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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. McMullen v. Bell (01/27/2006) sp-5976
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
| MICHAEL P. McMULLEN, | ) |
| ) Supreme Court No. S- 11567 | |
| Appellant, | ) |
| ) Superior Court No. 3AN-02-9998 CI | |
| v. | ) |
| ) | |
| GUY BELL, Administrator of the | ) O P I N I O N |
| Public Employees Retirement | ) |
| System, | ) [No. 5976 - January 27, 2006] |
| ) | |
| Appellee. | ) |
| ) | |
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Dan A. Hensley, Judge.
Appearances: Bradley D. Owens and Blair
Marlowe Christensen, Jermain, Dunnagan and
Owens, P.C., Anchorage, for Appellant. Keith
B. Levy and Virginia B. Ragle, Assistant
Attorneys General, and Gregg D. Renkes,
Attorney General, Juneau, for Appellee.
Before: Bryner, Chief Justice, Matthews,
Eastaugh, and Carpeneti, Justices. [Fabe,
Justice, not participating.]
BRYNER, Chief Justice.
I. INTRODUCTION
The Public Employees Retirement System calculates an
employees retirement benefits based on the employees average
monthly compensation during his three best paid years. When,
after thirty years working for the state, Michael McMullen
retired, he sought to include substantial cashed-in leave as part
of his compensation for purposes of calculating his retirement
benefits. The Public Employees Retirement Board denied McMullens
request. McMullen appeals, arguing that because the definition
of compensation that was effective when he was hired did not
exclude cashed-in leave, article XII, section 7 of the Alaska
Constitution protects his right to include that leave when
calculating his retirement benefits. Because McMullen was not
eligible to cash in leave on July 1, 1977, when the legislature
amended the definition of compensation to exclude cashed-in
leave, we hold that he has no constitutionally protected vested
right to include cashed-in leave as part of his compensation.
II. FACTS AND PROCEEDINGS
Michael McMullen was hired by the Alaska Division of
Personnel in September of 1969 and retired from state service in
1999. When he retired, he became entitled to retirement benefits
under the Public Employees Retirement System (the system). Under
AS 39.35.370(c) & (d) and AS 39.35.680(4)(A), an employee who was
hired before 1996 receives a percentage of his average monthly
compensation for the three payroll years that yield the highest
average, multiplied by his number of years of service. As a
result, the higher the compensation for those three years, the
greater the retirement benefits that an employee will receive.
McMullens last three years of employment with the state were
those for which he received the highest average monthly
compensation.
During his last three years of employment with the
state, McMullen cashed in substantial amounts of accrued leave.
Before he retired, McMullen asked the Division of Retirement and
Benefits (the division) to include the value of his cashed-in
leave when it calculated his average monthly compensation for
purposes of determining his retirement benefits.
The division informed him that it did not include leave
cash-ins as compensation for retirement calculation purposes for
PERS members. In response, McMullen indicated that he believed
that under this courts ruling in Flisock v. State, Division of
Retirement and Benefits,1 the division was required to include
the cashed-in leave when calculating compensation. In Flisock,
this court ruled that some members of the Teachers Retirement
System had a right under article XII, section 7 to include the
value of their cash-ins in their base pay.2
The administrator of the system, Guy Bell, informed
McMullen that, on the advice of the attorney general, the
position of the division was that Flisock applied to members of
the Teachers Retirement System only and not to members of the
Public Employees Retirement System. Bell therefore denied
McMullens request.
McMullen appealed the administrators decision to the
Public Employees Retirement Board. He argued that because cashed-
in leave was not excluded from the definition of compensation
when he was hired in 1969, he, like Peter Flisock, had a
constitutionally protected right to include his cash-ins as part
of his compensation. The board agreed and reversed the
administrators decision, ruling that Flisock required the
division to include McMullens cashed-in leave when calculating
his retirement benefits.
The administrator appealed the boards decision to the
superior court. The court observed that there were differences
between the PERS and TRS statutes, that the actual practices of
the systems were different, and that Flisocks expectations may
well have been different from McMullens expectations. It
therefore remanded the case to the board for fact-finding on four
questions:
(1) What exposure does [the system] have as
a result of this decision?
(2) What was the practice of cash-in with
respect to Mr. McMullens category of
employees prior to 1977?
(3) Did Mr. McMullen have a reasonable
expectation of being able to cash-in
leave prior to the 1977 amendment?
(4) Did the Legislature act immediately to
exclude cash-in payments from
compensation after reasonably learning
of it?
The superior court specified that the board was authorized to
issue a new decision incorporating its new findings of fact on
the four issues directed by the court.
After holding a hearing, the board issued findings
addressing the courts questions. In response to the first
question, the board found that under a worst case scenario, a
ruling in McMullens favor would cost the system thirty-six
million dollars. The board found that, amortized over twenty-five
years this might require an increase of .25% to the employers
contribution rates. The board found that the state of Alaska
would, under the worst case scenario, need to pay an additional
$1.28 million per year into the systems account.
As for the second question, the board observed that two
collective bargaining units negotiated agreements that entitled
them to cash in leave beginning in 1976. The board observed that
shortly thereafter, [a] legislative enactment . . . amended the
PERS definition of compensation to specifically exclude cashed-
in-leave for purposes of calculating retirement benefits. The
board found that McMullen was not a member of the collective
bargaining units that negotiated the cash-in agreements and that
therefore McMullen was not eligible to cash in leave before the
legislature enacted the amendments excluding cash-ins from the
definition of compensation.
In response to the third question, the board found that
before 1977 McMullen had believed that it was possible that at
some point he, too, might become eligible to cash in leave. But
the board found that it was not until years later, when McMullen
learned of the Flisock decision, that McMullen linked the
opportunity to obtain leave cash-in rights with inclusion into
PERS compensation figures. The board therefore found that
McMullen had no expectations prior to July 1, 1977 of being able
to include cashed-in-leave as a part of PERS compensation.
Finally, the board found that the legislature excluded
cashed-in leave from the definition of compensation at the first
legislative session following the collective bargaining
agreements that authorized cash-ins.
Although all four participating members of the board
agreed on the factual findings, they disagreed about their legal
consequences.3 Two members of the board concluded that the
definition of compensation that was in effect in 1969 when
McMullen was hired could not be interpreted so broadly as to
encompass hypothetical conclusions never contemplated by an
employee (or employer). They relied on the boards findings that
McMullen had no expectation of being able to include cash-ins as
part of his compensation for retirement purposes and that before
the legislatures 1977 amendment McMullen would not have been
eligible to cash in his accrued leave, much less to include it as
part of his compensation when calculating his retirement
benefits. They therefore concluded that McMullen had no right
to include the leave he cashed in as part of his compensation.
The remaining two members reluctantly disagreed. These
members believed that Flisock compel[led] the Board to afford Mr.
McMullen the opportunity to claim cashed-in-leave . . . as PERS
compensation.
After noting that the board was split, the board stated
that under AS 39.35.047(c), the effect of a split decision was to
affirm the decision of the administrator. As a result, the board
ruled that its tie vote affirmed the administrators decision to
refuse to allow McMullen to include his cashed-in leave when
calculating his compensation.
McMullen appealed to the superior court. The court
affirmed the boards decision. The court reasoned that the
relevant issue was whether leave cash-ins were allowed for
McMullen prior to the 1977 amendment. The court ruled that the
boards finding that McMullen had no right to cash in leave before
the 1977 amendment was sufficiently supported by the evidence.
The court also concluded that the record supported the boards
finding that although McMullen believed that he might in the
future be eligible to cash-in leave, he never linked the
opportunity to obtain leave cash-in rights with the inclusion
into PERS compensation figures. The court held that these
findings were sufficient to support the boards ruling that the
administrator had no obligation to include McMullens cashed-in
leave as part of his compensation.
McMullen appeals. He argues that because the superior
court never vacated the boards first decision, the boards second
decision affirms its first decision (ruling in McMullens favor)
rather than the administrators decision (ruling against
McMullen). Second, he argues that he has a constitutionally
vested right in the application of the statute in place at the
time he first enrolled in PERS. Finally, he claims that
principles of statutory interpretation require that his accrued
unused leave be included in the calculation of his retirement
benefits.4
III. DISCUSSION
A. Standard of Review
This appeal involves review of a superior courts
affirmance of an agency decision. When the superior court acts
as an intermediate court of appeal in an administrative matter,
we independently review and directly scrutinize the merits of the
boards decision.5
McMullen appeals the agencys interpretation of article
XII, section 7 of the Alaska Constitution and of the statutes
governing retirement benefits. This court applies its independent
judgment when reviewing constitutional questions.6 Where, as
here, a statutory question does not involve agency expertise, we
review the agencys ruling under the independent judgment
standard.7 In exercising our independent judgment, we must adopt
the rule of law that is most persuasive in light of precedent,
reason, and policy.8
McMullens appeal also requires us to review the boards
resolution of the underlying facts. We review an agencys factual
determinations to ensure that they are supported by substantial
evidence.9 Substantial evidence is such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion.10
B. The Boards Tie Vote
McMullens first argument is that the board incorrectly
concluded that its tie vote affirmed the administrators original
decision. He argues that the effect of the boards tie vote is
not to affirm the administrators original decision against him,
but rather to affirm the boards first decision reviewing the
administrators decision which reversed the administrator and
ruled in McMullens favor.
McMullen did not raise this point before the board,
argue it before the superior court, or list it in his points on
appeal. The administrator argues that McMullen has therefore
waived this argument.
Ordinarily this court will not consider an issue raised
for the first time on appeal.11 The only exception is where the
issue is 1) not dependent on any new or controverted facts; 2)
closely related to the appellants trial court arguments; and 3)
could have been gleaned from the pleadings.12
Although McMullens argument is not dependent on any new
or controverted facts, it is not closely related to the trial
court arguments, and it could not have been gleaned from any of
the earlier proceedings. As a result, it does not qualify for an
exception to the waiver rule. We decline to consider this
argument.
C. McMullens Right To Have His Benefits Calculated
According to the Law in 1969
McMullen argues that he has a right to have his
benefits determined under the law and practices that were in
effect when he was hired. We agree.
Under article XII, section 7 of the Alaska
Constitution, the state may not impair the benefits a state
employee has accrued under the states employee retirement
systems.13 Our case law establishes that an employees right to
benefits vests upon employment or enrollment in the retirement
system rather than upon retirement.14 An employees vested
benefits arise by statute, from the regulations implementing
those statutes, and from the divisions practices.15 Where the
state has changed the benefits system after an employees
enrollment in the system, the employee may choose to accept the
new system or may opt to keep the benefits in effect at
enrollment.16
McMullen is therefore entitled, if he chooses, to have
his benefits calculated according to the system that was in
effect at the time of his enrollment. This system was governed
by the statutes in effect at that time, the regulations that were
then applicable, and the divisions practices as of 1969.
D. McMullens Vested Benefits at the Time of His Enrollment
in the Retirement System
McMullen maintains that the statutory regime in effect
when he was enrolled entitles him to include his cashed-in leave
when calculating his benefits. McMullen relies on our opinion in
Flisock v. State, Division of Retirement and Benefits.
In Flisock, we considered a school superintendents
claim that under the Teachers Retirement System, his cashed-in
leave should be included when calculating his retirement benefits
notwithstanding the legislatures attempt to prohibit this
practice.17 Flisock argued that the legislatures effort to remove
cashed-in leave from the definition of base salary violated his
rights under article XII, section 7 of the Alaska Constitution.18
The Teachers Retirement Board had ruled that because
Flisock did not accumulate the leave he cashed in until after the
statutory change, the change did not impair any benefits he
actually had at the amendments effective date.19 We rejected the
boards approach, noting that we had consistently held that an
employees retirement benefits were controlled by the system as it
was when the employee enrolled in the system and not as it was
upon his retirement.20 We therefore concluded that if Flisock had
a right when he enrolled in the system to include cashed-in leave
as part of his base salary, it was irrelevant whether he accrued
the leave he ultimately cashed in before or after the statutory
changes.21
To determine whether Flisock ever had such a right, we
looked to the statute in effect at the time of his enrollment and
to the agencys practices.22 We observed that under the TRS
retirement statute, a member was entitled at retirement to a
monthly benefit equal to two percent of the members average base
salary during any three school years of membership service times
the years of credited service, including credited fractional
years, divided by 12. 23 At the time of Flisocks enrollment, base
salary was defined as
any remuneration accrued under a contract to
a teacher for professional services rendered
during any school year; for purposes of sec.
50 of this chapter, base salary accrued
includes any payments made after June 30 of a
school year for services rendered before the
end of the school year.[24]
We noted that the statute nowhere excluded payments for cashed-in
leave.25
We next looked to the practice concerning cashed-in
leave in 1969. We remarked that the state had offered no evidence
that the divisions practice in 1969 was to exclude payments for
unused leave, and we observed that there was some evidence that
in 1969 cashed-in leave was used when calculating base
compensation.26 We therefore held that Flisock was entitled to
use cashed-in leave when calculating his compensation.27
McMullen argues that under Flisock, he, too, is
entitled to include his cashed-in leave when calculating his
benefits. He reasons that, like the operative statute in
Flisock, the relevant statute here did not exclude cash-ins from
the definition of compensation in 1969.
McMullen is correct that cashed-in leave was not
excluded from the definition of compensation at the time of his
enrollment in the retirement system. When McMullen began his
employment with the state, compensation for purposes of the
system was defined as:
the total remuneration paid to an employee by
the employers for personal services rendered
during the period considered as credited
service, including cost-of-living adjustments
or differentials and including monetary
value, as determined by the board, of
subsistence and maintenance provided by the
employers in partial payment for services,
but excluding retirement and other welfare
benefits financed by the employers.[28]
But the bare fact that the statute did not expressly
exclude cashed-in leave from the definition of compensation is
not enough to support McMullens argument. As already noted
above, our decision in Flisock relied on two factors: (1) the
divisions failure to offer evidence that it excluded payments for
unused leave; and (2) the presence of some evidence establishing
that cashed-in leave had actually been counted. Flisock thus
stands for the proposition that, under the employers originally
established practices, the employee must actually have been
entitled to the benefit that the states subsequent action
allegedly diminished. As a result, McMullen must show not only
that the original statute did not exclude cashed-in leave from
the definition of compensation, but also that, like Flisock,
under the law or policies that originally applied to him, he
actually was entitled to cash in accrued leave.
The board found that McMullen never actually had such a
right. Our careful review of the record reveals that substantial
evidence supports the boards factual findings.
The board found that in 1976 and 1977 two collective
bargaining units negotiated agreements that included the right
for their members to cash in leave. The board found that
McMullen was not in the category of employees who were entitled
to cash in leave under these collective bargaining agreements.
The record supports these findings. The record shows that in
1969, state employees were not permitted to cash in accrued leave
while they were still employed. Documents in the record reveal
that the Supervisory Unit employees and the General Government
Unit employees later negotiated the right to cash in accrued
leave and that these rights became effective in 1976 and 1977.
McMullen acknowledged that he was not a member of either of these
units.
McMullen maintained at the board hearing that the
Department of Administration allowed some employees to cash in
leave even if they were not covered by the collective bargaining
agreements. But though McMullen argues to the contrary in his
brief, he conceded at the board hearing that he was not among
those employees.
The board also found that in 1977 the legislature
amended the definition of compensation to exclude cashed-in
leave.29 Between the time when the collective bargaining
agreements became effective and the legislature amended the
definition of compensation, the Department of Administrations
director of retirement and director of finance disagreed about
whether the leave cash-ins counted as compensation. The attorney
generals office issued a memo supporting the finance directors
position that leave cash-ins were compensation. The timing of
the legislatures action suggests that it was motivated by a
desire to prohibit the use of cash-ins to inflate an employees
retirement benefits.
Not only did the board find that the availability of
leave cash-in was nonexistent for McMullen at all times before
the legislature amended the definition of compensation, the board
also found that McMullen did not have any reasonable expectation
that he would be able to include cashed-in leave when calculating
his retirement benefits. McMullen stated at the hearing that
during the collective bargaining negotiations in 1976, he
considered the possibility that he might one day become eligible
to cash in leave. But he admitted that it never occurred to him
that cashed-in leave might be included when calculating
retirement benefits. Indeed, he acknowledged that he didnt think
of leave cash-ins as applying to [retirement benefits] until [he]
was sent a copy of the Flisock decision. Flisock was decided in
1991 fourteen years after the legislature amended the law to bar
a practice that could conceivably have given McMullen a vested
right before then, but only if it had actually extended to him.
The record amply supports the boards finding that during the
period that preceded the legislatures exclusion of cashed-in
leave from the definition of compensation McMullen never acquired
a reasonable expectation of being able to include cashed-in leave
when calculating his retirement benefits.
The board issued an evenly split decision that had the
effect of affirming the administrators ruling. Because McMullen
was not eligible to cash in leave when the legislature amended
the definition of compensation and because he could not then have
reasonably expected to be able to include cash-ins when
calculating retirement benefits, the prevailing board members
concluded that McMullen had no right to include his cashed-in
leave when his retirement benefits were later calculated. We
agree. Before the legislature amended the law in 1977, neither
by law nor by practice did McMullen actually acquire a right to
have his cashed-in leave included as part of his compensation.
He therefore had no right that could have been impaired when the
legislature excluded cashed-in leave from the definition of
compensation. Accordingly, the divisions refusal to allow
McMullen to include his cashed-in leave when calculating his
retirement benefits does not violate article XII, section 7 of
the Alaska Constitution.
IV. CONCLUSION
For the foregoing reasons, we AFFIRM the boards
decision that McMullen is not entitled to include his cashed-in
leave as part of his compensation for purposes of calculating his
retirement benefits.
_______________________________
1 Flisock v. State, Div. of Ret. & Benefits, 818 P.2d 640
(Alaska 1991).
2 Id.
3 The fifth member of the board did not participate due
to a conflict.
4 McMullen also argued in his appellate brief that three
of the four questions posed to the Board on remand were
irrelevant to a determination of whether McMullens unused accrued
leave should be included in his compensation. Because a
resolution of this issue in McMullens favor would not affect the
outcome of this case, we decline to consider it.
5 Alyeska Pipeline Serv. Co. v. DeShong, 77 P.3d 1227,
1231 (Alaska 2003).
6 Holding v. Municipality of Anchorage, 63 P.3d 248, 250
(Alaska 2003).
7 Handley v. State, Dept of Revenue, 838 P.2d 1231, 1233
(Alaska 1992).
8 Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska 1979) .
9 DeYonge v. NANA/Marriott, 1 P.3d 90, 94 (Alaska 2000).
10 Id. (internal quotation marks omitted).
11 State v. Northwestern Constr., Inc., 741 P.2d 235, 239
(Alaska 1987).
12 Id.
13 Article XII, section 7 provides that:
Membership in employee retirement systems of
the State or its political subdivisions shall
constitute a contractual relationship.
Accrued benefits of these systems shall not
be diminished or impaired.
14 Flisock v. State, Div. of Ret. & Benefits, 818 P.2d
640, 643 (Alaska 1991).
15 See id. at 644; Sheffield v. Alaska Pub. Employees
Assn, 732 P.2d 1083, 1087 (Alaska 1987).
16 Hammond v. Hoffbeck, 627 P.2d 1052, 1059 (Alaska 1981).
17 Flisock, 818 P.2d at 643.
18 Id.
19 Id.
20 Id.
21 Id.
22 Id. at 643-44.
23 Id. at 642.
24 Ch. 84, 15, SLA 1969, quoted in Flisock, 818 P.2d at
643.
25 Flisock, 818 P.2d at 644.
26 Id.
27 Id.
28 Former AS 39.35.680(4) (effective until June 30, 1977).
29 Ch. 128, 54, SLA 1977.
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