Opinion 2000 - 4


This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.


COLLECTIVE BARGAINING AGREEMENTS -- Termination Pay (installment payments of)
PUBLIC OFFICERS AND EMPLOYEES -- Retirement Benefits (installment payment of termination pay) -- Termination Pay (installment payments)

CIVIL SERVICE LAW, §201(4); RETIREMENT AND SOCIAL SECURITY LAW, §113, 470: A school district is not prohibited from establishing, pursuant to a collective bargaining agreement, a termination pay program where: the program is to provide an incentive to certain employees to separate from service, irrespective of whether the employee begins receiving retirement benefits; payments are made to employees separating from service who are at a specified minimum salary level or who have a minimum number of years of service; and periodic payments, in the same fixed amount over the same fixed period of time, would be paid to each qualifying employee. Prior opinions are superseded to the extent inconsistent.


This is in reply to your letter concerning the authority of a school district to establish, pursuant to collective bargaining, a termination pay program designed to provide an incentive to certain employees to terminate their employment with the school district (hereinafter the "program"). Under the program, certain school district employees who are at a specified salary level or who have 20 or more years of service with the district would be offered an opportunity to participate in the program. The employees who choose to participate in the program would be required to agree to separate from service with the school district, but would not be required to commence their retirement benefits or otherwise retire from active employment other than with the school district. Any employee choosing to participate in the program would receive post-separation cash payments of $400 per month for 120 months. You ask, in light of the provisions of section 201(4) of the Civil Service Law and sections 113 and 470 of the Retirement and Social Security Law, whether the school district is prohibited from establishing such a program under which payments to an employee who separates from service may be made over a period of years, rather than as a lump-sum upon separation from service.(1)

Collective bargaining between public employers and public employees is provided for by article 14 of the Civil Service Law (§200 et seq.). It is well established that, pursuant to this authority, an item may be included in a collective bargaining agreement, whether or not it involves a term or condition of employment subject to mandatory bargaining, unless there is a plain and clear prohibition against such inclusion in the State or Federal Constitution, a statute, decisional law or restrictive public policy (Board of Education v Assoc. Teachers of Huntington, 30 NY2d 122, 331 NYS2d 17; Board of Education v Yonkers Fed. of Teachers, 40 NY2d 268, 386 NYS2d 657; City of Newburgh v Potter, 142 Misc 2d 346, 537 NYS2d 472).

In relation to the establishment of the program, we note that section 113(a) of the Retirement and Social Security Law prohibits municipalities from creating retirement systems after April 12, 1922. The primary purpose of section 113(a) was to ". . . halt the proliferation of local retirement systems whose indeterminate costs would only be felt in the future" (NYPIRG v City of New York, 89 Misc 2d 262, 266, 390 NYS2d 784, 787, affd 48 NY2d 917, 425 NYS2d 91). A prohibited local retirement system generally would exist where, inter alia, benefits are payable only upon retirement after a designated minimum period of service and the municipality's obligation is not fixed and certain; that is, the obligation is dependent on variables, such as salary increases, years in service or mortality rate (see NYPIRG, supra; 1989 Opns St Comp No. 89-38, p 89; 1988 Opns Comp No. 88-6, p 9).(2)

Section 470 of the Retirement and Social Security Law and section 201(4) of the Civil Service Law also contain statutory prohibitions pertinent to this inquiry. Section 470, as last amended by L 1999, ch 138, prohibits, until July 1, 2001, changes negotiated between public employers and public employees with respect to any benefit provided by or to be provided by a public retirement system, or payments to a fund or insurer to provide an income for retirees or payment to retirees or their beneficiaries, where such changes would require an act of the State Legislature (see Village of Fairport v Newman, 90 AD2d 293, 457 NYS2d 145). Similarly, Civil Service Law, §201(4) excludes from the definition of "terms and conditions of employment" benefits provided by or to be provided by a public retirement system, or payments to a fund or insurer to provide an income for retirees, or payment to retirees or their beneficiaries, and declares that no such retirement benefit shall be negotiated pursuant to article 14 of that law. The basic purpose of these restrictions is to help government employers hold down increases in the cost of pension benefits (Incorporated Village of Lynbrook v PERB, 48 NY2d 398, 423 NYS2d 466, citing Governor's Memorandum, NY Legis. Ann., 1973, p 303).

It has been held that payment of a lump sum benefit to employees upon termination of employment does not constitute a "retirement benefit" prohibited by section 201(4) of the Civil Service Law (Incorporated Village of Lynbrook, supra; see also 1983 Opns St Comp No. 83-37, p 43; 1980 Opns St Comp No. 80-550, unreported). The Court of Appeals, in Incorporated Village of Lynbrook, supra, stated that it was permissible for PERB to find that the termination payment in question was not a "retirement benefit" forbidden by Civil Service Law, §201(4) because the award would be made to employees who terminated their services for reasons other than retirement and because it would be paid "in one lump sum geared to the length of tenure . . . [representing] deferred compensation for services rendered, as opposed to the continuing open-ended obligation of a pension" (48 NY2d at 406, 423 NYS2d at 468; see also 1984 Opns St Comp No. 84-44, p 53; 1979 Opns St Comp No. 79-70, p 12; Genessee-Wyoming BOCES School Related Personnel Association, 16 PERB par 4531). The Court in Incorporated Village of Lynbrook, supra, also held, inter alia, that the provision of hospitalization benefits for spouses and children of deceased active and retired employees was not "brought with the common understanding of the general statutory term 'retirement benefits' merely because the plan would continue in effect after current employees retire" (48 NY2d at 407, 423 NYS2d at 469).

Applying the above factors to the program proposed here, we note that the periodic payments are to be made for 120 months following the employee's separation from service, irrespective of whether the employee begins receiving retirement benefits or discontinues his or her employment other than with the school district. There is, therefore, no nexus between an employee's retirement and eligibility for these payments. Also, the amount and duration of these payments are not open-ended, but rather are fixed and certain at the time the participating employee separates from service with the school district. In addition, although there are threshold years of service and minimum salary criteria, the payments to each qualifying employee who chooses to separate from service are the same, regardless of years of service or level of compensation beyond the threshold. It is our opinion, then, that the periodic termination payments made to a former employee, even though they may continue after that employee's actual retirement, would not constitute a "retirement system", "benefits provided or to be provided by a public retirement system", "payments to a fund or insurer to provide income to retirees", or "payments to retirees or their beneficiaries" within the intendment of the prohibitions in section 201(4) of the Civil Service Law and sections 113 or 470 of the Retirement and Social Security Law.(3)

Accordingly, it is our opinion that the school district is not prohibited from establishing, pursuant to a collective bargaining agreement, a termination pay program where: the program is to provide an incentive to certain employees to separate from service, irrespective of whether the employee begins receiving retirement benefits; payments are made to employees separating from service who are at a specified minimum salary level or who have a minimum number of years of service; and periodic payments, in the same fixed amount over the same fixed period of time, would be paid to each qualifying employee.(4)

Prior opinions are hereby superseded to the extent inconsistent.

March 17, 2000
M. Cornelia Cahill, Esq.
Hadley-Luzerne Central School District

1. We note that our opinion is limited to consideration of the applicability of the prohibitions in the Civil Service Law and the Retirement and Social Security Law to the program. We make no comment with respect to issues of federal and state income tax liability or liability for social security contributions.

2. Section 152(2) of the Retirement and Social Security Law, relating to reporting and disclosure requirements, defines "retired member" as "a person who is retired from and who is receiving a retirement allowance from a public retirement system of the state." Similarly, section 210(a) of the Retirement and Social Security Law, concerning the re-employment of retirees, defines "retired person" as "a retired member of a retirement system or pension plan administered by the state or any of its political subdivisions who is receiving a retirement allowance for other than physical disability." In addition, this Office has expressed the view that the term "retired officers and employees," as used in section 92-a of the General Municipal Law in relation to the provision of medical, surgical, and hospital insurance, is intended to encompass those former officers and employees who are members of a public retirement system and who have filed for and are entitled to receive a retirement allowance from such a system (1985 Opns St Comp No. 85-3, p 3). Consequently, for purposes of this opinion, we will consider a retiree to be a person who has filed for and is entitled to the payment of a retirement allowance from a public retirement system.

3. We note that in the case of In re City of Plattsburgh, 250 AD2d 327, 681 NYS2d 649 lv denied 93 NY2d 807, 691 NYS2d 1, the court upheld a provision in a collective bargaining agreement that provided permanently disabled police officers with the difference between their disability retirement benefit and the wages they would have earned had they continued working. The court stated that Retirement and Social Security Law, §470 and Civil Service Law, §201(4):

... do not prevent the creation of benefits for public sector retirees that exist separately from benefits provided by a retirement system (see, Ballentine v Koch, 89 NY2d 51, 59, 651 NYS2d 362, 674 NE2d 292). In our view, the supplemental payments at issue are not statutorily prohibited as they do not affect the benefit the employee will receive from the retirement system nor do they impose any obligation upon the retirement system since the benefit will be paid by the [municipality] (citation omitted; 250 AD2d at 329, 681 NYS2d at 651).

The holding in this case supports our conclusion here, although the court did not consider the prohibition in Retirement and Social Security Law, §113, as construed in NYPIRG, supra, or the specific prohibitions in sections 470 and 201(4) relating to "payments to a fund or insurer to provide an income for retirees", and "payment to retirees or their beneficiaries" (cf. 1984 Opns St Comp No. 84-44, p 53). In addition, we note that the Ballentine case, cited by the court, involved the funding of benefits to retirees pursuant to a special act of the State Legislature.

4. We note that to the extent prior opinions of this Office may suggest that Retirement and Social Security Law, §§113 and 470 and Civil Service Law, §201(4) would preclude a collective bargaining provision for a termination incentive program such as the one at issue (see, e.g., 1982 Opns St Comp No. 82-220, p 278), they are hereby superseded, based on the analysis of NYPIRG, supra and Incorporated Village of Lynbrook, supra and the holding in In re City of Plattsburgh, supra, as discussed herein.