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State of Alaska Public Employees Retirement Board v. Paul Morton (11/04/2005) sp-5953
State of Alaska Public Employees Retirement Board v. Paul Morton (11/04/2005) sp-5953
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
| STATE OF ALASKA, PUBLIC
| ) |
|
EMPLOYEES RETIREMENT | ) Supreme Court No. S-
11672 |
|
BOARD, | ) |
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| ) Superior Court
No. |
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Appellant, | ) 3AN-03-11213
CI |
|
| ) |
|
v. | ) O P I N I O
N |
|
| ) |
|
D. PAUL MORTON, | ) [No. 5953 - November
4, 2005] |
|
| ) |
|
Appellee. | ) |
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| ) |
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|
|
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Mark Rindner, Judge.
Appearances: Keith B. Levy, Assistant
Attorney General, Juneau, Toby N.
Steinberger, Assistant Attorney General,
Anchorage, and Gregg D. Renkes and David W.
Marquez, Attorneys General, Juneau, for
Appellant. Daniel Westerburg, Homer, for
Appellee.
Before: Bryner, Chief Justice, Matthews,
Eastaugh, Fabe, and Carpeneti, Justices.
FABE, Justice.
I. INTRODUCTION
The Alaska Division of Retirement and Benefits
terminated the occupational disability benefits of a former state
employee who did not recover from his injury and did not return
to public employment but who managed to earn more than his former
salary. Benefits were terminated pursuant to a Division policy
that was unwritten but had been enforced since before the
employees date of hire. Under that policy, known as the 75%
rule, an employee is no longer eligible for benefits if he earns
outside income of more than 75% of his former salary. The Public
Employees Retirement Board affirmed the termination of benefits,
but the superior court reversed the Boards determination.
Because we hold that the 75% rule is contrary to statute, we
affirm the decision of the superior court.
II. FACTS AND PROCEEDINGS
The facts in this case are undisputed. Appellee D.
Paul Morton was hired as a correctional officer for the City of
Homer in September 1995. In November 1997 Morton was injured
while transporting a prisoner. In November 1998 the Division
approved his application for occupational disability benefits.
The notification letter indicated that he was required to apply
to the Division of Vocational Rehabilitation and that his file
would be reviewed in twelve months for updated medical evidence
to determine your continuing eligibility.
On December 15, 1999, the Division sent Morton a letter
requesting a physicians statement of continuing disability and a
copy of his 1998 tax returns. When Morton asked why the Division
wanted to see his tax returns, the Division informed him via e-
mail on December 30, 1999 that he would no longer qualify for
occupational disability benefits if he earned more than 75% of
his former salary. A Division employee later testified that this
75% rule was a standing operating procedure that had been
consistently applied by the Division in determining eligibility
since before Mortons date of hire in 1995. Morton was not aware
of this policy before he received this e-mail; the 75% rule was
not mentioned in any statute or regulation then in force, and
Public Employees Retirement System (PERS) members were not
informed of this policy when hired or at the time that
occupational disability benefits began. Morton provided the
requested information.
In the spring of 2002 a similar e-mail exchange
occurred, and a Division representative explained the income cap
by referring to 2 Alaska Administrative Code (AAC) 35.291, a
regulation that officially codified the 75% rule and became
effective in January 2001. In June 2002 Morton submitted
portions of his 2001 tax return, which indicated that his outside
income exceeded 75% of his former salary. On October 31, 2002,
the Division terminated Mortons benefits because he exceeded the
75% income threshold under PERS Regulation 2 AAC 35.291.
Morton appealed to the Board. At the hearing, Morton
did not dispute that his outside income exceeded 75% of his
former salary. He testified that he works as a freelance writer,
is employed in a part-time position as a manager for
psychological services for the Homer Police Department, and has a
small counseling practice. He also testified that shortly after
his retirement he turned down an offer of employment as managing
editor for a magazine in California. He argued that application
of the 75% rule to him was unlawful. The Division did not
dispute that Morton is still unable to meet the physical demands
of his former position. The Division argued that Mortons
benefits were properly terminated under its longstanding 75%
policy. In its closing argument, the Division argued for the
first time that Mortons failure to accept the California job
offer constituted an independent reason for the termination of
benefits.
On August 11, 2003, the Board concluded that the
Division appropriately applied long standing, consistently
applied interpretations of the law and 2 AAC 35.291 and affirmed
the termination of Mortons benefits. On August 30, 2004,
Superior Court Judge Mark Rindner reversed the Boards decision.
The superior court held that applying the 75% rule to Morton
would violate Article XII, section 7 of the Alaska Constitution
by diminishing Mortons accrued retirement benefits. The superior
court also suggested that the 75% rule is of doubtful validity
because it is inconsistent with the controlling statutes but
declined to make a determination on this issue. The superior
court also rejected the Divisions argument that Mortons failure
to accept the job offer in California constituted an alternative
ground for upholding the Boards termination of benefits. The
Board appeals.
III. DISCUSSION
A. Standard of Review
When the superior court acts as an intermediate
appellate court, we independently review the merits of the
administrative determination.1 There are several standards of
review that may apply to review of administrative decisions.2
Although we ordinarily review an agencys regulatory decision
under the reasonable but not arbitrary standard, when the
decision raises a question of statutory interpretation involving
legislative intent rather than agency expertise, we review that
question independently, applying the substitution-of-judgment
standard.3
B. The 75% Rule Is Contrary to Statute.
Morton argues that the Board erred in terminating his
benefits pursuant to the 75% rule because that rule is
inconsistent with the statutes governing occupational disability
benefits.4 He contends that, under the statute, an employee is
eligible for an occupational disability benefit if he cannot
perform his old job or a comparable position made available by a
PERS employer, but has found a well-paying job outside the PERS
system. We agree.
Alaska Statute 39.35.680(26) defines occupational
disability:
[O]ccupational disability means a physical or
mental condition that, in the judgment of the
administrator, presumably permanently
prevents an employee from satisfactorily
performing the employees usual duties for an
employer or the duties of another comparable
position or job that an employer makes
available and for which the employee is
qualified by training or education; however,
the proximate cause of the condition must be
a bodily injury sustained, or a hazard
undergone, while in the performance and
within the scope of the employees duties and
not the proximate result of the wilful
negligence of the employee.
The term employer is defined in AS 39.35.680(17) to mean the
State of Alaska or a political subdivision or public organization
of the state that participates in the system.5 The plain meaning
of the statute indicates that occupational disability is defined
in terms of an inability to perform ones job or a comparable job
which any employer participating in the PERS system makes
available. In Holmberg v. State, we explained that while
disability in the workers compensation context means an inability
to earn the wage the employee was receiving at the time of the
injury, under PERS no consideration of alternative employment
with a different [i.e., non-public] employer is required.6 We
noted that this difference stems from the different purposes of
the two systems: While workers compensation assures that a
workers ability to earn a certain wage is protected, PERS is
designed to promote continued public employment.7 Based on the
plain meaning and purpose of the statute, we conclude that a
person who is able to perform a comparable job outside the PERS
system, but who is unable to perform a PERS job, would still fall
within the definition of occupational disability under AS
39.35.680(26).
Alaska Statute 39.35.410 describes eligibility
requirements and procedures relating to occupational disability
benefits. Subsection (b) states that payments will stop when the
employee
(1) dies;
(2) recovers from disability;
(3) fails to meet the requirements
under (g) of this section or under AS
39.35.415; or
(4) reaches normal retirement age.[8]
Subsection (g) provides that a disabled employee will undergo a
medical examination not more than once a year and that, [i]f, in
the judgment of the administrator, the examination indicates that
the retired employee is no longer incapacitated because of a
total and apparently permanent occupational disability, the
administrator may not issue further disability benefits to the
employee.9
Mortons benefits were terminated under AS
39.35.410(b)(2) because he allegedly recover[ed] from disability.
This phrase is not defined in the statute. The parties appear to
agree that it does not mean recovery from the injury that caused
disability, which is already listed as a separate reason for
termination in the reference to subsection (g) in AS
39.35.410(b)(3). Rather, an employee recovers from disability
when he no longer meets the definition for eligibility under AS
39.35.680(26); that is, if he is capable of performing the duties
of a comparable position or job that an employer makes available.
The 75% policy, codified into a regulation that became effective
in January 2001, is premised on the Divisions interpretation that
a comparable position under AS 39.35.680(26) includes employment
by a non-PERS employer that provides income that is at least 75%
of the employees former PERS salary. The regulation provides:
Disability benefits cease when a member
recovers from an injury or illness and is
capable of working in a comparable position
for an employer, including self-employment.
A comparable position may include a position
that requires similar strengths and abilities
to the position held by the member at the
time of termination of employment or a
position that provides compensation of 75
percent or more of the salary used to
calculate the members Public Employees
Retirement System of Alaska (PERS)
occupational disability benefit, adjusted for
inflation . . . .[10]
The Board also adopted a regulation that purports to eliminate
the inconsistency between the 75% rule and the statutory
definition of occupational disability by modifying the statutory
definition of employer to include non-PERS employers:
In the definition of occupational
disability in AS 39.35.680,
(1) employer does not have the meaning
given in AS 39.35.680, but rather means any
person or entity employing a member of the
system; for purposes of this paragraph,
employer includes the member of the system if
the member is self-employed[.][11]
The 75% policy and the regulations codifying that policy12 are
plainly inconsistent with the statutory definition of employer
in AS 39.35.680(26).
The Division argues that the term recovers from
disability in AS 39.35.410(b) should be read without reference to
the definition of occupational disability in AS 39.35.680(26).
The Division argues that this phrase should be interpreted to
mean recovery from a loss of wage earning capacity because the
term disability has historically been understood in the context
of the Workers Compensation Act to mean the loss of earning
capacity. But we have recognized that the meaning of disability
is different under the PERS and workers compensation statutes
because these programs have different goals.13 In particular,
PERS is designed to promote continued public employment, not to
protect a workers ability to earn a certain wage.14 Moreover, the
Divisions interpretation would result in two different statutory
criteria for eligibility: one standard for eligibility for
benefits under AS 39.35.680(26) that requires only inability to
perform an available PERS job, and a second standard under AS
39.35.410 through which benefits may be terminated based on
outside employment. The plain meaning of the statute defining
occupational disability as an inability to perform the employees
usual duties or the duties of a comparable position that a PERS
employer makes available is clear.15 We therefore hold that the
Boards termination of Mortons benefits pursuant to the 75% rule
was unlawful because that policy conflicts with the statutes
governing occupational disability benefits.
C. The Termination of Benefits Cannot Be Affirmed on the
Alternate Ground that Morton Failed To Accept a
Position Offered to Him.
The Division argues that Morton is ineligible for
benefits under AS 39.35.415 because he failed to accept a
position offered him. Alaska Statute 39.35.415 describes the
vocational rehabilitation program for disabled employees. This
statute provides in part:
Unless the employee demonstrates cause,
benefits shall terminate at the end of the
first month in which a disabled employee
(1) fails to report to the division of
vocational rehabilitation;
(2) is certified by the division of
vocational rehabilitation as failing to
cooperate in a vocational rehabilitation
program;
(3) fails to interview for a job; or
(4) fails to accept a position
offered.[16]
The Division argues that Mortons benefits should be terminated
under this statute because he failed to accept a job offer as a
managing editor at a California magazine shortly after he
retired.
Morton contends that this statute must be harmonized
with the eligibility requirements for occupational disability in
AS 39.35.680(26), which we have seen permit an employee to earn
outside income so long as he is not capable of performing the
duties of a comparable job offered by a PERS employer. Morton
argues that the Divisions interpretation would result in two
different sets of statutory criteria for benefits: one for
initial eligibility under AS 39.35.680(26), and another for
continuing eligibility under AS 39.35.415.
We need not determine whether occupational disability
benefits can be terminated under AS 39.35.415 for failure to
accept an offer of employment from a non-PERS employer. The
Division did not terminate Mortons benefits for failure to accept
a job offer under AS 39.35.415. Assuming this statute applies to
Mortons California job offer, the statute permits an employee to
demonstrate cause why benefits should not be terminated even
though he failed to accept a position offered.17 Without deciding
the question, we note that Morton would appear to have some basis
for demonstrating cause to reject the job offer because the job
was located in another state. Morton never had an opportunity to
try to demonstrate cause in this case because the Division
attorney did not argue that the termination was justified because
of the rejected job offer until his closing argument before the
Board. For this reason, we conclude that the Boards termination
of Mortons benefits cannot be affirmed because he failed to
accept a job offer under AS 39.35.415.
IV. CONCLUSION
We hereby REVERSE the Boards termination of benefits
and AFFIRM the decision of the superior court.
_______________________________
1 State, Dept of Natural Res. v. Greenpeace, Inc., 96
P.3d 1056, 1061 (Alaska 2004) (quoting Bruner v. Peterson, 944
P.2d 43, 47 n.5 (Alaska 1997) (internal quotation marks
omitted)).
2 See id. at 1061 n.10 (explaining that we apply a de
novo standard if the agencys expertise provides little guidance
to the court or involves statutory interpretations and a
reasonable basis standard if reviewing an agencys interpretation
of its own regulation).
3 Alaska Ctr. for the Envt v. Rue, 95 P.3d 924, 926
(Alaska 2004); see also Greenpeace, 96 P.3d at 1061 n.10 (de novo
standard applies if the case concerns statutory interpretation or
other analysis of legal relationships about which courts have
specialized knowledge and experience) (quoting Kelly v.
Zamarello, 486 P.2d 906, 916 (Alaska 1971)).
4 Morton also argues that the 75% rule cannot be applied
to him because (1) it was unconstitutional to apply the 75%
policy to him where that policy had not been enacted as a
regulation until after he was hired and (2) application of the
policy constituted a breach of Mortons benefits contract.
Because we hold that the 75% rule is contrary to statute we need
not reach Mortons alternative arguments for reversing the
termination of benefits.
5 In 2001 this section was amended to add nonprofit
regional corporations employing village public safety officers to
the definition of employer, but a 2004 amendment deleted this
category of employer under the statute. Ch. 97, 11, SLA 2001;
ch. 92, 29, SLA 2004.
6 Holmberg v. State, Div. of Risk Mgmt., 796 P.2d 823,
826-27 (Alaska 1990).
7 Id. at 826 (quotation omitted).
8 AS 39.35.410(b).
9 AS 39.35.410(g).
10 2 Alaska Administrative Code (AAC) 35.291 (10/2001).
This is the version of the regulation in effect at the time of
Mortons termination. The regulation has since been amended to
read in relevant part:
Occupational disability benefits cease when a
member recovers from an injury or illness.
Proof of such recovery may include, among
other things, medical evidence or proof of
capability to work in a comparable position
for an employer, including self-employment.
A comparable position may include a position
that requires similar strengths and abilities
to the position held by the member at the
time of termination of employment or a
position that provides a compensation of 75%
or more of the salary used to calculate the
members Public Employees Retirement System of
Alaska (PERS) occupational disability
benefit, adjusted for inflation.
2 AAC 35.291(a) (2005).
11 2AAC 35.990(f)(1) (2005).
12 2 AAC 35.291(a); 2 AAC 35.990(f)(1).
13 See Holmberg, 796 P.2d at 826-27.
14 Id. at 826 (quotation omitted).
15 See AS 39.35.680 (17) & (26).
16 AS 39.35.415.
17 Id.
