in 1986-87 to be used at the teacher's discretion for any or all of the following: 1. MTA Blue Cross/Blue Shield/Major Medical 2. Washington National Insurance 3. Tax Sheltered Annuities 4. Salaries 5. Dental Plan 6. Supplemental Cancer/Intensive Care Insurance B. Tax Sheltered AnnuitiesSo as to provide for a nonforfeitable tax-sheltered annuity ... a teacher may contract with the Board for the purchase of an annuity as part of his or her employment compensation.... The Board agrees to deduct from the teacher's salary the premium.... From the structure of the benefit package, the Board held that the payments labeled as salaries under Option 4 were made in lieu of fringe benefits and were therefore not compensation for actual services rendered within the meaning of subparagraph B(2) of the statutory definition of earnable compensation. The absence of any qualitative difference between the options sufficient to justify treating some but not others as earnable compensation was illustrated by what happened in practice. At least one plaintiff used the money he received under Option 4 in the benefit package to buy precisely the same health insurance he had previously received in kind under Option 1, so that his change in benefit options was merely a matter of bookkeeping. Plaintiffs testified candidly before the Board that they understood Option 4 in the SAD 54 collective bargaining agreement was designed to be used by teachers whose retirement was imminent. A long-established construction of a statute by the agency charged with administering it is entitled to great deference and should not be overturned unless it clearly violates the legislative intent. [3] See Georgia-Pacific Corp. v. State Tax Assessor, 562 A.2d 672, 674 (Me.1989). The consistent practice by MSRS of excluding cash payments in lieu of fringe benefits from earnable compensation dates from the 1978 effective date of the present statutory definition, adopted as part of the pension reform legislation of 1975, P.L.1975, ch. 622. [4] There is no basis for any inference that the agency's established construction of the statutory definition departs at all from the legislative intent. The crucial issue in this case is the meaning of the phrase salaries and wages in the statutory definition of earnable compensation. As the Board in its decision observed, A standard component of virtually any employment contract in this country is the provision of basic fringe benefits. Such benefits, the Board held, are separate and distinct from what is ordinarily meant by the terms `salary or wages,' even though such benefits ... are ... a form of compensation ... given in consideration of the services rendered by an employee. Plaintiffs do not contest this distinction between benefits and salaries. They heartily agree that the various health, dental, disability, and other insurance benefit options are not earnable compensation, but they contend that the basis for deciding whether an employer's payment to an employee is salary or a benefit should be whether the payment is made in cash or in kind. They point to the fact that the SAD 54 collective bargaining agreement labels the cash payments under Option 4 as salaries. The plain language of the collective bargaining agreement, however, also labels the entire article XIX benefit package as insurance and subordinates the salary option to that overall purpose and designation. Salaries are governed by an entirely separate article, article XIII. Plaintiffs' argument that their benefit package payments should not be regarded as cash in lieu of fringe benefits, but rather that their earlier in-kind benefits should be regarded as fringe benefits in lieu of salary, would prove too much: by that logic, the entire package should have been treated as salary all along and plaintiffs would owe substantial retroactive contributions for the years no MSRS payroll deductions were made on account of the employer-paid insurance premiums. It is not always easy to decide what things are properly characterized as fringe benefits or what is the effect of so characterizing them. There is no single universally applicable dividing line between what payments are wages, earnings, or salary and what are not. Cf. Ashby v. Rust Eng'g Co., 559 A.2d 774, 775-76 (Me. 1989) (question whether earnings include fringe benefits for purpose of calculating workers' compensation award). The statutory definition must be interpreted in light of the objectives of the statute. Here the controlling statutory purpose is to fulfill the legitimate retirement expectations of employees. Soucy v. Board of Trustees of Maine State Retirement Sys., 456 A.2d 1279, 1281 (Me.1983). What an employee may reasonably expect is consistency over the years in the definition of earnable compensation used in administering the Maine State Retirement System. Employees' contributions are based on their current earnable compensation, their pensions on their peak three-year earnable compensation. There is an obvious economic reason the legislature chose to use the same term in both contexts. We agree with the Board, therefore, that the benefit package, which legitimately sheltered a portion of plaintiffs' total compensation from MSRS payroll deductions during the years in which they chose other benefit options, remained outside the scope of earnable compensation when plaintiffs chose the cash option. We are not persuaded by plaintiffs' two arguments to the contrary. First, they contend that the benefit package payments should be treated as salary payments because they were made periodically as part of plaintiffs' regular paychecks and made only for so much time as plaintiffs actually worked; thus plaintiff Dyke, who retired in midyear, received only his pro rata share of the $1,940. But traditional fringe benefits such as health insurance are provided in exactly the same manner, that is, over the period worked, except that the cash is paid directly to the insurer-provider rather than to the employee. Second, plaintiffs argue that the package cannot be treated consistently as fringe benefits because the express language of the statute provides that  [a]ny money paid by an employer under an annuity contract for the future benefit of an employee is earnable compensation. 5 M.R.S.A. § 17001(13)(A)(3) (emphasis added). Thus, according to plaintiffs, an SAD 54 teacher could always convert the benefit package to earnable compensation by electing Option 3 (Tax Sheltered Annuities) in the last three years of employment, and it would be irrational not to allow him to do the same thing by electing Option 4. Neither plaintiff elected Option 3. We therefore need not decide whether the actual services rendered test of subparagraph B(2) applies to annuity payments, i.e., whether subparagraph A(3) encompasses annuity payments in lieu of fringe benefits, or refers only to annuity payments in lieu of salaries as under section XIX(B) of the collective bargaining agreement, supra. Even if plaintiffs, and the Superior Court, were correct that the word any in subparagraph A(3) manifests a legislative intent to give additional preferred treatment to tax sheltered annuities for teachers by allowing those annuities to be used as a vehicle for ballooning the pension base, that fact provides no reason whatever to infer a legislative intent to give similar preferred treatment to cash payments in lieu of fringe benefits. We there fore agree with the Board's conclusion that the benefit package payments are not direct compensation for actual services rendered but rather are compensation for fringe benefits foregone. It is only the overall benefit package, not the Option 4 cash payments themselves, that is tied in any way to services rendered. If we were to reject the Board's construction and treat those cash payments as earnable compensation, logic would compel that we treat all of the other options as earnable compensation as well. Such an interpretation might be consistent with the letter of the statute, but adopting that interpretation by judicial fiat would so thoroughly unsettle established reasonable expectations as to frustrate the purpose of the statute. The entry is: Judgment modified to affirm the decision of the Board of Trustees in full, and as so modified affirmed. All concurring.