Settlements and DSR eligibility

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If you read the recent Merit Systems Protection Board decision reversing the Office of Personnel Management’s denial of discontinued service retirement (DSR) to a Department of Interior employee, and you think you’ve got the green light to use a settlement agreement to create a circumstance by which an employee may become DSR eligible, I say beware of the yellow light. Proceed cautiously, as it appears OPM will be appealing this decision to the U.S. Court of Appeals for the Federal Circuit, and how the court of appeals decides this case is by no means certain.

This case involved an employee removed from his position for unacceptable performance. The employee appealed his removal to MSPB. Interior and the employee entered into a settlement agreement before an initial decision was reached. That settlement agreement provided that the employee would be “converted … to a four- (4) year term appointment … as a biologist (or other agreed upon position) beginning on Jan.12, 2005,” and ending on Jan.12, 2009.

The stated intent of this provision was to provide the employee adequate creditable service under current OPM regulations to receive a discontinued service annuity. At the expiration of the four-year term, the agency extended the employee’s job for one additional year. In February 2010, Interior cited the expiration of the employee’s term and separated the employee from service, who then filed with OPM his application for DSR. OPM denied the employee’s application, concluding that the settlement agreement “was an artifice designed to evade the statutory DSR requirements.” The employee appealed OPM’s decision to the MSPB, which reversed OPM.

At issue in this case are the eligibility requirements for DSR. By statute, an employee is DSR eligible when she or he is “separated from the service involuntarily, except by removal for cause on charges of misconduct” with 25 years of service or after becoming 50 years of age and completing 20 years of service. The employee lacked the years of service when first terminated for unsatisfactory performance. Thus, by settlement, the employee and the agency agreed to provide a term appointment to get the employee to the sufficient number of years of service, which when it ended, created an “involuntary” separation. OPM disagrees, vehemently.

OPM’s chief argument was that it has a statutory obligation to determine whether a separation from service is “involuntary,” as defined by statute, and that the employee’s entire term appointment (five years) should not be counted towards his DSR annuity eligibility because true “term” positions may only last four years. OPM also focused on its long-held view that if the board reversed OPM, “agencies and employees will have an incentive to enter into similar settlement arrangements in the future, thus impermissibly shifting employment and litigation costs to the retirement fund and inequitably rewarding employees whose who performance is alleged to be unacceptable.”

The board did not agree with OPM’s assertion that an employee’s resignation or retirement is deemed voluntary simply when effected pursuant to the terms of a settlement agreement and precludes the employee from re-litigating whether his separation was voluntary.

Prior MSPB case law holds that OPM is conclusively bound by the terms of a settlement agreement to which it was not a party as long as the agreement is not an artifice designed to evade the statutory requirements for an annuity.

OPM may seek review of this decision by the U.S. Court of Appeals for the Federal Circuit. If court of appeals review is obtained, the issue seems to be whether this term appointment, designed to settle an employment dispute, qualifies as an involuntary separation for purposes of DSR eligibility when the term comes to its natural conclusion. I think that’s a close call.

Debra L. Roth is a partner at the law firm Shaw Bransford & Roth in Washington. She is general counsel to the Senior Executives Association and the Federal Managers Association, host of the “FEDtalk” program on Federal News Radio, and a regular contributor to Federal News Radio’s “Federal Drive” morning show. Email your legal questions to lawyer@federaltimes.com. View her blog at blogs.federaltimes.com/federal-law.

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Debra Roth

Debra L. Roth is a partner at the law firm Shaw Bransford & Roth, a federal employment law firm in Washington, D.C. She is general counsel to the Senior Executives Association and the Federal Managers Association, host of the “FEDtalk” program on Federal News Radio, and a regular contributor to Federal News Radio’s “Federal Drive” morning show. Email your legal questions to lawyer@federaltimes.com.

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