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Disability Retirement and Overearnings

In this case, the Public Employee Retirement Administration Commission (PERAC) alleged that a retired public employee (Employee), who was receiving Accidental Disability Retirement (ADR) benefits, had earned more income than he was allowed under the retirement law and sought to immediately suspend his benefits until he repaid the Retirement Board for the alleged “overearnings”.

Attorney Sally Clymer, of the Law Office of Juliane Soprano, was successful in proving that the Employee did not have “overearnings” thereby preserving his retirement and saving him from having to reimburse the Retirement Board over one hundred and fifty thousand dollars.

A Retiree receiving ordinary or accidental disability benefits is limited in the amount of income they can earn while receiving retirement benefits. They are allowed to earn only enough money so that their yearly income, inclusive of their retirement benefits, equals their prior regular compensation plus an additional $15,000 a year.

Each year the Retiree is required to report all their earnings to PERAC.  If the Retiree shows earned income exceeding the limitation allowed by the law, those earnings are deducted from the Retiree’s retirement benefit until the overage is paid back to the Retirement Board.

While a Retiree’s earnings are generally straightforward and easily determined based on income reported by the Retiree’s employer, PERAC takes a hard look at a Retiree’s income if that income comes from a family business, particularly when the business is owned by the Retiree’s spouse.

Under the retirement law there is a presumption that a Retiree working in a family business is earning 50% of the income of the business regardless of what they have been paid in wages from the business for their services.  This is a rebuttable presumption and it is the Retiree’s burden to provide evidence sufficient to overcome that presumption.

To overcome the 50% earning presumption the Retiree must prove that the value of the labor or services they contribute to the business does not exceed the earnings limitation set forth in the law.  The first question that must be addressed is whether the Retiree contributes any labor, management, or supervision to the business, if not, the inquiry ends.

If so the questions become:

  1. What is the value of the Retiree’s contributions to the business?
  2. Does the compensation paid to the Retiree for their contributions accurately reflect the value of those contributions?
  3. Are other family members, shareholders, employees overcompensated for their services in an effort to hide income that is actually earned by the Retiree?

In this case, the Employee was able to show that he was paid a fair and reasonable wage for the services he provided to his wife’s business, that the majority of the work being performed for the business was done by his wife and that she was not overcompensated for her labor/services.  PERAC failed to produce any evidence to the contrary. The evidence presented by attorney Clymer was sufficient to prove the Employee’s case and thus the Court determined he did not have any overearnings.

Public Retirement Law is a very complex area.  If you are working in a family business, it is strongly recommended that you contact an attorney to assess how your earnings will be viewed under the retirement laws.

 

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