Settlement Paves Way for Retirement Eligibility

A recent reconsideration decision issued by the MSPB in Eller v. Office of Personnel Management, 2014 MSPB 72 (9/05/14) held that an employee’s eligibility for discontinued service retirement (DSR) is not affected by the fact that the employee achieved eligibility through the execution of a settlement agreement designed specifically for that purpose.

The Department of the Interior moved to remove one of its employees for alleged unacceptable performance. The employee appealed to the MSPB, but prior to a decision there, the agency and the employee entered into a settlement agreement resolving the dispute. The agreement provided that the employee would return to federal employment under a four-year term appointment. The agreement explicitly stated that the purpose of the appointment was to allow the employee to attain the requisite age and years in service to be eligible for DSR. The employee served his four-year term appointment, following which the agency extended the appointment for an additional year. At the expiration of the appointment, the employee applied for an immediate DSR annuity with OPM. At that point, the employee was 51 years of age and had 23 years of federal service, which met the requirements for DSR.

OPM denied the employee’s annuity on the grounds that the settlement was merely a sham designed to sidestep the statutory requirements for DSR eligibility. The employee appealed that decision to the MSPB, where the administrative judge found in his favor. On appeal by OPM, the Board affirmed the AJ. OPM then sought and was granted reconsideration by MSPB.

OPM first argued that the agency was not authorized to extend the employee’s term appointment beyond four years and that the entire appointment should therefore be considered null and void for purposes of determining his eligibility for DSR. MSPB, though, found no authority for discounting the entire period of the term appointment, even if the final one-year extension was not authorized. The Board also declined to void the final year-long extension for purposes of considering the employee’s DSR eligibility.

OPM further argued that it had the right to determine whether a settlement agreement was a mere sham designed to get around the statutory requirements for DSR, and that the settlement in this case was just such a sham. The Board rejected this argument as well. It found that, contrary to prior decisions where an employee may have attempted to achieve retirement eligibility solely by making a record “on paper” of the required length of service, in this case, the employee did indeed serve the required number of years and had attained the requisite age for DSR eligibility.

Finally, OPM argued that its handbook prohibited granting DSR retirement where an employee was voluntarily converted from a permanent position to a term appointment, and that separation from a short-term appointment created solely for the purpose of achieving retirement eligibility did not qualify for a DSR annuity. The Board declined to accept these arguments, finding that 1) while there was in actuality a break in the employee’s service, the official record of his employment as modified by the settlement agreement did not leave a break that would disqualify him from DSR; and 2) neither OPM nor the Board had authority to question the agency’s motive in converting an employee from a permanent position to a term appointment as long as the employee actually met the statutory requirements for DSR eligibility.

This case modifies prior Board case law by clarifying that the Board will allow settlement agreements to fill in gaps of eligibility for retirement where an employee otherwise substantially meets the statutory retirement prerequisites.

* This information is provided by the attorneys at Passman & Kaplan, P.C., a law firm dedicated to the representation of federal employees worldwide. For more information on Passman & Kaplan, P.C., go to http://www.passmanandkaplan.com.

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