When the Public Employee Retirement Administration Commission (PERAC) "expanded" the definition of earned income to include what critics would call unearned income, some disability retirees received notices that they earned above the allowed amount and owed money back on their pensions.

They, and in certain instances their retirement boards, challenged PERAC’s expanded definition, by appealing to the Contributory Retirement Appeal Board (CRAB), which then assigns them to the Division of Administrative Law Appeals (DALA) for a hearing and issuance of a decision.

After DALA’s decision, a party may petition CRAB to render its own decision and then proceed even further to the state court. Since our January report, there have been the following developments in this controversy.

Having heard some of the appeals, DALA has issued decisions which overturn PERAC’s findings that certain retiree income should be treated as earned income. "It appears DALA will not consider income as being earned unless the disability retiree was actively working for a business from which he was paid a reasonable sum commensorate with his work," comments Association Counsel Bill Rehrey.

In one appeal, Association member Malcolm Marshall, a retired Billerica firefighter, fought PERAC’s determination that he must pay back to the Middlesex Retirement Board a substantial portion of his ordinary (non work-related) disability pension for 1997 and 1998. After a lengthy examination into the meaning of earned income, DALA Administrative Magistrate Joan Fink agreed with Marshall that PERAC improperly classified money, which he received as a landlord (rents) and a shareholder/investor in certain ventures (dividends), as earned income.

Another member, and disabled Boston police officer, Paul Theodos, also challenged PERAC’s decision to include money distributed to him as a shareholder in a small business. In a strongly worded decision, DALA again reversed PERAC’s finding that the money, distributed to him as a shareholder, should be earned income in the same manner as the salary he received as an employee of that business.

"This is only a sampling of the appeals being decided on this issue," comments Rehrey. "While the decisions, up to now, have not, in major part, supported PERAC’s position, we must remember it’s only the first round, and as can be true with any litigation, we may not hear the final word for some time."

Retirees Challenge Earning Statements

In a related appeal, DALA ruled on what tax information a disability retiree must submit to PERAC each year. In addition to an annual signed statement of earnings, PERAC requires that a disability retiree submit the first two pages of his federal tax return, as well as any W-2 forms he may have received.

A Newton retiree on an ordinary disability, who is a quadriplegic and confined to a wheelchair, filed his 1998 annual statement of earnings with PERAC. He did not work and had no W-2s.

Since he filed a joint return with his wife who did work, the retiree submitted the first 2 pages of their return, deleting entries that referred to his wife’s earned income and their unearned income. When PERAC directed the Newton Board to withhold his disability check until he filed pages without any deletions, the retiree, as well as the board, appealed.

DALA agreed with the retiree that he could submit a copy of his tax return that deleted references to his wife’s earnings and their unearned income. According to DALA First Administrative Magistrate Kimberly Fletcher, PERAC has no responsibility for gathering information about the earned income of the retiree’s wife and their joint unearned income.

At press time, parties are awaiting a final CRAB decision on this matter. Even with that, it’s anticipated this case will not end there and will proceed to state court.

Another case, already in state court, may have even broader ramifications when it comes to the issue of a disability retiree’s tax returns. In April, attorneys for the Boston Firefighters Local #718 argued before the Superior Court that PERAC should be prohibited from ordering the submission of the tax returns at all. As of press time, the judge had not issued a decision.