A fundamental principle of settlement authority is that the Retirement Fund is not a litigation settlement fund. The Fund's purpose is to provide annuities to Federal employees and their survivors, consistent with statutory lengths of service and at dollar amounts consistent with actual Federal service and pay levels. The appropriate use of the Retirement Fund is limited to payment of benefits under express provisions of CSRS or FERS, and to the costs of administering those systems. See 5 U.S.C. § 8348(a).
Congress did not establish the Retirement Fund to underwrite settlement agreements in cases not specifically involving a determination of retirement rights. To create eligibility for an annuity or an enhanced annuity for purposes of a settlement, absent a specific statutory authority other than title 5, United States Code, is inconsistent with the substantive provisions of CSRS and FERS. See id.
By contrast, the Judgment Fund, 31 U.S.C. § 1304, is available and appropriate for the specific purposes of paying judgments and settlements in litigation involving Federal employment issues. Therefore, the Judgment Fund, not the Retirement Fund, should bear the financial burden of settlements.
Settlement provisions enhancing retirement benefits should be entered into only where there is appropriate legal authority for the settlement, such as the Back Pay Act, 5 U.S.C. § 5596 or title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e-16. The substantial costs to the Retirement Fund of providing the employee enhanced retirement benefits over a lifetime should be considered as part of the Government's settlement costs. When determining whether the settlement is in the Government's best interest, those costs must be considered in addition to the amounts of retirement deductions and agency contributions under CSRS or FERS. Examples of the total cost to the Government of EEO settlements affecting retirement provisions are included in the EEOC's MD110, Chapter 12.
Settlement terms may not be more detrimental to the Retirement Fund than the court or administrative body could impose. This is true for those cases alleging prohibited discrimination, as well as others.
For example, assume that an employee who meets the statutory age and service requirements for immediate retirement is discharged on grounds of misconduct. A court or administrative body could order reinstatement of the individual with back pay if it determined that the discharge was erroneous. It could not order a two-grade level promotion effective three years prior to the removal at issue. A claimant may urge that such a provision be included in a settlement, to create a higher annuity, by altering the "high-three" year average pay that is part of the annuity computation formulas under both CSRS and FERS. Because the court or administrative body could not order such a retroactive promotion, the settlement may not provide it.
Settlements must abide by the annuity calculation formulas and limitations on retirement eligibility that Congress has imposed by statute. Again, this principle applies to all cases.
Discontinued Service Retirement
Under both FERS and CSRS, an employee meeting certain age and service conditions who is involuntarily separated for reasons not involving "misconduct or delinquency" is entitled to an immediate annuity. Such annuity is called a discontinued service retirement (DSR). 5 U.S.C. §§ 8336(d)(1), 8414(b)(1). If an individual's separation is based on misconduct or delinquency, however, the employee is not entitled to a DSR. Agencies may agree in a settlement to change a misconduct separation into a DSR-qualifying separation only when the agency makes a good faith assessment that the court or administrative tribunal could order such a remedy. This would apply if an agency originally chose a misconduct separation rather than an action that could have been a basis for a DSR. If the agency concludes that a reviewing court or administrative body would overturn its misconduct separation, it may agree to settle for the DSR-qualifying result. Without such analysis and determination, an employee and an agency may not agree to the DSR related relief.
Eligibility for Immediate Retirement and Computation of Annuities.
Under both CSRS and FERS, an employee can retire with an immediate annuity if the employee has met specific age and service requirements including:
5 U.S.C. §§ 8336, 8412. Settlements must be consistent with these specific statutory requirements. For example, a settlement cannot legally provide that an employee who separated at age 53 with 30 years of service receives an annuity commencing at age 55. Under both CSRS and FERS, such individual may receive only a deferred annuity commencing at age 62.
CSRS and FERS provide for retirement based on medical disability. 5 U.S.C. §§ 8337, 8451 et seq. Both statutes require OPM to determine that the individual is unable to perform the duties of his position because of disease or injury. No settlement agreement may concede or guarantee disability retirement under either CSRS or FERS, without independent OPM approval.
Under both CSRS and FERS, an application for disability retirement must be filed with OPM within one year of separation. The law allows tolling of this time period only on grounds of mental incompetence. If a settlement agreement is to permit an individual to apply to OPM for disability retirement, the application must be within this one-year statutory period. For example, an individual may be retroactively reinstated on the agency's employment rolls, with full back pay and benefits, for the period necessary to bring the individual to a date within the statutory one-year rule. A settlement should not permit the individual to be in a non-pay status solely for a period designed to meet the statutory one-year requirement, in the absence of compelling evidence that the individual was, in fact, mentally incompetent at the time of the involuntary separation, or became so within one year after the date of separation. A different issue is presented when an employee is discharged on grounds of inability to perform the job. When that employee later applies to OPM for disability retirement, the individual is presumed disabled for purposes of entitlement to disability retirement. Bruner v. Office of Personnel Management, 996 F.2d 290 (Fed. Cir. 1993). OPM, however, will not unconditionally apply this presumption. For example, an individual is separated for misconduct or other non-medical related performance grounds, but, by agreement, documentation is changed to base the separation on medical inability to perform the job. Where this is done merely to enhance the individual's application for a disability annuity, OPM will not apply the Bruner presumption. If the medical evidence demonstrates that the original personnel action was erroneous because the individual was unable to perform the job and the agency was unaware of the medical conditions at the time of separation, OPM then will apply the presumption.
Both CSRS and FERS expressly provide that entitlement to an annuity requires completion of specific periods of Federal service in conjunction with a specified age. Both retirement systems also expressly provide that annuities are to be calculated upon the basis of Federal service performed and pay levels attained. The entitlement to annuity benefits and the amount of the annuity is based on specific pay levels and periods of service. It is not consistent with congressional intent to regard periods of service to have been served (or pay to have been received) only for retirement purposes. This may be appropriate in those few cases that present unusually high litigation risk or that could set a precedent resulting in substantial future costs to the Government.
If an agency is considering such a settlement, it must determine the total cost to the Government of the settlement. That means that the full projected value of a lifetime annuity must be considered, as well as the sum of the agency and employee contributions. This total will then reflect whether the settlement is in the best interest of the Government. Chapter 12 of EEOC's MD 110 sets forth several examples of how this calculation may be made. Even in those unusual cases, the settlements may not exceed the relief that could be awarded upon a finding of a wrongful or erroneous personnel action. Those settlement terms may include only the enhancement of retirement benefits that could have been awarded as part of an adverse decision.
In all circumstances, the settlement must provide that applicable retirement deductions and agency contributions be paid into the Retirement Fund. If a settlement provides that an individual is to receive enhanced retirement benefits because of a deemed increase in pay levels or an additional period of service, the deductions and contributions must be paid into the Retirement Fund in full.
Application of this principle places the financial burden resulting from alleged improper personnel actions on the agency that took the action, and to the Judgment Fund. The Retirement Fund bears the burden as the sole or primary source of funding only in exceptional and unusual cases.
A settlement affecting employee benefits must provide for full payment directly to OPM for the amounts of applicable employee deductions and agency contributions for OPM administered programs. These include:
Settlements should provide for payment of such deductions to OPM from the agency, even where a cash lump sum payment is involved. If the deductions are not otherwise paid, OPM will look directly to the agency involved for payments involving OPM administered programs.
A litigant may not receive both back pay and an annuity for the same period of time.
For example, an employee meeting age and service requirements chooses to retire during the processing of a discrimination case involving a failure to promote. A settlement is reached in which the person is retroactively promoted with full back pay for a portion of the period that person was in a retirement status. The settlement must provide that the amount of annuity paid for that period must be repaid to the Retirement Fund. The total amount of any annuity payments made to the person while in an annuitant status should be withheld from the gross back pay award, in order that it be deposited as reimbursement to the Retirement Fund. 5 CFR § 550.805(e). In those situations where there is no lump sum award of back pay, some arrangement must be included in the terms of the settlement for reimbursement of the Retirement Fund for the amounts of the previously paid annuity. If not, OPM will be required to take steps to recover those amounts directly from the litigant, which could result in attempts to nullify the settlement and reopen the litigation.