PERAC Memo #26 - 2018: Regular Compensation Status of Payments Made in Lieu of Unused Leave Time

M E M O R A N D U M

TO: All Retirement Boards

FROM: Joseph E. Connarton, Executive Director

RE: Regular Compensation Status of Payments Made in Lieu of Unused Leave Time

DATE: September 14, 2018

This is to inform the retirement boards of a recent CRAB decision which rejects PERAC Memorandum #39 of 2012 ("Memorandum #39"), which was issued on July 11, 2012, and involves the "Regular Compensation Status of Payments Made in Lieu of Taking Vacation Leave." O'Leary v. Lexington Retirement Board and PERAC, CR-15-30 ("O'Leary"). Both PERAC and the member involved, Joseph O'Leary ("Mr. O'Leary"), have filed appeals of the CRAB decision in Suffolk Superior Court, so the CRAB decision is not final. As a result, PERAC is instructing retirement boards to continue to evaluate all existing vacation buyback plans in their usual manner, pursuant to Memorandum #39.

Memorandum #39 of 2012

Memorandum #39 outlined steps that a retirement board should take to determine if payments of unused vacation time could be includable in a member's regular compensation. Memorandum #39 utilized the new definition of regular compensation as inserted into Chapter 32 by Chapter 21 of the Acts of 2009. Focusing on that definition, the memorandum explained how a retirement board should analyze the regular compensation status of such a payment, focusing on the term "other base compensation" and whether this type of payment would have resulted in a service to the employer. CRAB has now explicitly rejected this approach, and, as noted above, both PERAC and Mr. O'Leary have appealed the decision.

O'Leary

In short, Mr. O'Leary was a police officer in Lexington who had availed himself of a vacation buyback program. The Lexington Retirement Board declined to consider whether it was regular compensation pursuant to Memorandum #39. Mr. O'Leary appealed, and CRAB found that vacation buyback payments can never be regular compensation because they are not base compensation, not payments for a service to the employer, not "pre-determined and non-discretionary," and are in the nature of a salary augmentation plan and overtime.

During the Pendency of the Appeals

While these appeals are being undertaken, the regular compensation status of such payments currently being received should not be disturbed, and no retirement allowances which are being paid based on the inclusion of these payments should be recalculated at this time. Retirement boards should continue to evaluate all existing vacation buyback plans in their usual manner, pursuant to Memorandum #39, during the pendency of these appeals.

Should the Appeals be Unsuccessful

If CRAB's decision in O'Leary is ultimately upheld, it will mean that any payments made to a member in lieu of that member taking vacation leave should not be considered regular compensation, and any retirement allowances granted with the inclusion of such time would be recalculated. All deductions paid by the member on such payments would be returned to him/her.

Payments for Unused Sick Time

Payments for unused sick time have never been considered regular compensation, as memorialized in the recent CRAB decision of Fair v. Middlesex County Retirement Board, CR-15-294 (2016).

PERAC will issue further memoranda as this case proceeds in the courts. If you have any questions about this, please contact Senior Associate General Counsel Ken Hill at Extension 945.