Arbitration • Employee Benefits • Pensions and Other Retirement Benefits

City of Scranton v. E.B. Jermyn Lodge No. 2 of the Fraternal Order of Police, PICS Case No. 14-0213 (Pa. Commw. Nov. 14, 2013) Simpson, J. (15 pages).

These consolidated cross-appeals involving the City of Scranton and its police personnel, originating from a February 2009 interest arbitration award issued under the statute commonly known as the Policemen and Firemen Collective Bargaining Act (Act 111), returned to the appellate court from the Supreme Court. On remand, the appellate court addressed retirement benefits. The appellate court modified the common pleas court order.

A series of interest arbitration awards between the city, designated a distressed municipality under Municipalities Financial Recovery Act (Act 47), and its public safety employee unions resulted in various appeals to determine the interplay between the two Acts. While the matters were on appeal, a divided arbitration panel entered the 2009 award, with the remaining matter for appeal being retirement benefits.

The 2009 award amended the police pension plan and provided for a deferred retirement option plan (DROP) benefit. The city sought to vacate the 2009 award arguing the retirement benefits award lacked support in the record and failed to comply with applicable pension law. The common pleas court modified the award to reflect a maximum retirement benefit and held the arbitration panel exceeded its authority under Act 111 by awarding a DROP prior to the new statute becoming effective. Both the city and Fraternal Order of Police appealed the common pleas’ resolution. The appellate court modified the lower courts’ order to vacate both the pension benefit and DROP benefit which the FOP, in turn, appealed to the Supreme Court. The Supreme Court vacated this appellate court’s ruling and remanded back to the appellate court the resolution of retirement benefits. The FOP argued the common pleas court exceed its authority when it determined the pension benefit enhancement was unlawful where the city did not raise such an issue. The city opposed stating it did not waive its right to challenge the legality of the pension benefit enhancement and indicated the illegal interest arbitration award satisfies the “excess of powers” aspect of certiorari review.

Chapter 3 of Act 205 governed minimum funding standards for municipal pension plans. 53 P.S. §§895.301-895.307. When there is a conflict between Act 205 and a pension plan modification, Act 205 must be given effect. Act 205 required an actuarial cost estimate for any benefit plan modification; the city argued FOP failed to provide said estimate and the arbitration panel’s determination that the increased benefits would have an acceptable limited impact was not supportable under Act 205. The appellate court held the common pleas court was correct in modifying the pension plan as the plan was not supported by actuarial estimates and was underfunded; further the common pleas court was correct in vacating the DROP award. As both the pension benefit enhancement and DROP benefit are impacted by the inadequacy of the FOP’s proof, vacation of those parts of the 2009 award was required and the appellate court modified the common pleas court order accordingly.