PA DOC v. WCAB (Clapper) ( 2017 )


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  •              IN THE COMMONWEALTH COURT OF PENNSYLVANIA
    Commonwealth of Pennsylvania,                 :
    Department of Corrections,                    :
    Petitioner                   :
    :
    v.                           :    No. 1997 C.D. 2016
    :    Submitted: May 19, 2017
    Workers’ Compensation Appeal                  :
    Board (Clapper),                              :
    Respondent                   :
    BEFORE:          HONORABLE MARY HANNAH LEAVITT, President Judge
    HONORABLE PATRICIA A. McCULLOUGH, Judge
    HONORABLE JOSEPH M. COSGROVE, Judge
    OPINION NOT REPORTED
    MEMORANDUM OPINION
    BY PRESIDENT JUDGE LEAVITT                                       FILED: September 8, 2017
    The Commonwealth of Pennsylvania, Department of Corrections
    (Employer) petitions for review of an adjudication of the Workers’ Compensation
    Appeal Board (Board) holding that Employer’s workers’ compensation offset had
    to be calculated on the basis of the net monthly pension received by Shane Clapper
    (Claimant).        In doing so, the Board reversed the decision of the Workers’
    Compensation Judge (WCJ) that Claimant’s pension elections were irrelevant to
    the offset to which Employer is entitled. Rather, the WCJ held that the offset must
    be based upon Claimant’s monthly maximum pension amount.                       On appeal,
    Employer argues that the Board erred in its interpretation and application of
    Section 204(a) of the Workers’ Compensation Act (Act).1 We agree and reverse.
    1
    Act of June 2, 1915, P.L. 736, as amended, 77 P.S. §71(a).
    On April 24, 2012, Claimant sustained a work-related injury.
    Employer issued a Notice of Compensation Payable (NCP) describing his injury as
    a “strain” of the “[righ]t hip and lumbar spine.” Reproduced Record at 360a (R.R.
    __). In accordance with the NCP, Employer paid Claimant weekly disability
    compensation in the amount of $805.77.
    On January 16, 2014, Claimant completed an application for his
    pension, choosing a retirement date of February 15, 2014. Claimant chose the
    pension option that included a lifetime survivor benefit to be paid to his wife upon
    his death. Claimant also chose to withdraw all of his pension contributions, which
    included the interest earnings thereon.              These choices reduced the amount of
    Claimant’s monthly pension benefit.
    In June 2014, Employer issued a notice of workers’ compensation
    offset to Claimant. The notice stated that $323.84 would be deducted from his
    weekly workers’ compensation wage-loss benefit of $805.77.                           This offset
    represented that portion of Claimant’s monthly pension benefit that was funded by
    Employer. In October 2014, Claimant filed a petition to review compensation
    offset, asserting that Employer had improperly calculated the offset. The matter
    was assigned to a WCJ, who conducted a hearing.
    The undisputed evidence presented to the WCJ established that the
    actuarial value of Claimant’s pension, i.e., the amount necessary to fund
    Claimant’s pension benefit for his lifetime, was $307,481.91.2                     Of that total,
    2
    At the hearing, Employer submitted the depositions of Debra Murphy (Murphy), Director of the
    Benefits Determination Division for the State Employees’ Retirement System (SERS), and Brent
    M. Mowery (Mowery), Senior Principal at Hay Group, who serves as a consultant to SERS. In
    addition, the parties entered into stipulations regarding the pension options Claimant selected, the
    (Footnote continued on the next page . . .)
    2
    Claimant contributed $134,865.88. Murphy Deposition, 4/24/2015, at 20; R.R.
    277a. The difference established the actuarial value of the Employer’s funding of
    Claimant’s pension, i.e., $172,616.03.         Stated otherwise, Employer funded
    56.1386% of Claimant’s pension. The Maximum Single Life Annuity (MSLA),
    which is the maximum monthly pension Claimant could have elected, would have
    totaled $2,503.59 per month.
    Claimant made several elections, each of which had the effect of
    reducing his monthly pension amount.           First, Claimant elected an Option 3
    Pension, which provides a lifetime pension to the member and a 50% survivor
    annuity to his designated survivor upon the member’s death. This election reduced
    Claimant’s monthly pension amount, but the actuarial value of his pension
    remained the same because his pension would be paid over two lives, that of
    Claimant and that of his designated beneficiary. Mowery Deposition, 6/3/2015, at
    34-36; R.R. 345a-47a.          Second, Claimant elected to withdraw his own
    contributions and interest by exercising Pension Option 4, which further reduced
    his maximum monthly pension benefit. Claimant’s two pension elections reduced
    his monthly benefit from $2,503.59 to $2,077.45 per month. R.R. 374a.
    From his monthly benefit of $2,077.45, Claimant requested SERS to
    withhold $102.72 per month for federal income taxes and to withhold $167.39 per
    month for his health insurance premium. Id. Claimant also requested a deduction
    (continued . . .)
    amount of his gross monthly pension benefit, and the deductions from his monthly pension
    benefit. WCJ Decision, 11/17/2015, Finding of Fact No. 5; R.R. 47a.
    3
    of $514.08 per month for a child support order.3 Claimant’s directions to SERS to
    withhold taxes and insurance premiums further reduced his monthly pension of
    $2,077.45 to $1,807.34 per month. WCJ Decision, 11/17/2015, at 4; R.R. 48a.
    The WCJ rejected Claimant’s contention that Employer’s offset of
    56.1386% should be applied to his net monthly pension of $1,807.34. The WCJ
    upheld Employer’s notice of weekly offset in the amount of $323.84, which
    Employer calculated based on Claimant’s maximum possible monthly benefit, and
    dismissed Claimant’s review offset petition.              Claimant appealed the WCJ’s
    decision to the Board.
    The Board reversed the WCJ, holding that “[a]n employer is only
    entitled to an offset for the net amount of pension benefits received by the
    claimant.” Board Adjudication, 11/30/2016, at 3; R.R. 17a. The Board remanded
    the matter to the WCJ to recalculate Employer’s offset by applying the
    contribution percentage of 56.1386% to the net amount of Claimant’s pension
    benefit, i.e., $1,807.34. Employer petitioned for this Court’s review.
    On appeal,4 Employer argues, first, that the Board erred in holding
    that its offset should be based on Claimant’s net monthly pension of $1,807.34.
    Employer contends that its offset should be calculated based upon the maximum
    monthly pension benefit available to Claimant, i.e., $2,503.59. Claimant responds
    3
    Notably, Claimant conceded that the deduction for child support was not a consideration in
    determining Employer’s offset credit. R.R. 366a.
    4
    This Court’s review determines “whether the necessary findings of fact are supported by
    substantial evidence, whether Board procedures were violated, whether constitutional rights were
    violated or an error of law was committed.” City of Pittsburgh v. Workers’ Compensation
    Appeal Board (Wright), 
    90 A.3d 801
    , 805 n. 6 (Pa. Cmwlth. 2014). When reviewing questions
    of law, our scope of review is plenary and our standard of review is de novo. 
    Id.
    4
    that, under Section 204(a) of the Act, 77 P.S. §71(a), pension offset calculations
    are to be based solely on the net amount of pension benefits that he actually
    receives.
    Section 204(a) of the Act authorizes an employer to offset a workers’
    compensation payment by the amount of pension benefits, social security and
    severance payments paid to the employee. It states, in relevant part, as follows:
    [T]he benefits from a pension plan to the extent funded by the
    employer directly liable for the payment of compensation which
    are received by an employe shall also be credited against the
    amount of the award [of workers’ compensation benefits] made
    under sections 108 and 306, except for benefits payable under
    section 306(c).
    77 P.S. §71(a) (emphasis added). The offset eliminates “double payment for the
    same loss of wages.” Wright, 
    90 A.3d at 811
    . The Department has adopted a
    regulation to implement Section 204 of the Act. It states, in relevant part, as
    follows:
    Workers’ compensation benefits otherwise payable shall be
    offset by the net amount an employe receives in pension
    benefits to the extent funded by the employer directly liable for
    the payment of workers’ compensation.
    
    34 Pa. Code §123.8
    (a) (emphasis added).
    Employer contends that the amount of its funding of Claimant’s
    pension does not change because of Claimant’s election of certain benefit options
    available under the State Employees’ Retirement Code (Retirement Code), 71 Pa.
    C.S. §§5101-5958. We agree.
    5
    Under the Retirement Code, a member may choose “to receive either
    a maximum single life annuity [MSLA] … or a reduced annuity certified by the
    actuary to be actuarially equivalent to the maximum single life annuity ... and in
    accordance with one of” four options. 71 Pa. C.S. §5705(a). Claimant chose a
    “reduced annuity” certified as the actuarial equivalent of the MSLA and identified
    as Option 3 and Option 4, which state:
    (3) Option 3.--A joint and fifty percent (50%) survivor annuity
    payable during the lifetime of the member with one-half of such
    annuity payable thereafter to his survivor annuitant, if living at
    his death.
    (4) Option 4.--Some other benefit which shall be certified by
    the actuary to be actuarially equivalent to the maximum single
    life annuity, subject to the following restrictions:
    (i) any annuity shall be payable without
    reduction during the lifetime of the member;
    (ii) the sum of all annuities payable to the
    designated survivor annuitants shall not be greater
    than one and one-half times the annuity payable to
    the member; and
    (iii) a portion of the benefit may be payable as a
    lump sum, except that such lump sum payment
    shall not exceed an amount equal to the total
    accumulated deductions standing to the credit of
    the member that are not the result of contributions
    and statutory interest made or credited as a result
    of Class A-3 or Class A-4 service. The balance of
    the present value of the maximum single life
    annuity adjusted in accordance with section
    5702(b) shall be paid in the form of an annuity
    with a guaranteed total payment, a single life
    annuity, or a joint and survivor annuity or any
    6
    combination thereof but subject to the restrictions
    of subparagraphs (i) and (ii) under this option.
    71 Pa. C.S. §5705(a)(3), (4). By choosing these options, Claimant’s maximum
    monthly pension of $2,503.59 was reduced to $2,077.45. However, Claimant’s
    MSLA remained the same, i.e., $307,481.91.
    Recently, in Harrison v. Workers’ Compensation Appeal Board
    (Commonwealth of Pennsylvania), __ A.3d ___ (Pa. Cmwlth., No. 658 C.D. 2016,
    filed June 28, 2017) (en banc), this Court considered the issue of whether the
    compensation offset should be based upon the claimant’s net pension or the
    maximum amount to which the claimant was entitled. In Harrison, the claimant
    did not elect to receive the maximum single life annuity benefit option, but, rather,
    a lower monthly payout under Option 2,5 which provided for full survivor benefits
    for his spouse in the full amount of his annuity should he predecease her. This
    Court affirmed the offset taken by the employer, i.e., the Commonwealth, based on
    the maximum monthly pension benefit available to the claimant.
    We explained that Section 204(a) of the Act “focuses on the extent to
    which benefits are funded by the employer.” Harrison, __ A.3d at __, Slip Op. at
    15 (citing Department of Public Welfare v. Workers’ Compensation Appeal Board
    (Harvey), 
    993 A.2d 270
    , 281 (Pa. 2010)).                  The record established that the
    claimant’s pension amount, after choosing Option 2, was the actuarial equivalent
    of his MSLA. That choice resulted in a lower monthly pension amount so that the
    5
    Option 2 provides for “[a] joint and survivor annuity payable during the lifetime of the member
    with the full amount of such annuity payable thereafter to his survivor annuitant, if living at his
    death.” 71 Pa. C.S. §5705(a)(2). Option 3 provides a 50% survivor benefit. 71 Pa. C.S.
    §5705(a)(3).
    7
    employer could fund a lifetime pension for both the claimant and his wife. Stated
    otherwise, the Commonwealth’s funding obligation was not affected by Claimant’s
    choices. We concluded that “because [the employer] is partially funding both the
    annuity to [the c]laimant and the survivor annuity for [the c]laimant’s wife, [the
    employer] is entitled to an offset for [the c]laimant’s MSLA regardless of the
    amount paid solely to [the c]laimant.” Harrison, __ A.3d at ___, Slip Op. at 19.
    Here, as in Harrison, Claimant did not elect to receive his maximum
    monthly annuity. Rather, he chose a lower monthly payout under Option 3, which
    provided him an annuity payable for his lifetime with one-half of the annuity
    payable to his survivor. Claimant has not challenged the calculation of his MSLA
    or the amount of Employer’s funding of the MSLA. Rather, he asserts that the
    offset should be based on his net monthly pension. In support, Claimant directs
    this Court to City of Philadelphia v. Workers’ Compensation Appeal Board
    (Harvey), 
    994 A.2d 1
     (Pa. Cmwlth. 2010), and Philadelphia Gas Works v.
    Workers’ Compensation Appeal Board (Amodei), 
    964 A.2d 963
     (Pa. Cmwlth.
    2009) (en banc).
    In Harvey, the claimant received a disability pension in the amount of
    $2,292.21 per month and a workers’ compensation benefit in the amount of
    $2,289.84 a month. By ordinance, the City of Philadelphia was entitled to offset
    the claimant’s pension benefit by the amount of the claimant’s workers’
    compensation benefit, which left a pension of $2.27 per month. The City then
    sought to offset the claimant’s workers’ compensation against his pension,
    53.983% of which was funded by the City. Stated otherwise, the City wanted to
    reduce the claimant’s pension by 100% of the claimant’s workers’ compensation
    8
    benefit and then reduce the workers’ compensation benefit by 54% of the
    claimant’s pension. The Board rejected the City’s attempt to double the offset.
    Rather, it held that the City could reduce claimant’s $2.27 pension by 54%. This
    authorized an offset to the claimant’s weekly compensation of $0.28.           We
    affirmed.
    Claimant’s reliance on Harvey is misplaced.         As explained in
    Harrison, this Court did not address the concept of actuarial equivalency in
    Harvey. Harrison, __ A.3d at __, Slip Op. at 16. Further, Employer has not used
    Claimant’s compensation to reduce his pension, as was the case in Harvey.
    In Philadelphia Gas Works, the claimant was receiving workers’
    compensation benefits in the amount of $542 per week when he retired and began
    receiving a pension. The employer had fully funded the pension plan and took a
    weekly offset against the claimant’s workers’ compensation benefits of $264.10.
    Five years later, the employer issued a second notice increasing the weekly offset
    to $334.83, by using the pre-tax amount of the claimant’s pension benefits to
    calculate the offset. The employer contended that it was too difficult to calculate
    the offset on the basis of the claimant’s post-tax pension because an individual’s
    tax is affected by many factors and changes from year to year. This Court agreed.
    The holding in Philadelphia Gas Works turned on a Department
    regulation, which states as follows:
    When Federal, State or local taxes are paid with respect to
    amounts an employee receives in unemployment compensation,
    Social Security (old age), severance or pension benefits, the
    insurer shall repay the employee for amounts previously offset,
    and paid in taxes, from workers’ compensation benefits, when
    the offset was calculated on the pretax amount of the benefit
    received. To request repayment for amounts previously offset
    9
    and paid in taxes, the employee shall notify the insurer in
    writing of the amounts paid in taxes previously included in the
    offset.
    
    34 Pa. Code §123.4
    (f) (emphasis added). We concluded:
    An employer may calculate the offset based on the gross
    amount of the other benefit received by the employee, subject
    to a correction once the employe notifies the insurer he has
    paid the required tax.
    Philadelphia Gas Works, 
    964 A.2d at 966
     (emphasis in original).
    Here, Claimant can choose not to have the tax withheld by SERS at
    any time. Likewise, he may seek reimbursement from Employer for the taxes he
    has paid, i.e., in any given year he did not receive a tax refund. In any case, the tax
    withholding is irrelevant to the calculation of Employer’s offset.
    In sum, Harrison is dispositive. Employer is entitled to a workers’
    compensation offset for the pension benefits it funded, and it must be calculated on
    the basis of the Claimant’s MSLA, not his net pension.
    In its second issue, Employer contends that the Board erred in holding
    that its offset must be adjusted by the amount Claimant’s pension is reduced for his
    health insurance premiums. Claimant responds that Section 204(a) of the Act
    allows an employer an offset only against the amount of compensation that he
    actually receives each month.
    Section 123.8(a) of Title 34 of the Pennsylvania Code states:
    Workers’ compensation benefits otherwise payable shall be
    offset by the net amount an employe receives in pension
    benefits to the extent funded by the employer directly liable for
    the payment of workers’ compensation.
    10
    
    34 Pa. Code §123.8
    (a) (emphasis added). The Department’s regulations define
    “net” as follows:
    The following words and terms, when used in this chapter, have
    the following meanings, unless the context clearly indicates
    otherwise:
    ***
    Net--The amount of unemployment compensation, Social
    Security (old age), severance or pension benefits received by
    the employe after required deductions for local, State and
    Federal taxes and amounts deducted under the Federal
    Insurance Contributions Act (FICA) (
    26 U.S.C.A. §§ 3101
    --
    3126).
    
    34 Pa. Code §123.2
    .      The regulation is silent on the withholding of health
    insurance premiums. Had Claimant not elected that withholding, he would have
    had to pay the premium by separate check. Instead, he directed SERS to make the
    payment on his behalf. This direction is irrelevant under 
    34 Pa. Code §123.8
    (a),
    and the Board erred in otherwise holding.
    In its third issue, Employer contends that the Board erred in requiring
    that it calculate the offset on the basis of Claimant’s after-tax pension amount.
    Employer contends that the Department’s regulation expressly allows it to
    calculate the offset based upon Claimant’s pre-tax pension benefit as was
    established in Philadelphia Gas Works, 
    964 A.2d 963
    . We agree.
    As discussed above, in Philadelphia Gas Works we held that
    calculating the offset on the basis of a claimant’s after-tax pension amount
    presented an extreme administrative challenge because it is impossible in any
    given year to know the amount of a claimant’s tax liability. Thus, we held that the
    11
    regulation gives employers the discretion to calculate the offset on the gross, or
    pre-tax, amount owed to a claimant. 
    34 Pa. Code §123.4
    (f). Thereafter, a claimant
    is entitled to reimbursement upon demonstrating to the employer that the taxes
    withheld were not refunded by the taxing authorities.      This was reiterated in
    Harrison, ___ A.3d ___, Slip Op. at 21.
    For the reasons stated above, the Board erred in reversing the WCJ’s
    determination that Employer is entitled to a workers’ compensation offset for
    pension benefits based upon Claimant’s monthly maximum single life annuity
    notwithstanding Claimant’s voluntary election to receive a lower monthly pension
    payout. Accordingly, the order of the Board is reversed.
    ______________________________________
    MARY HANNAH LEAVITT, President Judge
    12
    IN THE COMMONWEALTH COURT OF PENNSYLVANIA
    Commonwealth of Pennsylvania,       :
    Department of Corrections,          :
    Petitioner         :
    :
    v.                      :   No. 1997 C.D. 2016
    :
    Workers’ Compensation Appeal        :
    Board (Clapper),                    :
    Respondent         :
    ORDER
    AND NOW, this 8th day of September, 2017, the order of the
    Workers’ Compensation Appeal Board dated November 30, 2016, in the above-
    captioned matter is REVERSED consistent with the attached opinion.
    ______________________________________
    MARY HANNAH LEAVITT, President Judge
    IN THE COMMONWEALTH COURT OF PENNSYLVANIA
    Commonwealth of Pennsylvania,               :
    Department of Corrections,                  :
    Petitioner                 :
    :
    v.                             :
    :
    Workers’ Compensation                       :
    Appeal Board (Clapper),                     :   No. 1997 C.D. 2016
    Respondent                 :   Submitted: May 19, 2017
    BEFORE:      HONORABLE MARY HANNAH LEAVITT, President Judge
    HONORABLE PATRICIA A. McCULLOUGH, Judge
    HONORABLE JOSEPH M. COSGROVE, Judge
    OPINION NOT REPORTED
    DISSENTING OPINION
    BY JUDGE COSGROVE                               FILED: September 8, 2017
    As I joined the dissent of the Honorable Michael H. Wojcik in
    Harrison v. Workers’ Compensation Appeal Board (Commonwealth of
    Pennsylvania), __A.3d__ (Pa. Cmwlth., No. 658 C.D. 2016, filed June 28,
    2017)(en banc), I dissent here as well.
    ___________________________
    JOSEPH M. COSGROVE, Judge
    

Document Info

Docket Number: 1997 C.D. 2016

Judges: Leavitt, President Judge ~ Dissenting Opinion by Cosgrove, J.

Filed Date: 9/8/2017

Precedential Status: Precedential

Modified Date: 9/18/2017