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