Payroll Deduction for Health Benefits Should Be Added to Teacher’s Salary When Calculating Retirement Benefit

The Third Department reversed Supreme Court finding that the pre-tax payroll deduction from a teacher’s pay for health benefits must be added to the teacher’s salary to determine the retirement benefit:

We agree with petitioner’s assertion that respondents’ exclusion of the premium surcharge payment from the calculation of her final average salary was irrational and arbitrary and capricious and, therefore, we reverse. A teacher’s final average salary for purposes of determining public retirement benefits is “the average regular compensation earned as a teacher during the three years of actual service immediately preceding his [or her] date of retirement” (Education Law § 501 [11] [b]). The “wages” used in calculating the final average salary consist of “regular compensation earned by and paid to a member by a public employer” (21 NYCRR 5003.4 [b]). Notably, Retirement and Social Security Law § 79 provides, as relevant here, that, “[t]o the extent permitted by [26 USC § 125] and any regulations adopted pursuant thereto, any salary reduction elected by an employee who is a participant in [the Retirement System] under a cafeteria plan or flexible benefit plan shall be considered part of annual compensation for the purpose of . . . computing retirement benefits.”  Matter of Felice-zwaryzuk v NYS Teachers’ Retirement System, 2014 NY Slip Op 08095, 3rd Dept 11-20-14