State Supreme Court To Decide Earnings

MARCH 2004
- Controversy For Disability Retirees - While it's taken years of litigation, the controversy over what
should be earnings for disability retirees may finally be resolved. In
January, the state's highest court (Supreme Judicial Court) heard oral
arguments in the case of a disabled Boston police officer, Paul Theodos.

3 1/2 years ago (July 2000, to be exact), we reported that Theodos
challenged a ruling by the Public Employee Retirement Administration
Commission (PERAC) that money, distributed to him as a shareholder in a
small business, should be considered as "earnings from earned income."
Under the state's retirement law, a disability retiree can work to
supplement his pension, but the amount of earnings is limited under an
established formula.

If a disability
retiree earns too much according to the formula, then he may have to
pay back a portion of his disability pension. When PERAC included his
shareholder distributions, Theodos' earnings exceeded the statutory
limit, and he was ordered to pay back a substantial sum.

was not alone in his challenge against the PERAC ruling. After
conducting its own lengthy investigation, the Boston Retirement Board
has supported him in his contention that his shareholder distributions
should not be included under the formula.

and Theodos were initially successful, receiving a favorable decision
from the Division of Administrative Law Appeals (DALA). However, DALA's
decision was reversed first by the Contributory Retirement Appeal Board
(CRAB) and then in the state's lower court, which upheld PERAC's ruling.

the state's highest court, the Boston Board took the lead in
challenging PERAC and CRAB positions. According to Attorney Nick Poser,
a pension law expert who has represented the Boston Board throughout
the proceedings, "In a nutshell, the Theodos case is about the Boston
Board, along with DALA, trying to ensure that PERAC gives due process
to disability retirees in evaluating whether their earnings are in
excess of the limits prescribed by the law (Ch. 32 sec. 91A). The Board
does not dispute the policy behind PERAC's attempt to capture income
derived from a retiree's active participation in a company, but rather
seeks to require PERAC to follow proper procedure in formulating and
applying those rules."

It's expected
that the Supreme Judicial Court will issue a decision some months from
now. The Association bill (HB 245), that would establish a statutory
definition of earned income for disability retirees, is in the Public
Service Committee.