In a recent decision, The Honorable William Hart Rufe III of the Bucks County Court of Common Pleas held that an arbitrator may not reduce Act 600 pension contributions of police officers below the level which the pension plan actuary determines is necessary to fund the Plan. Borough of Doylestown v. Doylestown Borough Police Association, No. 98000749-09-06 (Bucks Co. C.P., Dec. 22, 1998).

Act 600 (also known as the "Police Pension Fund Act," Act of May 28, 1956, P.L. (1955) 1804, as amended, 53 P.S. §§ 767-778) provides that, where a police pension plan requires outside funding, the police officers must first contribute a certain percentage of their salaries into the pension fund. The amount and limit of officer contributions depend on whether the department participates in the retirement portion of Social Security. The Doylestown decision is significant because it holds that an Act 111 arbitrator cannot shield officers from the member pension contributions required by Act 600. Even if an arbitrator lowers or eliminates officer contributions contrary to Act 600, notwithstanding the narrow scope of review applicable on appeal, a court may nevertheless reverse the arbitration award.

The dispute over pension contributions in the Doylestown case dates back to the mid-1980s, when the police pension fund’s investments enjoyed the benefit of an exceptionally strong market. As a consequence, from 1988 to 1994, the collective bargaining agreements between the Borough and the Police Association expressly eliminated member contributions to the Police Pension Plan for all bargaining unit employees. However, to the extent the collective bargaining agreements eliminated member contributions regardless of the actuarial soundness of the pension fund, this contractual elimination of member contributions constituted a technical violation of Act 600. Under the Act, members of the pension plan must contribute at least five percent of their monthly earnings to their pension fund, except when all of the following events occur: (1) an actuarial study shows that contributions may be reduced or eliminated, (2) the municipality will not be required to contribute to the fund if member contributions are reduced or eliminated, and (3) the municipality authorizes the reduction in member contributions by ordinance or resolution. 53 P.S. § 772. After conducting an audit for the years 1987 through 1991, the Pennsylvania Auditor General’s Office cited the Borough for improperly eliminating member contributions.

Therefore, in their next collective bargaining agreement, the parties included a provision to address the legal infirmity cited by the Auditor General. Specifically, the collective bargaining agreement was amended to comport with the language of Act 600, which, as noted above, essentially provides that member contributions may be reduced below 5% on an annual basis only where the plan actuary determines that some lesser amount would be sufficient to maintain the actuarial soundness of the Plan.

Beginning in 1993 and through 1994, poor investment performance resulting from adverse market conditions, along with increased wages, caused the Pension Plan to become significantly underfunded, and the Pension Plan’s weaker actuarial status was reflected in the Borough’s January 1, 1995 Act 205 Report, which was filed in March 1996. Consequently, the plan actuary determined that, based on the 1995 Act 205 report, member contributions must be increased from 0% to 5% effective January 1, 1996. The actuary determined that member contributions less than 5% would significantly increase the Borough’s financial liability to the Pension Plan. Despite the clear, unambiguous contractual language of the collective bargaining agreement, and the plain language of Act 600, the Police Association filed a grievance under Act 111, 43 P.S. § 217.1 et seq., challenging their obligation to contribute 5% of their salaries to the Plan.

After a hearing, the arbitrator issued an award in which he directed the Borough to reduce member contributions to 2.5%, which is below the 5% actuarial requirement, notwithstanding the fact that the Plan’s actuary determined that such a reduction could not take place. The arbitrator relied to a great extent on the prosperity of the Plan in 1995 and 1996, as well as on his own perception of the so-called "spirit" of Act 600. The practical effect of the arbitrator’s decision was to require the Borough to contribute more general fund tax dollars to the pension plan in order to compensate for monies which would have otherwise been contributed to the pension fund by the members themselves. The Borough, through their attorneys Joseph C. Rudolf and Ryan J. Cassidy of Reed Smith, appealed the arbitrator’s decision to the Bucks County Court of Common Pleas in an effort to have that decision vacated.

In reviewing arbitration awards, the Courts of this Commonwealth are highly deferential to the arbitrator who issued the award, vacating the arbitrator’s decision only under the most extraordinary circumstances. Specifically, reviewing courts are limited by the "narrow certiorari" scope of review and, as a consequence, are constrained to consider only questions relating to: (1) the jurisdiction of the arbitrator; (2) the regularity of the proceedings; (3) an excess of the arbitrator’s powers; and (4) deprivation of constitutional rights. Pennsylvania State Police v. Pennsylvania State Troopers Association (Betancourt), 540 Pa. 66, 656 A.2d 83 (1995).

The Court vacated the arbitrator’s decision reducing member contributions to 2.5%, concluding that the award required the Borough to perform an illegal act. Specifically, the Court held that it is up to the plan actuary, and not some other person, such as an arbitrator, to determine the funding requirements and member contributions of an Act 600 pension plan. The Court further held that, because the plan actuary determined that the police officers must contribute at least 5% of their salaries to the pension fund based on the most recent Act 205 actuarial valuation report, as required by both the collective bargaining agreement and the express language of Act 600, the arbitrator did not have the authority to direct the Borough to reduce member contributions to some lesser amount. Therefore, the Court vacated the arbitration award.

In sum, the Doylestown decision is significant for Pennsylvania municipalities with Act 600 police pension plans because it stands for the proposition that member contributions by police officers do not fall within the unfettered discretion of either grievance or Act 111 arbitrators. This becomes especially noteworthy in light of the deference which courts are typically required to confer upon arbitration awards. Consequently, the decision drastically limits a municipality’s liability for funding its police pension plan by not permitting an arbitrator to shield officers from making their full statutory contribution. Although the Doylestown case stemmed from a grievance arbitration, one logical extension of that decision is that an Act 111 panel of interest arbitrators also lacks the power to reduce member contributions below 5%. Thus, in the context of an Act 111 interest arbitration, an arbitration panel’s award cannot shield police officers from the pension contributions required by Act 600 where the statutory prerequisites for a reduction in such contributions do not exist.