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State11/4/2005
No. 5953
Before: Bryner, Chief Justice, Matthews, Eastaugh, Fabe, and Carpeneti, Justices.
I. INTRODUCTION
The Alaska Division of Retirement and Benefits terminated the occupational disability benefits of a former public employee who did not recover from his injury and did not return to public employment but who managed to earn more than his former salary. Benefits were terminated pursuant to a Division policy that was unwritten but had been enforced since before the employee’s date of hire. Under that policy, known as the “75% rule,” an employee is no longer eligible for benefits if he earns outside income of more than 75% of his former salary. The Public Employees’ Retirement Board affirmed the termination of benefits, but the superior court reversed the Board’s determination. Because we hold that the 75% rule is contrary to statute, we affirm the decision of the superior court.
II. FACTS AND PROCEEDINGS
The facts in this case are undisputed. Appellee D. Paul Morton was hired as a correctional officer for the City of Homer in September 1995. In November 1997 Morton was injured while transporting a prisoner. In November 1998 the Division approved his application for occupational disability benefits. The notification letter indicated that he was required to apply to the Division of Vocational Rehabilitation and that his file would be reviewed in twelve months "for updated medical evidence to determine your continuing eligibility."
On December 15, 1999, the Division sent Morton a letter requesting a physician's statement of continuing disability and a copy of his 1998 tax returns. When Morton asked why the Division wanted to see his tax returns, the Division informed him via e-mail on December 30, 1999 that he would no longer qualify for occupational disability benefits if he earned more than 75% of his former salary. A Division employee later testified that this 75% rule was a standing operating procedure that had been consistently applied by the Division in determining eligibility since before Morton's date of hire in 1995. Morton was not aware of this policy before he received this e-mail; the 75% rule was not mentioned in any statute or regulation then in force, and Public Employees' Retirement System (PERS) members were not informed of this policy when hired or at the time that occupational disability benefits began. Morton provided the requested information.
In the spring of 2002 a similar e-mail exchange occurred, and a Division representative explained the income cap by referring to 2 Alaska Administrative Code (AAC) 35.291, a regulation that officially codified the 75% rule and became effective in January 2001. In June 2002 Morton submitted portions of his 2001 tax return, which indicated that his outside income exceeded 75% of his former salary. On October 31, 2002, the Division terminated Morton's benefits because he "exceeded the 75% income threshold under PERS Regulation 2 AAC 35.291."
Morton appealed to the Board. At the hearing, Morton did not dispute that his outside income exceeded 75% of his former salary. He testified that he works as a freelance writer, is employed in a part-time position as a manager for psychological services for the Homer Police Department, and has a small counseling practice. He also testified that shortly after his retirement he turned down an offer of employment as managing editor for a magazine in California. He argued that application of the 75% rule to him was unlawful. The Division did not dispute that Morton is still unable to meet the physical demands of his former position. The Division argued that Morton's benefits were properly terminated under its lo
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