In re Farmington Teachers Association

In New Hampshire, retired teachers’ yearly pensions under the New Hampshire Retirement System (NHRS) (defendant) were based on the teachers’ average earnable compensation for their three highest-earning years of teaching service. These three highest years of earnings included overtime, holiday, and longevity pay, cost-of-living bonus, pay for extracurricular-activity duty, and the fair market value of noncash compensation. The Farmington Teachers Association, NEA New Hampshire (the union) (plaintiff) agreed with their local school district to include the teachers’ health-insurance premiums—formerly paid directly by the school district—in a teacher’s wages if the teacher opted into this arrangement. The teacher would then agree to repay the premium funds back to the school district. This arrangement artificially inflated teachers’ reported earnings on W-2 statements. For several years, teachers could retire with their three highest years of income including these later-reimbursed premium payments. After an inquiry from a retired school-district employee, the NHRS board investigated the compensation arrangement. The NHRS board concluded the arrangement was improper. The NHRS board provided teachers who had elected into the scheme with a Notice of Earnable Compensation Contribution and Pension Adjustment and advised the teachers the temporary health-insurance-premium payments did not qualify as earned income in the teachers’ employment records for purposes of adjusting their pensions upward. The union appealed the NHRS board’s decision. After a three-day hearing on the issue, the NHRS hearing examiner recommended the NHRS board uphold its decision that the premium payments did not count as earned compensation for purposes of determining a teacher’s pension amount. The NHRS board adopted the hearing examiner’s recommendation. The union appealed the decision to the state supreme court.