Tennessee Cities Not Required To Include Vacation Payout In Retirement Calculations

A group of firefighters and police officers working for the Metropolitan Government of Nashville and Davidson County, Tennessee filed a lawsuit, asking to have the lump-sum payments for unused vacation days paid at their retirement included in the formula determining the amount of their pension. The Tennessee Supreme Court dismissed their lawsuit, finding that the lump-sum payments did not need to be included in the calculation of retirement benefits.

The dispute turned on a provision of the local code which requires that retirement benefits be based on an employee’s “earnings.” In turn, the code defines “earnings” as “the total cash compensation paid by the Metropolitan Government or a predecessor government to a Metropolitan employee for his personal services.” The retirement formula then calculates a retirement benefit on the basis of “the arithmetic monthly average of a Metropolitan employee’s earnings during the period which contains the 60 consecutive months of credited service which produces the highest average.”

The Court found that the real dispute was “whether the timing of the lump-sum payments permits them to be counted toward average earnings for the purposes of calculating pension benefits. The police officers and firefighters did not receive their unused vacation day payments during the period of service; instead, they received the payments subsequent to the termination of their employment. In consequence, and pursuant to the plain language of the Metro code, the lump-sum awards for unused vacation days could not literally be included as part of average earnings for purposes of calculating pension benefits because payment was made subsequent to termination.”

Amos v. Metropolitan Government of Nashville and Davidson County, 259 S.W.3d 705 (Tenn. 2008).

This article appears in the November 2008 issue