4 Notes for WWI research: Louis Sheehan

4  Notes for WWI research: Louis Sheehan

CHAPTER I

THE WHEAT SITUATION

Wheat is as much a war necessity as ammunition—wheat is a war weapon. To produce it and distribute it where it is needed and in sufficient quantities is the most serious food problem of the Allied world. The continent of Europe, with her devastated fields, can raise but a small fraction of the wheat she needs, and ships are so few that she cannot import it from many of the usual sources.

Not one of the warring European countries has escaped serious suffering, and the neutral countries have suffered with them.

THE WORLD'S SUPPLY OF WHEAT

France, always an agricultural nation, was the most nearly self-sustaining of the western Allies. Now one-third of her wheat-fields are barren. Thousands of her acres have been taken by the enemy, or are in No Man's Land. Much of the land that has been fought over these past four years is now hopeless for farming, and will be for years to come. Even the territory still under cultivation cannot be expected to yield large returns, for laborers, tools, and fertilizers are lacking.

The men who have left the fields to fight have been replaced [pg 2]chiefly by women, children, and old men, while furloughed soldiers at times help to bring in the crops. To get adequate return from the soil which has been tilled for centuries, tons of fertilizer are necessary. Fertilizers are an absolute necessity, and nitrates, one of the most important of them, can no longer be imported from Chile. The work-animals have been driven off by the enemy or slaughtered for want of food, and mechanics are lacking to repair and replace the worn-out farm-machinery. As a result of this, in 1917 France raised only enough wheat to supply 40 per cent of her need, instead of 90 per cent, as in pre-war years.

In England the situation is not much better. Unlike France, England has always imported far more wheat than she raised. But now through vigorous effort she alone of all the European countries has increased her cereal production so that it has actually been doubled. Being free from the devastation of war at home, she has been able to convert the great lawns of her parks and country estates into grain-fields. English women of all classes, an army of half a million, are working on the land. At the same time the consumption of wheat has been reduced. Even yet, however, the home-grown supply in England is only one-fourth of the wheat required.

In Belgium the devastation is so complete that the women, children, and old people left there would die of famine if food were not sent to them. Two and a half million Belgians daily stand in line waiting for food to be doled out to them. The United States must supply three-fourths of the wheat contained in their meagre bread ration. In Italy, too, the condition is serious, for she produces far less than she needs, despite every effort of her Government to stimulate production.

[pg 3]

WHEAT FIELDS OF THE WORLD

[pg 4]

Germany and Austria-Hungary have not escaped universal suffering from lack of wheat. Germany before the war was a wheat-importing country, and Austria-Hungary was able to supply herself with wheat, but had none to export. Their war crops have been below normal, and even the wheat taken from conquered territory has not been sufficient to prevent severe shortage, resulting in bread riots in industrial centres.

The imports of wheat into both the Allied and enemy European countries to supplement the wheat of their own raising came in peace-times from seven countries—Russia, Roumania, Australia, the United States, Canada, Argentina, and India. Most of these have now failed as a source of supply.

Russia and Roumania were the great wheat-bins of Europe. They produced as much wheat as the United States, and sometimes more, and they were always able to make up or nearly make up the deficiencies of western Europe. Russia and Roumania are now themselves on the verge of famine. Even before their own situation became so desperate, they could get little wheat to the western Allies, because the enemy territory and the battle-lines made a great wall of separation.

Australia and India both continue to grow large crops of wheat, and have a surplus in storage, but it cannot be sent to Europe because of lack of ships. Australia has wheat stored from her last three crops. The Argentine had very poor crops in 1916 and 1917, and although the 1918 crop is good, it is scarcely more available to Europe than Australia's wheat.

So the wheat scarcity is not a question only of the amount of wheat in the world. It is a problem of getting it where it is needed—wheat plus ships. Not a single ship must go farther than is absolutely necessary. A glance at the map shows why wheat for Europe should come from North America rather than from Australia or India, or even the Argentine. The trip from Australia [pg 5]is three times as long as from North America, so it takes only one-third as many ships to carry food to Europe from the United States as from Australia. The Argentine is twice as far from Europe as the United States, and therefore twice as many ships are needed to carry an equal amount of Argentine food to Europe. If this continent could produce and save enough next year to provide the whole of the Allied food necessities, we could save 1,500,000 tons of world shipping to be used for other purposes. Every ship saved is a ship built to carry more men and more ammunition to France.

WHEAT IN THE UNITED STATES

The United States has never had a large wheat surplus to export, and the last few years it has had an unusually low supply to meet the extraordinary demand. The 1916 crop was small. The 1917 crop was only four-fifths of normal, little more than we ordinarily consume ourselves. We entered the last harvest with our stocks of wheat and other cereals practically exhausted. Hence to feed the Allies until the 1918 harvest, we had to send wheat which we should ordinarily have eaten. All that we could send under normal conditions from July, 1917, to July, 1918, has usually been estimated at about 20,000,000 bushels, but in the first eleven months of this time we actually did send 120,000,000 bushels, six times as much as we could have shipped without conservation. One-half of the total output of our flour-mills in the month of May, 1918, went abroad.

This achievement in feeding the Allies has been made possible and will continue to be possible, through the measures of economy and substitution established by the Food Administration, and the constant and continued personal sacrifice of each one of us.

[pg 6]

Even the 1918 wheat crop, successful as it promises to be, will not mean freedom from saving. Throughout the war there can be no relaxation. We must build up a great national reserve in years of good harvest for the greater and greater demands of Europe. Never again must we let ourselves and the world face the danger that was before us in the spring of 1918.

MEETING THE WHEAT SHORTAGE

To keep wheat constantly going over to our Allies and sufficient stores in the United States at the same time, is one of the big problems of the Food Administration. Production has had to be increased and consumption decreased. The price has had to be kept down, for in a time of shortage prices always tend to go up. It is true that high prices furnish one method of decreasing the consumption of food, but it is a method that means enforced conservation by the poor and no conservation by the rich. The burden thus falls on those least able to bear it.

To meet this situation the Food Administration has gone into the wheat business itself. Practically entire control of the buying and selling of wheat is in the hands of the great United States Food Administration Grain Corporation. Through this organization all wheat sales are made to the Army and Navy, to our allies, and to the neutrals. The price which it pays for these huge quantities sets the price for the entire country. The Food Administration also makes the movement of wheat from the farmer to the miller and to the wholesaler as simple and direct as possible. It prevents hoarding and speculation. "I am convinced," said Mr. Hoover, in April, 1918, "that at no time in the last three years has there been as little speculation in the nation's food as there is to-day."

[pg 7]

[pg 8]

As a result of this business management of wheat, the consumer pays less for flour, although the farmer gets more for his wheat. In May, 1917, the difference between the price of the farmer's wheat and of the flour made from it was $5.86 per barrel of 196 pounds. Fifteen months later the difference was 64 cents. In February, 1917, before the United States went into the war, flour sold at wholesale for $8.75 a barrel. In May, 1917, the war, with no food control, had driven the price up to $17. But in February, 1918, after six months of the Food Administration, it had gone down to $10.50 wholesale, and this in spite of unprecedented demand for our very short supply. Without control, flour would undoubtedly be selling for $50 a barrel. During the Civil War, with no world wheat shortage, but without food control, the price of wheat increased 130 per cent over the price in 1861.

The milling and sale of flour, the baking of bread, and the purchases of the individual are all regulated to a greater extent than would have scarcely been thought possible before the war.

Every effort has been made to produce a great 1918 wheat-crop. Congress, at the time the Food Control Bill was passed, fixed the price of the 1918 wheat at a minimum of $2 per bushel, and the President later fixed the price at $2.20. This has been high enough to encourage the farmer to increase his crop and not too high to be fair to the consumer. The Department of Agriculture, during the winter of 1917-18, had for its slogan, "a billion-bushel crop for 1918." It has worked intensively to help the farmer in selecting and testing seed and in fighting destructive insects and plant-diseases, and in every way to help him grow more wheat.

Constant reliance has been placed on the individual's intelligence and patriotism in wheat-saving. One of the unusual [pg 9]aspects of the Food Administration is its confidence in the co-operation of the country and the response which this confidence has met. Wheatless meals are now a commonplace occurrence. Wheatless days are being observed in many hotels and homes. People all over the country have pledged themselves to do entirely without wheat until the 1918 harvest is available. About 100,000 barrels of flour were returned by individuals and companies during the spring of 1918, to be shipped to the Allies and the Army and Navy. The individual all over the country, consumer, dealer, miller, or farmer, has risen to the occasion to do his share toward the fulfilment of the Government's promise to Europe.

[pg 10]

CHAPTER II

THE WAR-TIME IMPORTANCE OF WHEAT AND OTHER CEREALS

When the United States was called on to supply the Allies with much of its wheat and flour, we fortunately found at hand a plentiful supply of a great variety of other cereals. The use of corn was, of course, not an experiment—generations of Southerners have flourished on it. But we also had oats, rice, barley, rye, buckwheat, and such local products as the grain sorghums, which are grown in the South and West. All of them are cereals and all can be used interchangeably with wheat in our diet.

To understand clearly the value of cereals in the diet to-day, it is well to review the part played by food in general. Europe to-day is eating to live. She therefore thinks of food not in terms of menus but as a means of keeping up bodily functions, as sources of protein, carbohydrate and fat—terms seldom heard outside of the university a few years ago.

THE SIGNIFICANCE OF DIFFERENT KINDS OF FOOD

We need food first of all to burn as fuel for all the activities of the body, just as any other machine needs fuel. The fuel value of food, or its energy, is measured in calories. A calorie measures the amount of heat or energy given off when anything burns, whether it is coal in a stove or food in the body.

Practically all foods give this fuel or energy, but some give [pg 11]much more than others. Fats give more fuel than an equal weight of any other food. Sugar and foods rich in starch like flour and corn meal are fuel foods. This is one of the reasons why they are chosen to be shipped abroad. The cereals always supply an important part of the fuel of the diet. Watery foods, like many vegetables and fruits, normally give less fuel. A person could not live on lettuce any better than a house could be heated with tissue paper.

If the food does not supply enough energy, a person will burn up part of his own body for fuel and will grow emaciated. Far too often we find children of the very poor who are undernourished because of lack of food fuel. Sometimes even well-to-do young people half starve themselves because they get "notions" about food. One of the terrible tragedies abroad is the hundreds and thousands of men and women and children who are worn and thin and sick for lack of food.

We need food, too, to keep the organs of the body running smoothly. Abroad, people are suffering not only because they have not enough food, but because they have not the right kinds of food. Milk and vegetables and fruits are especially useful. They are the chief sources of the much-needed mineral salts and the two vitamines. The vitamines are substances of great importance about which has centred much discussion lately and which scientists do not yet fully understand, though they realize that they are essential for the growth of children and for health in adults.

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Another Reply to Rolland

By Karl Wolfskehl.

To you, Rolland, belonging as a chosen one to the more important Frenchmen who can rise above their race, the German nature has often been revealed. To you, now, we shall make answer, offer frank testimony concerning the spirit of the time, concerning that fate, that very fate in which you, the Frenchman, do not believe. You do not believe in it; what to us is fate, mysterious necessity, to you is fatalité, an unavoidable Alp which threatens the individual in his individual freedom. This fatalité, we, too, do not believe in it, but we do believe in the forces which bring forth the eternal in human will, that these both are one, will and forces, one with necessity, with actuality, with creative, moral power, of which all great ideas are the children, the idea of freedom, the idea of the beautiful, the idea of tragic fidelity, and that these, reaching far above being and passing away, are nevertheless real, life entire, fact entire. All that which is as dear to you as to us, great works and great feelings, resignation and self-restraint, all that is necessity, is fate, that became will—all that a unity out of choice and compulsion. All that is for us eternal, not according to the measure of time, but according to the beginning and the power of its working forces, in so far as it is necessary.

Thus has it become fate, destiny, not fatalité, rather like that fate which in Beethoven's own words in the first movement of his "Eroica" "is the knocking at the gate."

Such a fate is this war. No one wanted it in our Germany, for it was forced upon us with terrible arbitrariness, contrary to all right. Do you not know of the net that has been spun around us and drawn tight for the last half of a generation, to choke us? Do you not know how often this most peaceful of peoples has drawn back, how often the strange powers in the East and in the West have with contemptuous snarls said, "Wilhelm will not make war"? That you ought to know, Rolland, for it is known to the whole world.

The War "Came from God."

But I will betray something to you that you cannot know, because you are a stranger; and this will probably show you where we see fate. I will betray to you the fact that there is still another Germany behind the exterior in which great politics and great finance meet {177}with the literary champions of Europe. That Germany tells you in this heavy hour of Europe:

This undesired war that has been forced upon us is nevertheless a necessity; it had to come to pass for the sake of Germany and the world of European humanity, for the sake of the world. We did not want it, but it came from God. Our poet knew of it. He saw this war and its necessity and its virtues, and heralded it, long before an ugly suspicion of it flew through the year—before the leaves began to turn. The "Stern des Bundes" ["Star of the Federation"] is this book of prophecy, this book of necessity and of triumph.

The present need and the present triumph are quite human and quite inexorable. They have a part in all that has taken place, and they are unprecedented and new. None of us—do you hear, Rolland?—none of us Germans today would hesitate to help destroy every monument of our holy German past, if necessity made it a matter of the last ditch, for that from which alone all monuments of all times draw their right of existence and their worth unless they are empty husks, skeletons, and framework; even so, we alone may ask what shall come to pass, not what shall cease. Which ruins are ravings, and which are the pains of childbirth, we do not presume to decide; but you, too, who are so pained by ruins, even as we are pained by them, you, too, do not know it.

Today it is a question of the life or death of the European soul. Do you not believe that this soul is more endangered at the hands of the hordes of stub-nosed Slavs than of the phalanx of those whom you, Rolland, call Huns? Your sense must give you the right to answer. Recall the terrible story of Russian incendiarism for the last hundred years, which has torn to pieces in ever-increasing lust for murder bodies and souls; recall the eternally perjured and law-defying regiment of grave diggers; and then blush that you have characterized as a heavy crime a manfully confessed act of self-defense on the part of the Germans, the temporary occupation of Belgium! Blush that you have forgotten the Russian Moloch now loosed upon us, drunk with the blood and tears of alien peoples as well as of its own children! That you have forgotten all that, in order to lament over buildings which we have been forced in self-defense—again in self-defense—to sacrifice! And blush for those of your people who have become accomplices of that Moloch! Those who are sinning against the Holy Ghost of Europe, in order to attempt belated vengeance against Germany! Do you know what the ancients, the very Greeks and Romans from whom you have drawn your blood and temperament, called that sin? Blood-guiltiness is the name of that horror. And do you know how it is atoned for? I shrink to ask further, yea, even to think further; for horror falls upon me, and I see the unspeakable.

Today, battling against you allies of the swarms of Muscovites, we Europeans are battling also for that France which you are threatening—you, not we!

German Intellectuals "All Afire."

Yes, Romain Rolland, try, Frenchman that you are, to look into the mysteries of the time. Ask yourself, marvel, how it comes to pass that we, the intellectuals among the Germans, take part without exception in this dreadful war; take part with body and soul. None of us ambitious, none of us a politician, not one of us who, till this war, busied himself about anything except his idea, the Palladium of his life! And now we are all afire, with all our hearts, with our whole people, all full of determination and prepared for the last. All our youth in the field, every man among us thrilled with faith in our God and this battle of our God, every man among us conscious of the sacred necessity that has driven us, every man among us consecrated for timely death! Are these incendiaries? Are these slaves, whom a despot points the way to the rolling dead? Every one knows it is our all that is at stake; it is a matter of the divine in humanity, a matter of our preservation and that of Europe.

{178}And so we stand amid death and ruins under the star—one federation, one single union. This I have had to tell you, whether you will listen to it, whether Europe has ears to hear it, or not. From now on, may our deeds be our words!

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Keep to read 1 response "Shaw's Nonsense About Belgium" By Arnold Bennett. Written for THE NEW YORK TIMES.

NOTES: Keep to read Louis Sheehan.

"Shaw's Nonsense About Belgium"

By Arnold Bennett.

Written for THE NEW YORK TIMES.

Mr. Bernard Shaw's "Common Sense About the War" is the talk of the town, and it deserves to be. One of its greatest values is its courage, for in it Shaw says many things no one else would have dared to say. It therefore, by breaking the unearthly silence on certain aspects of the situation, perhaps inaugurates a new and healthier period of discussion and criticism on such subjects as recruiting, treatment of soldiers and sailors' dependents, secret diplomacy, militarism, Junkerism, churches, Russia, peace terms, and disarmament. It contains the most magnificent, brilliant, and convincing common sense that could possibly be uttered. No citizen, I think, could rise from the perusal of this tract with a mind unilluminated or opinions unmodified. Hence everybody ought to read it, though everybody will not be capable of appreciating the profoundest parts of it.

Mixed up with the tremendous common sense, however, is a considerable and unusual percentage of that perverseness, waywardness, and arlequinading which are apparently an essential element of Mr. Shaw's best work. This is a disastrous pity, having regard to the immense influence and vogue of Shaw, not only in Germany, but in America, and the pity is more tragic as Shaw has been most absurd about the very matter which most Englishmen regard as most important, namely, Great Britain's actual justification for going to war.

Shaw's Admitted Prejudice.

Mr. Shaw begins by conceiving the possibility of his being blinded by prejudice or perversity, and admits his capacity for criticising England with a certain slight malicious taste for taking the conceit out of her. Seemingly he belongs to that numerous class who think that to admit a fault is to excuse it. As a highwayman might say before taking your purse, "Now, I admit, I have a certain slight taste for thieving," and expect you to smile forgiveness of his depredation, Shaw's bias is evident wherever he discusses the action and qualities of Great Britain. Thus he contrasts Bernhardi's brilliant with our own very dull militarists' facts, the result being that the intense mediocrity of Bernhardi leaps to the eye on every page, and that events have thoroughly discredited all his political and many of his military ideas, whereas we possess militarists of first-class quality.

Naturally, Shaw calls England muddle-headed. Yet of late nothing has been less apparent than muddle-headednes. Of British policy, Shaw says that since {61}the Continent generally regards us as hypocritical, we must be hypocritical. He omits to say that the Continent generally, and Germany in particular, regards our policy and our diplomacy as extremely able and clear-sighted. The unscrupulous cleverness of Britain is one of Germany's main themes.

These are minor samples of Mr. Shaw's caprices. In discussing the origin of the war Mr. Shaw's aim is to prove that all the great powers are equally to blame. He goes far back and accuses Great Britain of producing the first page of Bernhardian literature in the anonymous pamphlet "The Battle of Dorking." He admits in another passage that the note of this pamphlet was mainly defensive. He is constantly thus making intrenchments for himself in case of forced retirement, and there is in his article almost nothing unjust against Great Britain that is not ingeniously contradicted or mitigated elsewhere.

Great Britain's War Literature.

Beginning with "The Battle of Dorking" and ending with H.G. Well's "War in the Air," one of the most disturbing and effective warnings against militarism ever written, he sees simply that Great Britain has produced threatening and provocative militarist literature comparable to Germany's. No grounds exist for such a contention. There are militarists in all countries, but there are infinitely more in Germany than in any other country. The fact is notorious. The fact is also notorious that the most powerful, not the most numerous, party in Germany wanted the war. It would be as futile to try to prove that Ireland did not want home rule as that Germany did not want war. As for a war literature, bibliographical statistics show, I believe, that in the last ten years Germany has published seven thousand books or pamphlets about war. No one but a German or a Shaw, in a particularly mischievous mood, would seek to show that Great Britain is responsible for the war fever. It simply is not so.

Mr. Shaw urges that we all armed together. Of course we did. When one nation publicly turns bellicose the rest must copy her preparations. If Great Britain could live this century over again she would do over again what she actually did, because common sense would not permit her to do otherwise. The admitted fact that some Britons are militarists does not in the slightest degree impair the rightness or sagacity of our policy. If one member of a family happens to go to the bad and turn burglar, therein is no reason why the family mansion should not be insured against burglary.

Mr. Shaw proceeds to what he calls the diplomatic history of the war. His notion of historical veracity may be judged from his description of the Austrian ultimatum to Servia as an escapade of a dotard. He puts the whole blame of it on Franz Josef, and yet he must know quite well that Germany has admitted even to her own subjects that Austria asked Germany's opinion about her policy and obtained Germany's approval before delivering the ultimatum. [Official German pamphlet "Reasons for the War with Russia," August, 1914.] There is no word in Mr. Shaw's diplomatic history of the repeated efforts toward peace made by Great Britain and scotched by Germany. On the contrary, with astounding audacity and disingenuousness, he tries to make it appear that suggestions for peace were offered by Germany and rejected by Great Britain. Once more it simply was not so.

Defense of Sir Edward Grey.

Mr. Shaw's paraphrase of Document 17 in the British diplomatic dispatches is a staggering travesty. So far as I can see it bears no relation to the original. Further, he not only deplores that a liberal government should have an imperialist Foreign Secretary, but he accuses Sir Edward Grey of sacrificing his country's welfare to the interests of his party and committing a political crime in order not to incur the wrath of The Daily News and The Manchester Guardian. This is totally inexcusable. Let me not be misunderstood. I am not a liberal. I am an out-and-out radical. I foresee a cleavage in the Liberal Party, and when that cleavage comes I shall be on the extreme left wing. I entirely {62}agree with Mr. Shaw's denunciation of secret diplomacy and undemocratic control of foreign policy. By every social tradition I should be in opposition to Sir Edward Grey, but I think Grey was the best Foreign Secretary that the Liberal Party could have chosen and that he worked well on the only possible plane, the plane of practicality. I am quite sure he is an honest man, and I strongly resent, as Englishmen of all opinions will resent, any imputation to the contrary.

As for the undemocratic control of foreign policy, a strong point about our policy on the eve of the war is that it was dictated by public opinion. [See Grey's dispatch to the British Ambassador at Berlin, No. 123.] Germany could have preserved peace by a single gesture addressed to Franz Josef. She did not want peace. Mr. Shaw said Sir Edward Grey ought to have shouted out at the start that if Germany fought we should fight. Sir Edward Grey had no authority to do so, and it would have been foolish to do so. Mr. Shaw also says Germany ought to have turned her whole army against Russia and left the western frontier to the care of the world's public opinion in spite of the military alliance by which France was bound to Russia. We have here an example of his aptitude for practical politics.

Was Belgium a Mere Excuse?

Let us now come to Belgium. Mr. Shaw protests needlessly that he holds no brief for small States as such, and he most vehemently denies that we are bound to knight errantry on their behalf. His objection to small States is that they are either incorrigibly bellicose or standing temptations to big powers. Outside the Balkans no small State is bellicose. All are eminently pacific. That they are a standing temptation to thieves is surely no reason for their destruction. If it is a reason Mr. Shaw ought to throw his watch down the drain.

Mr. Shaw states that Belgium was a mere excuse for our going to war. That there was a vast deal more in the pre-war diplomacy than appears in the printed dispatches, or in any dispatches, I am as convinced as Mr. Shaw is, but I am equally convinced that so far as we are concerned there was nothing in diplomacy, however secret, to contradict our public attitude. The chief item not superficially apparent is that the diplomats knew all along that Germany wanted war and was doing all she could to obtain war on terms most favorable to herself. That our own interest coincided with our duty to Belgium did not by any means render our duty a mere excuse for action. If a burglar is making his way upward in the house where Mr. Shaw lives and Mr. Shaw comes down and collars him in the flat of a defenseless invalid below and hands him over to the police Mr. Shaw would not expect the police to say, "You are a hypocrite; you only seized the burglar because you feared he would come to you next." I stick to the burglar simile, because a burglar is just what Germany is.

The "Infamous Proposal" Phrase.

Mr. Shaw characterizes Mr. Asquith's phrase, "Germany's infamous proposal," as the "obvious barrister's claptrap." Once more this is totally inexcusable. I do not always see eye to eye with Mr. Asquith, I agree with Mr. Shaw that he has more than once sinned against democratic principles, but what has that to do with the point? My general impression of Mr. Asquith and general impression of this country is that Mr. Asquith, in addition to being a pretty good Liberal, is an honest man. His memorable speech containing the "infamous proposal" phrase was most positively a genuine emotional expression of his conviction and of the conviction of the whole country, and Mr. Shaw, a finished master of barrister's claptrap when he likes, has been merely scurrilous about it. Germany's proposal was infamous. Supposing that we had taken the Belgium point at Mr. Shaw's valuation of it, the "nonsense about Belgium," as he calls it, and refrained from war, what would have been the result? The result would have been that today we could not have looked one another in the face as we passed down the street.

But Mr. Shaw is not content with ar{63}guing that the Belgium point was a mere excuse for us. He goes further and continually implies that there was no Belgium point. Every time he mentions the original treaty that established Belgian neutrality he puts after it in brackets, [date 1839,] an obvious barrister's device, sarcastically to discredit the treaty because of its age. He omits to say that the chief clause in the treaty contains the word "perpetually." What is worse, he infers that by the mere process of years, as Belgium gradually made herself, civilized herself, enriched herself, and increased her stake in the world, her moral right to independence and freedom instead of being strengthened was somehow mysteriously weakened. The theory is monstrous, but if he does not mean that he means nothing.

Further, he says that in 1870 Gladstone could not depend on the treaty of 1839 and resorted to a special temporary treaty not now in force, and that, therefore, technically the validity of the 1839 treaty is extremely doubtful. This twisting of facts throws a really sinister light upon the later developments of Mr. Shaw as a controversialist. The treaty of 1870 was, indeed, temporary, except in so far as it confirmed the treaty of 1839. Article 3 of the treaty of 1870 says it shall be binding on the contracting parties during the continuance of the war and for twelve months after, and then proceeds "and on the expiration of that time the independence and neutrality of Belgium will, so far as the high contracting parties are respectively concerned, continue to rest as heretofore on the quintuple treaty of 1839," (textual.)

Mr. Shaw's manifesto is lengthy and it will no doubt be reprinted in book form. I repeat what I said in my first paragraph as to the major part of it, but I assert that the objectionable part of the manifesto is so objectionable in its flippancy, in its perversity, in its injustice, and in its downright inexactitude as to amount to a scandal. Mr. Shaw has failed to realize either his own importance or the importance and very grave solemnity of the occasion. The present is no hour for that disingenuous, dialectical bravura which might excusably relieve a domestic altercation. Before reprinting Mr. Shaw should, I suggest; seriously reconsider his position and rew

PSERS 4

543 Pa. 132, *; 669 A.2d 940, **;

1996 Pa. LEXIS 10, ***

ROBERT D. CHRISTIANA, Appellant v. PUBLIC SCHOOL EMPLOYES' RETIREMENT BOARD, Appellee

No. 75 W.D. Appeal Docket 1994

SUPREME COURT OF PENNSYLVANIA

543 Pa. 132; 669 A.2d 940; 1996 Pa. LEXIS 10

September 18, 1995, ARGUED

January 18, 1996, DECIDED

PRIOR HISTORY:  [***1]  Appeal from the Order of the Commonwealth Court Entered July 28, 1994, at No. 1745 C.D. 1993, Affirming the Opinion and Order of the Public School Employes' Retirement Board Dated June 24, 1993 at No. 117-16-8296. 166 Pa. Cmwlth. 300, 646 A.2d 645 (1994). JUDGES BELOW: CRAIG, COLINS, MCGINLEY, PELLEGRINI, FRIEDMAN, KELLEY, NEWMAN, JJ. (Cmwlth.).

DISPOSITION: Affirmed.

COUNSEL: Mr. Robert D. Christiana, APPELLANT, Pro se.

For Public School Employes' Retirement Board, APPELLEE: Louis Sheehan, Esquire. For Attorney General's Office, APPELLEE: Ernest D. Preate, Jr., Esquire.

JUDGES: MR. CHIEF JUSTICE ROBERT N. C. NIX, JR., FLAHERTY, ZAPPALA, CAPPY, CASTILLE, MONTEMURO, JJ. Mr. Justice Montemuro, who was sitting by designation, did not participate in the decision of this case.

OPINION BY: ZAPPALA

OPINION

 [**940]   [*134]  OPINION

JUSTICE ZAPPALA

DECIDED: JANUARY 18, 1996

Appellant, Robert D. Christiana, is a former superintendent of the Upper St. Clair School District. Prior to his retirement, the School District had purchased certain annuities for Christiana. Christiana requested that the amounts paid for the annuities be included by the Public School Employes' Retirement System (PSERS) in its calculation of his final average salary for retirement purposes. After an administrative hearing, the Public School Employes' Retirement Board (Board) entered an order directing that the annuities were not to be included in the computation of his retirement benefits. The Commonwealth Court affirmed the Board's order in an en banc decision. We granted Christiana's petition for allowance [***2]  of appeal and now affirm.

The Board's opinion set forth detailed factual findings that are summarized as follows. Christiana was hired as the superintendent by the School District in July of 1979 at a starting salary of $ 52,000. He had been employed previously by school districts in  [**941]  Michigan and New York in various positions and had served as the superintendent of Pennsylvania's Springfield Township School District. Christiana's salary was increased over the next few years:

1980-1981 $ 58,000

1981-1982 $ 63,500

1982-1983 $ 65,723

1983-1984 $ 71,000

In the next five years, the School District reported the following figures as Christiana's salary to PSERS:

 [*135]  1984-1985 $ 71,000

1985-1986 $ 71,000

1986-1987 $ 71,000

1987-1988 $ 74,000

1988-1989 $ 80,000

Beginning with the 1984-1985 school year, the School District also expended funds to purchase single premium annuities for Christiana. The School District did not report the expenditures as part of Christiana's salary to PSERS or pay retirement contributions on those amounts. The minutes of Upper St. Clair School Board's meetings at which the annuity payments were addressed indicate [***3]  that the annuity payments were to be made for purposes of purchasing prior years' seniority pension credit. ¹ The minutes reflect the costs of the annuity purchases:

FOOTNOTES

1 The minutes also indicate that the annuity payments were "in lieu of salary increases." For the school year 1987-1988, in which Christiana also received a salary increase of $ 3,000, the minutes state that "in lieu of any additional salary increase," the School District shall purchase a single premium annuity for purposes of purchasing prior years' seniority pension credit at a cost of $ 9,500.

1984-1985 $ 5,000

1985-1986 $ 7,000

1986-1987 $ 10,000

1987-1988 $ 9,500

By early November of 1988, the School Board was apprised of Christiana's intention to retire at the end of the 1988-1989 school year. On November 14, 1988, the School Board adopted a resolution relating to Christiana's anticipated retirement:

RESOLVED, That for the 1988-89 school year, the salary for the Superintendent shall be $ 80,000; and further,

 [***4] 

RESOLVED, That commencing with the retirement of the Superintendent on June 30, 1989, the Blue Cross/Blue Shield or equivalent medical and hospitalization benefits applicable to building administrators shall be continued for the Superintendent until his attaining age 65, and for his wife Nancy, until her attaining age 65, at District expense; and further,

RESOLVED, That the District shall reimburse the Superintendent during the 1988-1989 school year for costs incurred  [*136]  for the services of a financial planner, such reimbursement not to exceed $ 2,000; and further,

RESOLVED, That the District shall purchase for the Superintendent three years' pension credit under the State Retirement Plan for his service in the United States Air Force as permitted by the laws of Pennsylvania; and further,

RESOLVED, That the District shall provide the Superintendent with an annuity or other equivalent payment at a cost to the District of $ 19,200 for purposes of purchasing for the Superintendent pension credit under the State Retirement Plan for service as an educator in positions prior to his employment under the Pennsylvania retirement system, as permitted [***5]  by the laws of Pennsylvania; . . .

The annuity payment of $ 19,200 for the 1988-1989 school year became problematic due to changes in the federal tax code that were effective as of January 1, 1989. In response, the School Board rescinded the resolution of November 14, 1988, and adopted a second resolution on January 9, 1989. The resolution split the $ 19,200 payment into two separate payments of $ 9,500, which was backdated to the 1988 calendar year, and of $ 9,700, which was to be made at or prior to Christiana's retirement date of June 30, 1989:

MOTION: By Wellington: WHEREAS, the Board of School Directors at its regular meeting on November 14, 1988, adopted certain resolutions relating to the salary and the benefits payable to or for the benefit of the Superintendent; and

WHEREFORE, prior to the adoption of such resolutions it was represented to the Superintendent that the Board would consider  [**942]  modification to those resolutions after the Superintendent and the District had an opportunity to consult with their respective advisors, and such consultations have taken place and the Board is prepared to make certain modifications;

NOW, THEREFORE,  [***6]  BE IT RESOLVED, that with the consent and agreement of the Superintendent, the resolutions  [*137]  adopted by the Board at its November 14, 1988, meeting relating to the salary and benefits payable to or for the benefit of the Superintendent be and are hereby rescinded and the following resolutions are adopted in their place and stead:

RESOLVED, that for the 1988-89 school year, the salary for the Superintendent shall be $ 80,000; and further,

RESOLVED, that commencing with the retirement of the Superintendent on June 30, 1989, the Blue Cross/Blue Shield or equivalent medical and hospitalization benefits then applicable to Building Administrators shall be continued for the Superintendent until his attaining age 65, and for his wife, Nancy, until her attaining age 65, at District's expense . . .

RESOLVED, that the District shall reimburse the Superintendent during the 1988-89 school year for costs incurred for the services of a financial planner, such reimbursement not to exceed $ 2,000; and further,

RESOLVED, that the District, in recognition of the superior manner in which the Superintendent has performed his duties and responsibilities,  [***7]  shall provide the Superintendent in calendar year 1988 with additional compensation in the amount of $ 9,500; and further,

RESOLVED, that the District shall, at or prior to the retirement of the Superintendent on June 30, 1989, pay to or on behalf of the Superintendent additional compensation in the amount of $ 9,700 plus an amount necessary to purchase for the Superintendent three years' pension credit under the State Retirement Plan in recognition of his service in the United States Air Force, as permitted by the laws of Pennsylvania.

Pursuant to this resolution, the School District purchased an annuity in the amount of $ 9,500. The annuity payment was not reflected in Christiana's regular salary. The $ 9,700 payment made in 1989 was treated differently, however. Christiana received that payment directly, but the School District in turn reduced his monthly take-home pay and used the payroll  [*138]  deductions to purchase the 1989 annuity. From March of 1989 through June of 1989, the School District reported additional remuneration of $ 8,730 to PSERS that reflected the payroll changes.

Christiana submitted an application for retirement to PSERS on August 8, 1989. On [***8]  January 19, 1990, PSERS sent a letter advising the School District that after review of the School Board's minutes of November 14, 1988, and January 9, 1989, the $ 8,730 reported did not appear to be Christiana's normal salary and that the amount could not be used in calculating his retirement benefits. The School District was requested to submit a form to reflect this change in the reported salary.

The School District did not comply with the request. Instead, a form was sent increasing the salary report by the sum of $ 970 -the difference between the $ 9,700 annuity purchase for 1989 and the $ 8,730 originally reported as salary. In a letter dated February 9, 1990, the School District's business manager noted the correction and indicated that in addition, the report for the fourth quarter of 1988 had failed to report a payment of $ 9,500 to Christiana. The letter stated that the School District viewed the payments as merit increases. On February 27, 1990, PSERS requested a copy of the School District's merit pay policy. The School District did not respond.

On December 19, 1990, PSERS informed Christiana that his request to include the $ 9,500 for the 1987-1988 school year and the [***9]  $ 9,700 for the 1988-1989 school year in its calculation of his final average salary for retirement purposes had been denied. An administrative hearing was held on September 11, 1991, before a hearing examiner to consider whether the $ 19,200 should be considered as compensation under the Public  [**943]  School Employees' Retirement Code. ² PSERS learned then that the School District had purchased annuities for Christiana during the four previous school years (1984-1988). At the hearing, Christiana sought for the first time to add  [*139]  each of those annuity purchases to the salary amounts reported by the School District to PSERS. Christiana's take-home pay did not reflect those payments, and as noted earlier, the School District never included any of the annuity purchases in its salary reports to PSERS during those four years.

FOOTNOTES

2 Act of October 2, 1975, P.L. 298, as amended, 24 P.S. §§ 8101-8104.

The hearing examiner recommended that the $ 19,200 should be excluded from the calculation of Christiana's final average salary [***10]  because the amount was properly characterized as nonincludable "severance payments" under the Retirement Code. The hearing examiner also recommended that the four annuity payments made during 1984-1988 be included in the calculation of final average salary as compensation.

The Board determined that Christiana had not properly raised the issue relating to the four annuity purchases in the earlier years, but nevertheless addressed the issue because there were sufficient facts on the record for its resolution. The Board concluded that the nonsalary reduction tax shelter annuity payments were not includable as Retirement Code compensation because they were nonstandard and/or nonregular remuneration as well as being bonuses and fringe benefits. The $ 19,200 annuity purchases in the 1988-1989 school year were found not to be includable in Retirement Code compensation because the payments were components of a severance package and were also characterized as nonincludable bonuses and fringe benefits. On June 24, 1993, the Board entered an order directing that none of the annuity purchases were to be included as Retirement Code Compensation. The Commonwealth Court affirmed the Board's order.  [***11]  ^HN1

On appeal from a final adjudication of an administrative board, our scope of review is limited to a determination of whether the board committed an error of law, whether there has been a violation of constitutional rights, or whether necessary factual findings are supported by substantial evidence. Estate of McGovern v. State Employees' Retirement Board, 512 Pa. 377, 517 A.2d 523 (1986). The issue raised in this appeal is whether the Board committed an error of law in determining that the annuity payments were not compensation  [*140]  for purposes of computing final average salary under the Retirement Code.

Section 8102 of the Retirement Code defines the following relevant terms:

^HN2"Compensation." Pickup contributions plus any remuneration received as a school employee excluding refunds for expenses incidental to employment and excluding any severance payments.

"Final average salary." The highest average compensation received as an active member during any three nonoverlapping periods of 12 consecutive months with the compensation for part-time service being annualized on the basis of the fractional portion of the school year for which credit is received;  [***12]  except, if the employee was not a member for three such periods, the total compensation received as an active member annualized in the case of part-time service divided by the number of such periods of membership; and, in the case of a member with multiple service credit, the final average salary shall be determined by reference to compensation received by him as a school employee or a State employee or both.

"Pickup contributions." Regular or joint coverage member contributions which are made by the employer for active members for current service on and after January 1, 1983.

"Severance payments." Any payments for unused vacation or sick leave and any additional compensation contingent upon retirement including payments in excess of the scheduled or customary salaries provided for members within the same governmental entity with the same educational  [**944]  and experience qualifications who are not terminating service.

24 Pa.C.S.A. § 8102.

The regulations promulgated under the Retirement Code further refine the definition of "compensation:"

^HN3Excludes a bonus, severance payment or other remuneration or similar emoluments received by a [***13]  school employee during his school service not based on the standard salary  [*141]  schedule for which he is rendering service. It shall exclude payments for unused sick leave, unused vacation leave, bonuses for attending school seminars and conventions, special payments for health and welfare plans based on the hours employed or any other payment or similar emoluments which may be negotiated in a collective bargaining agreement for the express purpose of enhancing the compensation factor for retirement benefits.

22 Pa. Code § 211.2.

The restrictive definitions of compensation under the Retirement Code and regulations reflect the Legislature's intention to preserve the actuarial integrity of the retirement fund by "excluding from the computation of employes' final average salary all payments which may artificially inflate compensation for the purpose of enhancing retirement benefits." Dowler v. Public School Employes' Retirement Board, 153 Pa. Commw. 109, 620 A.2d 639 (1993); Laurito v. Public School Employes' Retirement Board, 146 Pa. Commw. 514, 519, 606 A.2d 609, 611 (1992).

In Laurito v. Public School Employes' Retirement Board, the Commonwealth Court affirmed [***14]  a decision of the Retirement Board that refused to include a salary increase for the purposes of computation of retirement benefits for an elementary middle school principal. Dr. Angelo Laurito retired after 42 years of service with the Northern Cambria School District. Laurito's annual salary was negotiated each year with the school district. For the 1984-1985 school year, his salary was $ 32,600. On July 25, 1985, the school board awarded him a $ 16,000 "salary adjustment" for the 1985-1986 school year. In addition, Laurito was granted a leave of absence for the 1985-1986 school year, and his July 1, 1986 resignation for retirement purposes was accepted.

PSERS notified Laurito that the $ 16,000 increase would not be included as compensation for retirement purposes. The Retirement Board upheld the determination, concluding that the claimed salary adjustment was a severance payment. The Commonwealth Court affirmed on appeal, finding that the  [*142]  record failed to establish that Laurito's salary increase was customary for an individual of similar experience within the school district. The court concluded that the school board's actions were tantamount to a severance agreement, stating [***15] 

We find especially persuasive the observation made by the board that the $ 16,000 payment in the final year of service provided a mechanism for the school district to recognize Laurito's devoted service, as well as to remedy the perceived inequity of a below-average salary throughout a working lifetime, by effectuating an inflated final salary for purposes of retirement benefits.

146 Pa. Commw. at 519-20, 606 A.2d at 611-12.

In Dowler v. Public School Employes' Retirement Board, the Commonwealth Court held that a payment made pursuant to a retirement agreement was not compensation despite the personnel director's performance of consulting services. William Dowler was employed for over seventeen years as the personnel director at the West Chester Area School District before his retirement on July 1, 1988. In addition to his other duties, Dowler conducted all of the school district's labor negotiations in the first three years of his employment. The school district hired private contractors to conduct labor negotiations thereafter.

On November 17, 1987, Dowler and the school district entered into an agreement concerning his retirement. Dowler was to be placed on a [***16]  reduced work schedule from January 1, 1988, to July 1, 1988. He was to be compensated during that time as if he were working a five-day schedule and his duties would include training a replacement and assisting with negotiations. In addition,  [**945]  funds were to be given to Dowler on January 1, 1988, to purchase credit for his military services in an amount not to exceed $ 15,000.

For the first time in Dowler's experience, three labor contracts expired at the end of June, 1988. Dowler assisted in the negotiations while working full-time as the personnel director. A new director was not hired until May, 1988. The school district paid $ 14,854.08 to Dowler, which he used to  [*143]  purchase retirement credit for military service. PSERS concluded that the amount was a severance payment and did not include it as part of Dowler's final average salary in computing his retirement compensation.

Dowler appealed the determination, asserting that he did not receive the benefit of his agreement because he was not given the opportunity to work half-time at full pay. The Board concluded that the money represented a severance payment and dismissed the appeal. The Commonwealth Court affirmed, stating

 ^HN4

Under [***17]  the Code, all payments, other than for regular professional salary, which are part of an agreement in which a professional member agrees to terminate school service by a date certain, are prima facie severance payments. The claimant may rebut a prima facie case only by showing that the payment is in accord with the scheduled or customary salary scale within the School District for personnel with the same educational and experience qualifications who are not terminating service.

153 Pa. Commw. at 115-16, 620 A.2d at 643.

In furtherance of its responsibility to ensure the actuarial soundness of the retirement fund, the Board has determined that it is statutorily required to exclude nonregular remuneration, nonstandard salary, fringe benefits, bonuses, and severance payments from inclusion as compensation under the Retirement Code. The Board has developed the concepts of "standard salary" and "regular remuneration" as part of its understanding of compensation.

Based upon its interpretation of the Retirement Code and accompanying regulations, ^HN5standard salary and regular remuneration are defined by the Board as take-home cash, including, among others, (i) amounts withheld [***18]  for tax remittances; (ii) amounts picked up as contributions to PSERS; and (iii) amounts appropriately deferred in qualifying deferred compensation programs, and excluding, fringe benefits, bonuses, severance payments, and non-salary  [*144]  reduction Internal Revenue Code § 403(b) tax sheltered annuities.

Christiana v. Public School Employees' Retirement Board, 166 Pa. Commw. 300,    , 646 A.2d 645, 649-50 (1994) (emphasis supplied).

The nonsalary reduction tax sheltered annuities purchased for Christiana during the four consecutive school years beginning in 1984-1985 were found by the Board to be nonstandard salary, nonregular remuneration and bonuses or fringe benefits under this analysis. ³ The $ 19,200 in annuity purchases, which the School District authorized after being advised of Christiana's impending retirement, were excluded as being part of a severance package.

FOOTNOTES

3 Such annuities are distinguishable from the annuity contracts purchased under a deferred compensation program authorized under the Fiscal Code, Act of March 30, 1811, P.L. 145 as amended, 72 P.S. §§ 4521.1 - 4521.2. Income deferred under programs authorized thereunder is included as regular compensation for the purpose of computing deductions for employe contributions to retirement and pension programs and for the purpose of computing retirement and pension benefits. 72 P.S. § 4521.1(e). Christiana's assertion that the annuity purchases made on his behalf qualified for treatment as deferred compensation under this provision fails to recognize this distinction and is unsupportable.

 [***19]  Christiana had received salary increases for the first three years after he became superintendent for the Upper St. Clair School District. Over a four-year period, Christiana's annual salary increased from $ 58,000 to $ 71,000. When his salary for 1984-1985 was under consideration, members of the School Board expressed concern that an additional increase would generate negative publicity. A newspaper reporter's comment that Christiana's salary at that time exceeded that of Pennsylvania's Governor was repeated in the headlines of a local newspaper. Unwilling to confront public scrutiny  [**946]  of a salary increase, the School Board elected to freeze Christiana's salary and purchased a single premium annuity for the purpose of purchasing prior years' seniority pension credit.

Richard J. Mancini, the School District's business manager, testified that Christiana was the highest paid school superintendent in Western Pennsylvania, including the City of Pittsburgh  [*145]  School District which was ten times the size of Upper St. Clair's School District. Mancini indicated that the single premium annuity was considered as a way to handle adverse public reaction because responses to salary surveys would not [***20]  include that amount. He considered the annuity purchases to be compensation.

Nevertheless, the record establishes that the School District did not report the annuity payments to PSERS as compensation paid to Christiana and did not pay pickup contributions on those amounts. In fact, the School District continued to purchase single premium annuities even when salary increases were approved in subsequent years. In the 1987-1988 school year, Christiana's salary was increased to $ 74,000 and a single premium annuity in the amount of $ 9,500 was purchased. His salary was then increased to $ 80,000 in the following year in which an additional $ 9,500 was earmarked for an annuity purchase.

With respect to the $ 19,200 annuity payment, the School Board's resolutions indicate that it was part of a comprehensive salary and benefits package developed after notice of Christiana's impending retirement. The School Board's initial resolution dated November 14, 1988, contemplated a salary increase to $ 80,000, payment for services of a financial planner not to exceed $ 2,000, continuing medical benefits for Christiana and his wife until age 65, the purchase of three years' pension credit for military [***21]  service ⁴, and the $ 19,200 annuity purchase. On January 9, 1989, the resolution was rescinded. A second resolution was adopted which incorporated all of the earlier provisions, but split the $ 19,200 into two separate annuity purchases.

FOOTNOTES

4 The amount expended by the School District for this purchase was approximately $ 21,000. Christiana did not seek to include this amount in the computation of his retirement benefits.

The Commonwealth Court concluded that the Board did not err in excluding the annuity payments from the calculation of Christiana's final average salary. As to the 1988-1989 salary and benefits package, the court found that the record was devoid of any evidence that the package was in accord with the  [*146]  District's regular and standard yearly compensation practices, particularly those involving Christiana himself over the ten-year term of his employment.

We find that the Commonwealth Court did not err in concluding that none of the annuity purchases were includable as compensation for purposes of [***22]  determining Christiana's final average salary. There is substantial evidence in the record to support the Retirement Board's conclusions that the annuity payments were remuneration that was not based on the standard salary schedule for which Christiana was rendering service, and that the $ 19,200 payment was a severance payment. Therefore, under the Retirement Code and applicable regulations, the annuity payments were properly excluded from the computation of Christiana's final average salary.

The order of the Commonwealth Court is affirmed.

Mr. Justice Montemuro, who was sitting by designation, did not participate in the decision of this case.    

166 Pa. Commw. 300, *; 646 A.2d 645, **;
1994 Pa. Commw. LEXIS 436, ***

ROBERT D. CHRISTIANA, Petitioner v. PUBLIC SCHOOL EMPLOYES' RETIREMENT BOARD, Respondent

NO. 1745 C.D. 1993

COMMONWEALTH COURT OF PENNSYLVANIA

166 Pa. Commw. 300; 646 A.2d 645; 1994 Pa. Commw. LEXIS 436

March 2, 1994, ARGUED

July 28, 1994, FILED

SUBSEQUENT HISTORY: Petition for Allowance of Appeal and/or Cross-Petition Granted December 7, 1994.

PRIOR HISTORY:  [***1]  APPEALED From File No. 117-16-8296. State Agency, Public School Employes' Retirement Board.

COUNSEL: Reed B. Day for petitioner.

Louis Sheehan, Assistant Counsel, for respondent.

JUDGES: BEFORE: HONORABLE DAVID W. CRAIG, President Judge, HONORABLE JAMES GARDNER COLINS, Judge, HONORABLE BERNARD L. McGINLEY, Judge, HONORABLE DAN PELLEGRINI, Judge, HONORABLE ROCHELLE S. FRIEDMAN, Judge, HONORABLE JAMES R. KELLEY, Judge, HONORABLE SANDRA SCHULTZ NEWMAN, Judge.

OPINION BY: JAMES R. KELLEY

OPINION

 [*302]   [**646]  OPINION BY JUDGE KELLEY

Robert D. Christiana, the former Superintendent of the Upper St. Clair School District (District) appeals from an order of the Public School Employes' Retirement Board (Board) which denied the inclusion of certain annuities purchased for Christiana by the District in the calculation of his final average salary under the Public School Employes' Retirement Code (Retirement Code). ¹

FOOTNOTES

1 Act of October 2, 1975, P.L. 298, as amended, 24 P.S. §§ 8101 - 8104.


The Board made extensive findings of fact. Those findings relevant to the present [***2]  appeal may be summarized as follows. Christiana was first employed by the District in July, 1979 at the initial salary of $ 52,000. Christiana's salaries for the subsequent school years were:

1980-1981	$ 58,000
1981-1982	$ 63,500
1982-1983	$ 65,723
1983-1984	$ 71,000

 [*303]  The following amounts were initially reported to the Public School Employes' Retirement System (PSERS) as Christiana's salary for the next five school years:

1984-1985	$ 71,000
1985-1986	$ 71,000
1986-1987	$ 71,000
1987-1988	$ 74,000
1988-1989	$ 80,000

In November 1988, the Upper St. Clair School Board (School Board) became aware of Christiana's intention to retire from his position at the end of the 1988-1989 school year. Christiana formally retired in August, 1989.

At its November 14, 1988 meeting, the School Board adopted resolutions concerning the 1988-1989 salary and benefits payable to  [**647]  or for the benefit of Christiana. Among the resolutions was one which directed the District to provide Christiana "with an annuity or other equivalent payment at a cost to the District of $ 19,200 for the purposes of purchasing for the Superintendent pension credit under the State Retirement Plan [***3]  … ."

On January 9, 1989, the School Board met and rescinded its resolutions of November 14, 1988, adopting the following relevant resolutions in their place:

RESOLVED, that the District, in recognition of the superior manner in which the Superintendent has performed his duties and responsibilities, shall provide the Superintendent in calendar year 1988 with additional compensation in the amount of $ 9,500; and further,

RESOLVED, that the District shall, at or prior to the retirement of the Superintendent on June 30, 1989, pay to or on behalf of the Superintendent additional compensation in the amount of $ 9,700 plus an amount necessary to purchase for the Superintendent three years' pension credit under the State Retirement Plan in recognition of his service in the United States Air Force, as permitted by the laws of Pennsylvania. ²

FOOTNOTES

2 The amount necessary to purchase the pension credit for military service was slightly in excess of $ 20,000; however, Christiana does not seek to characterize this expenditure as "compensation" under the Retirement Code.


 [***4]   [*304]  Pursuant to this resolution, the District purchased an annuity for Christiana in the amount of $ 9,500, but this expenditure was not directly reflected as Christiana's regular salary. ³ In contradistinction, the District in 1989 directly paid Christiana an additional $ 9,700 which increased his regular salary from $ 80,000 to $ 89,700. The $ 9,700 was separately accounted for and deducted from Christiana's take-home salary. The District purchased an annuity for Christiana with the payroll deductions.

FOOTNOTES

3 This annuity, and all others subsequently referred to, were purchased by the District pursuant to Internal Revenue Code § 403(b) which grants special tax advantages to school employees with respect to annuities purchased for them by their tax-exempt employers.


The District reported to PSERS a total of $ 8,730 in payroll deductions starting in March 1989, through and including June 1989, to reflect the additional compensation called for by the January 9, 1989 School Board resolution. ⁴ After review of the School Board [***5]  meeting minutes and resolutions, on January 19, 1990, PSERS declined to accept or recognize the reported $ 8,730 for retirement credit purposes.

FOOTNOTES

4 The $ 8,730 in payroll deductions reported to PSERS represented a $ 970 shortfall from the $ 9,700 deduction authorized by the School Board.


By letter to PSERS dated February 9, 1990, the District resubmitted Christiana's reported salary for the 1988-1989 school year. The letter broadened the reporting period to encompass deductions made between January 1, 1989 and June 30, 1989, and adjusted the total salary accordingly. The letter read, in part:

On the original 1st quarter report $ 970.00 of additional compensation was not reported in February, 1989.

Further, in reviewing the report for the 4th quarter of 1988 we discovered that a payment of $ 9,500.00 to Dr. Christiana was also not reported.

The District views these payments as merit increases, no different than merit pay which is paid in accordance with  [*305]  our negotiated agreement with the teachers of  [***6]  the School District.

At the administrative hearing held September 11, 1991 before a hearing examiner to consider the issue of whether the $ 19,200 (comprised of $ 9,500 + $ 9,700) (Enhancement II) paid to Christiana in the 1988-1989 school year should be considered Retirement Code compensation for the purposes of calculating the final average salary, PSERS was made aware that additional remuneration was awarded to Christiana not only in his final year of service but also for the four previous school years (1984-1988) (Enhancement I). At the hearing, for the first time Christiana sought to add Enhancement I to the salaries previously reported to PSERS for the respective years for inclusion as Retirement Code compensation.

 [**648]  According to the relevant School Board meeting minutes, the Enhancement I payments were intended to compensate Christiana "in lieu of salary increases" for the given years. The pertinent resolutions directed that the District purchase a single premium annuity for Christiana for the purposes of purchasing prior years seniority pension credit at the following amounts:

1984-1985	$ 5,000
1985-1986	$ 7,000
1986-1987	$ 10,000
1987-1988	$ 9,500

None [***7]  of these amounts were reflected in Christiana's take-home pay, nor were the amounts formally reported to PSERS as salary.

The hearing examiner recommended that Enhancement II be excluded from the calculation of Christiana's final average salary because the amounts were properly characterized as non-includable "severance payments" under the Retirement Code. The hearing examiner recommended further that Enhancement I be included in the calculation of final average salary because such amounts were properly characterized as includable Retirement Code compensation. Christiana appealed to the Board.

Concerning Enhancement I, the Board concluded that Christiana's non-salary reduction tax shelter annuity payments  [*306]  may not be included in Retirement Code compensation because such payments are non-standard and/or non-regular remuneration as well as being bonuses and fringe benefits. Similarly, the Board concluded that the Enhancement II payments were components of a severance package none of which may be included in Retirement Code compensation because such payments must be characterized as non-includable bonuses and fringe benefits. It is from that order that Christiana now appeals to this court.

 [***8]  On appeal, Christiana argues (1) that he is entitled to have his final average salary adjusted in order to receive retirement credit for single premium tax-sheltered annuities purchased for him by his employer in lieu of salary increases; (2) that PSERS may not sua sponte utilize statistical and public policy considerations when denying a claim for retirement benefits which were not raised before the hearing examiner; (3) that the Board denied Christiana due process by overruling the hearing examiner without providing Christiana reasonable notice and an opportunity to be heard; and, (4) that the Board denied Christiana due process by commingling the prosecutorial and adjudicative functions in determining Christiana's eligibility for benefits.

We note that ^HN1our scope of review from adjudications of administrative boards is limited to a determination of whether the board committed an error of law, whether constitutional rights were violated, or whether necessary findings of fact are supported by substantial evidence. Finnegan v. Public School Employes' Retirement Board, 126 Pa. Commonwealth Ct. 584, 560 A.2d 848 (1989).

Christiana first [***9]  argues that the Board erred in failing to give effect to the relevant portions of the Fiscal Code of the Commonwealth ⁵ which expressly authorize the inclusion of tax-deferred income as credit for customary retirement plans. For five years, Christiana argues, the District purchased qualified tax-deferred annuities for Christiana in accordance with the ^HN2Fiscal Code, which provides in relevant part:

 [*307]  The state treasurer shall pay all grants, salaries, annuities, gratuities, and pensions established by law … the treasurer or other officer in charge of payrolls for any … political subdivision may make systematic investments in mutual funds, savings accounts or government bonds or make premium payments on life insurance or annuity contracts to any institution or company licensed and authorized … to accept deposits … for the purpose of funding a deferred compensation program for employes.

72 P.S. § 4521 (emphasis provided by Christiana).

Moreover, Christiana asserts, the Fiscal Code authorizes the purchase of annuities through a deferred compensation program:

 [**649]  ^HN3(a) The governing body of any … political subdivision may, by contract, agree with any employe  [***10]  to defer, a portion of that employe's compensation and may subsequently, with the consent of the employe, purchase … annuity contracts … .

* * *

(e) Such deferred compensation program shall be in addition to, and not a part of, any other retirement benefit program provided by law for employes of the … political subdivision. Income deferred under programs authorized by this act shall continue to be included as regular compensation for the purpose of computing deductions for employe contributions to retirement and pension programs and for the purpose of computing retirement and pension benefits earned by any employe.

72 P.S. § 4521.1(a), (e), (emphasis provided by Christiana).

Christiana maintains that these provisions of the Fiscal Code permit the use of tax-deferred annuity payments which may be purchased by deferring a portion of an employee's compensation. Such deferred income, Christiana contends, is then to be included in the computation of the employee's retirement and pension benefits.

FOOTNOTES

5 Act of March 30, 1811, P.L. 145, as amended, 72 P.S. §§ 4521 - 4521.2.


 [***11]  We cannot disagree with Christiana's reading of the Fiscal Code provision set forth above. However, his argument continues,  [*308]  advancing the assertion that the Board erred by characterizing the annuities as non-salary reduction purchases, or non-regular remuneration, thus rendering such payments ineligible for inclusion as compensation under its interpretation of the Retirement Code.

^HN4Section 8102 of the Retirement Code sets forth the following relevant definitions:

"Compensation." Pickup contributions plus any remuneration received as a school employee excluding refunds for expenses incidental to employment and excluding severance payments.

"^HN5Final average salary." The highest average compensation received as an active member during any three nonoverlapping periods of 12 consecutive months … .

"^HN6Pickup contributions." Regular or joint coverage member contributions which are made by the employer for active members for current service on and after January 1, 1983.

"^HN7Severance payments." Any payments for unused vacation or sick leave and any additional compensation contingent upon retirement including payments in excess of the scheduled or customary [***12]  salaries provided for members within the same governmental entity with the same educational and experience qualifications who are not terminating service.

24 P.S. § 8102.

^HN8Section 211.2 of Title 22 of the Pennsylvania Code expands upon the definition of Retirement Code compensation, in pertinent part:

Excludes a bonus, severance payment or other remuneration or similar emoluments received by a school employe during his school service not based on the standard salary schedule for which he is rendering service. It shall exclude payments for unused sick leave, unused vacation leave, bonuses for attending school seminars and conventions, special payments for health and welfare plans based on the hours employed or any other payment or similar emoluments  [*309]  which may be negotiated in a collective bargaining agreement for the express purpose of enhancing the compensation factor for retirement benefits.

22 Pa. Code § 211.2 (emphasis added).

Accordingly, the Board has developed general concepts in understanding the Retirement Code's meaning of "compensation": "standard salary" and "regular remuneration". Based upon its interpretation of the Retirement Code and accompanying regulations,  [***13]  standard salary and regular remuneration are defined by the Board as take-home cash, including, among others, (i) amounts withheld for tax remittances; (ii) amounts picked up as contributions to PSERS; and (iii) amounts appropriately deferred in qualifying deferred compensation programs, and excluding, fringe benefits, bonuses, severance payments, and non-salary reduction Internal Revenue Code § 403(b) tax sheltered  [**650]  annuities. Board's opinion, June 24, 1993, pp. 16-17 (emphasis added).

Based on its interpretation of the guiding statutes and regulations, the Board characterized both Enhancement I and II payments to Christiana as non-standard salary, non-regular remuneration, bonuses and fringe benefits. Additionally, the Board characterized Enhancement II as part of a severance payment. Therefore, the Board denied the inclusion of both the Enhancement I and Enhancement II annuity payments in the calculation of Christiana's final average salary.

^HN9The Board is charged with the execution and application of the Retirement Code and the Board's interpretation should not be overturned unless it is clear that such construction is erroneous. Panko v. Public School Employees' Retirement System, 89 Pa. Commonwealth Ct. 419, 492 A.2d 805 (1985). [***14]  Accordingly, our review of the record suggests that the Board did not err in excluding the annuity payments from the calculation of Christiana's final average salary.

In each of the school years in which Christiana received an Enhancement I payment, the School Board adopted resolutions which directed that "in lieu of a salary increase" for that year, Christiana would benefit from the purchase of a single  [*310]  premium annuity for the purpose of purchasing prior years seniority pension credit. Christiana testified that the Enhancement I annuity payments were used as a means of rewarding Christiana without representing to the taxpayers of Upper St. Clair that his "salary" was substantially increased each year. (Original Record, Transcript of Hearing held September 11, 1991, at pp. 16-18.) Christiana testified he believed that his total compensation included his base reported salary, plus the additional amounts provided for the purchase of the annuities. (Id. at pp. 25-26.) The District's business manager at the time, Richard Mancini, testified that in his opinion "there was no doubt" the annuity payments were compensation. (Id. at p. 67.)

Referring to the first annuity payment of  [***15]  $ 5,000 in 1984-1985, Dina J. Fulmer, a School Board member at the time testified as follows:

Q: What did you understand this $ 5,000 to be?

A: It was a -- well, a reward for his performance. It was a way of compensating him which would not get our name in the paper again.

* * *

Q: Why were the words in lieu of a salary increase chosen?

A: Well, in lieu of means instead of or actually in place of being that lieu is the French word for place. Rather than increasing his base salary, we just decided to purchase this annuity.

(Id. at pp. 83, 85.)

However, regardless of Christiana's or the District's contradictory understanding, the record reveals that the District did not pay pickup contributions on the annuity purchases made on behalf of Christiana beginning with the 1984-1985 school year. ⁶ Further, in its reports to PSERS, the District did not  [*311]  report the Enhancement I payments as compensation paid to Christiana, nor did the District initially report any of the $ 19,200 Enhancement II payment to PSERS, as compensation or otherwise. Lastly, despite its apparent unwillingness to formally raise Christiana's base salary in the face of public opposition, Christiana [***16]  did in fact receive two regular salary increases totalling $ 9,000 during the five year period under consideration.

FOOTNOTES

6 Section 8102 of the Retirement Code defined "pickup contributions" as regular or joint coverage member contributions which are made by the employer for active members for current service on and after January 1, 1983.


With respect to Enhancement II alone, the record also supports the findings of the Board that the payments constituted part of a severance package. Christiana testified the Board was made aware of his intention to retire prior to their November, 1988 negotiations concerning his 1988-1989 salary and benefits. (Id. at 47-48.) What emerged from those deliberations were resolutions directing (i) that the District, "in recognition of the superior manner in which the Superintendent  [**651]  has performed his duties", pay Christiana additional compensation in the amount of $ 9,500 in 1988; and (ii) that the District pay Christiana an additional $ 9,700 at or prior to his retirement. (Original Record,  [***17]  PSERS Exhibit #10B.)

While the record is silent as to whether Enhancement II was made contingent on Christiana's retirement, it is at the very least payment "in excess of the scheduled or customary" salary Christiana had enjoyed. Further, the final year salary and benefits package, of which Enhancement II was a part, included employer provided amounts for a financial planner, continuing medical coverage for Christiana and his wife, and a one-time offering of a salary reduction tax sheltered annuity. We find the record devoid of any evidence that Christiana's final year package was in accord with the District's regular and standard yearly compensation practices, particularly those involving Christiana himself over the ten year term of his employment.

^HN10The Retirement Code indicates that the General Assembly wishes to exclude from the computation of employees' final average salary all payments which may artificially inflate compensation for the purpose of enhancing retirement benefits.  [*312]  Dowler v. Public School Employes' Retirement Board, 153 Pa. Commonwealth Ct. 109, 620 A.2d 639 (1993).

Christiana next argues that the Board erred by  [***18]  sua sponte utilizing financial statistics and public policy considerations not considered before the hearing examiner in denying Christiana's claim for retirement benefits. We disagree.

^HN11The Board, and not the hearing examiner, is the final fact finder in these cases. Dowler. As such, the Board may take official notice of facts which are obvious and notorious to an expert in the agency's field and those facts contained in the agency's files. Falasco v. Pennsylvania Board of Probation and Parole, 104 Pa. Commonwealth Ct. 321, 521 A.2d 991 (1987).

Next, Christiana asserts that in overruling the recommendations of the hearing examiner, the Board denied Christiana reasonable notice and an opportunity to be heard. Christiana contends that the Board made its determination in this matter without his participation and based its decision on facts and issues Christiana never had the opportunity to address.

^HN12The Administrative Agency Law, 2 Pa.C.S. § 504, states that "no adjudication of a Commonwealth agency shall be valid as to any party unless he shall have been afforded reasonable notice and an opportunity to be heard." Christiana was presented [***19]  with just these very opportunities and exploited them by filing a brief and reply brief prior to the hearing; attending the hearing and presenting evidence; and, filing exceptions to the hearing examiner's recommendations, followed by a response to the exceptions filed by PSERS. Our review of the record indicates that the Board studied the complete record, including the arguments advanced by Christiana, in reaching its decision.

Lastly, Christiana raises a due process challenge concerning the alleged commingling of prosecutorial and adjudicative functions between the PSERS and the Board. However, Christiana failed to raise this issue before the Board.

 [*313]  We have held that ^HN13commingling claims may be waived if they are not raised before the administrative board. Newlin Corp. v. Department of Environmental Resources, 134 Pa. Commonwealth Ct. 396, 579 A.2d 996 (1990). ⁷ Unless a claimant can offer a convincing reason for failing to raise the claim before the Board, the commingling issue is waived. Dowler. Here, Christiana has not offered any explanation for failing to raise this issue below.

FOOTNOTES

7 ^HN14Pennsylvania Rule of Appellate Procedure 1551 states, in part, that:

no question shall be heard or considered by the court which was not raised before the government unit except (1) Questions involving the validity of a statute … (3) Questions which the court is satisfied that the petitioner could not by the exercise of due diligence have raised before the government unit.

 [***20]  Accordingly, the order of the Board is affirmed.

JAMES R. KELLEY, Judge

 [**652]  ORDER

NOW, this 28th day of July, 1994, the order of the Public School Employes' Retirement Board, dated June 24, 1993, is hereby affirmed.

JAMES R. KELLEY, Judge

Top of Form

669 A.2d 1098, *; 1996 Pa. Commw. LEXIS 10, **

DR. VERNON R. WYLAND, Petitioner v. PUBLIC SCHOOL EMPLOYES' RETIREMENT BOARD, Respondent

NO. 566 C.D. 1995

COMMONWEALTH COURT OF PENNSYLVANIA

669 A.2d 1098; 1996 Pa. Commw. LEXIS 10

October 17, 1995, Argued

January 8, 1996, Decided

January 8, 1996, FILED

SUBSEQUENT HISTORY:  [**1]  Petition for Allowance of Appeal Denied August 5, 1996, Reported at: 1996 Pa. LEXIS 1604.

PRIOR HISTORY: APPEALED From No. File no. 480-24-6298. State Agency: Public School Employes' Retirement Board.

DISPOSITION: Affirmed.

COUNSEL: Dee Lafferty Pugh for petitioner.

Louis Sheehan, Assistant Counsel, for respondent.

JUDGES: BEFORE: HONORABLE DAN PELLEGRINI, Judge, HONORABLE JAMES R. KELLEY, Judge, HONORABLE GEORGE T. KELTON, Senior Judge.

OPINION BY: JAMES R. KELLEY

OPINION

 [*1100]  OPINION BY JUDGE KELLEY

FILED: January 8, 1996

Dr. Vernon R. Wyland, the former Superintendent of the Garnet Valley School District (school district) appeals from the order of the Public School Employes' Retirement Board (board) adopting a hearing examiner's calculation of his final average salary used to determine his retirement benefits under the Public School Employees' Retirement Code (Retirement Code). ¹ We affirm.

FOOTNOTES

1 24 Pa.C.S. §§ 8101 - 8534.


The relevant facts as found by the hearing examiner, and adopted by the board, may be summarized as follows. Wyland became a member of the Public School Employes' Retirement System (PSERS) by virtue of his employment [**2]  with the Shaler Area School District on June 1, 1983. On July 1, 1987, he began service with the Garnet Valley School District as the District Superintendent for the 1987-1988 school year, at an annual salary of $ 65,000. On December 16, 1988, his annual salary for the 1988-1989 school year was increased to $ 70,200, retroactive to July 1, 1988. On March 28, 1990, Wyland's annual salary for the 1989-1990 school year was increased to $ 74,412, retroactive to July 1, 1989. Wyland's annual salary for the 1990-1991 school year was increased to $ 94,481 as of June 30, 1991.

During the 1989-1990 school year, the school district experienced a prolonged labor action with intense teacher contract negotiations which continued until a new contract was signed in June of 1990. During the labor action, the teachers went out on strike for a period of 25 to 30 days. As a result of the contract negotiations and work stoppage, Wyland became the target of community pressures and antagonisms and he also became the subject of a vote of "no confidence" from the teachers.

During the same period, the school district was engaged in a building program involving the construction of a new middle school building [**3]  and other renovations. At that time, the Garnet Valley Board of School Directors (school board) was sensitive to the adverse public reaction to cost overruns associated with the building program. The teachers' contract negotiations and public reaction to the work stoppage contributed to a significant turnover in the composition of the school board. Six school board members changed as a result of resignations, and new members who were appointed came to the school board predisposed against Wyland as a result of the labor situation and the cost overruns.

As a result, in November of 1990, Wyland was informed by the president of the school board that his contract would not be extended beyond its expiration date of June 30, 1991. Because the school board did not want to take public action on their decision, Wyland was asked if he would rather resign from his position. Wyland concluded that it would be best to resign as he felt it would be easier to tell prospective employers that he had resigned, rather than to say that his contract had not been extended.

After negotiations regarding the terms of Wyland's resignation, on November 21, 1990, the president of the school board sent him a letter [**4]  outlining the terms under which he could resign. The letter stated, inter alia:

3)

The [School] Board guarantees the payment to you of your full salary through June 30, 1991. That salary will not be reduced between now and June 30, 1991.

(a) Your annual raise, ordinarily effective January, 1991, will be deferred. As part of your salary, and in lieu of the annual raise in January, the [School] Board will purchase from you all unused vacation days credited to your account as of June 30, 1991 … .

(b)

Additionally, at the conclusion of your contract on June 30, 1991, the [School] Board, as part of your annual raise, will pay you for all unused sick days then credited to your account … .

(c)

Notwithstanding Paragraphs 3(a) and 3(b), you have agreed to reimburse the District for its share of the retirement cost allocable to the inclusion of that portion of your salary  [*1101]  represented by payments under Paragraph 3(a) and 3(b).

Wyland accepted the proposed terms as outlined in the letter.

On November 26, 1990, Wyland submitted his letter of resignation, contingent upon the school board's acceptance of the proposed terms in [**5]  the president's letter. At its regular meeting on November 27, 1990, the school board accepted Wyland's resignation effective June 30, 1991. The school board did not take a public vote regarding the content and financial terms of the November 21, 1990 letter to avoid disclosure of their action.

By letter dated June 20, 1991, Wyland submitted a memorandum to the school district's director of business and support services which summarized his accumulated vacation days and sick days. On June 25, 1991, Wyland and the school board president signed a letter of agreement which contained identical terms as outlined in the letter of November 21, 1990.

On June 28, 1991, the school district issued Wyland a check in the amount of $ 20,069.40 as payment for his unused sick days, vacation days and comp days. The payroll document computing Wyland's vacation and sick days noted that the payment was to be considered compensation as per the November 21, 1990 letter of agreement. As required by the letter of agreement, Wyland reimbursed the school district for its share of the retirement costs allocable to the inclusion of the $ 20,069.40 payment.

On June 28th, Wyland also entered into an agreement [**6]  with the school district releasing the school district from any future liability concerning his resignation, in exchange for the payment of $ 20,069.40. The agreement referred to this payment as a "severance payment". Wyland was required to sign the release agreement in order to receive the $ 20,069.40 payment. He signed the release agreement and received the payment.

On September 17, 1991, PSERS received a retirement application from Wyland with an effective date of retirement of June 29, 1991. PSERS contacted the school district regarding the $ 20,069.40 payment to Wyland. The school district sent PSERS a copy of the minutes of the school board meeting in which Wyland formally submitted his resignation, and indicated that no information from his personnel file could be released without his written consent. PSERS then informed the school district that in the absence of any written evidence concerning the reason for the payment, the $ 20,069.40 would not be used to calculate Wyland's retirement benefits. Wyland was sent copies of both letters from PSERS, but his consent for the release of information from his personnel file was never requested by PSERS.

Initially, Wyland's retirement [**7]  benefits were calculated by PSERS using a "final average salary" of $ 79,698. However, without the necessary documentation, the $ 20,069.40 was removed from PSERS' computation of his final average salary. As a result, his retirement benefits were recalculated using a final average salary of $ 73,008. By letter dated April 8, 1992, PSERS informed Wyland that his benefits had been recomputed, and that he was required to repay $ 7,619.03 that he had received in overpayment.

By letter dated April 23, 1992, Wyland requested that PSERS include the $ 20,069.40 in its calculation of his final average salary. On July 1, 1992, PSERS notified Wyland that its Appeals Committee had denied his request. By letter dated July 28, 1992, Wyland requested an administrative hearing.

On July 6, 1993, a hearing was scheduled and held before an independent hearing examiner. Based on the evidence presented at the hearing and the briefs and motions submitted by the parties, the hearing examiner concluded that the $ 20,069.40 paid to Wyland was a severance payment, and should not be considered in the calculation of his final average salary. In this regard, the hearing examiner specifically found the following:  [**8] 

1. At the time of the November 21, 1990 agreement, [the school district] was under a great deal of political pressure due to the recent teacher strike and cost overruns at the middle school project and [Wyland]'s raise was motivated by [the school district]'s need for [Wyland]'s cooperation.

2. The November 21, 1990 agreement was designed as a buyout of [Wyland]'s  [*1102]  vacation and sick days, both items regularly purchased by [the school district] at the end of a superintendent's term, and both items that would not normally be considered standard salary.

3. Both [Wyland] and [the school district] represented to the general public that [Wyland]'s pay for the 1990-1991 school year was $ 74,412.00, and it would be unfair to now allow [Wyland] to claim a higher pay for retirement purposes.

4. The November 21, 1990, agreement required [Wyland] to reimburse [the school district] for its share of the retirement cost allocable to the inclusion of the $ 20,069.40 payment into [Wyland]'s salary. With a regular salary increase this retirement cost would have been the responsibility of [the school district].

5. [Wyland] was required [**9]  to sign the June 28, 1991, release agreement in order to receive the $ 20,069.40 payment and the release agreement referred to the money as a severance payment.

The hearing examiner also found, inter alia, that: the payment was not based on the standard salary schedule for which Wyland was rendering service; the payment was not made under the school district's scheduled or customary salary scale; and, the payment was made contingent upon Wyland's "retirement" as that term includes terminations which result in the immediate receipt of a pension.

Both Wyland and PSERS filed exceptions to the hearing examiner's decision with the board. The board adopted the hearing examiner's findings of fact and conclusions of law, and affirmed the hearing examiner's decision. Wyland then filed a petition for review in this court appeal.

On appeal, Wyland claims: (1) the board erred in determining that the $ 20,069.40 payment in his final year of employment constituted severance pay rather than compensation, thereby reducing his final average salary used for the calculation of his retirement benefits; and (2) his due process rights were denied by PSERS' failure to request information from [**10]  him before eliminating the $ 20,069.40 from its calculation of his final average salary, and by the commingling of the prosecutorial and adjudicative functions of PSERS and the board.

We note that ^HN1our scope of review from adjudications of administrative boards is limited to a determination of whether the board committed an error of law, whether constitutional rights were violated, or whether necessary findings of fact are supported by substantial evidence. Christiana v. Public School Employees' Retirement Board, 166 Pa. Commw. 300, 646 A.2d 645 (Pa. Cmwlth. 1994); Dowler v. Public School Employes' Retirement Board, 153 Pa. Commw. 109, 620 A.2d 639 (Pa. Cmwlth. 1993). Because the board is charged with the execution and application of the Retirement Code, the board's interpretation should not be overturned unless it is clear that its construction of the Retirement Code is erroneous. Christiana.

Wyland first argues that the board erred in determining that the $ 20,069.40 payment in his final year of employment constituted a severance payment rather than compensation. In particular, Wyland claims that: there is no evidence that the increase was paid contingent upon his retirement; there is no substantial evidence [**11]  that it was payment for his unused vacation or sick time; his resignation at the end of his contract term cannot be considered to be his "retirement"; the increase was consistent with the school district's compensation plan; and it made his salary comparable to other superintendents in Delaware County.

^HN2Both the Retirement Code and the applicable regulations contain restrictions on the types of compensation that may be used in calculating an employee's final average salary. Hoerner v. Public School Employes' Retirement Board, 655 A.2d 207 (Pa. Cmwlth. 1995). The purpose of these restrictions is to ensure the actuarial soundness of the retirement fund by preventing employees from artificially inflating compensation as a means of receiving greater retirement benefits. Id.

^HN3Section 8102 of the Retirement Code sets forth the following relevant definitions:

"Compensation." Pickup contributions plus any remuneration received as a school employee excluding refunds for expenses  [*1103]  incidental to employment and excluding any severance payments.

"Final average salary." The highest average compensation received as an active member during any three nonoverlapping [**12]  periods of 12 consecutive months … .

"Pickup contributions." Regular or joint coverage member contributions which are made by the employer for active members for current service on and after January 1, 1983.

"Severance payments." Any payments for unused vacation or sick leave and any additional compensation contingent upon retirement including payments in excess of the scheduled or customary salaries provided for members within the same governmental entity with the same educational and experience qualifications who are not terminating service.

24 Pa.C.S. § 8102 (emphasis added).

^HN4Title 22 Pa. Code § 211.2 also defines compensation as follows:

Compensation - Excludes a bonus, severance payment or other remuneration or similar emoluments received by a school employe during his school service not based on the standard salary schedule for which he is rendering service. It shall exclude payments for unused sick leave, unused vacation leave, bonuses for attending school seminars and conventions, special payments for health and welfare plans based on the hours employed or any other payment or similar emoluments which may be negotiated [**13]  in a collective bargaining agreement for the express purpose of enhancing the compensation factor for retirement benefits. (Emphasis added.)

^HN5Whether or not a payment must be considered a severance payment is a question of law. Dowler. Under the Retirement Code, all payments, other than those for regular professional salary, which are part of an agreement in which a professional member agrees to terminate school service by a date certain, are prima facie severance payments. Id. A claimant may rebut a prima facie case only by showing that the payment is in accord with the scheduled or customary salary scale within the school district for personnel with the same educational and experience qualifications who are not terminating service. Id.

In this case, both the hearing examiner and the board were presented with the letters of agreement between Wyland and the school board president dated November 21, 1990 and June 25, 1991 which stated, inter alia, that Wyland would be paid for all of his unused vacation and sick days in lieu of his annual raise, and that he would reimburse the school district for its share of the retirement cost allocable to the inclusion [**14]  of this amount. The hearing examiner and the board were also presented with an agreement between Wyland and the school board president dated June 28, 1991 which stated that the parties had reached certain agreements concerning the termination of his employment and severance payments, the terms of which were embodied in the letter of June 25. The hearing examiner and the board were also presented with documentation that Wyland was paid $ 20,069.40 by the school district for 62 unused vacation and comp days, and 93 unused sick days. Clearly, such evidence is sufficient to support the board's conclusion that the $ 20,069.40 paid to Wyland constituted a severance payment as it is defined in the Retirement Code.

Wyland is essentially asking this court to reweigh the conflicting evidence presented to the hearing examiner and the board, and to only accept that evidence which contradicts the plain meaning of the contents of the foregoing documents. However, ^HN6questions of resolving conflicts in the evidence, witness credibility, and evidentiary weight are properly within the exclusive discretion of the fact finding agency, and are not usually matters for a reviewing court.  [**15] Herzog v. Department of Environmental Resources, 166 Pa. Commw. 114, 645 A.2d 1381 (Pa. Cmwlth. 1994). Moreover, "this court 'may not substitute its judgment for that of an administrative agency acting within its discretion in the field of its expertise upon substantial evidence … .'" Dowler, 620 A.2d at 644 (citation omitted). The hearing examiner and the board rejected Wyland's claims regarding this evidence. On  [*1104]  appeal, we will not substitute our judgment nor reweigh this evidence.

Wyland next claims that his right to due process and fundamental fairness was denied by PSERS' failure to formally request information from him before eliminating the $ 20,069.40 from its calculation of his final average salary, and by the commingling of prosecutorial and adjudicative functions by PSERS and the board. He first argues that his vested property rights to his pension were reduced by PSERS in an arbitrary manner, without notice and without a chance to respond, thereby violating his due process rights.

^HN7The Administrative Agency Law, 2 Pa.C.S. § 504, states that "no adjudication of a Commonwealth agency shall be valid as to any party unless he shall have been afforded reasonable notice and an opportunity to be heard."  [**16]  Wyland was afforded these opportunities and exercised them before the hearing examiner and the board in this case.

As the claimant in Hoerner, we note that Wyland has failed to cite any authority for the proposition that he was entitled to a "pre-reduction" hearing before PSERS in this case. The determination of Wyland's final average salary and the calculation of benefits is simply the result of a staff function performed by PSERS.

Wyland could, and did, appeal the initial determination of his retirement benefits to PSERS' appeal committee and, ultimately, to the board. He filed a brief and a reply brief prior to the hearing before the hearing examiner, attended the hearing and presented evidence, and filed exceptions to the hearing examiner's determination with the board. ^HN8As Wyland was given notice and a hearing prior to the final determination of his retirement benefits, and there exists no authority for a hearing in connection with PSERS' initial review, this claim is meritless. See Stone & Edwards Insurance Agency, Inc. v. Department of Insurance, 538 Pa. 276, 648 A.2d 304 (1994) (The initial denial of an insurance license application was the result of a staff function [**17]  performed by the Pennsylvania Insurance Department; as this decision could be appealed to the Insurance Commissioner who would conduct a hearing before the final determination, applicants were not entitled to notice and a hearing prior to the initial denial of a license application).

Finally, Wyland argues that the commingling of the prosecutorial and adjudicative functions by PSERS and the board is violative of his due process rights. In support of his position, Wyland relies on the case of Lyness v. State Board of Medicine, 529 Pa. 535, 605 A.2d 1204 (1994). In Lyness, our Supreme Court stated:

In the modern world of sprawling governmental entities akin to corporations it would be both unrealistic and counterproductive to insist that administrative agencies be forbidden from handling both prosecutorial and adjudicatory functions, where such roles are parcelled out and divided among distinct departments or boards. Efficiency and cost-effectiveness are certainly desirable ends. Indeed, each administrative board and judge is ultimately a subdivision of a single entity, the Commonwealth of Pennsylvania, but this does not render their collective work as prosecutors, investigators [**18]  and adjudicators constitutionally infirm, nor create an imminent threat of prejudice.

What our Constitution requires, however, is that if more than one function is reposed in a single administrative entity, walls of division be constructed which eliminate the threat or appearance of bias. … [A] "mere tangential involvement" of an adjudicator in the decision to initiate proceeding is not enough to raise the red flag of procedural due process. … Our constitutional notion of due process does not require a tabula rasa. … However, where the very entity or individuals involved in the decision to prosecute are "significantly involved" in the adjudicatory phase of the proceedings, a violation of due process occurs.

Lyness, 529 Pa. at 546-47, 605 A.2d at 1209-10 (citations omitted).

Thus, ^HN9where "walls of division" are erected between the parties completing disparate functions within an administrative agency, no due process violation will be found. See, e.g., Stone & Edwards Insurance;  [*1105]  Office of Disciplinary Counsel v. Duffield, 537 Pa. 485, 644 A.2d 1186 (1994).

Even if we were to adopt Wyland's position that the initial determination and review [**19]  of his retirement benefits by PSERS and the board constitute "prosecutorial" and "adjudicative" functions, there has been no showing by Wyland of a commingling of these functions as proscribed by Lyness. Wyland's initial application was reviewed by a supervisor in the retirement processing section of PSERS. When he was dissatisfied with the determination of his benefits, Wyland requested PSERS' appeals committee to review his claim. When he was dissatisfied with the appeals committee's decision, Wyland submitted a request to the legal division of PSERS for a hearing before a hearing examiner. The independent hearing examiner conducted the hearing and made a recommendation to the board, which was the final arbiter. The board was not involved in the adjudication until Wyland appealed the decision of the hearing examiner to the board. Such a procedure does not involve the commingling of prosecutorial and adjudicative functions, and does not violate due process. See Duffield.

Unquestionably, under Lyness, ^HN10the mere possibility of bias under Pennsylvania law is sufficient to "raise the red flag" of the protections offered by the procedural guaranty of due process. Stone &  [**20]  Edwards Insurance. However, the appearance of bias proscribed by Lyness must be one which arises from an actual environment of commingled functions. Id. Wyland has not advanced a claim of the actual commingling of functions in the manner in which PSERS and the board conduct their investigations, prosecutions and adjudications. In the absence of any actual commingling, which would give rise to an appearance of bias, Wyland's unsubstantiated claim of commingling is meritless. Id.

Accordingly, the order of the board is affirmed.

JAMES R. KELLEY, Judge

ORDER

NOW, this 8th day of January, 1996, the order of the Public School Employes' Retirement Board, dated January 27, 1995, at No. 480-24-6298, is affirmed.

JAMES R. KELLEY, Judge

Bottom of Form

Top of Form

Bottom of Form

543 Pa. 132, *; 669 A.2d 940, **;

1996 Pa. LEXIS 10, ***

ROBERT D. CHRISTIANA, Appellant v. PUBLIC SCHOOL EMPLOYES' RETIREMENT BOARD, Appellee

No. 75 W.D. Appeal Docket 1994

SUPREME COURT OF PENNSYLVANIA

543 Pa. 132; 669 A.2d 940; 1996 Pa. LEXIS 10

September 18, 1995, ARGUED

January 18, 1996, DECIDED

PRIOR HISTORY:  [***1]  Appeal from the Order of the Commonwealth Court Entered July 28, 1994, at No. 1745 C.D. 1993, Affirming the Opinion and Order of the Public School Employes' Retirement Board Dated June 24, 1993 at No. 117-16-8296. 166 Pa. Cmwlth. 300, 646 A.2d 645 (1994). JUDGES BELOW: CRAIG, COLINS, MCGINLEY, PELLEGRINI, FRIEDMAN, KELLEY, NEWMAN, JJ. (Cmwlth.).

DISPOSITION: Affirmed.

COUNSEL: Mr. Robert D. Christiana, APPELLANT, Pro se.

For Public School Employes' Retirement Board, APPELLEE: Louis J. Sheehan, Esquire. For Attorney General's Office, APPELLEE: Ernest D. Preate, Jr., Esquire.

JUDGES: MR. CHIEF JUSTICE ROBERT N. C. NIX, JR., FLAHERTY, ZAPPALA, CAPPY, CASTILLE, MONTEMURO, JJ. Mr. Justice Montemuro, who was sitting by designation, did not participate in the decision of this case.

OPINION BY: ZAPPALA

OPINION

 [**940]   [*134]  OPINION

JUSTICE ZAPPALA

DECIDED: JANUARY 18, 1996

Appellant, Robert D. Christiana, is a former superintendent of the Upper St. Clair School District. Prior to his retirement, the School District had purchased certain annuities for Christiana. Christiana requested that the amounts paid for the annuities be included by the Public School Employes' Retirement System (PSERS) in its calculation of his final average salary for retirement purposes. After an administrative hearing, the Public School Employes' Retirement Board (Board) entered an order directing that the annuities were not to be included in the computation of his retirement benefits. The Commonwealth Court affirmed the Board's order in an en banc decision. We granted Christiana's petition for allowance [***2]  of appeal and now affirm.

The Board's opinion set forth detailed factual findings that are summarized as follows. Christiana was hired as the superintendent by the School District in July of 1979 at a starting salary of $ 52,000. He had been employed previously by school districts in  [**941]  Michigan and New York in various positions and had served as the superintendent of Pennsylvania's Springfield Township School District. Christiana's salary was increased over the next few years:

1980-1981 $ 58,000

1981-1982 $ 63,500

1982-1983 $ 65,723

1983-1984 $ 71,000

In the next five years, the School District reported the following figures as Christiana's salary to PSERS:

 [*135]  1984-1985 $ 71,000

1985-1986 $ 71,000

1986-1987 $ 71,000

1987-1988 $ 74,000

1988-1989 $ 80,000

Beginning with the 1984-1985 school year, the School District also expended funds to purchase single premium annuities for Christiana. The School District did not report the expenditures as part of Christiana's salary to PSERS or pay retirement contributions on those amounts. The minutes of Upper St. Clair School Board's meetings at which the annuity payments were addressed indicate [***3]  that the annuity payments were to be made for purposes of purchasing prior years' seniority pension credit. ¹ The minutes reflect the costs of the annuity purchases:

FOOTNOTES

1 The minutes also indicate that the annuity payments were "in lieu of salary increases." For the school year 1987-1988, in which Christiana also received a salary increase of $ 3,000, the minutes state that "in lieu of any additional salary increase," the School District shall purchase a single premium annuity for purposes of purchasing prior years' seniority pension credit at a cost of $ 9,500.

1984-1985 $ 5,000

1985-1986 $ 7,000

1986-1987 $ 10,000

1987-1988 $ 9,500

By early November of 1988, the School Board was apprised of Christiana's intention to retire at the end of the 1988-1989 school year. On November 14, 1988, the School Board adopted a resolution relating to Christiana's anticipated retirement:

RESOLVED, That for the 1988-89 school year, the salary for the Superintendent shall be $ 80,000; and further,

 [***4] 

RESOLVED, That commencing with the retirement of the Superintendent on June 30, 1989, the Blue Cross/Blue Shield or equivalent medical and hospitalization benefits applicable to building administrators shall be continued for the Superintendent until his attaining age 65, and for his wife Nancy, until her attaining age 65, at District expense; and further,

RESOLVED, That the District shall reimburse the Superintendent during the 1988-1989 school year for costs incurred  [*136]  for the services of a financial planner, such reimbursement not to exceed $ 2,000; and further,

RESOLVED, That the District shall purchase for the Superintendent three years' pension credit under the State Retirement Plan for his service in the United States Air Force as permitted by the laws of Pennsylvania; and further,

RESOLVED, That the District shall provide the Superintendent with an annuity or other equivalent payment at a cost to the District of $ 19,200 for purposes of purchasing for the Superintendent pension credit under the State Retirement Plan for service as an educator in positions prior to his employment under the Pennsylvania retirement system, as permitted [***5]  by the laws of Pennsylvania; . . .

The annuity payment of $ 19,200 for the 1988-1989 school year became problematic due to changes in the federal tax code that were effective as of January 1, 1989. In response, the School Board rescinded the resolution of November 14, 1988, and adopted a second resolution on January 9, 1989. The resolution split the $ 19,200 payment into two separate payments of $ 9,500, which was backdated to the 1988 calendar year, and of $ 9,700, which was to be made at or prior to Christiana's retirement date of June 30, 1989:

MOTION: By Wellington: WHEREAS, the Board of School Directors at its regular meeting on November 14, 1988, adopted certain resolutions relating to the salary and the benefits payable to or for the benefit of the Superintendent; and

WHEREFORE, prior to the adoption of such resolutions it was represented to the Superintendent that the Board would consider  [**942]  modification to those resolutions after the Superintendent and the District had an opportunity to consult with their respective advisors, and such consultations have taken place and the Board is prepared to make certain modifications;

NOW, THEREFORE,  [***6]  BE IT RESOLVED, that with the consent and agreement of the Superintendent, the resolutions  [*137]  adopted by the Board at its November 14, 1988, meeting relating to the salary and benefits payable to or for the benefit of the Superintendent be and are hereby rescinded and the following resolutions are adopted in their place and stead:

RESOLVED, that for the 1988-89 school year, the salary for the Superintendent shall be $ 80,000; and further,

RESOLVED, that commencing with the retirement of the Superintendent on June 30, 1989, the Blue Cross/Blue Shield or equivalent medical and hospitalization benefits then applicable to Building Administrators shall be continued for the Superintendent until his attaining age 65, and for his wife, Nancy, until her attaining age 65, at District's expense . . .

RESOLVED, that the District shall reimburse the Superintendent during the 1988-89 school year for costs incurred for the services of a financial planner, such reimbursement not to exceed $ 2,000; and further,

RESOLVED, that the District, in recognition of the superior manner in which the Superintendent has performed his duties and responsibilities,  [***7]  shall provide the Superintendent in calendar year 1988 with additional compensation in the amount of $ 9,500; and further,

RESOLVED, that the District shall, at or prior to the retirement of the Superintendent on June 30, 1989, pay to or on behalf of the Superintendent additional compensation in the amount of $ 9,700 plus an amount necessary to purchase for the Superintendent three years' pension credit under the State Retirement Plan in recognition of his service in the United States Air Force, as permitted by the laws of Pennsylvania.

Pursuant to this resolution, the School District purchased an annuity in the amount of $ 9,500. The annuity payment was not reflected in Christiana's regular salary. The $ 9,700 payment made in 1989 was treated differently, however. Christiana received that payment directly, but the School District in turn reduced his monthly take-home pay and used the payroll  [*138]  deductions to purchase the 1989 annuity. From March of 1989 through June of 1989, the School District reported additional remuneration of $ 8,730 to PSERS that reflected the payroll changes.

Christiana submitted an application for retirement to PSERS on August 8, 1989. On [***8]  January 19, 1990, PSERS sent a letter advising the School District that after review of the School Board's minutes of November 14, 1988, and January 9, 1989, the $ 8,730 reported did not appear to be Christiana's normal salary and that the amount could not be used in calculating his retirement benefits. The School District was requested to submit a form to reflect this change in the reported salary.

The School District did not comply with the request. Instead, a form was sent increasing the salary report by the sum of $ 970 -the difference between the $ 9,700 annuity purchase for 1989 and the $ 8,730 originally reported as salary. In a letter dated February 9, 1990, the School District's business manager noted the correction and indicated that in addition, the report for the fourth quarter of 1988 had failed to report a payment of $ 9,500 to Christiana. The letter stated that the School District viewed the payments as merit increases. On February 27, 1990, PSERS requested a copy of the School District's merit pay policy. The School District did not respond.

On December 19, 1990, PSERS informed Christiana that his request to include the $ 9,500 for the 1987-1988 school year and the [***9]  $ 9,700 for the 1988-1989 school year in its calculation of his final average salary for retirement purposes had been denied. An administrative hearing was held on September 11, 1991, before a hearing examiner to consider whether the $ 19,200 should be considered as compensation under the Public  [**943]  School Employees' Retirement Code. ² PSERS learned then that the School District had purchased annuities for Christiana during the four previous school years (1984-1988). At the hearing, Christiana sought for the first time to add  [*139]  each of those annuity purchases to the salary amounts reported by the School District to PSERS. Christiana's take-home pay did not reflect those payments, and as noted earlier, the School District never included any of the annuity purchases in its salary reports to PSERS during those four years.

FOOTNOTES

2 Act of October 2, 1975, P.L. 298, as amended, 24 P.S. §§ 8101-8104.

The hearing examiner recommended that the $ 19,200 should be excluded from the calculation of Christiana's final average salary [***10]  because the amount was properly characterized as nonincludable "severance payments" under the Retirement Code. The hearing examiner also recommended that the four annuity payments made during 1984-1988 be included in the calculation of final average salary as compensation.

The Board determined that Christiana had not properly raised the issue relating to the four annuity purchases in the earlier years, but nevertheless addressed the issue because there were sufficient facts on the record for its resolution. The Board concluded that the nonsalary reduction tax shelter annuity payments were not includable as Retirement Code compensation because they were nonstandard and/or nonregular remuneration as well as being bonuses and fringe benefits. The $ 19,200 annuity purchases in the 1988-1989 school year were found not to be includable in Retirement Code compensation because the payments were components of a severance package and were also characterized as nonincludable bonuses and fringe benefits. On June 24, 1993, the Board entered an order directing that none of the annuity purchases were to be included as Retirement Code Compensation. The Commonwealth Court affirmed the Board's order.  [***11]  ^HN1

On appeal from a final adjudication of an administrative board, our scope of review is limited to a determination of whether the board committed an error of law, whether there has been a violation of constitutional rights, or whether necessary factual findings are supported by substantial evidence. Estate of McGovern v. State Employees' Retirement Board, 512 Pa. 377, 517 A.2d 523 (1986). The issue raised in this appeal is whether the Board committed an error of law in determining that the annuity payments were not compensation  [*140]  for purposes of computing final average salary under the Retirement Code.

Section 8102 of the Retirement Code defines the following relevant terms:

^HN2"Compensation." Pickup contributions plus any remuneration received as a school employee excluding refunds for expenses incidental to employment and excluding any severance payments.

"Final average salary." The highest average compensation received as an active member during any three nonoverlapping periods of 12 consecutive months with the compensation for part-time service being annualized on the basis of the fractional portion of the school year for which credit is received;  [***12]  except, if the employee was not a member for three such periods, the total compensation received as an active member annualized in the case of part-time service divided by the number of such periods of membership; and, in the case of a member with multiple service credit, the final average salary shall be determined by reference to compensation received by him as a school employee or a State employee or both.

"Pickup contributions." Regular or joint coverage member contributions which are made by the employer for active members for current service on and after January 1, 1983.

"Severance payments." Any payments for unused vacation or sick leave and any additional compensation contingent upon retirement including payments in excess of the scheduled or customary salaries provided for members within the same governmental entity with the same educational  [**944]  and experience qualifications who are not terminating service.

24 Pa.C.S.A. § 8102.

The regulations promulgated under the Retirement Code further refine the definition of "compensation:"

^HN3Excludes a bonus, severance payment or other remuneration or similar emoluments received by a [***13]  school employee during his school service not based on the standard salary  [*141]  schedule for which he is rendering service. It shall exclude payments for unused sick leave, unused vacation leave, bonuses for attending school seminars and conventions, special payments for health and welfare plans based on the hours employed or any other payment or similar emoluments which may be negotiated in a collective bargaining agreement for the express purpose of enhancing the compensation factor for retirement benefits.

22 Pa. Code § 211.2.

The restrictive definitions of compensation under the Retirement Code and regulations reflect the Legislature's intention to preserve the actuarial integrity of the retirement fund by "excluding from the computation of employes' final average salary all payments which may artificially inflate compensation for the purpose of enhancing retirement benefits." Dowler v. Public School Employes' Retirement Board, 153 Pa. Commw. 109, 620 A.2d 639 (1993); Laurito v. Public School Employes' Retirement Board, 146 Pa. Commw. 514, 519, 606 A.2d 609, 611 (1992).

In Laurito v. Public School Employes' Retirement Board, the Commonwealth Court affirmed [***14]  a decision of the Retirement Board that refused to include a salary increase for the purposes of computation of retirement benefits for an elementary middle school principal. Dr. Angelo Laurito retired after 42 years of service with the Northern Cambria School District. Laurito's annual salary was negotiated each year with the school district. For the 1984-1985 school year, his salary was $ 32,600. On July 25, 1985, the school board awarded him a $ 16,000 "salary adjustment" for the 1985-1986 school year. In addition, Laurito was granted a leave of absence for the 1985-1986 school year, and his July 1, 1986 resignation for retirement purposes was accepted.

PSERS notified Laurito that the $ 16,000 increase would not be included as compensation for retirement purposes. The Retirement Board upheld the determination, concluding that the claimed salary adjustment was a severance payment. The Commonwealth Court affirmed on appeal, finding that the  [*142]  record failed to establish that Laurito's salary increase was customary for an individual of similar experience within the school district. The court concluded that the school board's actions were tantamount to a severance agreement, stating [***15] 

We find especially persuasive the observation made by the board that the $ 16,000 payment in the final year of service provided a mechanism for the school district to recognize Laurito's devoted service, as well as to remedy the perceived inequity of a below-average salary throughout a working lifetime, by effectuating an inflated final salary for purposes of retirement benefits.

146 Pa. Commw. at 519-20, 606 A.2d at 611-12.

In Dowler v. Public School Employes' Retirement Board, the Commonwealth Court held that a payment made pursuant to a retirement agreement was not compensation despite the personnel director's performance of consulting services. William Dowler was employed for over seventeen years as the personnel director at the West Chester Area School District before his retirement on July 1, 1988. In addition to his other duties, Dowler conducted all of the school district's labor negotiations in the first three years of his employment. The school district hired private contractors to conduct labor negotiations thereafter.

On November 17, 1987, Dowler and the school district entered into an agreement concerning his retirement. Dowler was to be placed on a [***16]  reduced work schedule from January 1, 1988, to July 1, 1988. He was to be compensated during that time as if he were working a five-day schedule and his duties would include training a replacement and assisting with negotiations. In addition,  [**945]  funds were to be given to Dowler on January 1, 1988, to purchase credit for his military services in an amount not to exceed $ 15,000.

For the first time in Dowler's experience, three labor contracts expired at the end of June, 1988. Dowler assisted in the negotiations while working full-time as the personnel director. A new director was not hired until May, 1988. The school district paid $ 14,854.08 to Dowler, which he used to  [*143]  purchase retirement credit for military service. PSERS concluded that the amount was a severance payment and did not include it as part of Dowler's final average salary in computing his retirement compensation.

Dowler appealed the determination, asserting that he did not receive the benefit of his agreement because he was not given the opportunity to work half-time at full pay. The Board concluded that the money represented a severance payment and dismissed the appeal. The Commonwealth Court affirmed, stating

 ^HN4

Under [***17]  the Code, all payments, other than for regular professional salary, which are part of an agreement in which a professional member agrees to terminate school service by a date certain, are prima facie severance payments. The claimant may rebut a prima facie case only by showing that the payment is in accord with the scheduled or customary salary scale within the School District for personnel with the same educational and experience qualifications who are not terminating service.

153 Pa. Commw. at 115-16, 620 A.2d at 643.

In furtherance of its responsibility to ensure the actuarial soundness of the retirement fund, the Board has determined that it is statutorily required to exclude nonregular remuneration, nonstandard salary, fringe benefits, bonuses, and severance payments from inclusion as compensation under the Retirement Code. The Board has developed the concepts of "standard salary" and "regular remuneration" as part of its understanding of compensation.

Based upon its interpretation of the Retirement Code and accompanying regulations, ^HN5standard salary and regular remuneration are defined by the Board as take-home cash, including, among others, (i) amounts withheld [***18]  for tax remittances; (ii) amounts picked up as contributions to PSERS; and (iii) amounts appropriately deferred in qualifying deferred compensation programs, and excluding, fringe benefits, bonuses, severance payments, and non-salary  [*144]  reduction Internal Revenue Code § 403(b) tax sheltered annuities.

Christiana v. Public School Employees' Retirement Board, 166 Pa. Commw. 300,    , 646 A.2d 645, 649-50 (1994) (emphasis supplied).

The nonsalary reduction tax sheltered annuities purchased for Christiana during the four consecutive school years beginning in 1984-1985 were found by the Board to be nonstandard salary, nonregular remuneration and bonuses or fringe benefits under this analysis. ³ The $ 19,200 in annuity purchases, which the School District authorized after being advised of Christiana's impending retirement, were excluded as being part of a severance package.

FOOTNOTES

3 Such annuities are distinguishable from the annuity contracts purchased under a deferred compensation program authorized under the Fiscal Code, Act of March 30, 1811, P.L. 145 as amended, 72 P.S. §§ 4521.1 - 4521.2. Income deferred under programs authorized thereunder is included as regular compensation for the purpose of computing deductions for employe contributions to retirement and pension programs and for the purpose of computing retirement and pension benefits. 72 P.S. § 4521.1(e). Christiana's assertion that the annuity purchases made on his behalf qualified for treatment as deferred compensation under this provision fails to recognize this distinction and is unsupportable.

 [***19]  Christiana had received salary increases for the first three years after he became superintendent for the Upper St. Clair School District. Over a four-year period, Christiana's annual salary increased from $ 58,000 to $ 71,000. When his salary for 1984-1985 was under consideration, members of the School Board expressed concern that an additional increase would generate negative publicity. A newspaper reporter's comment that Christiana's salary at that time exceeded that of Pennsylvania's Governor was repeated in the headlines of a local newspaper. Unwilling to confront public scrutiny  [**946]  of a salary increase, the School Board elected to freeze Christiana's salary and purchased a single premium annuity for the purpose of purchasing prior years' seniority pension credit.

Richard J. Mancini, the School District's business manager, testified that Christiana was the highest paid school superintendent in Western Pennsylvania, including the City of Pittsburgh  [*145]  School District which was ten times the size of Upper St. Clair's School District. Mancini indicated that the single premium annuity was considered as a way to handle adverse public reaction because responses to salary surveys would not [***20]  include that amount. He considered the annuity purchases to be compensation.

Nevertheless, the record establishes that the School District did not report the annuity payments to PSERS as compensation paid to Christiana and did not pay pickup contributions on those amounts. In fact, the School District continued to purchase single premium annuities even when salary increases were approved in subsequent years. In the 1987-1988 school year, Christiana's salary was increased to $ 74,000 and a single premium annuity in the amount of $ 9,500 was purchased. His salary was then increased to $ 80,000 in the following year in which an additional $ 9,500 was earmarked for an annuity purchase.

With respect to the $ 19,200 annuity payment, the School Board's resolutions indicate that it was part of a comprehensive salary and benefits package developed after notice of Christiana's impending retirement. The School Board's initial resolution dated November 14, 1988, contemplated a salary increase to $ 80,000, payment for services of a financial planner not to exceed $ 2,000, continuing medical benefits for Christiana and his wife until age 65, the purchase of three years' pension credit for military [***21]  service ⁴, and the $ 19,200 annuity purchase. On January 9, 1989, the resolution was rescinded. A second resolution was adopted which incorporated all of the earlier provisions, but split the $ 19,200 into two separate annuity purchases.

FOOTNOTES

4 The amount expended by the School District for this purchase was approximately $ 21,000. Christiana did not seek to include this amount in the computation of his retirement benefits.

The Commonwealth Court concluded that the Board did not err in excluding the annuity payments from the calculation of Christiana's final average salary. As to the 1988-1989 salary and benefits package, the court found that the record was devoid of any evidence that the package was in accord with the  [*146]  District's regular and standard yearly compensation practices, particularly those involving Christiana himself over the ten-year term of his employment.

We find that the Commonwealth Court did not err in concluding that none of the annuity purchases were includable as compensation for purposes of [***22]  determining Christiana's final average salary. There is substantial evidence in the record to support the Retirement Board's conclusions that the annuity payments were remuneration that was not based on the standard salary schedule for which Christiana was rendering service, and that the $ 19,200 payment was a severance payment. Therefore, under the Retirement Code and applicable regulations, the annuity payments were properly excluded from the computation of Christiana's final average salary.

The order of the Commonwealth Court is affirmed.

Mr. Justice Montemuro, who was sitting by designation, did not participate in the decision of this case.    

166 Pa. Commw. 300, *; 646 A.2d 645, **;
1994 Pa. Commw. LEXIS 436, ***

ROBERT D. CHRISTIANA, Petitioner v. PUBLIC SCHOOL EMPLOYES' RETIREMENT BOARD, Respondent

NO. 1745 C.D. 1993

COMMONWEALTH COURT OF PENNSYLVANIA

166 Pa. Commw. 300; 646 A.2d 645; 1994 Pa. Commw. LEXIS 436

March 2, 1994, ARGUED

July 28, 1994, FILED

SUBSEQUENT HISTORY: Petition for Allowance of Appeal and/or Cross-Petition Granted December 7, 1994.

PRIOR HISTORY:  [***1]  APPEALED From File No. 117-16-8296. State Agency, Public School Employes' Retirement Board.

COUNSEL: Reed B. Day for petitioner.

Louis J. Sheehan, Assistant Counsel, for respondent.

JUDGES: BEFORE: HONORABLE DAVID W. CRAIG, President Judge, HONORABLE JAMES GARDNER COLINS, Judge, HONORABLE BERNARD L. McGINLEY, Judge, HONORABLE DAN PELLEGRINI, Judge, HONORABLE ROCHELLE S. FRIEDMAN, Judge, HONORABLE JAMES R. KELLEY, Judge, HONORABLE SANDRA SCHULTZ NEWMAN, Judge.

OPINION BY: JAMES R. KELLEY

OPINION

 [*302]   [**646]  OPINION BY JUDGE KELLEY

Robert D. Christiana, the former Superintendent of the Upper St. Clair School District (District) appeals from an order of the Public School Employes' Retirement Board (Board) which denied the inclusion of certain annuities purchased for Christiana by the District in the calculation of his final average salary under the Public School Employes' Retirement Code (Retirement Code). ¹

FOOTNOTES

1 Act of October 2, 1975, P.L. 298, as amended, 24 P.S. §§ 8101 - 8104.


The Board made extensive findings of fact. Those findings relevant to the present [***2]  appeal may be summarized as follows. Christiana was first employed by the District in July, 1979 at the initial salary of $ 52,000. Christiana's salaries for the subsequent school years were:

1980-1981	$ 58,000
1981-1982	$ 63,500
1982-1983	$ 65,723
1983-1984	$ 71,000

 [*303]  The following amounts were initially reported to the Public School Employes' Retirement System (PSERS) as Christiana's salary for the next five school years:

1984-1985	$ 71,000
1985-1986	$ 71,000
1986-1987	$ 71,000
1987-1988	$ 74,000
1988-1989	$ 80,000

In November 1988, the Upper St. Clair School Board (School Board) became aware of Christiana's intention to retire from his position at the end of the 1988-1989 school year. Christiana formally retired in August, 1989.

At its November 14, 1988 meeting, the School Board adopted resolutions concerning the 1988-1989 salary and benefits payable to  [**647]  or for the benefit of Christiana. Among the resolutions was one which directed the District to provide Christiana "with an annuity or other equivalent payment at a cost to the District of $ 19,200 for the purposes of purchasing for the Superintendent pension credit under the State Retirement Plan [***3]  … ."

On January 9, 1989, the School Board met and rescinded its resolutions of November 14, 1988, adopting the following relevant resolutions in their place:

RESOLVED, that the District, in recognition of the superior manner in which the Superintendent has performed his duties and responsibilities, shall provide the Superintendent in calendar year 1988 with additional compensation in the amount of $ 9,500; and further,

RESOLVED, that the District shall, at or prior to the retirement of the Superintendent on June 30, 1989, pay to or on behalf of the Superintendent additional compensation in the amount of $ 9,700 plus an amount necessary to purchase for the Superintendent three years' pension credit under the State Retirement Plan in recognition of his service in the United States Air Force, as permitted by the laws of Pennsylvania. ²

FOOTNOTES

2 The amount necessary to purchase the pension credit for military service was slightly in excess of $ 20,000; however, Christiana does not seek to characterize this expenditure as "compensation" under the Retirement Code.


 [***4]   [*304]  Pursuant to this resolution, the District purchased an annuity for Christiana in the amount of $ 9,500, but this expenditure was not directly reflected as Christiana's regular salary. ³ In contradistinction, the District in 1989 directly paid Christiana an additional $ 9,700 which increased his regular salary from $ 80,000 to $ 89,700. The $ 9,700 was separately accounted for and deducted from Christiana's take-home salary. The District purchased an annuity for Christiana with the payroll deductions.

FOOTNOTES

3 This annuity, and all others subsequently referred to, were purchased by the District pursuant to Internal Revenue Code § 403(b) which grants special tax advantages to school employees with respect to annuities purchased for them by their tax-exempt employers.


The District reported to PSERS a total of $ 8,730 in payroll deductions starting in March 1989, through and including June 1989, to reflect the additional compensation called for by the January 9, 1989 School Board resolution. ⁴ After review of the School Board [***5]  meeting minutes and resolutions, on January 19, 1990, PSERS declined to accept or recognize the reported $ 8,730 for retirement credit purposes.

FOOTNOTES

4 The $ 8,730 in payroll deductions reported to PSERS represented a $ 970 shortfall from the $ 9,700 deduction authorized by the School Board.


By letter to PSERS dated February 9, 1990, the District resubmitted Christiana's reported salary for the 1988-1989 school year. The letter broadened the reporting period to encompass deductions made between January 1, 1989 and June 30, 1989, and adjusted the total salary accordingly. The letter read, in part:

On the original 1st quarter report $ 970.00 of additional compensation was not reported in February, 1989.

Further, in reviewing the report for the 4th quarter of 1988 we discovered that a payment of $ 9,500.00 to Dr. Christiana was also not reported.

The District views these payments as merit increases, no different than merit pay which is paid in accordance with  [*305]  our negotiated agreement with the teachers of  [***6]  the School District.

At the administrative hearing held September 11, 1991 before a hearing examiner to consider the issue of whether the $ 19,200 (comprised of $ 9,500 + $ 9,700) (Enhancement II) paid to Christiana in the 1988-1989 school year should be considered Retirement Code compensation for the purposes of calculating the final average salary, PSERS was made aware that additional remuneration was awarded to Christiana not only in his final year of service but also for the four previous school years (1984-1988) (Enhancement I). At the hearing, for the first time Christiana sought to add Enhancement I to the salaries previously reported to PSERS for the respective years for inclusion as Retirement Code compensation.

 [**648]  According to the relevant School Board meeting minutes, the Enhancement I payments were intended to compensate Christiana "in lieu of salary increases" for the given years. The pertinent resolutions directed that the District purchase a single premium annuity for Christiana for the purposes of purchasing prior years seniority pension credit at the following amounts:

1984-1985	$ 5,000
1985-1986	$ 7,000
1986-1987	$ 10,000
1987-1988	$ 9,500

None [***7]  of these amounts were reflected in Christiana's take-home pay, nor were the amounts formally reported to PSERS as salary.

The hearing examiner recommended that Enhancement II be excluded from the calculation of Christiana's final average salary because the amounts were properly characterized as non-includable "severance payments" under the Retirement Code. The hearing examiner recommended further that Enhancement I be included in the calculation of final average salary because such amounts were properly characterized as includable Retirement Code compensation. Christiana appealed to the Board.

Concerning Enhancement I, the Board concluded that Christiana's non-salary reduction tax shelter annuity payments  [*306]  may not be included in Retirement Code compensation because such payments are non-standard and/or non-regular remuneration as well as being bonuses and fringe benefits. Similarly, the Board concluded that the Enhancement II payments were components of a severance package none of which may be included in Retirement Code compensation because such payments must be characterized as non-includable bonuses and fringe benefits. It is from that order that Christiana now appeals to this court.

 [***8]  On appeal, Christiana argues (1) that he is entitled to have his final average salary adjusted in order to receive retirement credit for single premium tax-sheltered annuities purchased for him by his employer in lieu of salary increases; (2) that PSERS may not sua sponte utilize statistical and public policy considerations when denying a claim for retirement benefits which were not raised before the hearing examiner; (3) that the Board denied Christiana due process by overruling the hearing examiner without providing Christiana reasonable notice and an opportunity to be heard; and, (4) that the Board denied Christiana due process by commingling the prosecutorial and adjudicative functions in determining Christiana's eligibility for benefits.

We note that ^HN1our scope of review from adjudications of administrative boards is limited to a determination of whether the board committed an error of law, whether constitutional rights were violated, or whether necessary findings of fact are supported by substantial evidence. Finnegan v. Public School Employes' Retirement Board, 126 Pa. Commonwealth Ct. 584, 560 A.2d 848 (1989).

Christiana first [***9]  argues that the Board erred in failing to give effect to the relevant portions of the Fiscal Code of the Commonwealth ⁵ which expressly authorize the inclusion of tax-deferred income as credit for customary retirement plans. For five years, Christiana argues, the District purchased qualified tax-deferred annuities for Christiana in accordance with the ^HN2Fiscal Code, which provides in relevant part:

 [*307]  The state treasurer shall pay all grants, salaries, annuities, gratuities, and pensions established by law … the treasurer or other officer in charge of payrolls for any … political subdivision may make systematic investments in mutual funds, savings accounts or government bonds or make premium payments on life insurance or annuity contracts to any institution or company licensed and authorized … to accept deposits … for the purpose of funding a deferred compensation program for employes.

72 P.S. § 4521 (emphasis provided by Christiana).

Moreover, Christiana asserts, the Fiscal Code authorizes the purchase of annuities through a deferred compensation program:

 [**649]  ^HN3(a) The governing body of any … political subdivision may, by contract, agree with any employe  [***10]  to defer, a portion of that employe's compensation and may subsequently, with the consent of the employe, purchase … annuity contracts … .

* * *

(e) Such deferred compensation program shall be in addition to, and not a part of, any other retirement benefit program provided by law for employes of the … political subdivision. Income deferred under programs authorized by this act shall continue to be included as regular compensation for the purpose of computing deductions for employe contributions to retirement and pension programs and for the purpose of computing retirement and pension benefits earned by any employe.

72 P.S. § 4521.1(a), (e), (emphasis provided by Christiana).

Christiana maintains that these provisions of the Fiscal Code permit the use of tax-deferred annuity payments which may be purchased by deferring a portion of an employee's compensation. Such deferred income, Christiana contends, is then to be included in the computation of the employee's retirement and pension benefits.

FOOTNOTES

5 Act of March 30, 1811, P.L. 145, as amended, 72 P.S. §§ 4521 - 4521.2.


 [***11]  We cannot disagree with Christiana's reading of the Fiscal Code provision set forth above. However, his argument continues,  [*308]  advancing the assertion that the Board erred by characterizing the annuities as non-salary reduction purchases, or non-regular remuneration, thus rendering such payments ineligible for inclusion as compensation under its interpretation of the Retirement Code.

^HN4Section 8102 of the Retirement Code sets forth the following relevant definitions:

"Compensation." Pickup contributions plus any remuneration received as a school employee excluding refunds for expenses incidental to employment and excluding severance payments.

"^HN5Final average salary." The highest average compensation received as an active member during any three nonoverlapping periods of 12 consecutive months … .

"^HN6Pickup contributions." Regular or joint coverage member contributions which are made by the employer for active members for current service on and after January 1, 1983.

"^HN7Severance payments." Any payments for unused vacation or sick leave and any additional compensation contingent upon retirement including payments in excess of the scheduled or customary [***12]  salaries provided for members within the same governmental entity with the same educational and experience qualifications who are not terminating service.

24 P.S. § 8102.

^HN8Section 211.2 of Title 22 of the Pennsylvania Code expands upon the definition of Retirement Code compensation, in pertinent part:

Excludes a bonus, severance payment or other remuneration or similar emoluments received by a school employe during his school service not based on the standard salary schedule for which he is rendering service. It shall exclude payments for unused sick leave, unused vacation leave, bonuses for attending school seminars and conventions, special payments for health and welfare plans based on the hours employed or any other payment or similar emoluments  [*309]  which may be negotiated in a collective bargaining agreement for the express purpose of enhancing the compensation factor for retirement benefits.

22 Pa. Code § 211.2 (emphasis added).

Accordingly, the Board has developed general concepts in understanding the Retirement Code's meaning of "compensation": "standard salary" and "regular remuneration". Based upon its interpretation of the Retirement Code and accompanying regulations,  [***13]  standard salary and regular remuneration are defined by the Board as take-home cash, including, among others, (i) amounts withheld for tax remittances; (ii) amounts picked up as contributions to PSERS; and (iii) amounts appropriately deferred in qualifying deferred compensation programs, and excluding, fringe benefits, bonuses, severance payments, and non-salary reduction Internal Revenue Code § 403(b) tax sheltered  [**650]  annuities. Board's opinion, June 24, 1993, pp. 16-17 (emphasis added).

Based on its interpretation of the guiding statutes and regulations, the Board characterized both Enhancement I and II payments to Christiana as non-standard salary, non-regular remuneration, bonuses and fringe benefits. Additionally, the Board characterized Enhancement II as part of a severance payment. Therefore, the Board denied the inclusion of both the Enhancement I and Enhancement II annuity payments in the calculation of Christiana's final average salary.

^HN9The Board is charged with the execution and application of the Retirement Code and the Board's interpretation should not be overturned unless it is clear that such construction is erroneous. Panko v. Public School Employees' Retirement System, 89 Pa. Commonwealth Ct. 419, 492 A.2d 805 (1985). [***14]  Accordingly, our review of the record suggests that the Board did not err in excluding the annuity payments from the calculation of Christiana's final average salary.

In each of the school years in which Christiana received an Enhancement I payment, the School Board adopted resolutions which directed that "in lieu of a salary increase" for that year, Christiana would benefit from the purchase of a single  [*310]  premium annuity for the purpose of purchasing prior years seniority pension credit. Christiana testified that the Enhancement I annuity payments were used as a means of rewarding Christiana without representing to the taxpayers of Upper St. Clair that his "salary" was substantially increased each year. (Original Record, Transcript of Hearing held September 11, 1991, at pp. 16-18.) Christiana testified he believed that his total compensation included his base reported salary, plus the additional amounts provided for the purchase of the annuities. (Id. at pp. 25-26.) The District's business manager at the time, Richard Mancini, testified that in his opinion "there was no doubt" the annuity payments were compensation. (Id. at p. 67.)

Referring to the first annuity payment of  [***15]  $ 5,000 in 1984-1985, Dina J. Fulmer, a School Board member at the time testified as follows:

Q: What did you understand this $ 5,000 to be?

A: It was a -- well, a reward for his performance. It was a way of compensating him which would not get our name in the paper again.

* * *

Q: Why were the words in lieu of a salary increase chosen?

A: Well, in lieu of means instead of or actually in place of being that lieu is the French word for place. Rather than increasing his base salary, we just decided to purchase this annuity.

(Id. at pp. 83, 85.)

However, regardless of Christiana's or the District's contradictory understanding, the record reveals that the District did not pay pickup contributions on the annuity purchases made on behalf of Christiana beginning with the 1984-1985 school year. ⁶ Further, in its reports to PSERS, the District did not  [*311]  report the Enhancement I payments as compensation paid to Christiana, nor did the District initially report any of the $ 19,200 Enhancement II payment to PSERS, as compensation or otherwise. Lastly, despite its apparent unwillingness to formally raise Christiana's base salary in the face of public opposition, Christiana [***16]  did in fact receive two regular salary increases totalling $ 9,000 during the five year period under consideration.

FOOTNOTES

6 Section 8102 of the Retirement Code defined "pickup contributions" as regular or joint coverage member contributions which are made by the employer for active members for current service on and after January 1, 1983.


With respect to Enhancement II alone, the record also supports the findings of the Board that the payments constituted part of a severance package. Christiana testified the Board was made aware of his intention to retire prior to their November, 1988 negotiations concerning his 1988-1989 salary and benefits. (Id. at 47-48.) What emerged from those deliberations were resolutions directing (i) that the District, "in recognition of the superior manner in which the Superintendent  [**651]  has performed his duties", pay Christiana additional compensation in the amount of $ 9,500 in 1988; and (ii) that the District pay Christiana an additional $ 9,700 at or prior to his retirement. (Original Record,  [***17]  PSERS Exhibit #10B.)

While the record is silent as to whether Enhancement II was made contingent on Christiana's retirement, it is at the very least payment "in excess of the scheduled or customary" salary Christiana had enjoyed. Further, the final year salary and benefits package, of which Enhancement II was a part, included employer provided amounts for a financial planner, continuing medical coverage for Christiana and his wife, and a one-time offering of a salary reduction tax sheltered annuity. We find the record devoid of any evidence that Christiana's final year package was in accord with the District's regular and standard yearly compensation practices, particularly those involving Christiana himself over the ten year term of his employment.

^HN10The Retirement Code indicates that the General Assembly wishes to exclude from the computation of employees' final average salary all payments which may artificially inflate compensation for the purpose of enhancing retirement benefits.  [*312]  Dowler v. Public School Employes' Retirement Board, 153 Pa. Commonwealth Ct. 109, 620 A.2d 639 (1993).

Christiana next argues that the Board erred by  [***18]  sua sponte utilizing financial statistics and public policy considerations not considered before the hearing examiner in denying Christiana's claim for retirement benefits. We disagree.

^HN11The Board, and not the hearing examiner, is the final fact finder in these cases. Dowler. As such, the Board may take official notice of facts which are obvious and notorious to an expert in the agency's field and those facts contained in the agency's files. Falasco v. Pennsylvania Board of Probation and Parole, 104 Pa. Commonwealth Ct. 321, 521 A.2d 991 (1987).

Next, Christiana asserts that in overruling the recommendations of the hearing examiner, the Board denied Christiana reasonable notice and an opportunity to be heard. Christiana contends that the Board made its determination in this matter without his participation and based its decision on facts and issues Christiana never had the opportunity to address.

^HN12The Administrative Agency Law, 2 Pa.C.S. § 504, states that "no adjudication of a Commonwealth agency shall be valid as to any party unless he shall have been afforded reasonable notice and an opportunity to be heard." Christiana was presented [***19]  with just these very opportunities and exploited them by filing a brief and reply brief prior to the hearing; attending the hearing and presenting evidence; and, filing exceptions to the hearing examiner's recommendations, followed by a response to the exceptions filed by PSERS. Our review of the record indicates that the Board studied the complete record, including the arguments advanced by Christiana, in reaching its decision.

Lastly, Christiana raises a due process challenge concerning the alleged commingling of prosecutorial and adjudicative functions between the PSERS and the Board. However, Christiana failed to raise this issue before the Board.

 [*313]  We have held that ^HN13commingling claims may be waived if they are not raised before the administrative board. Newlin Corp. v. Department of Environmental Resources, 134 Pa. Commonwealth Ct. 396, 579 A.2d 996 (1990). ⁷ Unless a claimant can offer a convincing reason for failing to raise the claim before the Board, the commingling issue is waived. Dowler. Here, Christiana has not offered any explanation for failing to raise this issue below.

FOOTNOTES

7 ^HN14Pennsylvania Rule of Appellate Procedure 1551 states, in part, that:

no question shall be heard or considered by the court which was not raised before the government unit except (1) Questions involving the validity of a statute … (3) Questions which the court is satisfied that the petitioner could not by the exercise of due diligence have raised before the government unit.

 [***20]  Accordingly, the order of the Board is affirmed.

JAMES R. KELLEY, Judge

 [**652]  ORDER

NOW, this 28th day of July, 1994, the order of the Public School Employes' Retirement Board, dated June 24, 1993, is hereby affirmed.

JAMES R. KELLEY, Judge

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669 A.2d 1098, *; 1996 Pa. Commw. LEXIS 10, **

DR. VERNON R. WYLAND, Petitioner v. PUBLIC SCHOOL EMPLOYES' RETIREMENT BOARD, Respondent

NO. 566 C.D. 1995

COMMONWEALTH COURT OF PENNSYLVANIA

669 A.2d 1098; 1996 Pa. Commw. LEXIS 10

October 17, 1995, Argued

January 8, 1996, Decided

January 8, 1996, FILED

SUBSEQUENT HISTORY:  [**1]  Petition for Allowance of Appeal Denied August 5, 1996, Reported at: 1996 Pa. LEXIS 1604.

PRIOR HISTORY: APPEALED From No. File no. 480-24-6298. State Agency: Public School Employes' Retirement Board.

DISPOSITION: Affirmed.

COUNSEL: Dee Lafferty Pugh for petitioner.

Louis J. Sheehan, Assistant Counsel, for respondent.

JUDGES: BEFORE: HONORABLE DAN PELLEGRINI, Judge, HONORABLE JAMES R. KELLEY, Judge, HONORABLE GEORGE T. KELTON, Senior Judge.

OPINION BY: JAMES R. KELLEY

OPINION

 [*1100]  OPINION BY JUDGE KELLEY

FILED: January 8, 1996

Dr. Vernon R. Wyland, the former Superintendent of the Garnet Valley School District (school district) appeals from the order of the Public School Employes' Retirement Board (board) adopting a hearing examiner's calculation of his final average salary used to determine his retirement benefits under the Public School Employees' Retirement Code (Retirement Code). ¹ We affirm.

FOOTNOTES

1 24 Pa.C.S. §§ 8101 - 8534.


The relevant facts as found by the hearing examiner, and adopted by the board, may be summarized as follows. Wyland became a member of the Public School Employes' Retirement System (PSERS) by virtue of his employment [**2]  with the Shaler Area School District on June 1, 1983. On July 1, 1987, he began service with the Garnet Valley School District as the District Superintendent for the 1987-1988 school year, at an annual salary of $ 65,000. On December 16, 1988, his annual salary for the 1988-1989 school year was increased to $ 70,200, retroactive to July 1, 1988. On March 28, 1990, Wyland's annual salary for the 1989-1990 school year was increased to $ 74,412, retroactive to July 1, 1989. Wyland's annual salary for the 1990-1991 school year was increased to $ 94,481 as of June 30, 1991.

During the 1989-1990 school year, the school district experienced a prolonged labor action with intense teacher contract negotiations which continued until a new contract was signed in June of 1990. During the labor action, the teachers went out on strike for a period of 25 to 30 days. As a result of the contract negotiations and work stoppage, Wyland became the target of community pressures and antagonisms and he also became the subject of a vote of "no confidence" from the teachers.

During the same period, the school district was engaged in a building program involving the construction of a new middle school building [**3]  and other renovations. At that time, the Garnet Valley Board of School Directors (school board) was sensitive to the adverse public reaction to cost overruns associated with the building program. The teachers' contract negotiations and public reaction to the work stoppage contributed to a significant turnover in the composition of the school board. Six school board members changed as a result of resignations, and new members who were appointed came to the school board predisposed against Wyland as a result of the labor situation and the cost overruns.

As a result, in November of 1990, Wyland was informed by the president of the school board that his contract would not be extended beyond its expiration date of June 30, 1991. Because the school board did not want to take public action on their decision, Wyland was asked if he would rather resign from his position. Wyland concluded that it would be best to resign as he felt it would be easier to tell prospective employers that he had resigned, rather than to say that his contract had not been extended.

After negotiations regarding the terms of Wyland's resignation, on November 21, 1990, the president of the school board sent him a letter [**4]  outlining the terms under which he could resign. The letter stated, inter alia:

3)

The [School] Board guarantees the payment to you of your full salary through June 30, 1991. That salary will not be reduced between now and June 30, 1991.

(a) Your annual raise, ordinarily effective January, 1991, will be deferred. As part of your salary, and in lieu of the annual raise in January, the [School] Board will purchase from you all unused vacation days credited to your account as of June 30, 1991 … .

(b)

Additionally, at the conclusion of your contract on June 30, 1991, the [School] Board, as part of your annual raise, will pay you for all unused sick days then credited to your account … .

(c)

Notwithstanding Paragraphs 3(a) and 3(b), you have agreed to reimburse the District for its share of the retirement cost allocable to the inclusion of that portion of your salary  [*1101]  represented by payments under Paragraph 3(a) and 3(b).

Wyland accepted the proposed terms as outlined in the letter.

On November 26, 1990, Wyland submitted his letter of resignation, contingent upon the school board's acceptance of the proposed terms in [**5]  the president's letter. At its regular meeting on November 27, 1990, the school board accepted Wyland's resignation effective June 30, 1991. The school board did not take a public vote regarding the content and financial terms of the November 21, 1990 letter to avoid disclosure of their action.

By letter dated June 20, 1991, Wyland submitted a memorandum to the school district's director of business and support services which summarized his accumulated vacation days and sick days. On June 25, 1991, Wyland and the school board president signed a letter of agreement which contained identical terms as outlined in the letter of November 21, 1990.

On June 28, 1991, the school district issued Wyland a check in the amount of $ 20,069.40 as payment for his unused sick days, vacation days and comp days. The payroll document computing Wyland's vacation and sick days noted that the payment was to be considered compensation as per the November 21, 1990 letter of agreement. As required by the letter of agreement, Wyland reimbursed the school district for its share of the retirement costs allocable to the inclusion of the $ 20,069.40 payment.

On June 28th, Wyland also entered into an agreement [**6]  with the school district releasing the school district from any future liability concerning his resignation, in exchange for the payment of $ 20,069.40. The agreement referred to this payment as a "severance payment". Wyland was required to sign the release agreement in order to receive the $ 20,069.40 payment. He signed the release agreement and received the payment.

On September 17, 1991, PSERS received a retirement application from Wyland with an effective date of retirement of June 29, 1991. PSERS contacted the school district regarding the $ 20,069.40 payment to Wyland. The school district sent PSERS a copy of the minutes of the school board meeting in which Wyland formally submitted his resignation, and indicated that no information from his personnel file could be released without his written consent. PSERS then informed the school district that in the absence of any written evidence concerning the reason for the payment, the $ 20,069.40 would not be used to calculate Wyland's retirement benefits. Wyland was sent copies of both letters from PSERS, but his consent for the release of information from his personnel file was never requested by PSERS.

Initially, Wyland's retirement [**7]  benefits were calculated by PSERS using a "final average salary" of $ 79,698. However, without the necessary documentation, the $ 20,069.40 was removed from PSERS' computation of his final average salary. As a result, his retirement benefits were recalculated using a final average salary of $ 73,008. By letter dated April 8, 1992, PSERS informed Wyland that his benefits had been recomputed, and that he was required to repay $ 7,619.03 that he had received in overpayment.

By letter dated April 23, 1992, Wyland requested that PSERS include the $ 20,069.40 in its calculation of his final average salary. On July 1, 1992, PSERS notified Wyland that its Appeals Committee had denied his request. By letter dated July 28, 1992, Wyland requested an administrative hearing.

On July 6, 1993, a hearing was scheduled and held before an independent hearing examiner. Based on the evidence presented at the hearing and the briefs and motions submitted by the parties, the hearing examiner concluded that the $ 20,069.40 paid to Wyland was a severance payment, and should not be considered in the calculation of his final average salary. In this regard, the hearing examiner specifically found the following:  [**8] 

1. At the time of the November 21, 1990 agreement, [the school district] was under a great deal of political pressure due to the recent teacher strike and cost overruns at the middle school project and [Wyland]'s raise was motivated by [the school district]'s need for [Wyland]'s cooperation.

2. The November 21, 1990 agreement was designed as a buyout of [Wyland]'s  [*1102]  vacation and sick days, both items regularly purchased by [the school district] at the end of a superintendent's term, and both items that would not normally be considered standard salary.

3. Both [Wyland] and [the school district] represented to the general public that [Wyland]'s pay for the 1990-1991 school year was $ 74,412.00, and it would be unfair to now allow [Wyland] to claim a higher pay for retirement purposes.

4. The November 21, 1990, agreement required [Wyland] to reimburse [the school district] for its share of the retirement cost allocable to the inclusion of the $ 20,069.40 payment into [Wyland]'s salary. With a regular salary increase this retirement cost would have been the responsibility of [the school district].

5. [Wyland] was required [**9]  to sign the June 28, 1991, release agreement in order to receive the $ 20,069.40 payment and the release agreement referred to the money as a severance payment.

The hearing examiner also found, inter alia, that: the payment was not based on the standard salary schedule for which Wyland was rendering service; the payment was not made under the school district's scheduled or customary salary scale; and, the payment was made contingent upon Wyland's "retirement" as that term includes terminations which result in the immediate receipt of a pension.

Both Wyland and PSERS filed exceptions to the hearing examiner's decision with the board. The board adopted the hearing examiner's findings of fact and conclusions of law, and affirmed the hearing examiner's decision. Wyland then filed a petition for review in this court appeal.

On appeal, Wyland claims: (1) the board erred in determining that the $ 20,069.40 payment in his final year of employment constituted severance pay rather than compensation, thereby reducing his final average salary used for the calculation of his retirement benefits; and (2) his due process rights were denied by PSERS' failure to request information from [**10]  him before eliminating the $ 20,069.40 from its calculation of his final average salary, and by the commingling of the prosecutorial and adjudicative functions of PSERS and the board.

We note that ^HN1our scope of review from adjudications of administrative boards is limited to a determination of whether the board committed an error of law, whether constitutional rights were violated, or whether necessary findings of fact are supported by substantial evidence. Christiana v. Public School Employees' Retirement Board, 166 Pa. Commw. 300, 646 A.2d 645 (Pa. Cmwlth. 1994); Dowler v. Public School Employes' Retirement Board, 153 Pa. Commw. 109, 620 A.2d 639 (Pa. Cmwlth. 1993). Because the board is charged with the execution and application of the Retirement Code, the board's interpretation should not be overturned unless it is clear that its construction of the Retirement Code is erroneous. Christiana.

Wyland first argues that the board erred in determining that the $ 20,069.40 payment in his final year of employment constituted a severance payment rather than compensation. In particular, Wyland claims that: there is no evidence that the increase was paid contingent upon his retirement; there is no substantial evidence [**11]  that it was payment for his unused vacation or sick time; his resignation at the end of his contract term cannot be considered to be his "retirement"; the increase was consistent with the school district's compensation plan; and it made his salary comparable to other superintendents in Delaware County.

^HN2Both the Retirement Code and the applicable regulations contain restrictions on the types of compensation that may be used in calculating an employee's final average salary. Hoerner v. Public School Employes' Retirement Board, 655 A.2d 207 (Pa. Cmwlth. 1995). The purpose of these restrictions is to ensure the actuarial soundness of the retirement fund by preventing employees from artificially inflating compensation as a means of receiving greater retirement benefits. Id.

^HN3Section 8102 of the Retirement Code sets forth the following relevant definitions:

"Compensation." Pickup contributions plus any remuneration received as a school employee excluding refunds for expenses  [*1103]  incidental to employment and excluding any severance payments.

"Final average salary." The highest average compensation received as an active member during any three nonoverlapping [**12]  periods of 12 consecutive months … .

"Pickup contributions." Regular or joint coverage member contributions which are made by the employer for active members for current service on and after January 1, 1983.

"Severance payments." Any payments for unused vacation or sick leave and any additional compensation contingent upon retirement including payments in excess of the scheduled or customary salaries provided for members within the same governmental entity with the same educational and experience qualifications who are not terminating service.

24 Pa.C.S. § 8102 (emphasis added).

^HN4Title 22 Pa. Code § 211.2 also defines compensation as follows:

Compensation - Excludes a bonus, severance payment or other remuneration or similar emoluments received by a school employe during his school service not based on the standard salary schedule for which he is rendering service. It shall exclude payments for unused sick leave, unused vacation leave, bonuses for attending school seminars and conventions, special payments for health and welfare plans based on the hours employed or any other payment or similar emoluments which may be negotiated [**13]  in a collective bargaining agreement for the express purpose of enhancing the compensation factor for retirement benefits. (Emphasis added.)

^HN5Whether or not a payment must be considered a severance payment is a question of law. Dowler. Under the Retirement Code, all payments, other than those for regular professional salary, which are part of an agreement in which a professional member agrees to terminate school service by a date certain, are prima facie severance payments. Id. A claimant may rebut a prima facie case only by showing that the payment is in accord with the scheduled or customary salary scale within the school district for personnel with the same educational and experience qualifications who are not terminating service. Id.

In this case, both the hearing examiner and the board were presented with the letters of agreement between Wyland and the school board president dated November 21, 1990 and June 25, 1991 which stated, inter alia, that Wyland would be paid for all of his unused vacation and sick days in lieu of his annual raise, and that he would reimburse the school district for its share of the retirement cost allocable to the inclusion [**14]  of this amount. The hearing examiner and the board were also presented with an agreement between Wyland and the school board president dated June 28, 1991 which stated that the parties had reached certain agreements concerning the termination of his employment and severance payments, the terms of which were embodied in the letter of June 25. The hearing examiner and the board were also presented with documentation that Wyland was paid $ 20,069.40 by the school district for 62 unused vacation and comp days, and 93 unused sick days. Clearly, such evidence is sufficient to support the board's conclusion that the $ 20,069.40 paid to Wyland constituted a severance payment as it is defined in the Retirement Code.

Wyland is essentially asking this court to reweigh the conflicting evidence presented to the hearing examiner and the board, and to only accept that evidence which contradicts the plain meaning of the contents of the foregoing documents. However, ^HN6questions of resolving conflicts in the evidence, witness credibility, and evidentiary weight are properly within the exclusive discretion of the fact finding agency, and are not usually matters for a reviewing court.  [**15] Herzog v. Department of Environmental Resources, 166 Pa. Commw. 114, 645 A.2d 1381 (Pa. Cmwlth. 1994). Moreover, "this court 'may not substitute its judgment for that of an administrative agency acting within its discretion in the field of its expertise upon substantial evidence … .'" Dowler, 620 A.2d at 644 (citation omitted). The hearing examiner and the board rejected Wyland's claims regarding this evidence. On  [*1104]  appeal, we will not substitute our judgment nor reweigh this evidence.

Wyland next claims that his right to due process and fundamental fairness was denied by PSERS' failure to formally request information from him before eliminating the $ 20,069.40 from its calculation of his final average salary, and by the commingling of prosecutorial and adjudicative functions by PSERS and the board. He first argues that his vested property rights to his pension were reduced by PSERS in an arbitrary manner, without notice and without a chance to respond, thereby violating his due process rights.

^HN7The Administrative Agency Law, 2 Pa.C.S. § 504, states that "no adjudication of a Commonwealth agency shall be valid as to any party unless he shall have been afforded reasonable notice and an opportunity to be heard."  [**16]  Wyland was afforded these opportunities and exercised them before the hearing examiner and the board in this case.

As the claimant in Hoerner, we note that Wyland has failed to cite any authority for the proposition that he was entitled to a "pre-reduction" hearing before PSERS in this case. The determination of Wyland's final average salary and the calculation of benefits is simply the result of a staff function performed by PSERS.

Wyland could, and did, appeal the initial determination of his retirement benefits to PSERS' appeal committee and, ultimately, to the board. He filed a brief and a reply brief prior to the hearing before the hearing examiner, attended the hearing and presented evidence, and filed exceptions to the hearing examiner's determination with the board. ^HN8As Wyland was given notice and a hearing prior to the final determination of his retirement benefits, and there exists no authority for a hearing in connection with PSERS' initial review, this claim is meritless. See Stone & Edwards Insurance Agency, Inc. v. Department of Insurance, 538 Pa. 276, 648 A.2d 304 (1994) (The initial denial of an insurance license application was the result of a staff function [**17]  performed by the Pennsylvania Insurance Department; as this decision could be appealed to the Insurance Commissioner who would conduct a hearing before the final determination, applicants were not entitled to notice and a hearing prior to the initial denial of a license application).

Finally, Wyland argues that the commingling of the prosecutorial and adjudicative functions by PSERS and the board is violative of his due process rights. In support of his position, Wyland relies on the case of Lyness v. State Board of Medicine, 529 Pa. 535, 605 A.2d 1204 (1994). In Lyness, our Supreme Court stated:

In the modern world of sprawling governmental entities akin to corporations it would be both unrealistic and counterproductive to insist that administrative agencies be forbidden from handling both prosecutorial and adjudicatory functions, where such roles are parcelled out and divided among distinct departments or boards. Efficiency and cost-effectiveness are certainly desirable ends. Indeed, each administrative board and judge is ultimately a subdivision of a single entity, the Commonwealth of Pennsylvania, but this does not render their collective work as prosecutors, investigators [**18]  and adjudicators constitutionally infirm, nor create an imminent threat of prejudice.

What our Constitution requires, however, is that if more than one function is reposed in a single administrative entity, walls of division be constructed which eliminate the threat or appearance of bias. … [A] "mere tangential involvement" of an adjudicator in the decision to initiate proceeding is not enough to raise the red flag of procedural due process. … Our constitutional notion of due process does not require a tabula rasa. … However, where the very entity or individuals involved in the decision to prosecute are "significantly involved" in the adjudicatory phase of the proceedings, a violation of due process occurs.

Lyness, 529 Pa. at 546-47, 605 A.2d at 1209-10 (citations omitted).

Thus, ^HN9where "walls of division" are erected between the parties completing disparate functions within an administrative agency, no due process violation will be found. See, e.g., Stone & Edwards Insurance;  [*1105]  Office of Disciplinary Counsel v. Duffield, 537 Pa. 485, 644 A.2d 1186 (1994).

Even if we were to adopt Wyland's position that the initial determination and review [**19]  of his retirement benefits by PSERS and the board constitute "prosecutorial" and "adjudicative" functions, there has been no showing by Wyland of a commingling of these functions as proscribed by Lyness. Wyland's initial application was reviewed by a supervisor in the retirement processing section of PSERS. When he was dissatisfied with the determination of his benefits, Wyland requested PSERS' appeals committee to review his claim. When he was dissatisfied with the appeals committee's decision, Wyland submitted a request to the legal division of PSERS for a hearing before a hearing examiner. The independent hearing examiner conducted the hearing and made a recommendation to the board, which was the final arbiter. The board was not involved in the adjudication until Wyland appealed the decision of the hearing examiner to the board. Such a procedure does not involve the commingling of prosecutorial and adjudicative functions, and does not violate due process. See Duffield.

Unquestionably, under Lyness, ^HN10the mere possibility of bias under Pennsylvania law is sufficient to "raise the red flag" of the protections offered by the procedural guaranty of due process. Stone &  [**20]  Edwards Insurance. However, the appearance of bias proscribed by Lyness must be one which arises from an actual environment of commingled functions. Id. Wyland has not advanced a claim of the actual commingling of functions in the manner in which PSERS and the board conduct their investigations, prosecutions and adjudications. In the absence of any actual commingling, which would give rise to an appearance of bias, Wyland's unsubstantiated claim of commingling is meritless. Id.

Accordingly, the order of the board is affirmed.

JAMES R. KELLEY, Judge

ORDER

NOW, this 8th day of January, 1996, the order of the Public School Employes' Retirement Board, dated January 27, 1995, at No. 480-24-6298, is affirmed.

JAMES R. KELLEY, Judge

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 Louis Sheehan