93-003377 South Florida Water Management District vs. Division Of Retirement Status: Closed Recommended Order on Tuesday, April 19, 1994.

Summary: Lump sum performance payments correctly deemed ""bonuses"" by the division are excluded from average final compensation.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SOUTH FLORIDA WATER )

MANAGEMENT DISTRICT, )

)

Petitioner, )

vs. ) CASE NO. 93-3377

)

DEPARTMENT OF MANAGEMENT )

SERVICES, DIVISION OF RETIREMENT, )

)

Respondent. )

______________________________________)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its

designated Hearing Officer, Joyous D. Parrish, held a formal hearing in the

above-styled case on January 19, 1994, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Sheryl G. Wood

Jacquelyn W. Birch

South Florida Water Management District

Post Office Box 2460

West Palm Beach, Florida 33416-4680

For Respondent: Stanley M. Danek, Division Attorney

Department of Management Services

Division of Retirement

Cedars Executive Center

2639 North Monroe Street, Building C

Tallahassee, Florida 32399-1560

STATEMENT OF THE ISSUES

Whether the lump sum performance payments paid to Petitioner's employees

should be considered compensation and included within the "average final

compensation;" or whether such payments are "bonuses" and are, therefore,

excluded for retirement purposes.

PRELIMINARY STATEMENT

This case began on May 20, 1993, when the South Florida Water Management

District (District) received a notice from the Department of Management

Services, Division of Retirement (Retirement) that excluded the District's lump

sum performance payments as compensation unless such payments were received

after reaching the salary maximum for the employee's applicable pay grade. As

it claims this exclusion will substantially change the average final

compensation calculation for its employees, the District timely filed a

challenge to the decision.

More specifically, the District alleged that it is substantially affected

by the decision as are all of its former employees who have retired, and its

current employees who will retire, who have based or will base their average

final compensation relying on contributions made during the period July 1, 1989

through February 19, 1993, because retirement benefits will not be calculated to

include those amounts received as lump sum performance payments. Further, the

District is affected because it made contributions to the Florida Retirement

System throughout the cited period of time as if the disputed payments to its

employees were compensation.

Subsequently, the Petitioner filed a rule challenge (DOAH case no. 93-

5937RX) to dispute the validity of Rule 60S-6.001(6), (11), and (16), Florida

Administrative Code. The cases were consolidated for hearing on November 2,

1993. Issues related to the rule challenge are addressed in a separate final

order.

The District also filed a motion to disqualify A.J. McMullian from acting

further in this case. That request provided, in part:

Mr. A.J. McMullian participated in and issued

the final agency action letter dated May 14,

1993 to the District which is the basis for

the Section 120.57, Florida Statutes, action

filed by the Petitioner in this proceeding.

As Agency Head of the Division of Retirement,

Mr. A.J. McMullian issues Final Orders after

receipt of the Recommended Order from the

Hearing Officer in these types of proceedings.

* * *

The standard to be used in disqualifying an

individual serving as agency head is the same

standard used in disqualifying a judge.

This motion was initially withdrawn by the District but was renewed at the

final hearing. It is hereby denied. Pursuant to Chapter 120, Florida Statutes,

the undersigned is charged with the responsibility of conducting a formal

hearing, making findings of fact supported by competent substantial evidence,

and of issuing a recommendation to the agency with final order authority. Once

the recommended order is issued, the Division of Administrative Hearings has

limited authority (see, e.g., Rule 60Q-2.032, Florida Administrative Code), and

lacks jurisdiction over the subject matter of the proceeding. No authority

allows the undersigned to anticipate that an agency head will, because of bias,

prejudice, or other interest, fail to impartially and fairly review the record

in these proceedings. If, as Petitioner suggests, the standard is that for the

disqualification of a judge, Petitioner should renew its motion to the agency

head after the entry of this recommended order.

The Division of Retirement has also challenged the District's authority to

represent the interests of its former employees or those who may retire and who

may be affected by the instant case. No such employee has joined in the subject

proceeding. Because the District has standing to represent its interest in this

cause, and because the companion rule challenge and this case have been resolved

as they have, no conclusion is reached as to whether or not the District has

standing to represent employees and former employees.

At the hearing, the District presented the testimony of the following

witnesses: Richard Stelling, the District's department director for

administration; Lewis M. Dennard, an assistant director with the Division of

Retirement; Kathy Smith, retirement administrator in the bureau of enrollment

and contributions; Sarabeth Snuggs, chief of the bureau of enrollment and

contributions; and Mary Beth Brewer, a research associate with the Division of

Retirement responsible for legislation and rule analysis and drafting. The

District's exhibits numbered 1 through 8, 10, 11, 16, 17, 18, 20, 24, and 25

were admitted into evidence. Kathy Smith and Mary Beth Brewer also testified on

behalf of Retirement as did Lawrence J. Gibney, a state retirement actuary. Its

exhibits numbered 3, 4, 5, 7, and 9 were admitted into evidence. Official

recognition has been taken of the matters identified in the parties' joint

prehearing stipulation (Petitioner's exhibit 25) as Respondent's exhibits 1, 2,

and 6.

The transcript of the proceedings was filed on January 26, 1994. The

parties filed proposed recommended orders which have been considered in the

preparation of this order. Specific rulings on the proposed findings of fact

are included in the appendix at the conclusion of this order.

FINDINGS OF FACT

1. The District is a public corporation in the State of Florida existing

by virtue of Chapter 25270, Laws of Florida, 1949, and operating pursuant to

Chapter 373, Florida Statutes, and Chapter 40E, Florida Administrative Code, as

a water management district.

2. Retirement is an agency of the State of Florida existing by virtue of

Section 20.22(2)(i), Florida Statutes, and operating pursuant to Chapter 121,

Florida Statutes, and Chapter 60S, Florida Administrative Code, as the

retirement and pension administrator for the Florida Retirement System (FRS).

3. The District is an employer and its employees are eligible to be

members of the FRS.

4. The District is a member of the FRS pursuant to Section

121.051(2)(b)1., Florida Statutes, and, as such, makes regular contributions

(based upon its employees' total compensation) to Retirement.

5. Until February, 1993, and for the period of time at issue in this case,

the District provided its employees with a total compensation package which

included: one performance appraisal with a base pay increase depending on merit,

and one interim performance appraisal with a lump sum performance payment also

dependent on merit.

6. The District's lump sum performance payments were funded on a sound

actuarial basis.

7. The District's performance appraisals are based on merit and the

procedure for both base pay and lump sum performance appraisals are identical.

8. The District's lump sum performance payments are paid according to a

formal written policy which was adopted as a rule and applies to all eligible

employees equally. In order to receive the lump sum amount, the employee must

requalify for it each year based on merit.

9. Eligibility for the District's lump sum performance payments commences

during the first year an employee works at the District.

10. The District's lump sum performance payments are paid at least

annually to all employees who qualify for it. Not all District employees

qualify for the payment. Less than one percent of the District's employees do

not receive the lump sum performance payment.

11. The District has made contributions to Retirement based upon the total

compensation paid to its employees, including the lump sum performance payments.

However, the District did not pay contributions for the months of February,

1990, through April, 1990; this cumulative amount was paid in lump sum to

Retirement in May, 1990.

12. Retirement accepted the contributions, including the lump sum

performance payments, through February, 1993, when the plan was terminated and

contributions ceased.

13. The District was aware that Retirement had a dispute regarding the

reporting of lump sum performance payments in June, 1992, as the result of a

calculation of a District employee's retirement benefit.

14. In May, 1993, after receiving notice of the disallowance, the District

timely challenged Retirement's decision to exclude the lump sum performance

payments from average final compensation.

CONCLUSIONS OF LAW

15. The Division of Administrative Hearings has jurisdiction over the

parties to, and the subject matter of, these proceedings.

16. Section 121.021(24), Florida Statutes, provides:

"Average final compensation" means the average

of the 5 highest fiscal years of compensation

for creditable service prior to retirement,

termination, or death. For in-line-of-duty

disability benefits, if less than 5 years of

creditable service have been completed, the

term "average final compensation" means the

average annual compensation of the total

number of years of creditable service. Each

year used in the calculation of average final

compensation shall commence on July 1. The

payment for accumulated sick leave, accumulated

annual leave in excess of 500 hours, and

bonuses, whether paid as salary or otherwise,

shall not be used in the calculation of the

average final compensation.

17. Rule 60S-6.001(6), (11), and (16), Florida Administrative Code,

provides:

(6) AVERAGE FINAL COMPENSATION--Means the

average of the 5 highest fiscal years of

compensation for creditable service prior to

retirement, termination or death calculated

in accordance with 60S-4.004(1).

(a) The average final compensation shall

include:

1. Accumulated annual leave

payments as defined in 60S-6.001(1), not to

exceed 500 hours.

2. All payments defined as

compensation in 60S-6.001(16).

(b) The average final compensation shall

not include:

1. Compensation paid to

professional persons for special or particular

services.

2. Salary incentives paid to law

enforcement personnel, fire-fighters or

correctional officers, as provided in Section

943.22, f.s. and Section 633.382, F.S.

3. Payments made due to retirement

or termination for accumulated sick leave as

defined in 60S-6.001(3).

4. Payments for annual leave in

excess of 500 hours.

5. Bonuses as defined in

60S-6.001(11).

6. Third party payments made on

and after July 1, 1990.

7. Automobile allowances.

8. Housing allowances.

* * *

(11) BONUS--Means a payment made in addition

to an employee's regular or overtime salary

that is usually nonrecurring, does not

increase the employee's base rate of pay and

includes no commitment for payment in a

subsequent year. Such payments are not

considered compensation and, effective

July 1, 1989, shall not be reported to the

Division as salary, and retirement

contributions shall not be made on such

payments.

(a) A payment is a bonus if any of the

following apply:

1. The payments are not paid

according to a formal written policy applying

to all eligible employees equally, or

2. The payments commence later than

the eleventh year of employment, or

3. The payments are not based on

permanent eligibility, or

4. The payments are paid less than

annually.

(b) Bonuses shall include but not be

limited to the following:

1. Exit bonus or severance pay;

2. Longevity payments in conformance

with the provisions of 60S-6.001(11)(a) above;

3. Salary increases granted due to

an employee's agreement to retire, including

increases paid over several months or years

prior to retirement;

4. Payments for accumulated overtime

or compensatory time, reserve time, or holiday

time worked, if not made within 11 months of

the month in which the work was performed;

5. Quality Instruction Incentives

Program (QUIIP) Payments;

6. Lump sum payments in recognition

of employees' accomplishments.

* * *

(16) COMPENSATION OR GROSS COMPENSATION--

(a) Compensation means the total gross

monthly salary paid a member by his employer

for work performed arising from that

employment, including:

1. Overtime payments, except as

provided in 60S-6.001(11)(b)4.;

2. Accumulated annual leave

payments, as defined in Rule 60S-6.001(1);

3. Payments in addition to the

employee's base rate of pay if all the

following apply:

a. The payments are paid

according to a formal written policy that

applies to all eligible employees equally, and

b. The policy provides that

payments shall commence not later than the

eleventh year of employment, and

c. The payments are paid for

as long as the employee continues his

employment, and

d. The payments are paid at

least annually;

4. Amounts withheld for tax-

sheltered annuities or deferred compensation

programs, or any other type of salary

reduction plan authorized under the Internal

Revenue Code;

(b) Compensation shall not include any

bonuses or other payments prohibited from

inclusion in the member's average final

compensation as defined in 60S-6.001(6)(b).

18. It is undisputed that "bonuses" are not to be included in the average

final compensation. Therefore, the issue to be resolved is whether the

District's lump sum performance payment is a "bonus." The evidence established

that the lump sum performance payment is not automatic. That is, the employee

must qualify for the payment each year. Additionally, the payment sum does not

become a part of the employee's base pay. Therefore, the base pay is unaffected

by whether or not the employee receives the lump sum payment. If an employee

receives an annual merit increase to base pay, such amount is independent of the

lump sum payment. All employees did not receive the lump sum performance

payments. Based upon the foregoing, the lump sum payments are bonuses and,

therefore, may not be included in the average final compensation.

RECOMMENDATION

Based on the foregoing, it is, hereby,

RECOMMENDED:

That Department of Management Services, Division of Retirement, enter a

final order disallowing the lump sum performance payments from the average final

compensation of the District's employees and refunding all amounts contributed

based upon such payments.

DONE AND RECOMMENDED this 19th day of April, 1994, in Tallahassee, Leon

County, Florida.

___________________________________

JOYOUS D. PARRISH

Hearing Officer

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

[phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 19th day of April, 1994.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 93-3377

Rulings on the proposed findings of fact submitted by the Petitioner:

1. Paragraphs 1 through 13, 16, 17, 19, 20, 21, 23, and 28 are

accepted.

2. Paragraph 14 is rejected as contrary to the weight of the

credible evidence.

3. Paragraph 15 is rejected as contrary to the weight of the

credible evidence.

4. Paragraph 18 is rejected as contrary to the weight of the

credible evidence.

5. Paragraph 22 is rejected as contrary to the weight of the

credible evidence.

6. Paragraph 24 is rejected as contrary to the weight of the

credible evidence.

7. Paragraph 25 is rejected as contrary to the weight of the

credible evidence.

8. Paragraph 26 is rejected as erroneous conclusion of law.

9. Paragraph 27 is rejected as erroneous conclusion of law.

10. Paragraph 29 is rejected as erroneous conclusion of law.

Rulings on the proposed findings of fact submitted by the Respondent:

1. Paragraphs 1 through 3, 7 through 11, 13 through 23, and 25

through 28 are accepted.

2. With the deletion of the last sentence which is rejected as a

conclusion of law, paragraph 4 is accepted.

3. With the deletion of the last sentence which is rejected as a

conclusion of law, paragraph 5 is accepted.

4. With the deletion of the last sentence which is rejected as a

conclusion of law, paragraph 6 is accepted.

5. With the deletion of the third sentence which is rejected as

irrelevant, paragraph 12 is accepted.

6. Paragraph 24 is rejected as irrelevant.

COPIES FURNISHED:

Sheryl G. Wood

Jacquelyn W. Birch

South Florida Water

Management District

Post Office Box 2460

West Palm Beach, Florida 33416-4680

Stanley M. Danek

Division Attorney

Department of Management Services

Division of Retirement

Cedars Executive Center

2639 North Monroe Street

Building C

Tallahassee, Florida 32399-1560

A.J. McMullian, III

Director, Division of Retirement

Cedars Executive Center, Building C

2639 North Monroe Street

Tallahassee, Florida 32399-1560

William H. Lindner, Secretary

Department of Management Services

Knight Building, Suite 307

Koger Executive Center

2737 Centerview Drive

Tallahassee, Florida 32399-0950

Sylvan Strickland

Acting General Counsel

Knight Building, Suite 309

Koger Executive Center

2737 Centerview Drive

Tallahassee, Florida 32399-0950

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended

Order. All agencies allow each party at least 10 days in which to submit

written exceptions. Some agencies allow a larger period within which to submit

written exceptions. You should contact the agency that will issue the final

order in this case concerning agency rules on the deadline for filing exceptions

to this Recommended Order. Any exceptions to this Recommended Order should be

filed with the agency that will issue the final order in this case.