Follow Up: Statute Limits Impacts of SJC Decision that Payments Made in Lieu of Vacation Time Are Not Included in Pension Calculation

On August 4, 2022, Governor Baker signed into law an act that limits certain impacts of the Supreme Judicial Court’s recent decision in Joseph O’Leary v. Contributory Retirement Appeal Board, No. 13229 (2022). The SJC concluded that payments made in lieu of vacation leave are not “regular compensation” for purposes of retirement calculations. The Legislature anticipated this result by amending General Laws c. 32 to ensure that certain employees continue to have these payments included in their retirement calculations. Still, employees who entered service recently and newly hired employees will not be able to have these payments included in their retirement calculations.

The Act, St. 2022, c. 147, adds a new section 106 to G.L. c. 32. For employees who are already retired and whose retirement benefits were calculated using amounts paid in lieu of vacation leave, the retirement allowance will remain the same and will continue to include such payments in regular compensation. For those employees who are not yet retired and who were in service as of May 1, 2018, payments made annually in lieu of vacation leave pursuant to a collective bargaining agreement, individual employment contract, written benefits or personnel policy, or municipal plan or ordinance/bylaw will be considered “regular compensation” for retirement purposes. These payments will continue to be treated as regular compensation, even if made after May 1, 2018, so long as: (1) the employee was in service as of May 1, 2018; (2) the payments are made pursuant to a CBA or other employment contract, written benefits or personnel policy, or ordinance/bylaw/plan that was in effect as of May 1, 2018; (3) the employee consistently participated in a program available to all similarly situated employees; (4) the payments were not made only in the final 3 years of employment for a member who joined the system prior to April 2, 2012 or the final 5 years for a member who joined after April 2, 2012; and (5) the payments were not made as a result of providing notice of retirement.

For any employee who was not in service as of May 1, 2018, payments made in lieu of vacation are not included in “regular compensation” for retirement purposes. In other words, the amendment does not affect these employees and the recent SJC decision in O’Leary, which found that payments made in lieu of vacation are not included in retirement calculations, controls.

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This update is provided for informational purposes only and should not be considered legal advice.