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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. State of Alaska Public Employees Retirement Board v. Paul Morton (11/04/2005) sp-5953

State of Alaska Public Employees Retirement Board v. Paul Morton (11/04/2005) sp-5953

     Notice:   This opinion is subject to correction  before
     publication  in  the  Pacific  Reporter.   Readers  are
     requested to bring errors to the attention of the Clerk
     of  the  Appellate  Courts, 303  K  Street,  Anchorage,
     Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
     e-mail corrections@appellate.courts.state.ak.us.


            THE SUPREME COURT OF THE STATE OF ALASKA

STATE OF ALASKA, PUBLIC )
EMPLOYEES RETIREMENT ) Supreme Court No. S- 11672
BOARD, )
) Superior Court No.
Appellant, ) 3AN-03-11213 CI
)
v. ) O P I N I O N
)
D. PAUL MORTON, ) [No. 5953 - November 4, 2005]
)
Appellee. )
)

          Appeal  from the Superior Court of the  State
          of    Alaska,   Third   Judicial    District,
          Anchorage, Mark Rindner, Judge.

          Appearances:    Keith  B.   Levy,   Assistant
          Attorney    General,    Juneau,    Toby    N.
          Steinberger,   Assistant  Attorney   General,
          Anchorage, and Gregg D. Renkes and  David  W.
          Marquez,   Attorneys  General,  Juneau,   for
          Appellant.   Daniel  Westerburg,  Homer,  for
          Appellee.

          Before:   Bryner,  Chief  Justice,  Matthews,
          Eastaugh, Fabe, and Carpeneti, Justices.

          FABE, Justice.

I.   INTRODUCTION
          The   Alaska   Division  of  Retirement  and   Benefits
terminated the occupational disability benefits of a former state
employee  who did not recover from his injury and did not  return
to public employment but who managed to earn more than his former
salary.   Benefits were terminated pursuant to a Division  policy
that  was  unwritten  but  had been  enforced  since  before  the
employees  date  of hire.  Under that policy, known  as  the  75%
rule,  an employee is no longer eligible for benefits if he earns
outside income of more than 75% of his former salary.  The Public
Employees  Retirement Board affirmed the termination of benefits,
but   the  superior  court  reversed  the  Boards  determination.
Because  we  hold that the 75% rule is contrary  to  statute,  we
affirm the decision of the superior court.
II.  FACTS AND PROCEEDINGS
          The  facts  in this case are undisputed.   Appellee  D.
Paul  Morton was hired as a correctional officer for the City  of
Homer  in  September 1995.  In November 1997 Morton  was  injured
while  transporting a prisoner.  In November  1998  the  Division
approved  his  application for occupational disability  benefits.
The  notification letter indicated that he was required to  apply
to  the  Division of Vocational Rehabilitation and that his  file
would  be  reviewed in twelve months for updated medical evidence
to determine your continuing eligibility.
          On December 15, 1999, the Division sent Morton a letter
requesting a physicians statement of continuing disability and  a
copy of his 1998 tax returns.  When Morton asked why the Division
wanted  to see his tax returns, the Division informed him via  e-
mail  on  December 30, 1999 that he would no longer  qualify  for
occupational disability benefits if he earned more  than  75%  of
his former salary.  A Division employee later testified that this
75%  rule  was  a  standing  operating procedure  that  had  been
consistently  applied by the Division in determining  eligibility
since  before Mortons date of hire in 1995.  Morton was not aware
of  this policy before he received this e-mail; the 75% rule  was
not  mentioned  in any statute or regulation then in  force,  and
Public  Employees  Retirement  System  (PERS)  members  were  not
informed  of  this  policy  when  hired  or  at  the  time   that
occupational  disability  benefits began.   Morton  provided  the
requested information.
          In  the  spring  of  2002  a  similar  e-mail  exchange
occurred, and a Division representative explained the income  cap
by  referring  to  2 Alaska Administrative Code (AAC)  35.291,  a
regulation  that  officially codified the  75%  rule  and  became
effective  in  January  2001.   In  June  2002  Morton  submitted
portions of his 2001 tax return, which indicated that his outside
income  exceeded 75% of his former salary. On October  31,  2002,
the  Division terminated Mortons benefits because he exceeded the
75% income threshold under PERS Regulation 2 AAC 35.291.
          Morton  appealed to the Board.  At the hearing,  Morton
did  not  dispute  that his outside income exceeded  75%  of  his
former salary.  He testified that he works as a freelance writer,
is   employed   in  a  part-time  position  as  a   manager   for
psychological services for the Homer Police Department, and has a
small  counseling practice.  He also testified that shortly after
his  retirement he turned down an offer of employment as managing
editor  for a magazine in California.  He argued that application
of  the  75%  rule  to him was unlawful.  The  Division  did  not
dispute  that Morton is still unable to meet the physical demands
of  his  former  position.   The  Division  argued  that  Mortons
benefits  were  properly terminated under  its  longstanding  75%
policy.   In  its closing argument, the Division argued  for  the
first  time  that  Mortons failure to accept the  California  job
offer  constituted an independent reason for the  termination  of
benefits.
          On  August  11,  2003,  the Board  concluded  that  the
Division   appropriately  applied  long  standing,   consistently
applied  interpretations of the law and 2 AAC 35.291 and affirmed
the  termination  of  Mortons  benefits.   On  August  30,  2004,
Superior  Court Judge Mark Rindner reversed the Boards  decision.
The  superior  court held that applying the 75%  rule  to  Morton
would  violate Article XII, section 7 of the Alaska  Constitution
by diminishing Mortons accrued retirement benefits.  The superior
court  also  suggested that the 75% rule is of doubtful  validity
because  it  is  inconsistent with the controlling  statutes  but
declined  to  make a determination on this issue.   The  superior
court  also rejected the Divisions argument that Mortons  failure
to  accept the job offer in California constituted an alternative
ground  for  upholding the Boards termination of  benefits.   The
Board appeals.
III. DISCUSSION
     A.   Standard of Review
          When   the  superior  court  acts  as  an  intermediate
appellate  court,  we  independently review  the  merits  of  the
administrative  determination.1  There are several  standards  of
review  that  may  apply to review of administrative  decisions.2
Although  we  ordinarily  review an agencys  regulatory  decision
under  the  reasonable  but  not  arbitrary  standard,  when  the
decision  raises a question of statutory interpretation involving
legislative  intent rather than agency expertise, we review  that
question  independently,  applying  the  substitution-of-judgment
standard.3
     B.   The 75% Rule Is Contrary to Statute.
          Morton  argues that the Board erred in terminating  his
benefits  pursuant  to  the  75%  rule  because  that   rule   is
inconsistent with the statutes governing occupational  disability
benefits.4   He contends that, under the statute, an employee  is
eligible  for  an occupational disability benefit  if  he  cannot
perform his old job or a comparable position made available by  a
PERS  employer, but has found a well-paying job outside the  PERS
system.  We agree.
          Alaska   Statute  39.35.680(26)  defines   occupational
          disability:
          [O]ccupational disability means a physical or
          mental condition that, in the judgment of the
          administrator,     presumably     permanently
          prevents   an  employee  from  satisfactorily
          performing the employees usual duties for  an
          employer  or the duties of another comparable
          position  or  job  that  an  employer   makes
          available  and  for  which  the  employee  is
          qualified by training or education;  however,
          the proximate cause of the condition must  be
          a   bodily  injury  sustained,  or  a  hazard
          undergone,  while  in  the  performance   and
          within the scope of the employees duties  and
          not   the  proximate  result  of  the  wilful
          negligence of the employee.
          
The  term  employer is defined in AS 39.35.680(17)  to  mean  the
State of Alaska or a political subdivision or public organization
of  the state that participates in the system.5 The plain meaning
of  the statute indicates that occupational disability is defined
in  terms of an inability to perform ones job or a comparable job
which  any  employer  participating  in  the  PERS  system  makes
available.   In  Holmberg  v.  State,  we  explained  that  while
disability in the workers compensation context means an inability
to  earn the wage the employee was receiving at the time  of  the
injury,  under  PERS  no consideration of alternative  employment
with  a  different [i.e., non-public] employer is required.6   We
noted  that this difference stems from the different purposes  of
the  two  systems:   While workers compensation  assures  that  a
workers  ability  to  earn a certain wage is protected,  PERS  is
designed to promote continued public employment.7  Based  on  the
plain  meaning  and purpose of the statute, we  conclude  that  a
person  who is able to perform a comparable job outside the  PERS
system, but who is unable to perform a PERS job, would still fall
within  the  definition  of  occupational  disability  under   AS
39.35.680(26).
          Alaska    Statute   39.35.410   describes   eligibility
requirements  and procedures relating to occupational  disability
benefits.  Subsection (b) states that payments will stop when the
employee
               (1)  dies;

               (2)  recovers from disability;

               (3)   fails  to  meet  the  requirements
          under  (g)  of  this  section  or  under   AS
          39.35.415; or
          
               (4)  reaches normal retirement age.[8]

Subsection (g) provides that a disabled employee will  undergo  a
medical examination not more than once a year and that, [i]f,  in
the judgment of the administrator, the examination indicates that
the  retired  employee is no longer incapacitated  because  of  a
total  and  apparently  permanent  occupational  disability,  the
administrator  may not issue further disability benefits  to  the
employee.9
          Mortons    benefits    were   terminated    under    AS
39.35.410(b)(2) because he allegedly recover[ed] from disability.
This phrase is not defined in the statute.  The parties appear to
agree  that it does not mean recovery from the injury that caused
disability,  which  is already listed as a  separate  reason  for
termination   in   the  reference  to  subsection   (g)   in   AS
39.35.410(b)(3).   Rather, an employee recovers  from  disability
when  he no longer meets the definition for eligibility under  AS
39.35.680(26); that is, if he is capable of performing the duties
of a comparable position or job that an employer makes available.
          The 75% policy, codified into a regulation that became effective
in January 2001, is premised on the Divisions interpretation that
a  comparable position under AS 39.35.680(26) includes employment
by  a non-PERS employer that provides income that is at least 75%
of the employees former PERS salary.  The regulation provides:
          Disability  benefits  cease  when  a   member
          recovers  from  an injury or illness  and  is
          capable  of working in a comparable  position
          for  an  employer, including self-employment.
          A  comparable position may include a position
          that requires similar strengths and abilities
          to  the  position held by the member  at  the
          time  of  termination  of  employment  or   a
          position  that  provides compensation  of  75
          percent  or  more  of  the  salary  used   to
          calculate   the   members  Public   Employees
          Retirement    System   of    Alaska    (PERS)
          occupational disability benefit, adjusted for
          inflation . . . .[10]
          
The  Board  also adopted a regulation that purports to  eliminate
the   inconsistency  between  the  75%  rule  and  the  statutory
definition of occupational disability by modifying the  statutory
definition of employer to include non-PERS employers:
               In   the   definition  of   occupational
          disability in AS 39.35.680,
          
               (1)   employer does not have the meaning
          given  in AS 39.35.680, but rather means  any
          person  or entity employing a member  of  the
          system;   for  purposes  of  this  paragraph,
          employer includes the member of the system if
          the member is self-employed[.][11]
          
The  75%  policy and the regulations codifying that policy12  are
plainly   inconsistent with the statutory definition of  employer
in AS 39.35.680(26).
          The   Division  argues  that  the  term  recovers  from
disability in AS 39.35.410(b) should be read without reference to
the  definition  of occupational disability in AS  39.35.680(26).
The  Division  argues that this phrase should be  interpreted  to
mean  recovery from a loss of wage earning capacity  because  the
term  disability has historically been understood in the  context
of  the  Workers  Compensation Act to mean the  loss  of  earning
capacity.   But we have recognized that the meaning of disability
is  different  under  the PERS and workers compensation  statutes
because  these  programs have different goals.13  In  particular,
PERS  is designed to promote continued public employment, not  to
protect a workers ability to earn a certain wage.14  Moreover, the
Divisions  interpretation would result in two different statutory
criteria  for  eligibility:   one standard  for  eligibility  for
benefits  under AS 39.35.680(26) that requires only inability  to
perform  an  available PERS job, and a second standard  under  AS
39.35.410  through  which benefits may  be  terminated  based  on
outside  employment.  The plain meaning of the  statute  defining
          occupational disability as an inability to perform the employees
usual  duties or the duties of a comparable position that a  PERS
employer makes available is clear.15  We therefore hold that  the
Boards  termination of Mortons benefits pursuant to the 75%  rule
was  unlawful  because that policy conflicts  with  the  statutes
governing occupational disability benefits.
     C.   The  Termination of Benefits Cannot Be Affirmed on  the
          Alternate  Ground  that  Morton  Failed  To  Accept   a
          Position Offered to Him.
          
          The  Division  argues  that Morton  is  ineligible  for
benefits  under  AS  39.35.415 because  he  failed  to  accept  a
position  offered  him.  Alaska Statute 39.35.415  describes  the
vocational  rehabilitation program for disabled employees.   This
statute provides in part:
          Unless   the  employee  demonstrates   cause,
          benefits  shall terminate at the end  of  the
          first month in which a disabled employee
          
               (1)  fails to report to the division  of
          vocational rehabilitation;
          
               (2)   is  certified by the  division  of
          vocational   rehabilitation  as  failing   to
          cooperate   in  a  vocational  rehabilitation
          program;
          
               (3)  fails to interview for a job; or
          
               (4)    fails   to  accept   a   position
          offered.[16]
          
The  Division  argues that Mortons benefits should be  terminated
under this statute because he failed to accept a job offer  as  a
managing  editor  at  a  California  magazine  shortly  after  he
retired.
          Morton  contends that this statute must  be  harmonized
with the eligibility requirements for occupational disability  in
AS  39.35.680(26), which we have seen permit an employee to  earn
outside  income  so long as he is not capable of  performing  the
duties  of  a comparable job offered by a PERS employer.   Morton
argues  that  the Divisions interpretation would  result  in  two
different  sets  of  statutory criteria for  benefits:   one  for
initial  eligibility  under  AS 39.35.680(26),  and  another  for
continuing eligibility under AS 39.35.415.
          We  need  not determine whether occupational disability
benefits  can  be terminated under AS 39.35.415  for  failure  to
accept  an  offer  of employment from a non-PERS  employer.   The
Division did not terminate Mortons benefits for failure to accept
a job offer under AS 39.35.415.  Assuming this statute applies to
Mortons California job offer, the statute permits an employee  to
demonstrate  cause  why benefits should not  be  terminated  even
though he failed to accept a position offered.17 Without deciding
the question, we note that Morton would appear to have some basis
for  demonstrating cause to reject the job offer because the  job
was located in another state.  Morton never had an opportunity to
          try to demonstrate cause in this case because the Division
attorney did not argue that the termination was justified because
of  the rejected job offer until his closing argument before  the
Board.   For this reason, we conclude that the Boards termination
of  Mortons  benefits  cannot be affirmed because  he  failed  to
accept a job offer under AS 39.35.415.
 IV. CONCLUSION
          We  hereby  REVERSE the Boards termination of  benefits
and AFFIRM the decision of the superior court.
_______________________________
     1     State,  Dept of Natural Res. v. Greenpeace,  Inc.,  96
P.3d  1056,  1061 (Alaska 2004) (quoting Bruner v. Peterson,  944
P.2d   43,  47  n.5  (Alaska  1997)  (internal  quotation   marks
omitted)).

     2     See  id. at 1061 n.10 (explaining that we apply  a  de
novo  standard if the agencys expertise provides little  guidance
to  the  court  or  involves  statutory  interpretations  and   a
reasonable  basis standard if reviewing an agencys interpretation
of its own regulation).

     3     Alaska  Ctr.  for the Envt v. Rue, 95  P.3d  924,  926
(Alaska 2004); see also Greenpeace, 96 P.3d at 1061 n.10 (de novo
standard applies if the case concerns statutory interpretation or
other  analysis  of legal relationships about which  courts  have
specialized   knowledge  and  experience)   (quoting   Kelly   v.
Zamarello, 486 P.2d 906, 916 (Alaska 1971)).

     4     Morton also argues that the 75% rule cannot be applied
to  him  because  (1) it was unconstitutional to  apply  the  75%
policy  to  him  where  that policy had not  been  enacted  as  a
regulation  until after he was hired and (2) application  of  the
policy   constituted  a  breach  of  Mortons  benefits  contract.
Because we hold that the 75% rule is contrary to statute we  need
not   reach  Mortons  alternative  arguments  for  reversing  the
termination of benefits.

     5     In  2001  this  section was amended to  add  nonprofit
regional corporations employing village public safety officers to
the  definition  of employer, but a 2004 amendment  deleted  this
category  of employer under the statute.  Ch. 97,  11, SLA  2001;
ch. 92,  29, SLA 2004.

     6     Holmberg v. State, Div. of Risk Mgmt., 796  P.2d  823,
826-27 (Alaska 1990).

     7    Id. at 826 (quotation omitted).

     8    AS 39.35.410(b).

     9    AS 39.35.410(g).

     10     2  Alaska Administrative Code (AAC) 35.291 (10/2001).
This  is  the version of the regulation in effect at the time  of
Mortons  termination.  The regulation has since been  amended  to
read in relevant part:

          Occupational disability benefits cease when a
          member  recovers from an injury  or  illness.
          Proof  of  such  recovery may include,  among
          other  things, medical evidence or  proof  of
          capability  to work in a comparable  position
          for  an  employer, including self-employment.
          A  comparable position may include a position
          that requires similar strengths and abilities
          to  the  position held by the member  at  the
          time  of  termination  of  employment  or   a
          position that provides a compensation of  75%
          or  more of the salary used to calculate  the
          members Public Employees Retirement System of
          Alaska    (PERS)   occupational    disability
          benefit, adjusted for inflation.
          
2 AAC 35.291(a) (2005).

     11    2AAC 35.990(f)(1) (2005).

     12    2 AAC 35.291(a); 2 AAC 35.990(f)(1).

     13    See Holmberg, 796 P.2d at 826-27.

     14    Id. at 826 (quotation omitted).

     15    See AS 39.35.680 (17) & (26).

     16    AS 39.35.415.

     17    Id.