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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. McMullen v. Bell (01/27/2006) sp-5976

McMullen v. Bell (01/27/2006) sp-5976, 128 P3d 186

     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

MICHAEL P. McMULLEN, )
) Supreme Court No. S- 11567
Appellant, )
) Superior Court No. 3AN-02-9998 CI
v. )
)
GUY BELL, Administrator of the ) O P I N I O N
Public Employees Retirement )
System, ) [No. 5976 - January 27, 2006]
)
Appellee. )
)
          Appeal  from the Superior Court of the  State
          of    Alaska,   Third   Judicial    District,
          Anchorage, Dan A. Hensley, Judge.

          Appearances:  Bradley  D.  Owens  and   Blair
          Marlowe  Christensen, Jermain,  Dunnagan  and
          Owens, P.C., Anchorage, for Appellant.  Keith
          B.  Levy  and  Virginia B.  Ragle,  Assistant
          Attorneys  General,  and  Gregg  D.   Renkes,
          Attorney General, Juneau, for Appellee.

          Before:   Bryner,  Chief  Justice,  Matthews,
          Eastaugh,  and  Carpeneti,  Justices.  [Fabe,
          Justice, not participating.]

          BRYNER, Chief Justice.


I.   INTRODUCTION
          The  Public  Employees Retirement System calculates  an
employees  retirement  benefits based on  the  employees  average
monthly  compensation during his three best  paid  years.   When,
after  thirty  years  working  for the  state,  Michael  McMullen
retired, he sought to include substantial cashed-in leave as part
of  his  compensation for purposes of calculating his  retirement
benefits.  The Public Employees Retirement Board denied McMullens
request.   McMullen appeals, arguing that because the  definition
of  compensation  that was effective when he was  hired  did  not
exclude  cashed-in leave, article XII, section 7  of  the  Alaska
Constitution  protects  his  right to  include  that  leave  when
calculating  his retirement benefits.  Because McMullen  was  not
eligible  to  cash in leave on July 1, 1977, when the legislature
amended  the  definition  of compensation  to  exclude  cashed-in
leave,  we hold that he has no constitutionally protected  vested
right to include cashed-in leave as part of his compensation.
II.  FACTS AND PROCEEDINGS
          Michael  McMullen was hired by the Alaska  Division  of
Personnel in September of 1969 and retired from state service  in
1999.  When he retired, he became entitled to retirement benefits
under the Public Employees Retirement System (the system).  Under
AS 39.35.370(c) & (d) and AS 39.35.680(4)(A), an employee who was
hired  before  1996 receives a percentage of his average  monthly
compensation for the three payroll years that yield  the  highest
average,  multiplied by his number of years  of  service.   As  a
result,  the higher the compensation for those three  years,  the
greater  the  retirement benefits that an employee will  receive.
McMullens  last  three years of employment with  the  state  were
those   for  which  he  received  the  highest  average   monthly
compensation.
          During  his  last  three years of employment  with  the
state,  McMullen cashed in substantial amounts of accrued  leave.
Before he retired, McMullen asked the Division of Retirement  and
Benefits  (the  division) to include the value of  his  cashed-in
leave  when  it  calculated his average monthly compensation  for
purposes of determining his retirement benefits.
          The division informed him that it did not include leave
cash-ins as compensation for retirement calculation purposes  for
PERS  members.  In response, McMullen indicated that he  believed
that  under  this courts ruling in Flisock v. State, Division  of
Retirement  and Benefits,1 the division was required  to  include
the  cashed-in leave when calculating compensation.  In  Flisock,
this  court  ruled  that some members of the Teachers  Retirement
System  had  a right under article XII, section 7 to include  the
value of their cash-ins in their base pay.2
          The  administrator  of the system, Guy  Bell,  informed
McMullen  that,  on  the  advice of  the  attorney  general,  the
position  of the division was that Flisock applied to members  of
the  Teachers  Retirement System only and not to members  of  the
Public   Employees  Retirement  System.   Bell  therefore  denied
McMullens request.
          McMullen  appealed the administrators decision  to  the
Public Employees Retirement Board.  He argued that because cashed-
in  leave  was  not excluded from the definition of  compensation
when  he  was  hired  in  1969, he, like  Peter  Flisock,  had  a
constitutionally protected right to include his cash-ins as  part
of   his  compensation.   The  board  agreed  and  reversed   the
administrators  decision,  ruling  that  Flisock   required   the
division  to  include McMullens cashed-in leave when  calculating
his retirement benefits.
          The  administrator appealed the boards decision to  the
superior  court.  The court observed that there were  differences
between  the PERS and TRS statutes, that the actual practices  of
the  systems  were different, and that Flisocks expectations  may
well  have  been  different  from  McMullens  expectations.    It
therefore remanded the case to the board for fact-finding on four
questions:
          (1)  What exposure does [the system] have  as
               a result of this decision?
               
          (2)  What  was the practice of  cash-in  with
               respect  to  Mr. McMullens  category  of
               employees prior to 1977?
               
          (3)  Did   Mr.  McMullen  have  a  reasonable
               expectation  of  being able  to  cash-in
               leave prior to the 1977 amendment?
               
          (4)  Did  the Legislature act immediately  to
               exclude     cash-in    payments     from
               compensation  after reasonably  learning
               of it?
               
The  superior  court specified that the board was  authorized  to
issue  a  new decision incorporating its new findings of fact  on
the four issues directed by the court.
          After  holding  a  hearing, the board  issued  findings
addressing  the  courts  questions.  In  response  to  the  first
question,  the  board found that under a worst case  scenario,  a
ruling  in  McMullens  favor  would cost  the  system  thirty-six
million dollars. The board found that, amortized over twenty-five
years  this  might require an increase of .25% to  the  employers
contribution  rates.  The board found that the  state  of  Alaska
would,  under the worst case scenario, need to pay an  additional
$1.28 million per year into the systems account.
          As for the second question, the board observed that two
collective  bargaining units negotiated agreements that  entitled
them to cash in leave beginning in 1976.  The board observed that
shortly  thereafter, [a] legislative enactment . . . amended  the
PERS  definition of compensation to specifically exclude  cashed-
in-leave  for  purposes of calculating retirement benefits.   The
board  found  that  McMullen was not a member of  the  collective
bargaining units that negotiated the cash-in agreements and  that
therefore  McMullen was not eligible to cash in leave before  the
legislature  enacted the amendments excluding cash-ins  from  the
definition of compensation.
          In response to the third question, the board found that
before  1977 McMullen had believed that it was possible  that  at
some point he, too, might become eligible to cash in leave.   But
the  board found that it was not until years later, when McMullen
learned  of  the  Flisock  decision,  that  McMullen  linked  the
opportunity  to  obtain leave cash-in rights with inclusion  into
PERS  compensation  figures.   The  board  therefore  found  that
McMullen had no expectations prior to July 1, 1977 of being  able
to include cashed-in-leave as a part of PERS compensation.
          Finally,  the board found that the legislature excluded
cashed-in leave from the definition of compensation at the  first
legislative   session   following   the   collective   bargaining
agreements that authorized cash-ins.
          Although  all four participating members of  the  board
agreed on the factual findings, they disagreed about their  legal
consequences.3   Two  members of the  board  concluded  that  the
definition  of  compensation that was  in  effect  in  1969  when
McMullen  was  hired could not be interpreted so  broadly  as  to
encompass  hypothetical  conclusions  never  contemplated  by  an
employee (or employer).  They relied on the boards findings  that
McMullen had no expectation of being able to include cash-ins  as
part  of his compensation for retirement purposes and that before
the  legislatures  1977 amendment McMullen would  not  have  been
eligible to cash in his accrued leave, much less to include it as
part   of   his  compensation  when  calculating  his  retirement
benefits.  They therefore concluded that  McMullen had  no  right
to include the leave he cashed in as part of his compensation.
          The remaining two members reluctantly disagreed.  These
members believed that Flisock compel[led] the Board to afford Mr.
McMullen the opportunity to claim cashed-in-leave . . .  as  PERS
compensation.
          After noting that the board was split, the board stated
that under AS 39.35.047(c), the effect of a split decision was to
affirm the decision of the administrator.  As a result, the board
ruled  that its tie vote affirmed the administrators decision  to
refuse  to  allow  McMullen to include his cashed-in  leave  when
calculating his compensation.
          McMullen  appealed to the superior  court.   The  court
affirmed  the  boards  decision.  The  court  reasoned  that  the
relevant  issue  was  whether leave  cash-ins  were  allowed  for
McMullen  prior to the 1977 amendment.  The court ruled that  the
boards finding that McMullen had no right to cash in leave before
the  1977  amendment was sufficiently supported by the  evidence.
The  court  also concluded that the record supported  the  boards
finding  that  although McMullen believed that he  might  in  the
future  be  eligible  to  cash-in  leave,  he  never  linked  the
opportunity  to  obtain leave cash-in rights with  the  inclusion
into  PERS  compensation  figures.  The  court  held  that  these
findings  were sufficient to support the boards ruling  that  the
administrator  had  no obligation to include McMullens  cashed-in
leave as part of his compensation.
          McMullen  appeals.  He argues that because the superior
court  never vacated the boards first decision, the boards second
decision  affirms its first decision (ruling in McMullens  favor)
rather   than   the   administrators  decision  (ruling   against
McMullen).  Second,  he  argues that he  has  a  constitutionally
vested  right in the application of the statute in place  at  the
time  he  first  enrolled  in  PERS.   Finally,  he  claims  that
principles  of statutory interpretation require that his  accrued
unused  leave  be included in the calculation of  his  retirement
benefits.4
III. DISCUSSION
     A.   Standard of Review
          This  appeal  involves  review  of  a  superior  courts
affirmance  of an agency decision.  When the superior court  acts
as  an  intermediate court of appeal in an administrative matter,
we independently review and directly scrutinize the merits of the
boards decision.5
          McMullen appeals the agencys interpretation of  article
XII,  section  7 of the Alaska Constitution and of  the  statutes
governing retirement benefits. This court applies its independent
judgment  when  reviewing constitutional questions.6   Where,  as
here, a statutory question does not involve agency expertise,  we
review   the  agencys  ruling  under  the  independent   judgment
standard.7  In exercising our independent judgment, we must adopt
the  rule  of law that is most persuasive in light of  precedent,
reason, and policy.8
          McMullens appeal also requires us to review the  boards
resolution of the underlying facts.  We review an agencys factual
determinations  to ensure that they are supported by  substantial
evidence.9  Substantial evidence is such relevant evidence  as  a
reasonable mind might accept as adequate to support a conclusion.10
     B.   The Boards Tie Vote
          McMullens  first argument is that the board incorrectly
concluded that its tie vote affirmed the administrators  original
decision.   He argues that the effect of the boards tie  vote  is
not  to affirm the administrators original decision against  him,
but  rather  to  affirm the boards first decision  reviewing  the
administrators  decision  which reversed  the  administrator  and
ruled in McMullens favor.
          McMullen  did  not raise this point before  the  board,
argue  it before the superior court, or list it in his points  on
appeal.   The  administrator argues that McMullen  has  therefore
waived this argument.
          Ordinarily this court will not consider an issue raised
for  the first time on appeal.11  The only exception is where the
issue  is  1) not dependent on any new or controverted facts;  2)
closely related to the appellants trial court arguments;  and  3)
could have been gleaned from the pleadings.12
          Although McMullens argument is not dependent on any new
or  controverted facts, it is not closely related  to  the  trial
court  arguments, and it could not have been gleaned from any  of
the earlier proceedings.  As a result, it does not qualify for an
exception  to  the  waiver  rule.  We decline  to  consider  this
argument.
     C.   McMullens   Right  To  Have  His  Benefits   Calculated
          According to the Law in 1969
          McMullen  argues  that  he has  a  right  to  have  his
benefits  determined  under the law and practices  that  were  in
effect when he was hired.  We agree.
          Under   article   XII,  section   7   of   the   Alaska
Constitution,  the  state may not impair  the  benefits  a  state
employee   has  accrued  under  the  states  employee  retirement
systems.13  Our case law establishes that an employees  right  to
benefits  vests  upon employment or enrollment in the  retirement
system  rather  than  upon  retirement.14   An  employees  vested
benefits  arise  by  statute, from the  regulations  implementing
          those statutes, and from the divisions practices.15  Where the
state   has  changed  the  benefits  system  after  an  employees
enrollment  in the system, the employee may choose to accept  the
new  system  or  may  opt  to  keep the  benefits  in  effect  at
enrollment.16
          McMullen is therefore entitled, if he chooses, to  have
his  benefits  calculated according to the  system  that  was  in
effect  at the time of his enrollment.  This system was  governed
by the statutes in effect at that time, the regulations that were
then applicable, and the divisions practices as of 1969.
     D.   McMullens Vested Benefits at the Time of His Enrollment
          in the Retirement System
          
          McMullen maintains that the statutory regime in  effect
when  he was enrolled entitles him to include his cashed-in leave
when calculating his benefits. McMullen relies on our opinion  in
Flisock v. State, Division of Retirement and Benefits.
          In  Flisock,  we  considered a  school  superintendents
claim  that  under the Teachers Retirement System, his  cashed-in
leave should be included when calculating his retirement benefits
notwithstanding  the  legislatures  attempt  to   prohibit   this
practice.17 Flisock argued that the legislatures effort to remove
cashed-in  leave from the definition of base salary violated  his
rights under article XII, section 7 of the Alaska Constitution.18
            The  Teachers Retirement Board had ruled that because
Flisock did not accumulate the leave he cashed in until after the
statutory  change,  the  change did not impair  any  benefits  he
actually had at the amendments effective date.19  We rejected the
boards  approach, noting that we had consistently  held  that  an
employees retirement benefits were controlled by the system as it
was  when the employee enrolled in the system and not as  it  was
upon his retirement.20  We therefore concluded that if Flisock had
a right when he enrolled in the system to include cashed-in leave
as  part of his base salary, it was irrelevant whether he accrued
the  leave  he ultimately cashed in before or after the statutory
changes.21
          To  determine whether Flisock ever had such a right, we
looked to the statute in effect at the time of his enrollment and
to  the  agencys  practices.22  We observed that  under  the  TRS
retirement  statute, a member was entitled  at  retirement  to  a
monthly benefit equal to two percent of the members average  base
salary during any three school years of membership service  times
the  years  of  credited service, including  credited  fractional
years, divided by 12. 23  At the time of Flisocks enrollment, base
salary was defined as
          any remuneration accrued under a contract  to
          a  teacher for professional services rendered
          during any school year; for purposes of  sec.
          50  of  this  chapter,  base  salary  accrued
          includes any payments made after June 30 of a
          school year for services rendered before  the
          end of the school year.[24]
          
We noted that the statute nowhere excluded payments for cashed-in
leave.25
          We  next  looked  to the practice concerning  cashed-in
leave in 1969. We remarked that the state had offered no evidence
that  the divisions practice in 1969 was to exclude payments  for
unused  leave, and we observed that there was some evidence  that
in   1969   cashed-in  leave  was  used  when  calculating   base
compensation.26  We therefore held that Flisock was  entitled  to
use cashed-in leave when calculating his compensation.27
          McMullen  argues  that  under  Flisock,  he,  too,   is
entitled  to  include  his cashed-in leave when  calculating  his
benefits.   He  reasons  that,  like  the  operative  statute  in
Flisock, the relevant statute here did not exclude cash-ins  from
the definition of compensation in 1969.
          McMullen  is  correct  that  cashed-in  leave  was  not
excluded from the definition of compensation at the time  of  his
enrollment  in  the retirement system.  When McMullen  began  his
employment  with  the  state, compensation for  purposes  of  the
system was defined as:
          the total remuneration paid to an employee by
          the  employers for personal services rendered
          during  the  period  considered  as  credited
          service, including cost-of-living adjustments
          or   differentials  and  including   monetary
          value,   as  determined  by  the  board,   of
          subsistence and maintenance provided  by  the
          employers  in  partial payment for  services,
          but  excluding  retirement and other  welfare
          benefits financed by the employers.[28]
          
          But  the  bare fact that the statute did not  expressly
exclude  cashed-in leave from the definition of  compensation  is
not  enough  to  support McMullens argument.   As  already  noted
above,  our  decision in Flisock relied on two factors:  (1)  the
divisions failure to offer evidence that it excluded payments for
unused  leave; and (2) the presence of some evidence establishing
that  cashed-in  leave had actually been counted.   Flisock  thus
stands  for  the proposition that, under the employers originally
established  practices,  the employee  must  actually  have  been
entitled  to  the  benefit  that  the  states  subsequent  action
allegedly diminished.  As a result, McMullen must show  not  only
that  the  original statute did not exclude cashed-in leave  from
the  definition  of  compensation, but also that,  like  Flisock,
under  the  law or policies that originally applied  to  him,  he
actually was entitled to cash in accrued leave.
          The board found that McMullen never actually had such a
right.  Our careful review of the record reveals that substantial
evidence supports the boards factual findings.
          The  board  found that in 1976 and 1977 two  collective
bargaining  units negotiated agreements that included  the  right
for  their  members  to  cash in leave.   The  board  found  that
McMullen  was not in the category of employees who were  entitled
to  cash  in  leave under these collective bargaining agreements.
The  record  supports these findings.  The record shows  that  in
1969, state employees were not permitted to cash in accrued leave
          while they were still employed.  Documents in the record reveal
that  the  Supervisory Unit employees and the General  Government
Unit  employees  later negotiated the right to  cash  in  accrued
leave  and  that these rights became effective in 1976 and  1977.
McMullen acknowledged that he was not a member of either of these
units.
          McMullen  maintained  at  the board  hearing  that  the
Department  of Administration allowed some employees to  cash  in
leave  even if they were not covered by the collective bargaining
agreements.   But though McMullen argues to the contrary  in  his
brief,  he  conceded at the board hearing that he was  not  among
those employees.
          The  board  also  found  that in 1977  the  legislature
amended  the  definition  of compensation  to  exclude  cashed-in
leave.29    Between  the  time  when  the  collective  bargaining
agreements  became  effective  and the  legislature  amended  the
definition  of  compensation, the Department  of  Administrations
director  of  retirement and director of finance disagreed  about
whether the leave cash-ins counted as compensation.  The attorney
generals  office  issued a memo supporting the finance  directors
position  that leave cash-ins were compensation.  The  timing  of
the  legislatures  action suggests that it  was  motivated  by  a
desire  to  prohibit the use of cash-ins to inflate an  employees
retirement benefits.
          Not  only  did the board find that the availability  of
leave  cash-in was nonexistent for McMullen at all  times  before
the legislature amended the definition of compensation, the board
also  found that McMullen did not have any reasonable expectation
that he would be able to include cashed-in leave when calculating
his  retirement  benefits.  McMullen stated at the  hearing  that
during  the  collective  bargaining  negotiations  in  1976,   he
considered the possibility that he might one day become  eligible
to  cash in leave.  But he admitted that it never occurred to him
that   cashed-in   leave  might  be  included  when   calculating
retirement benefits.  Indeed, he acknowledged that he didnt think
of leave cash-ins as applying to [retirement benefits] until [he]
was sent a copy of the Flisock decision.  Flisock was decided  in
1991  fourteen years after the legislature amended the law to bar
a  practice that could conceivably have given McMullen  a  vested
right  before then, but only if it had actually extended to  him.
The  record  amply supports the boards finding  that  during  the
period  that  preceded  the legislatures exclusion  of  cashed-in
leave from the definition of compensation McMullen never acquired
a reasonable expectation of being able to include cashed-in leave
when calculating his retirement benefits.
          The  board issued an evenly split decision that had the
effect  of affirming the administrators ruling.  Because McMullen
was  not  eligible to cash in leave when the legislature  amended
the definition of compensation and because he could not then have
reasonably   expected  to  be  able  to  include  cash-ins   when
calculating  retirement  benefits, the prevailing  board  members
concluded  that  McMullen had no right to include  his  cashed-in
leave  when  his  retirement benefits were later calculated.   We
agree.   Before the legislature amended the law in 1977,  neither
          by law nor by practice did McMullen actually acquire a right to
have  his  cashed-in leave included as part of his  compensation.
He  therefore had no right that could have been impaired when the
legislature  excluded  cashed-in leave  from  the  definition  of
compensation.   Accordingly,  the  divisions  refusal  to   allow
McMullen  to  include  his cashed-in leave when  calculating  his
retirement  benefits does not violate article XII, section  7  of
the Alaska Constitution.
IV.  CONCLUSION
          For   the  foregoing  reasons,  we  AFFIRM  the  boards
decision  that McMullen is not entitled to include his  cashed-in
leave as part of his compensation for purposes of calculating his
retirement benefits.
_______________________________
     1    Flisock v. State, Div. of Ret. & Benefits, 818 P.2d 640
(Alaska 1991).

     2    Id.

     3     The fifth member of the board did not participate  due
to a conflict.

     4     McMullen also argued in his appellate brief that three
of  the  four  questions  posed  to  the  Board  on  remand  were
irrelevant to a determination of whether McMullens unused accrued
leave  should  be  included  in  his  compensation.   Because   a
resolution of this issue in McMullens favor would not affect  the
outcome of this case, we decline to consider it.

     5     Alyeska  Pipeline Serv. Co. v. DeShong, 77 P.3d  1227,
1231 (Alaska 2003).

     6     Holding v. Municipality of Anchorage, 63 P.3d 248, 250
(Alaska 2003).

     7     Handley v. State, Dept of Revenue, 838 P.2d 1231, 1233
(Alaska 1992).

     8    Guin v. Ha, 591 P.2d 1281, 1284  n.6 (Alaska 1979) .

     9    DeYonge v. NANA/Marriott, 1 P.3d 90, 94 (Alaska 2000).

     10    Id. (internal quotation marks omitted).

     11    State v. Northwestern Constr., Inc., 741 P.2d 235, 239
(Alaska 1987).

     12    Id.

     13    Article XII, section 7 provides that:

          Membership in employee retirement systems  of
          the State or its political subdivisions shall
          constitute    a   contractual   relationship.
          Accrued  benefits of these systems shall  not
          be diminished or impaired.
          
     14     Flisock v. State, Div. of Ret. & Benefits,  818  P.2d
640, 643 (Alaska 1991).

     15     See  id. at 644; Sheffield v. Alaska Pub.   Employees
Assn, 732 P.2d 1083, 1087 (Alaska 1987).

     16    Hammond v. Hoffbeck, 627 P.2d 1052, 1059 (Alaska 1981).

     17    Flisock, 818 P.2d at 643.

     18    Id.

     19    Id.

     20    Id.

     21    Id.

     22    Id. at 643-44.

     23    Id. at 642.

     24     Ch. 84,  15, SLA 1969, quoted in Flisock, 818 P.2d at
643.

     25    Flisock, 818 P.2d at 644.

     26    Id.

     27    Id.

     28    Former AS 39.35.680(4) (effective until June 30, 1977).

     29    Ch. 128,  54, SLA 1977.

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