Agenda Item 10
September 28,2010
Public Hearing
MEMORANDUM
TO:
FROM:
SUBJECT:
County Council
Robert
H.
Drummer, Senior Legislative Attorney
Public Hearing:
Bill 45-10, Personnel
Total and Partial Incapacity
~
Disability Retirement - Eligibility
Expedited Bill 45-10, Personnel- Disability Retirement - Eligibility - Total and Partial
Incapacity, sponsored by Councilmembers Trachtenberg, Andrews, Berliner, and Council Vice
President Ervin, was introduced on July 27, 2010. A joint Public SafetylManagement and Fiscal
Policy Committee worksession is tentatively scheduled for October 4 at 9:30 a.m.
Background
Bill 45-10 would create a two-tier service-connected disability retirement system for all
County employees identical to the current system for fire and rescue employees. Employees
eligible for a service-connected disability retirement benefit would receive either a partial
incapacity benefit of at least 52 1;% of final earnings or a total incapacity benefit of at least 70%
of final earnings. The current system for all employees, except fire and rescue employees,
provides a service-connected disability retirement benefit of at least 66
%%
of final earnings for
both partial and total incapacity.
An employee would be eligible for a total incapacity benefit if the employee was unable
to perform any substantial gainful activity because of an impairment that is unlikely to resolve in
the next 12 months and may be permanent. An employee would be eligible for a partial
incapacity benefit if the impairment prevents the employee from performing one or more of the
essential functions of the employee's position, but does not prevent the employee from
performing any other substantial gainful activity.
The Council enacted amendments to the disability retirement system in Bill 37-08 on
May 12,2009. One of the amendments in the Bill as introduced, but not enacted, was to extend
the two-tier system for service-connected disability benefits to all public safety employees. At
the Council's request last year, the Office of Human Resources provided information on the
County's experience with this two-tier system for fire and rescue employees. As of May 2009,
only 10 of the 67 fire and rescue employees who received a service-connected disability
retirement since the two-tier system began in 2000 were awarded the higher 70% benefit.
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Therefore, 85% of the awards were at the lower 52 Yz% level. The County's actuary, Mercer,
estimated the annual savings to the County's retirement contribution for extending the two-tier
system to Group F (Police) to be more than $1.5 million based upon an assumption that 60% of
the disability retirements would be at the lower leveL A copy of Mercer's January 2009 letter is
at © 17-21. If the Group G (Fire and Rescue) experience is carried over to all employees, the
actuary estimated the annual savings would be more than $2.7 million.
The Bill would also prohibit the award of a service-connected disability pension to an
employee who "has committed an offense that would justify removal for cause." This provision
was also included in Bill 37-08, as introduced, but not enacted in the final version of the Bill.
Legal Issue
The Office of the County Attorney (OCA) provided a bill review memorandum dated
September 17. See ©22-25. The OCA raises concern about the effective date of the Bill. The
OCA believes that the Bill's creation of a partial disability benefit may be struck down as a
substantial impairment of a contract in violation of the Contracts Clause of the United States
Constitution. The OCA recommends avoiding this issue by amending the effective date of the
Bill to apply to injuries sustained after the effective date of the Bill and after the terms of the
current collective bargaining agreements with the FOP and MCGEO expire. The OCA opinion
acknowledges that this question is unsettled and advises that delaying the effective date would be
the most conservative approach.
Council staff disagrees with some of these conclusions. In
Robert T. Foley Co.
v.
Ws.s.c.,
283 Md. 140, 151-152 (1978), the Maryland Court of Appeals set the framework to
determine if government action unconstitutionally impairs contractual obligations:
Consideration of a claim that particular governmental action invalidly impairs
contractual obligations involves several steps.
See United States Trust Co.
v.
New
Jersey,
431 U.S. 1, 17-21,97 S. Ct. 1505,52 L.Ed.2d92 (1977). First, it must be
determined whether a contract existed. If that hurdle is successfully cleared by
the claimant, a court next must decide whether an obligation under that contract
was changed. Finally, if the second question is answered in the affirmative, the
issue becomes whether the change unconstitutionally impairs the contract
obligation, '[flor it is not every modification of a contractual promise that impairs
the obligation of contract under federal law ....
In
Bd. of Trustees.
v.
Mayor
&
City Council ofBaltimore City,
317 Md. 72, 100 (1989),
the Maryland Court of Appeals held that "under Maryland law, pension plans create contractual
duties toward persons with
vested
rights under the plans."
(emphasis added)
As to when an
employee's right to a disability pension vests, the Maryland courts have held that a public
employee's right to a disability pension does not vest until the employee satisfies the conditions
necessary to receive the benefit. This would include the injury, a determination that the
employee is no longer able to perform the duties of the position, and an application for benefits.
See
Davis
v.
City ofAnnapolis,
98 Md. App. 707 (1994);
Saxton
v.
Bd. of Trustees of the Fire
and Police Employees Retirement System ofthe City ofBaltimore,
266 Md. 690 (1972). As the
2
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DCA
opinion points out, the decisions in
Davis
and
Saxton
both rely on the date of injury as the
time of vesting. However, neither case raised the issue of whether an employee must satisfy
other conditions for a disability pension before vesting.
It
is, therefore, difficult to predict how a
Court would rule on this issue.
Even if an employee's rights have vested at the time of injury, every modification of a
contract does not result in an unconstitutional impairment. The legislative body always retains
the right to make reasonable modifications to vested rights for an important public purpose. In
this case, the sustainability of the retirement system is an important public purpose.) In addition,
the Bill creates a lower partial incapacity benefit, but also raises the minimum benefit for total
incapacity.
The
DCA
also raised a concern that the collective bargaining agreements may create a
contractual bar to implementing the Bill during the terms of the existing agreements. The
DCA
argued that the Council's ratification of the collective bargaining agreements containing
provisions where the union and the Executive agreed to submit legislation to the Council
establishing the current disability retirement system created a contractual right that is subject to
the Contracts Clause. Although the
DCA
agreed that a reviewing Court may find the reforms in
the Bill to be reasonable and necessary, and therefore a permissible impairment of the collective
bargaining contracts, they recommend avoiding the issue by amending the effective date of the
Bill to coincide with the end of the current collective bargaining agreements. The MCGED
agreement expires in 2011 and the
FDP
agreement expires in 2012.
Council staff disagrees with this analysis because it misconstrues the role of the Council
in the collective bargaining process. The Council did not generally ratify these collective
bargaining agreements. Under each agreement, the union and the Executive agreed to submit
proposed legislation to the Council, which was ultimately enacted. All disability rights are
created by the law, not the collective bargaining agreement. The enactment of a disability law by
the Council in the 1990' s cannot prevent the current Council from exercising its plenary
legislative authority to amend that law.
This packet contains:
Expedited Bill 45-10
Legislative Request Report
Mercer January 2009 letter
County Attorney Bill Review Memorandum
Circle
#
1
16
17
22
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«
The OCA opinion does not predict whether a Court would find that the creation of a partial disability benefit is a
reasonable modification to a vested right for an important public purpose.
I
3
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Bill No.
_4-'"'5:::...-..:..:10=----_ _ _ __
Concerning: Personnel- Disability
Retirement - Eligibility - Total and
Partial Incapacity
Revised: July
28, 2010
Draft No. _6__
Introduced:
July
27. 2010
Expires:
January
27,2012
Enacted: _ _ _ _ _ _ _ _ __
Executive: _ _ _ _ _ _ _ __
Effective:
_~:-:-
_ _ _ _ _ __
Sunset Date: --':'N=o.:..:.;ne=---=--_ _ __
Ch. _ , Laws of Mont. Co. _ _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Councilmembers Trachtenberg, Andrews, Berliner, and Council Vice President Ervin
AN
ACT to:
(1)
(2)
(3)
(4)
create a partial incapacity disability retirement benefit for certain employees;
create a total incapacity disability retirement benefit for certain employees;
prohibit an employee who commits certain offenses from receiving a service
connected disability retirement benefit; and
generally amend County law regarding disability retirement.
By amending
Montgomery County Code
Chapter 33, Personnel and Human Resources
Sections 33-43, 33-128,33-129, and 33-131
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
Heading or defined term.
Added to existing law by original bill.
Deletedfrom existing law by original bill.
Added by amendment.
Deletedfrom existing law or the bill by amendment.
Existing law unaffected by bill.
'"
'" '"
The County Council for Montgomery County, Maryland approves the following Act:
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BILL No.45-10
1
Sec. 1.
follows:
33-43.
Sections 33-43, 33-128, 33-129, and 33-131 are amended as
2
3
Disability retirement.
*
4
*
*
5
6
7
(b)
Definitions.
In this Section, the following words and phrases have the
following meanings:
*
*
*
8
Partial incapacity
means
~
member's inability to perform one or more
9
10
11
12
13
14
essential functions of the position the member holds because of
impairment that;
ill
ill
ill
is unlikely to resolve in the next
II
months;
may be permanent; and
does not prevent the member from performing any other
substantial gainful activity.
15
16
*
*
*
Total Incapacity
means the member's inability to perform substantial
17
gainful activity because of an impairment that;
18
19
ill
ill
(1)
is unlikely to resolve in the next 12 months; and
may be permanent.
20
21
22
*
*
*
Service-connected disability retirement.
(1) A member may be retired on a service-connected disability
retirement if:
(A) the member is totally or partially incapacitated [for duty
or partially and permanently incapacitated for duty] as
the natural and proximate result of an accident occurring,
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No.45-10
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or an occupational disease incurred or condition
aggravated,1 while in the actual performance of duty;
(B) the incapacity is not due to the member's willful
negligence;
(C) the incapacity is likely to be permanent; [and]
(D) the member is unable to perform the duties of either:
(i)
the occupational classification to which the
member was assigned [at the time] when the
disability occurred; or
(ii) a position of comparable status [within] in the
same department for which the member is
qualified~
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33
34
35
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37
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and[.]
(E) the member has not committed an offense that would
, justify removal for cause.
m
For
(i)
an accidental injury that does not cause mental
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43
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45
46
47
impairment, the member must:
[reports] report the claimed accidental injury as
soon as practicable, but no later than one year after
the applicant knew or should have known that the
injury is likely to be disabling; or
Oi)
[submits]
submit
a
claim
for
Workers'
48
49
Compensation benefits for the accidental Injury
that is not dismissed as untimely.
[(F)]
(Q)
The time periods for reporting in subparagraphs (i)
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and (ii) do not begin while the member is unable to report
because of incapacitating injuries.
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[(G)] (H)
For an accidental injury that occurs after July 1,
2009, the member must apply for disability benefits:
(i)
within one year after separation from County
service or before July 1, 2010, whichever is later;
and
(ii)
if the applicant is a member of Group F, within 5
years after the date of the accident causing the
impairment or before July 1, 2014, whichever is
later, unless the member is in a chronic incapacity
duty assignment.
*
(i)
*
*
Amount ofpension at service-connected disability retirement.
(1)
Total incapacity.
The County must pay a member [, other than
a Group G member,] who retires on service-connected
disability retirement with total incapacity an annual pension
calculated under Section 33-42(b)(1), [subject to the following
exceptions] except that:
(A)
the County must substitute final earmngs for average
final earnings; and
(B)
the pension must be at least [66
2/3
percent] 70% of the
member's final earnings.
(2)
[The County must pay a Group G member who retires on a
service-connected disability retirement an annual pension
calculated under Section 33-42(b)( 1), except that the County
must substitute final earnings for average final earnings.
However, if this] If the benefit calculation under Section 33­
42(b)(1) is greater than any other benefit under this subsection,
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the County must pay a Group G member who retires on a
service-connected disability retirement between June 26, 2002,
and June 30, 2007, a pension based on the member's average
final earnings if that member's average final earnings result in a
greater benefit than fmal earnings.
(3)
[The County must pay a Group G member who retires on a
service-connected disability retirement an annual pension
calculated under Section 33-42(b)(1), but the benefit must be at
least 70 percent of final earnings if the Chief Administrative
Officer finds, based on a recommendation from the Disability
Review Panel, that] The Disability Review Panel must
recommend
f!
finding of total incapacity if the member's
service-connected disability is severe enough to meet the Social
Security Administration's requirements for disability, meaning
that the member is unable to engage in any substantial gainful
activity because of a medically determinable physical or mental
impairment that can be expected to end in death or has lasted,
or can be expected to last, for a continuous period of at least 12
months.
The member does not have to qualify for Social
Security disability benefits to be eligible for benefits under this
subsection.
(A)
The Panel must base its determination of whether [or not]
an individual is able to engage in any substantial gainful
activity on an assessment from an independent vocational
expert that considers the member's age, education, work
expenence, transferable skills, and residual functional
capacity.
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(B)
The Panel must determine the member's residual
functional capacity and provide this information to the
independent vocational expert.
(C)
A Panel determination that the member's servlce­
connected disability is severe enough to be considered a
disability by the Social Security Administration is not a
recommendation that the member is entitled to, or should
be granted, a disability benefit by the Social Security
Administration.
(D)
If a member has already been granted disability benefits
by the [U.S.] Social Security Administration when the
member applies for a service-connected disability
pension, the County must pay the member a pension of at
least 70% [percent] if the Disability Review Panel finds
that the award of disability benefits from the Social
Security Administration was based primarily on the same
medically determinable physical or mental impairment
on which the Disability Review Panel awards the
member a service-connected disability benefit.
(4)
The County must pay a [Group G] member who retires with
partial incapacity on a service-connected disability retirement
an annual pension calculated under Section 33-42(b)(1), but the
benefit must be at least 52Y2 % [percent] of final earnings if the
Chief Administrative Officer finds, based on a recommendation
from the Disability Review Panel, that:
(A)
the member meets the standards to receive a servlce­
connected disability benefit under subsection
(0;
and
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No.4S-10
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(B)
the member is not eligible to receive a benefit for total
incapacity under subsection (i)(3).
(5)
(A)
The County must increase the partial incapacity service­
connected disability pension benefit of a [Group G]
member calculated under Section 33-42(b)(1), from a
benefit of at least 52
Yz
%
[percent] to
70
%
[percent], if:
(i)
the [U.S.] Social Security Administration awards
disability benefits to the member;
(ii)
the member submits all relevant information about
the award of disability benefits from the Social
Security Administration to the Disability Review
Panel within 60 days after the member receives the
award;
(iii)
the Disability Review Panel finds that the award of
disability benefits
from
the
Social
Security
a
benefit of at least
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Administration was based primarily on the same
medically
determinable
physical
or
mental
impairment on which the Disability Review Panel
originally
awarded
the
member
a
service­
connected disability benefit; and
[(a)] (iv) the member applies for disability benefits with
the Social Security Administration within 90 days
after the [date on which the] Chief Administrative
Officer notified the member that the [amount of
the] service-connected disability pension benefit
would be calculated [under Section 33-42(b)(1),
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but at least 52
Yz
percent; or] as
incapacity.
[(b)
~
partial
the Chief Administrative Officer awards a service­
connected disability pension benefit calculated
under Section (b)( 1), but at least 52
Yz
percent to
the member between March
1, 2000,
and
December 1, 2003, and the member applies for
disability
benefits
with the
Social
Security
Administration no later than February 29,2004.]
(B)
[For] If a member [who] qualifies for an increased
pension benefit under [subsection (5)] subparagraph (A)
[above], the County must increase the member's service­
connected pension retroactively to the date [on which]
when the pension began.
*
(7)
*
*
The County must pay a Group F member who retires on a
service-connected disability retirement on or after June 26,
2002, an annual pension calculated under subsection (i) (1) or
subsection
ill
ill.
However, if [the]
~
greater benefit results
from the calculation under Section 33-42(b)(l), the County
must pay a Group F member a pension based on the member's
average final earnings if that member's average final earnings
result in a greater benefit than final earnings.
0)
Adjustment or cessation ofdisability pension payments.
(1)
If a member receiving service-connected disability penSIOn
payments reaches the first day of the month [following] after
the member's normal retirement date, the amount of pension
(f)
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then payable must not be less than the amount that would have
been payable under [the provisions of] Section 33-45( c)[,] if the
member had terminated service [on] when the [date] disability
pension [commenced] began and had not elected a return of
member contributions with credited interest.
(2)
(A)
The Chief Administrative Officer may reduce the amount
of the disability pension payments of a member retired
with total incapacity who:
(i)
(ii)
has not reached the normal retirement date; and
IS
engaged m, or
IS
able to engage In, an
occupation that pays more than the difference
between the disability pension payments and the
current maximum earnings of the occupational
classification
disabled.
(B)
If
a member other than a Group F member meets the
from
which the member was
criteria in subparagraph (A), the Chief Administrative
Officer may reduce the member's disability pension
payments until the disability pension payments plus the
amount that the employee earned or is able to earn equals
the maximum earnings of the occupational class from
which the member was disabled.
*
(3)
*
*
If the earnmgs capacity of a disability retiree with
9:
total
incapacity changes, the Chief Administrative Officer may
change the amount of the disability retirement pension. [For
the purpose of] In this subsection, "disability pension" is the
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amount of pension payable without election of a pension
payment option.
(A)
For a disability retiree other than a group F member, the
Chief Administrative Officer must ensure that the amount
of the revised pension does not exceed:
(i)
the original disability retirement pension plus cost­
of-living increases; or
(ii)
an amount that, when added to the amount the
member earns or is able to earn, equals the
maXImum
earnmgs
of
the
occupational
member was
classification from
disabled.
(B)
which the
For a Group F member who receIves a non-serVIce
connected disability pension, the Chief Administrative
Officer must ensure that the amount of the revised
pension must not exceed:
(i)
the original disability retirement pension plus cost­
of-living increases; or
(ii)
an amount that, when added to the amount that the
member earns or is able to earn, equals 120 percent
of the maximum earnings of the occupational
classification from
disabled.
which the
member was
(4)
A member who receives
~
disability retirement pension for
~
total incapacity must submit to the Chief Administrative Officer
Qy
May 30 of each year
~.ffiPY
of that portion of the member's
federal income tax return which shows the member's income.
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If a member [receiving] who receIves disability pension
payments [fails or refuses to] does not supply the Chief
Administrative
Officer
[whatever]
any
information
[is
determined necessary] the Chief Administrative Officer needs
to [make a decision on] decide the amount of retirement pay
legally due, the Chief Administrative Officer must suspend the
member's pension payments [must be discontinued] until the
member submits the [requested] needed information.
*
33-128. Definitions.
*
*
In this Division, the following words and phrases have the following
meanmgs:
*
*
*
Partial incapacity
means
f!
member's inability to perform one or more
essential functions of the position the member holds because of
impairment that;
ill
ill
ill
is unlikely to resolve in the next
11
months;
may be permanent; and
does not prevent the member from performing any other
substantial gainful activity.
*
*
*
Residual functional capacity
means what the individual can still do,
despite the individual's impairment. The County must give the term
residual functional capacity the same meaning as the term is given by
the Social Security Administration.
Substantial gainful activity
means a level of productive work that
requires significant physical or mental duties, or a combination of
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both, perfonned for payor profit on a full- time or part-time basis.
An
individual is able to perfonn a substantial level of work if the
individual
is
able to
earn more
than the
Social
Security'
Administration's current monthly earnings limit for a disabled person.
The County must give the tenn substantial gainful activity the same
meaning as the tenn is given by the Social Security Administration.
Tala/Incapacity
means the member's inability to perfonn substantial
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gainful activity because of an impainnent that;
ill
ill
is unlikely to resolve in the next 12 months; and
may be pennanent.
33-129. Disability benefits.
*
*
*
(f)
The Disability Review Panel must recommend
f!
finding of total
incapacity if the member's service-connected disability is severe
enough to meet the Social Security Administration's requirements for
disability, meaning that the member is unable to engage in any
substantial gainful activity because of
f!
medically detenninable
physical or mental impainnent that can be expected to end in death or
has lasted, or can be expected to last, for
f!
continuous period of at
least
12
months. The member does not have to qualify for Social
Security disability benefits to be eligible for benefits under this
subsection.
(1)
The Panel must base its detennination of whether an individual
is able to engage in any substantial gainful activity on an
assessment from an independent vocational expert that
considers the member's age, education, work expenence,
transferable skills, and residual functional capacity.
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ill
The Panel must determine the member's residual functional
capacity and provide this information to the independent
vocational expert.
ill
A Panel determination that the member's service-connected
disability is severe enough to be considered
f!
disability
Qy
the
Social Security Administration is not
f!
recommendation that
the member is entitled
~
or should be granted,
f!
disability
benefit
Qy
the Social Security Administration.
ill
If
f!
member has already been granted disability benefits
Qy
the
Social Security Administration when the member applies for
f!
service-connected disability pension, the County must give the
member
f!
total incapacity benefit if the Disability Review Panel
finds that the award of disability benefits from the Social
Security Administration was based primarily on the same
medically determinable physical or mental impairment on
which the Disability Review Panel awards the member
f!
service-connected disability benefit.
312
313
314
315
316
317
318
319
320
321
322
(g)
The Disability Review Panel must recommend
f!
finding of partial
incapacity if:
ill
ill
(hl
the member meets the standards to receive
f!
service-connected
disability benefit; and
the member is not eligible to receIve
f!
benefit for total
incapacity under subsection
(11.
The County must increase the partial incapacity service-connected
disability pension benefit of
f!
member to
f!
total incapacity benefit if:
ill
the Social Security Administration awards disability benefits to
the member;
@
F:\LAw\BILLS\1045 Disability - Total Incapacity, Partiallncapacity\BiII6.Doc
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BILL
No.4S-10
323
324
325
326
327
328
329
330
331
332
333
334
335
336
337
338
339
340
341
342
343
344
345
346
347
348
349
ill
the member submits all relevant information about the award of
disability benefits from the Social Security Administration to
the Disability Review Panel within 60 days after the member
receives the award;
ill
the Disability Review Panel finds that the award of disability
benefits from the Social Security Administration was based
primarily on the same medically determinable physical or
mental impairment on which the Disability Review Panel
originally awarded the member
benefit; and
~
service-connected disability
ill
the member applies for disability benefits with the Social
Security Administration within 90 days after the Chief
Administrative Officer notified the member that the service­
connected disability pension benefit would be calculated as
partial incapacity.
~
ill
If
~
member qualifies for an increased pension benefit under
subsection
th1.
the County must increase the member's service­
connected pension retroactively to the date when the pension
began.
ill
Role ofthe Disability Review Panel.
(1)
The Disability Review Panel must consider an application for
disability benefits to determine if the applicant is eligible for
disability benefits under subsection (a),
(b),
(c), (d), [or] (e).1.c.t1
(g1
or (hl. The Panel may consider any information or material
submitted by the applicant, the certified representative, or the
County. Within 60 days after the application is filed, the Panel
must meet in person",
.Qy
telephone conference, or
.Qy
video
F:\LAw\BILLS\1045 Disability - Total Incapacity, Partiallncapacity\BiIl6.Doc
t9
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BILL
No.4S-10
350
351
352
353
354
355
356
357
358
359
360
361
362
363
364
365
366
367
368
369
370
371
372
conference, to review all evidence submitted to the Panel. [An
action by the Panel under this Section requires a majority vote of
3] A Panel must include either
2
or
J.
members. At least
2
members must vote in favor of
f!
decision to take any action
under this Section.
*
33-131. Amount of benefits.
(a)
*
*
Service-connected disability.
The annual amount of service-connected
disability payments payable for total incapacity equals [66
2/3
percent] 70% of the employee's final earnings, less any reductions
provided in section 33-134. The annual amount of service-connected
disability payments payable for partial incapacity equals 52Y2 % of the
employee's final earnings.
*
Sec. 2.
*
*
Implementation. Notwithstanding any other provision of law,
including §33-80(a)(7) and §33-107(a)(7), the implementation of any amendment
to County Code Chapter 33 in Section 1 of this Act concerning disability
retirement is not subject to collective bargaining with a certified representative of
employees
in
any bargaining unit.
Sec. 3.
Effective Date. The amendments to County Code Chapter 33
made in Section 1 of this Act apply to any application for disability retirement filed
on or after the date this Act takes effect.
Approved:
373
374
Nancy Floreen, President, County Council
Date
@
F:\LAw\BILLS\1045 Disability - Total Incapacity, Partiallncapacity\BiII a.Doc
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LEGISLATIVE REQUEST REPORT
Bill 45-10
Personnel - Disability Retirement - Eligibility - Total and Partial Incapacity
DESCRIPTION:
The
Bill
would create a two-tier service-connected disability
retirement system for most employees consisting of a partial
incapacity disability retirement benefit and a total incapacity
disability retirement benefit. The
Bill
would also prohibit an
employee who commits certain offenses from receiving a service
connected disability retirement benefit, and generally amend County
law regarding disability retirement.
The current system provides the same service-connected disability
retirement benefit for both partial and total incapacity for all
employees except fire and rescue employees. This
Bill
would create
the same two-tier system that fire employees have for all others. The
Bill
would also eliminate the right to a service-connected disability
benefit for an employee who has committed an offense that would
justify removal for cause.
To provide a two-tier service-connected disability retirement system
for all employees and to prevent an employee from avoiding a
termination for cause by applying for a service-connected disability
retirement benefit.
Office of Human Resources, County Attorney
To be requested.
To be requested.
To be requested.
To
be
researched.
Robert H. Drummer, Senior Legislative Attorney
NA
PROBLEM:
GOALS AND
OBJECTIVES:
COORDINATION:
FISCAL IMPACT:
ECONOMIC
IMPACT:
EVALUATION:
EXPERIENCE
ELSEWHERE:
SOURCE OF
INFORMATION:
APPLICATION
WITHIN
MUNICIPALITIES:
PENALTIES:
NA
f:\law\bilis\1045 disability - total incapacity, partial incapacity\lrr.doc
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Aquil
Ahmed,
ASA, EA, MAAA
Worldwide Partner
MERCER
MARSH
MERCER
KROll
OliVEH WYMAN
GUY CAHPENTER
1255 23rd Street, NW, Suite 500
Washington, DC 20037
202 331 5200
Fax
202 296 0909
www.mercer.com
January 9, 2009
Ms. Belinda Fulco
Office of Human Resources
Montgomery County Government
101 Monroe Street. Seventh Floor
Rockville, MD 20850-2589
Via E lectronic Mail
Subject:
New Legislation Proposal on Disability Provisions for ERS
Dear Belinda:
This letter summarizes cost estimates for proposed disability provisions affecting group A, E,
F, G and H of the Montgomery County Employees' Retirement System (ERS).
The estimates are based on the July 1, 2008 actuarial valuation data. The actuarial
assumptions and methods are the same as those used in our July 1, 2008 actuarial
valuation report unless otherwise noted. Actual costs will depend on the actual data and
experience of the plan. The benefit changes are assumed to apply only to active ERS
members, not to retirees or terminated vested members. We have projected all costs from
the July 1, 2008 valuation date to an assumed effective date of July 1, 2009 using standard
actuarial approximation techniques. By cost, we mean the increase in Normal Cost and an
amortization of any changes in unfunded liability. Cost will change over time as experience
develops.
Any pay increases due to an increase in covered positions that result in 2009 valuation pay
exceeding the 2008 valuation pay by more than 4% will result in the County's FY2010 or
FY2011 costs exceeding those implied by the figures shown below.
Description of Proposed Plan Provision Changes
• The service-connected disability retirement benefit amount for groups
A.
E, F, G and H
is:
1. For total incapacity: The greater of the accrued benefit or 70% of final earnings.
2. For all other disability, the greater of the accrued benefit or 52.5% of final
earnings. If the member meets the definition of Social Security disability, the
minimum benefit is 70% of final earnings.
• A new approval board will be created by the County to review all disability claims.
Consulting. Outsourcing.
Investments.
 PDF to HTML - Convert PDF files to HTML files
MERCER
·
~"'i!f
I
mm
"
MARSH
MERCER
KROll
OLIVER WYMAN
GUY CARPENTER
Page 2
January 9, 2009
Ms. Belinda Fulco
Montgomery County Government
• The non-service-connected disability retirement benefit amount and other plan
provisions are the same as described in our July 1, 2008 valuation.
Actuarial Assumptions
Assumption used are as follows:
• The disability rates described in the July 1, 2008 valuation report have decreased by 2%
to reflect the anticipated change in disability rates due to the new disability approval
process.
• For groups E and F, 90% of disabilities are still assumed to be service-connected.
However 63% of disabilities are assumed to collect the 52.5% benefit, and 27% are
assumed to take the 70% benefit.
• For groups A and H, 45% of disabilities are still assumed to be service-connected.
However 22.5% of disabilities are assumed to collect the 52.5% benefit, and 22.5% are
assumed to take the 70% benefit.
• For group G, 93% of disabilities are still assumed to be service-connected. And 62% of
disabilities are assumed to collect the 52.5% benefit, 26% are assumed to take the 70%
benefit and 5% are assumed to take another job (valued by reducing the disability
decrement by 5%).
• All other assumptions are the same as those used in the July 1, 2008 valuation.
• Per your request, we also estimated the impact on groups E and F based on the
following assumptions:
-
Scenario 1- 60% of disabilities would receive the 52.5% benefit and 30% would
receive the 70% benefit.
Scenario 2- 30% of disabilities would receive the 52.5% benefit and 60% would
receive the 70% benefit.
-
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MERCER
[-1
L~
MARSH MERCER KROll
GUY CARPENTER OLIVER WYMAN
Page 3
January
9. 2009
Ms. Belinda Fulco
Montgomery County Government
Estimated Costs of Proposed Changes
Annual Savings using 40-year amortization
For represented and non­
represented members
For represented
members
A
$0
.§~()~PE:
...
~(~~15!Q.QQ2
.
.....!(~g~.
000).__
. S3roup
F
.................._
.................~(1.15~~~gg9)
__ .____
_
._
. . . . . . .
_J~!A~,Q9Q)_
. . . . . . . . . . . .__.. ..
Gr?~p.~_._
.._
. . . . . . . . . ....
_$(
5.~!QgQt.
___._. . __.. . . . . . ._
.
~1~.?!9Q.QL
__ _
Gr()lJ.EI-i
. . . . ...... ...... ....................____
~(1?f:),gg9)_.~(~
26.
qOO)
~11~!:.~ps
............ ____ ..........._..__ ......
_~(?.!.?1~.gQ9J
__
..___ .___
~(?~?_?~.90QL
.. _
Numbers may not add up due to rounding.
Annual Savings using 30-year amortization
For represented and non­
represented members
For represented
members
$0
Decrease in Actuarial Accrued Liability
For represented and non­
represented members
For represented
members
Numbers may not add up due to rounding.
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MERCER
r ;
I.~
MARSH MERCER KROll
GUY CARPENTER OUVER WYMAN
Page 4
January
9, 2009
Ms. Belinda Fulco
Montgomery County Government
Scenario 1 - 60% of disabilities receive the 52.5% benefit and 30% of disabilities
receive the 70% benefit
Annual savings based on 40-year or 30-year amortization
For represented and non­
represented members
For represented
members only
amortization
amortization
§rc?l:!p~_.............._~(~!1!999L
§r~lJpF
...
_.~~:!~~~~--,9_qQL
All
gr?u.-'-p_s_ _ _ _ _ _ _ _$"""'(-'-2,_7_13..:..,O_0_0'---)
..
.
........~E~!.!OOO
)
...__ _
.___________
._____.._.___ ,____
1(~490:.999_)
_ . ____
~._
$(2,468,000)
Scenario 2 - 30% of disabilities receive the 52.5% benefit and 60% of disabilities
receive the 70% benefit
Annual savings based on 40-year
or.. 3;:,;0;;..,-LY.:::;.ea:::::;r;...,.a:::::;m:..:..:.;:0:.;rt,::::iz=a;:,;t:::.,;io;:,;n:.::....._ _ _ _ _ _ _ _ _ __
For represented and non­
represented members
For represented
members only
amortization
amortization
 PDF to HTML - Convert PDF files to HTML files
MERCER
....
~
[
_ J
MARSH
MERCER
KROll
OLIVER WYMAN
GUY CARPENTER
Page 5
January 9,2009
Ms. Belinda Fulco
Montgomery County Government
Scenario 1 and 2- Decrease in Actuarial Accrued Liability
For represented and non-
represented members
For represented
members only
Scenario 1
60% of disabilities receive the 52.5% benefit and 30% of disabilities receive
the 70% benefit
Scenario 2
---------------------------------
and 60% of disabilities receive
..
30% of disabilities receive the 52.5% benefit
------------~.-----
.................................................._ .. _._
the 70% benefit
...,..............
,."".,.,.~,.""~,,~_._
......_
_.._
____,.,....__,.,.,.,_»,_''''''''_,_ _ _ _•_ _ _ _ _ _
'~_m''''
.,••••
....._ ..___
~J
3
,8~~,99.9.1...__
_
__
.-:.~IJlr?~p~_____
___________________ ._______
.~(9,03_~~229L
___________._____.__
~
__$(7,807,
~OOL
______._. ____
~E?~E_~_.
__.
~~?~P
. .
~
_____
...............................__
$(?!~60,O9.9.1____
... . ... ... . .
.....................___J(~!~??!99.9.)
........................_____
$(2,23~OOOL
___ _
Other Considerations
Please let me know if you have any questions or need any further information. I can be
reached at 202 331 5211. I meet the Qualification Standards of the American Academy of
Actuaries to render the actuarial opinion contained in this letter. I am not aware of any direct
or material indirect financial interest or relationship, including investments or other services
that could create a conflict of interest that would impair the objectivity of our work.
Sincerely,
JJp~ '*~.
Aquil Ahmed, ASA, EA, MAAA
Worldwide Partner
Copy:
Wes Girling, Montgomery County Government
Doug Rowe, Mercer
The information contained in this document (including any attachments) is not intended by
Mercer to be used, and it cannot be used, for the purpose of avoiding penalties under the
Internal Revenue Code that may be imposed on the taxpayer.
i:lC!ilmgewasI2009\disability costinglupdated new disability provisions impact. doc
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OFFICE OF THE COUNTY ATTORNEY
Isiah Leggett
County Executive
Marc P. Hansen
Acting County Attorney
MEMORANDUM
TO:
CC:
Kathleen Boucher
Robert Drummer
Wes Girling
Marc Hansen
Edward Lattner
Amy Moskowitz
September 17, 2010
Disability Retirement Legislation
THRU:
FROM:
DATE:
RE:
You asked our office to review Bill 45-10. Similar to our review of Bill 37-08, our office has
concerns whether the proposed disability retirement legislation violates the contract clause of the
United States Constitution. Although uncertain, we believe that valid arguments can be made
that the effective date of the legislation substantially impairs the rights participants have under
collective bargaining contracts and under the Montgomery County Code in violation of the
contract clause. A Contract Clause violation can be avoided if the legislation applies to injuries
after the effective date of the legislation and after the expiration of the current collective
bargaining agreements (i.e., July 1,2011 for MCGEO and July 1,2012 for FOP). Because IAFF
already has partial disability benefits, the changes do not affect IAFF. A more detailed analysis
of the contract clause largely taken from our January 21, 2009 memorandum on similar changes
to the disability retirement law is set forth below. We also note that the Council's attorneys
disagreed with the January 21, 2009 memorandum.
Another concern regarding the legislation is that a participant will forfeit the right to a service
connected disability if "the member has committed an offense that
would justify removal
for
cause." We are unsure what this phrase means and how it would be implemented and/or
determined. Presumably as the administrator of the retirement system the CAO would make the
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determination but the legislation does not specify who makes the decision and how the
determination is made. In other words, who supplies the proof that the offense committed would
justify removai for cause? The supervisor? A contract arbitrator? The Merit System Protection
Board? A court? The legislation should specify a determinable standard (e.g., conviction by
court; plea or admission of guilt (including probation before judgment); determination by Merit
System Protection Board).
Contract Clause Analysis
Article I, §10, clause 1 of the United States Constitution provides that "No State shalL.pass any
Law impairing the Obligations of Contracts ... ". Courts have held that this clause does not
prohibit governments from impairing contracts but limits a government's right to do so. A
contract violation occurs only if the government substantially impairs a party's right under the
contract. Legitimate expectations of the parties determine whether the impairment was
substantial. However, a government may substantially impair a contract if reasonable and
necessary to serve a legitimate public purpose. Courts generally defer to the government in
determining the reasonableness and necessity of a particular measure, unless a government seeks
to impair its own contracts. Even where the government acts to impair its own contracts some
degree of deference is appropriate. Reasonableness is determined in light of whether the contract
had "effects that were unforeseen and unintended by the legislature". Necessity means that the
government did not have a less drastic modification available and the government could not
achieve its goals without altering the contractual terms. United States Trust of New York v. New
Jersey, 431 U.S. 1 (1977); Allied Structural Steel Co. v. Spannaus, 438 U.S. 234.
Maryland courts have held that pension plans statutes contain contractual rights between
employees and the government. Although the pension plans constitute contractual benefits,
under certain circumstances governments can modify the terms as long as the changes do not
adversely affect the benefits, or if adversely affected, are replaced with comparable benefits.
City of Frederick v. Quinn, 371 A.2d 724 (1977).
In
Baltimore Teachers Union v. Mayor and
city Council, 6 F3d 10 12 (4th Cir. 1993) the Court noted that Supreme Court provided little
guidance as to what constitutes substantial impairment, but assumes that a substantial
impairment occurs where the right abridged was one that induced the parties to contract in the
first place ... ". In the employment context, the right to a specific pay is a key inducement.
The contract clause prohibits retroactive impairment
Generally a contract clause issue only exists if the legislation operates retroactively to change
existing law and not prospectively. Maryland State Teachers Association, Inc. v. Hughes, 594 F.
Supp. (1984). In addition, reasonable modifications may be made before the occurrence of the
defined contingencies. Davis v. City of Annapolis, 635 A.2d 36 (1994). In Davis, the City
changed its disability law after the appellant's injury occurred. The Court held that the appellant
became vested in the benefit after the occurrence of condition necessary for benefits. The Court
did not discuss contract impairment because the appellant's rights to disability benefits vested
under prior to adoption of the new law. Similarly, Howell v. Anne Arundel County, 14 F. Supp.
2d 752 (D. Md. 1998) recognizes that the contract clause only protects against retroactive
2
\0
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diminution of vested benefits and no contract clause violation occurs when legislation applies
prospectively to non vested plan benefits.
In order for a contract clause violation to occur for a pension plan statute, the legislation must
operate retroactively. The County Code contains the retirement plan which includes disability
retirement provisions and forms a contract. The legislation appears to operate prospectively
because it applies to disabilities filed after the legislation becomes effective. However, as
indicated in Davis and Howell, a right becomes vested after a party satisfies all conditions
necessary to receive the benefits. Therefore, this legislation may have a retroactive effect
because a party may have incurred an injury before the effective date and may file the
application after the legislation's effective date. While Council attorneys note that filing the
application is a condition necessary to receive the benefit, the Maryland courts have clearly
stated that it is the occurrence of the event which is a condition of becoming entitled to the
disability benefit. But a Contract Clause violation can be avoided if the legislation applies to
injuries incurred, rather than applications filed, after the effective date of the legislation.
The collective bargaining agreements
The County Code provides that unions and the County Executive negotiate certain rights,
including retirement and benefits, which includes disability retirement benefits. After a union
and the County Executive reach an agreement, the County Council can reject provisions
requiring legislation and provisions requiring funding. The current collective bargaining
agreements, which are also contracts, provide the right to specific disability retirement benefits
or provide that the parties will submit legislation regarding disability retirement. The agreements
detail what terms the legislation will include. Even after the parties submit the legislation and
the legislation becomes incorporated into the County Code, these disability retirement provisions
remain in the agreements. For example, even though the agreement states that the parties will
submit legislation by July I, 1999 providing a certain level of benefits, by incorporating the
language into the current contracts, the parties intend that the benefits remain for the terms of the
contracts. By agreeing to the existing legislation, the County Council agrees to these terms with
the collective bargaining agreements becoming contracts of the County.
The collective bargaining agreements have terms lasting until 2011 and 2012, therefore the
legislation alters the terms of the existing contracts. Even though the legislation alters the
contracts, the County Council may do so if the changes do not substantially impair the existing
contract and the reason for the change is necessary and reasonable for the public good. The
change must be due to "effects that were unforeseen and unintended by the legislature" with no
other less drastic modification available and the County Council cannot achieve its goals without
altering the contractual terms.
One can argue that the legislation does not substantially impair the contract because the
legislation provides for an additional benefit, a partial disability. Therefore, more participants
may become entitled to a disability benefit whereas they may not have qualified for a complete
disability. In addition, the legislation does not remove disability retirements, and only alters the
benefits in certain cases. More importantly, the disability retirement benefit differs from a
retirement benefit because a participant only receives a disability benefit upon disability which is
3
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an uncertainty and no participant can rely on the existence of a certain or specific disability
retirement benefit which he/she may never become entitled to receive.
One can also argue that the legislation does substantially impair the contracts. First, the unions
specifically bargained these benefits and presumably gave up other rights and benefits. Although
the legislation contains a partial disability, the legislation imposes a stricter standard in order to
receive a permanent disability and therefore becomes likely that a participant may receive a
lesser benefit. The January 2009 letter from the actuary assumes a cost savings because
participants will no longer qualify for a full disability and only qualify for a partial disability.
Data supplied by the Office of Human Resources in May 2009 supported this finding. For
inducement into taking certain jobs (e.g., police officers) participants will argue that they want to
ensure adequate financial protection in case of a disability and relied on the existence of these
benefits.
Because arguments may be made that the effective date of the legislation substantially impairs
the rights participants have under collective bargaining contracts, the next inquiry is whether any
impairment is permissible as a legitimate exercise of power. This turns upon the necessity and
reasonableness of the legislative act.
The necessity and reasonableness of a particular legislative act is a factual inquiry, making
comparison with other cases somewhat problematic. In Baltimore Teachers Union v. Baltimore,
6 F.3d 1012 (4
th
Cir. 1993), cert. denied, 510 U.S. 1141 (1994), the Fourth Circuit reversed the
district court and held that a city salary reduction plan adopted to meet immediate budgetary
shortfalls did not violate the Contract Clause. While the court found that the plan was a
substantial impairment, it concluded that the city's action was reasonable and necessary. The
city's financial integrity was a significant public purpose justifying city action.
It
is not enough to reason, as did the district court, that "the City
could have
shifted the burden from another governmental program," or that "it
could have
raised taxes."
Id.
(emphases added). Were these the proper criteria, no impairment
of a governmental contract could ever survive constitutional scrutiny, for these
courses are always open, no matter how unwise they may be. Our task is rather to
ensure through the "necessity and reasonableness" inquiry that states neither
"consider impairing the obligations of [their] own contracts on a par with other
policy alternatives" or "impose a drastic impairment when an evident and more
moderate course would serve its purposes equally well," United States Trust, 431
U.S. at 30-31, 97 S. Ct. at 1522, nor act unreasonably "in light of the surrounding
circumstances,"
id.
at 31,97 S. Ct. at 1522. Andrews v. Anne Arundel County,
931 F. Supp. 1255, 1262-63 (D. Md. 1996) 931 F. Supp. 1255,1262-63.
The integrity of the disability retirement system, fiscal or otherwise, is a significant public
purpose justifying governmental action. But, as with significant impairment, it is difficult to
predict whether a court would conclude that this proposed bill is a legitimate exercise of power
under the Contract Clause. The most conservative course of action would be to make the
legislation effective after the term of the current collective bargaining agreements.
4
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