93-005937RX South Florida Water Management District vs. Division Of Retirement Status: Closed DOAH Final Order on Tuesday, April 19, 1994.

Summary: Petitioner failed to meet its burden challenge of rule since agency's constr uction of ""Bonus"" reasonable and within its expertise as administrator of Florida Retirement System.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SOUTH FLORIDA WATER )

MANAGEMENT DISTRICT, )

)

Petitioner, )

vs. ) CASE NO. 93-5937RX

)

DEPARTMENT OF MANAGEMENT )

SERVICES, DIVISION OF RETIREMENT, )

)

Respondent. )

______________________________________)

FINAL 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

Petitioner's challenge to determine the invalidity of Rule 60S-6.001(6),

(11), and (16), Florida Administrative Code, as an invalid exercise of delegated

legislative authority as alleged in the petition filed October 15, 1993.

PRELIMINARY STATEMENT

This case began when the South Florida Water Management District (District)

filed a petition to determine the invalidity of an agency rule of the Department

of Management Services, Division of Retirement (Retirement). More specifically,

the District alleged that it is substantially affected by the challenged rule,

Rule 60S-6.001, Florida Administrative Code [subparts (6), (11), and (16)], 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 designated as lump sum performance payments, and the District made

contributions based upon such amounts, the District claims it is adversely

affected by the rule.

Further, the District is affected because its employees anticipated that

the disputed payments were considered compensation. The District alleged that

Retirement, in adopting the cited rule and its interpretation of it, has

exceeded its authority because the requirements of the rule are not appropriate

to the ends specified by the legislative act and the legislative history. And,

that the requirements of the rule are not reasonably related to the purpose of

the enabling legislation.

This rule challenge case was consolidated with a prior Section 120.57 case

involving the same parties and similar issues of law and fact (DOAH case no. 93-

3377) on November 2, 1993. Issues related to DOAH case no. 93-3377 are

addressed in a separate recommended order.

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

depending 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.

15. As a result of changes in the law in 1984 and 1989, Retirement

promulgated rules to advise all FRS members of how retirement benefits would be

calculated. The rules and subsequent memoranda dealt with issues of how to

define "compensation" and "bonuses" so that all agencies would have the proper

method to report compensation and make appropriate contributions.

16. Each memorandum and the rules consistently stated the same criteria

for determining whether or not a payment should be considered a "bonus."

17. Not at issue in this case are two of the four criteria noted in

memorandum 90-189. The only criteria at issue are the provisions that the

payments, once commenced, are paid for as long as the employee continues

employment, and that the payments are paid at least annually. Since the

District lump sum performance payment was tied to the employee's merit

performance, there is no assurance that the payment will be paid as long as the

employee continues employment, and, therefore, that the payment will made at

least annually.

18. Retirement uniformly and consistently applied the rule dealing with

"bonuses" to all agencies where such issue arose.

CONCLUSIONS OF LAW

19. The Division of Administrative Hearings has jurisdiction over the

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

20. Section 120.56, Florida Statutes, provides, in pertinent part:

(1) Any person substantially affected by a

rule may seek an administrative determination

of the invalidity of the rule on the ground

that the rule is an invalid exercise of

delegated legislative authority.

21. Section 120.52(8), Florida Statutes, provides:

"Invalid exercise of delegated legislative

authority" means action which goes beyond the

powers, functions, and duties delegated by the

Legislature. A proposed or existing rule is

an invalid exercise of delegated legislative

authority if any one or more of the following

apply:

* * *

(b) The agency has exceeded its grant

of rulemaking authority, citation to which is

required by s. 120.54(7);

(c) The rule enlarges, modifies, or

contravenes the specific provisions of law

implemented, citation to which is required

by s. 120.54(7);

(d) The rule is vague, fails to

establish adequate standards for agency

decisions, or vests unbridled discretion in

the agency; or

(e) The rule is arbitrary or capricious.

22. As the one who attacks the rule, the Petitioner has the burden to show

that the agency adopting the rule has exceeded its authority, that the

requirements of the rule are not appropriate to the ends specified in the

legislative act, that the requirements contained in the rule are not reasonably

related to the purpose of the enabling legislation, or that the rule

requirements are arbitrary or capricious. Agrico Chemical Co. v. State

Department of Environmental Protection, 365 So.2d 759, 763 (Fla. 1st DCA 1978)

cert. den. 376 So.2d 74 (Fla. 1979) The challenger's burden "is a stringent one

indeed." Agrico, supra.

23. Where, as here, the agency's interpretation of a statute has been

promulgated in rulemaking proceedings, the validity of a challenged rule must be

upheld if it is reasonably related to the purpose of the legislation

interpretated and it is not arbitrary and capricious. Department of

Professional Regulation, Board of Medical Examiners v. Durrani, 455 So.2d 515,

517 (Fla. 1st DCA 1975).

Moreover, the agency's interpretation of a

statute need not be the sole possible

interpretation or even the most desirable

one; it need only be within the range of

possible interpretations. Department of

Health and Rehabilitative Services v. Wright,

439 So.2d 937 (Fla. 1st DCA 1983) (Ervin,

C.J., dissenting); Department of

Administration v. Nelson, 424 So.2d 852 (Fla.

1st DCA 1982); Department of Health and

Rehabilitative Services v. Framat Realty,

Inc., 407 So.2d 238 (Fla. 1st DCA 1981).

(Emphasis in text)

Durrani, supra, at 517.

24. Special deference is owed to "an administrative agency's exercise of

delegated discretion in respect to technical matters requiring substantial

expertise." Island Harbor Beach Club, Ltd. v. Department of Natural Resources,

495 So.2d 209 (Fla. 1st DCA 1986). In this case, the Division of Retirement

developed its rule to assure the effective and efficient administration of the

FRS relying on its expertise as the entity charged by law to be the

administrator of that system.

25. 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. (Emphasis added)

26. Section 121.031, Florida Statutes, provides, in part:

(1) The Department of Management Services,

through the Division of Retirement, shall

make such rules as are necessary for the

effective and efficient administration of

this system.

27. 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, firefighters 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 non-recurring, 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).

28. It is not disputed that "bonuses" may not be included in "average

final compensation." The statute clearly excludes such payments for retirement

purposes. The statute, however, does not define "bonus." The agency's

definition, as set forth in the rule, is reasonably related to the enabling

legislation and is not arbitrary and capricious. The legislation enacted in

1989 corrected a conflict that existed that purported to allow retirement

contributions on compensation (including bonuses) but did not allow bonus

amounts to be included in the average final compensation computation.

29. Effective July 1, 1989, the law no longer contained the confusing

language and Retirement, acting within the powers, functions and duties

delegated by the legislature, continued to uniformly exclude bonuses from the

average final compensation. To do so, Retirement developed criteria to explain

to agencies when a payment should be considered a bonus. Those criteria are set

forth in the rule and were discussed in memoranda issued by the agency.

30. In this case, the lump sum performance payment was based upon the

merit of the employee receiving such payment. It was not paid for as long as

the employee was employed but only as long as the employee qualified for the

payment. Due to the reasonableness of the interpretation given by Retirement,

the agency's construction of what "bonus" means is persuasive. Further, the

agency's interpretations promote effective and efficient administration of the

FRS.

ORDER

Based on the foregoing, it is, hereby,

ORDERED:

That the Petitioner's challenge to Rule 60S-6.001(6), (11), (16), Florida

Administrative Code, is dismissed.

DONE AND ENTERED 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 FINAL ORDER, CASE NO. 93-5937RX

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

1. Paragraphs 1 through 7, and 11 are accepted.

2. Paragraph 8 is rejected as contrary to the weight of the

credible evidence or a conclusion of law.

3. Paragraph 9 is rejected as contrary to the weight of the

credible evidence or a conclusion of law.

4. Paragraph 10 is rejected as contrary to the weight of the

credible evidence.

5. Paragraph 12 is accepted to the extent that it addresses one

of the purposes of the amendment; otherwise rejected as

contrary to the weight of the credible evidence.

6. Paragraph 13 is rejected as contrary to the weight of the

credible evidence.

7. Paragraph 14 is accepted to the extent that it addresses one

of the purposes of the amendment; otherwise rejected as

contrary to the weight of the credible evidence.

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 JUDICIAL REVIEW

A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL

REVIEW PURSUANT TO SECTION 120.68, FLORIDA STATUTES. REVIEW PROCEEDINGS ARE

GOVERNED BY THE FLORIDA RULES OF APPELLATE PROCEDURE. SUCH PROCEEDINGS ARE

COMMENCED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF THE

DIVISION OF ADMINISTRATIVE HEARINGS AND A SECOND COPY, ACCOMPANIED BY FILING

FEES PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL, FIRST DISTRICT, OR

WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE PARTY

RESIDES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE

ORDER TO BE REVIEWED.