Court Opinion

ID: 9755293
Source: CourtListenerOpinion
Date Created: 2023-08-28 20:34:04.772323+00
Date Added: 2024-06-11T09:53:47.892808
License: Public Domain

OPINION BY
Judge SIMPSON.
This case involves a public employer’s reconsidered request for a pension offset against workers’ compensation benefits. We are concerned with how an employer proves the extent to which it funded a defined benefit pension plan so as to qualify for the offset. More particularly, must an employer offer evidence of specific past amounts paid by the employer to the plan on account of an employee, or may the employer offer actuarial opinion of its past and future funding to the plan? The issue is of considerable importance because most public employees in Pennsylvania are members of a defined benefit pension plan.
Here, the Pennsylvania State University and PMA Insurance Group (collectively, Employer) petition for review of an order denying their petition to modify benefits, setting aside their notice of workers’ compensation benefit offset and reinstating Robert Hensal’s (Claimant) workers’ compensation benefits.1 Concluding Employer’s proof is permissible, we vacate and remand for further proceedings.
Claimant sustained a work injury in the nature of a shoulder sprain/strain on February 21, 2002. Employer promptly issued a notice of compensation payable awarding Claimant total disability benefits. In late October 2002, the State Employees’ Retirement System (SERS) granted Claimant a disability pension.
In January 2004, Employer filed a petition to modify benefits alleging entitlement to an offset against its workers’ compensation obligation due to Claimant’s receipt of a disability pension. Employer later issued Claimant a notice of workers’ compensation benefit offset pursuant to Section 204(a) of the Workers’ Compensation Act (Act).2 Employer’s notice indicated Claimant’s entire workers’ compensation award was subject to an ongoing offset. Asserting Employer’s action violated the Act, Claimant filed a penalty petition.
Employer presented the testimony of SERS’ Director of Benefits Determination Division and SERS’ actuary. Reviewing their testimony, which is discussed later in *227this opinion, the Workers’ Compensation Judge (WCJ) concluded Employer bore the burden of proof but failed to establish its contributions to Claimant’s pension. Notably, the WCJ acknowledged Employer’s evidence may be valid, but concluded the law requires actual contributions be proven before offset is permitted. Of further significance, the WCJ did not make credibility determinations on the witnesses’ testimony.3 The WCJ denied Claimant’s penalty petition.
On Employer’s appeal, the Workers’ Compensation Appeal Board (Board) affirmed. Initially, we affirmed the Board’s determination. We subsequently granted Employer’s application for reconsideration and again review whether the WCJ improperly denied Employer an offset. Both the WCJ and the Board resolved the issue as a matter of law. Accordingly, we examine the applicable statutory and regulatory language and Employer’s evidence.4
I. Statutory Provisions
There are two legislative acts that impact Claimant’s receipt of benefits: the Act and the State Employees’ Retirement Code (Retirement Code), 71 Pa.C.S. §§ 5101-5956. In addition, the Bureau of Workers’ Compensation (Bureau) promulgated regulations addressing the offset of workers’ compensation benefits where an injured employee also receives pension benefits. See 34 Pa.Code §§ 123.2-123.10.
A.
First, we review the applicable section of the Act. In 1996, the legislature, attempting to combat the increasing costs of workers’ compensation in Pennsylvania, amended Section 204(a) of the Act to allow employers an offset against workers’ compensation benefits for social security, severance, and pension benefits simultaneously received by an employee. Kramer v. Workers’ Comp. Appeal Bd. (Rite Aid Corp.), 584 Pa. 309, 883 A.2d 518 (2005). The amended Section 204(a) now provides, in relevant part:
The severance benefits paid by the employer directly liable for the payment of compensation and the benefits from a pension plan to the extent funded by the employer directly liable for the payment of compensation which are received by an employee shall also be credited against the amount of the award made under sections 108 [occupational disease] and 306 [total and partial disability], except for benefits payable under section 306(c) [specific loss benefits]....
77 P.S. § 71 (emphasis added). Amended Section 204(a) serves the legislative intent of reducing the cost of workers’ compensation by allowing an employer to avoid pay*228ing duplicate benefits for the same loss of earnings. Kramer, Murphy v. Workers’ Comp. Appeal Bd. (City of Phila.), 871 A.2d 312 (Pa.Cmwlth.2005). Similarly, Section 204(a) implicitly recognizes that public policy bars an employer from utilizing an employee’s own retirement funds to satisfy its workers’ compensation obligation. See Lyons v. Workmen’s Comp. Appeal Bd. & City of Los Angeles, 44 Cal.App.3d 1007, 119 Cal.Rptr. 159 (1975) (labor code prohibited employer from receiving either directly or indirectly contributions from employees to cover cost of workers’ compensation). Central to this appeal is the legislature’s failure to specify the method of calculating the offset or proving the extent to which the employer funded the pension at issue.
B.
The change in legislation required the Bureau to adopt regulations addressing the various offsets now authorized under Section 204(a). Section 123.8 applies the Act’s offset provision to defined benefit and defined contribution pension plans. 34 Pa.Code § 123.8(b). Among other things, the regulations require an employer to inform the employee how it calculated the offset. 34 Pa.Code § 123.4(b). The regulations further provide the offset calculation for multi-employer pension plans but not for multiple employer plans.5 To calculate multi-employer pension fund offsets, the regulations require that the portion of the annuity purchased by the liable employer’s contributions be determined by the pension fund’s actuary. 34 Pa.Code § 123.10(b).6
C.
Calculation of an employer’s offset necessarily entails a limited examination of the pension plan at issue. In this case, Claimant is a member of SERS, which provides a defined benefit pension plan. A “defined benefit plan” is one where the “benefit level is established at the commencement of the plan and actuarial calculations determine the varying contributions necessary to fund the benefit at an employee’s retirement.” 34 Pa.Code § 123.2. As a participant of a defined benefit plan, Claimant is guaranteed a fixed monthly benefit.7
Benefits paid to SERS’ members are governed by the Retirement Code. It mandates that both employees and employers contribute to the pension fund. 71 Pa.C.S. §§ 5501; 5507. Moreover, Employer, as a state-affiliated university, is “totally re*229sponsible for all employer contributions under section 5507 (relating to contributions by the Commonwealth and other employers).” 71 Pa.C.S. § 5102. Thus, the pension fund is supported by employee and employer contributions, and investment income.
The employer contribution rates are governed by Section 5508, which generally provides that an employer’s total contribution rate consists of its normal contribution rate, the accrued liability contribution rate, and an experience adjustment factor. 71 Pa.C.S. § 5508.8 An employer’s total contribution rate is expressed as a percentage of its active payroll based on actuarially projected calculations. Id. As an important consequence, an employer does not make contributions on behalf of an individual employee. Rather, an employer is required to contribute to the fund to maintain its overall solvency and to ensure sufficient monies are available to pay its projected liability.
II. Employer’s Evidence
Before the WCJ, Employer offered the testimony of Linda Miller, SERS’ Director of Benefits Determination Division (Director). Director testified SERS offers a defined benefit pension plan, and that an employee’s monthly benefit is not based on past contributions by either the employer or employee. Rather, an employee’s pension benefit is determined in part by the employee’s years of service, final average salary, projected investment returns, and mortality projection. Importantly, Director confirmed Claimant and Employer contributed to the fund.
Of additional significance, Director stated that under a defined benefit plan, the extent to which an employer funded a particular employee’s pension can only be determined by an actuarial formula. The formula subtracts from the total value of the employee’s actuarially determined projected lifetime benefit the specific amount the employee contributed, plus an actuarially determined investment rate of return. The resulting figure represents an actuarially accurate portion of future pension benefits which the employee did not fund.9
Employer also presented the testimony of Brent Mowrey, SERS’ actuary (Actu*230ary). Actuary stated his firm makes yearly recommendations regarding member employers’ contributions to the fund. R.R. 93a. The recommendations are based on various actuarial assumptions, which are examined every five years. Id. The assumptions include considerations such as investment return rate, salary growth, economic forces, mortality rates, and fund past performance. Id. at 94a-96a. Based on Actuary’s recommendations, which include consideration of the above-noted factors, SERS assigns 8.5% interest to employee contributions. Id. at 112a-13a.
Actuary stated that although employers do not make contributions to the fund on behalf of individual employees, employers make contributions for particular classes of employees. Id. at 129a-30a; 141a. Additionally, SERS informs employers of their contributions to the fund expressed as a percentage of their payroll, again based on Actuary’s recommendations. Id. at 94a. Actuary acknowledged that in some years employers’ contributions were 0% of their payroll; however, because employees continued to accrue additional pension rights by virtue of continued employment, employers remain obligated to fund the newly earned benefits. Id. at 149a. Thus, Actuary concluded employer contributions to the fund in any given year are irrelevant to calculating an offset because past or future employer contributions maintain adequate funding. Id. at 150a (emphasis added). Finally, Actuary confirmed SERS’ method of calculating an employer offset is reasonable and actuarially sound. Id. at 105a; 125a.
Director’s and Actuary’s unrebutted testimony established several points. First, Employer is statutorily required to contribute a percentage of its payroll to the pension fund to cover the difference between employee contributions and pension liability, including liability to Claimant. Second, and of particular importance here, the extent to which an employer will fund a particular employee’s pension can only be determined by an actuarial formula. Third, Employer did not make identifiable contributions to the fund solely on Claimant’s behalf. Fourth, Employer made past contributions and will make future contributions to the pension plan while Claimant receives his lifetime benefit.
III. Contentions
Briefly stated, Employer argues the WCJ and Board failed to recognize that in a defined benefit plan an employer does not contribute monies on behalf of an individual employee. The WCJ’s and the Board’s interpretation of Section 204(a), Employer suggests, fails to appreciate statutory language that an employer is entitled to an offset to the extent it “funded” the pension at issue. Employer further contends the WCJ’s and Board’s decisions are contrary to the Act because they effectively deny nearly all state agencies offsets against their workers’ compensation obligations.
Conversely, Claimant argues the WCJ properly rejected Employer’s speculative evidence where proof of Employer’s actual contributions on behalf of individual members is known but was not produced.10
*231IV. Discussion
Most recently, in Department of Public Welfare/Polk Center v. Workers’ Compensation Appeal Board (King), 884 A.2d 343 (Pa.Cmwlth.2005), we discussed an employer’s burden in a defined benefit pension offset case. In King, Director also testified on behalf of the employer, and she provided nearly identical testimony regarding the employer’s method of calculating the offset. However, no actuary testified. The WCJ found Director’s testimony failed to establish employer paid any funds into the pension system. On appeal, this Court affirmed the denial of an offset, noting the employer failed to establish it funded the pension plan, and failed to explain how the interest rate or other actuarial calculations were derived. Notwithstanding, and with some significance, we stated “[t]here was no determination made that [the employer] could not determine contributions by way of actuary tables.” Id. at 347.
The Board interprets King to hold an employer is only entitled to an offset where it establishes the specific dollar amount it contributed in the past to Claimant’s pension. This determination is erroneous, for several reasons.
A.
First, King is factually distinguishable from this case. In King, there was no testimony from an actuary. Here, that testimony is present. Also, in King there was no testimony the employer funded the plan. Here, that testimony is present. Even a cursory reading of King reveals it was intended to apply to the record, or lack of record, in that case only. Consequently, we conclude King does not control the outcome here.
B.
Second, the Board’s restrictive interpretation fails to apprehend the core differences between defined benefit and defined contribution pension plans. These core differences impact the manner of proving the extent to which an employer funds an employee’s defined benefit pension.
As previously noted, a defined contribution plan is an individualized retirement account funded by employer and employee contributions before retirement, as well as investment returns. 34 Pa.Code § 123.2. The monthly pension benefit is dependent on the contributions and on the performance of the investment portfolio. Id. Because the account is individualized, employer contributions to the employee’s pension are easily ascertained.
In contrast, a defined benefit pension plan is designed to provide an employee with a set benefit amount based on factors known only at retirement, such as length of employment and retirement age. See Edward A. Zelinsky, The Defined Contribution Paradigm, 114 Yale L.J. 451 (2004). In this case, the defined benefit is based on the length of employment, retirement age, membership class and final average salary. Id.; 71 Pa.C.S. § 5702. Unlike the defined contribution situation, in a defined benefit plan an employee’s actual contributions do not determine the amount of monthly benefits a member will receive.
An employer is required to contribute funds to the defined benefit pension plan to cover the difference in employee contributions and the collective pension liability. The Defined Contribution Paradigm; 71 Pa.C.S. § 5508. An employer’s liability to fund an employee’s defined benefit pension is not complete until the employee dies. See The Defined Contribution Paradigm. So, here, Employer is subject to potential post-retirement funding pursuant to an accrued liability contribution rate and to an *232actuarially determined experience adjustment factor to address unfunded liability. 71 Pa.C.S. §§ 5508(c), (f). Because the pension guarantees a fixed benefit level, the employer assumes the risks of investment, inadequate funding, and member longevity. The Defined Contribution Paradigm.
Further, defined benefit plans are funded collectively, the employer’s contributions being pooled in a common trust fund from which all participants receive their benefits. Id. In theory, economies of scale and other efficiencies are achieved by investing in a single common pool. Id. Also, longevity risk is tempered by a larger and more diverse pool of participants. Id. Indeed, the SERS defined benefit pension here reflects collective or class funding by Employer, rather than the individualized retirement account of a defined contribution plan.
In sum, collective funding and the potential for post-retirement funding create unique hurdles to proving an employer’s defined benefit contribution for pension offset purposes. Because an appreciation of the funding of defined benefit pension plans requires knowledge beyond that possessed by laypersons, it is a subject particularly amenable to testimony by experts. See Pa. R.E. 702. This approach is consistent with common sense and with testimony that the extent to which an employer funded a particular employee’s defined benefit pension can only be determined by an actuarial formula. The approach is also consistent with the regulation for evaluation of offset for multi-employer plans, which requires that the portion of the annuity purchased by the liable employer be determined by the pension fund’s actuary. 34 Pa.Code § 123.10(b).
C.
Third, contrary to the Board’s holding, the Act requires an employer to prove the extent to which it funded the pension at issue; it does not require proof of actual contributions. 77 P.S. § 71. The Board’s narrow reading of King effectively denies defined benefit employers offsets because they cannot meet their burden of production of contributions to a particular pension account. We cannot sanction the Board’s limited interpretation in light of the clear legislative intent to provide employers relief from concurrent payment of workers’ compensation and employer-funded pension benefits. Kramer; see also 1 Pa.C.S. § 1922(a) (General Assembly does not intend a result that is absurd, impossible of execution or unreasonable); Branch v. Cohen, 736 A.2d 732 (Pa.Cmwlth.1999).
D.
Since an employer cannot provide evidence of actual contributions for the use of an individual member of a defined benefit pension plan, it may meet its burden of proof, as Employer attempted in this case, with expert actuarial testimony. Employer’s expert evidence here, if accepted as credible, is legally sufficient to establish the extent to which Employer funded Claimant’s defined benefit pension for purposes of offset. In this regard, we discern no merit in Claimant’s argument that Employer’s evidence is impermissibly speculative.11 Cf. Ruzzi v. Butler Petroleum Co., 527 Pa. 1, 588 A.2d 1 (1991) (expert testi*233mony regarding loss of future earnings not speculative); Kaczkowski v. Bolubasz, 491 Pa. 561, 421 A.2d 1027 (1980) (inherently speculative nature of lost future earnings does not justify excluding reliable economic evidence); Gary v. Mankamyer, 485 Pa. 525, 403 A.2d 87 (1979) (testimony of actuary admissible to show loss of earning capacity); Burkett v. George, 118 Pa. Cmwlth. 543, 545 A.2d 985 (1988) (testimony of actuary). This conclusion is consistent with innumerable court decisions involving the analogous law of civil damages, which hold that damages are considered speculative only if there is uncertainty concerning the existence of damages rather than the ability to precisely calculate the amount or value of damages. E.g., Kituskie v. Corbman, 552 Pa. 275, 714 A.2d 1027 (1998); Carroll by Burbank v. Phila. Housing Auth., 168 Pa.Cmwlth. 275, 650 A.2d 1097 (Pa.Cmwlth.1994) (damages are speculative if uncertainty concerns fact of damages, not amount).
IV. Conclusion
The WCJ here failed to make credibility determinations on Employer’s evidence. Although he recognized Employer’s evidence may be valid, the WCJ (and later the Board) erroneously concluded Employer was required to prove net contributions before an offset will be permitted. Because Employer’s evidence, if credited, is sufficient to meet its burden of proof, we vacate the Board’s order and remand, with direction that the case be further remanded to a WCJ for additional findings based on the existing record.

ORDER

AND NOW, this 17th day of November, 2006, the order of the Workers’ Compensation Appeal Board is VACATED and this matter is REMANDED for further findings and conclusions of law by the Workers’ Compensation Judge based on the existing record.
Jurisdiction relinquished.

. The Commonwealth of Pennsylvania, the State Employees’ Retirement System, the Public School Employees’ Retirement System and the Pennsylvania Defense Institute appear as amici curiae in support of Employer. The Pennsylvania Trial Lawyers Association appears as amicus curiae in support of Claimant.

. Act of June 2, 1915, P.L. 736, as amended, 77 P.S. § 71.

. The WCJ concluded:
An [e]mployer is entitled to an offset only for its contributions and actual interest thereon. [Pittsburgh Bd. of Educ. v. Workers’ Comp. Appeal Bd. (Schulz), 840 A.2d 1078 (Pa.Cmwlth.2004)]. The testimony of Linda Miller and Brent Mowrey did not establish what [Employer] contributed. Accordingly, [Employer] has failed to meet its burden to establish that it is entitled to a benefit offset for SERS benefits.
[Employer's] argument that [its] calculation is equitable because presently [Employer’s] contributions are artificially low and in the future [Employer’s] contributions will be artificially high may be valid. However, the regulations and the [Schulz ] case ... indicate it is the net amount contributed by [Employer] and received by [Claimant] that must be established under current law.
WCJ’s 11/30/2004 Decision, Conclusion of Law No. 1.

. We are limited to determining whether the necessary findings of fact were supported by substantial evidence, whether errors of law were committed, or whether constitutional rights were violated. Selkow v. Workmen's Comp. Appeal Bd. (Anchor Davis-Jay Box Co.), 662 A.2d 31 (Pa.Cmwlth.1995).

. A multi-employer pension plan is one to which "more than one employer is required to contribute and is maintained under one or more collective bargaining agreements between one or more employe[e] organizations and more than one employer.” 34 Pa.Code § 123.2. Although not defined, a multiple employer pension plan is maintained by one or more employers where participation is not linked to a collective bargaining agreement. Reproduced Record (R.R.) at 110a. SERS is a multiple employer pension plan.

. The regulation continues as follows: "The ratio of the portion of the annuity purchased by the liable employer’s contributions to the total annuity shall be multiplied by the net benefit received by the employee from the pension fund on a weekly basis. The result is the amount of the offset to be applied to the workers' compensation benefit on a weekly basis.” 34 Pa.Code § 123.10(b). Additional regulations explain how the offset shall be calculated where the pension benefit is received monthly or in a lump sum. 34 Pa. Code §§ 123.10(c), (d).

.In contrast, in a defined contribution plan, the employee and in some cases the employer contribute specified sums to an individual account on behalf of the employee. DeMarco v. DeMarco, 787 A.2d 1072 (Pa.Super.2001). Benefits are calculated solely on the accumulated contributions and earnings in the employee's account. Id..; 34 Pa.Code § 123.2.

. An employer’s normal contribution rate is expressed as a percentage of compensation of an average new active member, which if contributed throughout the member’s active service, would be sufficient to fund the liability for any prospective benefit payable to that member. 71 Pa.C.S. § 5508(b). The accrued liability contribution rate is computed as the rate of total compensation of all active members sufficient to fund benefits over a specified period of years. 71 Pa.C.S. § 5508(c). The experience adjustment factor allows an increase or decrease in the unfunded liability based on actuarial recommendations. 71 Pa. C.S. § 5508(f).

. Director testified that to establish the extent to which Employer funded Claimant’s pension for offset purposes, SERS first determined the pension’s present value. To compute the present value, SERS calculated Claimant's maximum single life annuity, or monthly benefit ($1,194.75). The maximum single life annuity equals 2% times the member’s years of service times final average salary times the class multiplier (2% x years of service x final average salary x class multiplier). 71 P.S. § 5702; R.R. 47a. SERS then multiplied the single life annuity by 12 to ascertain Claimant’s yearly benefit ($1,194.75 x 12 = $14,337). R.R. 47a-48a. The yearly benefit multiplied by the applicable annuity factor yielded the present value ($14,337 x 10.13600 = $145,319.83). Mat48a.
Thereafter, SERS subtracted Claimant’s contributions and investment growth at 8.5% from the present value. The difference represents Employer’s funding obligation ($145,-319.83 — 63,271.99 = $82,047.84). Id. at 49a. Employer’s total obligation, when divided by the annuity factor, yielded Employer’s yearly obligation ($8,094.69). Id. On a monthly basis, Employer funds Claimant’s pension in the amount of $674.56. Id.

. Claimant further contends regulations permitting a unilateral imposition of offset are contrary to the Act and violate his right to due process under the Pennsylvania Constitution, although he fails to identify any specific constitutional provision or offensive regulation.
We decline to address Claimant's undeveloped assertions. These assertions relate to Claimant’s penalty petition, which was denied by the WCJ. Claimant did not appeal from either the WCJ or the Board; accordingly, this issue is not preserved for appellate review.

. The approach discussed by the Board (a formula based on an employer’s past contributions to the pension fund during a member’s years of service) fails to consider post-retirement funding (accrued liability contribution rate and an actuarially determined experience adjustment factor to address unfunded liability, 71 Pa.C.S. §§ 5508(c), (f)). Therefore, it is a less accurate indication of a public employer’s ultimate funding responsibility than that described by Actuary here.