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The questions on appeal are whether plaintiff Robert Herrick, a member of a public employee contributory retirement system governed by G.L. c. 32, §§ 1–28, inclusive, is entitled to prejudgment interest on a retroactive award of superannuation retirement benefits and, if so, at what rate of interest. We hold that the plaintiff is not entitled to interest at a rate of twelve per cent per annum pursuant to G.L. c. 231, § 6C, because his suit was not an action “based on contractual obligations.” We further hold that the plaintiff is not entitled to twelve per cent annual interest pursuant to G.L. c. 231, § 6H, because interest in this case is “otherwise provided by law” under G.L. c. 32, § 20(5) (c ) (2). We interpret § 20(5) (c ) (2) to provide that, where, as here, a retirement board makes a legal error in denying retirement benefits that is corrected by a court, the plaintiff is entitled to a rate of interest determined by the board's actuary “so that the actuarial equivalent of the pension or benefit to which the member or beneficiary was correctly entitled shall be paid.”
Background. The plaintiff worked for twenty-seven years as a custodian and maintenance mechanic for the Wenham Housing Authority and was a member of the Essex Regional Retirement System.2 On May 1, 2003, he was charged with sexually assaulting his daughter and, that same day, resigned his position. On May 6, he submitted an application for voluntary superannuation retirement pursuant to G.L. c. 32, § 5(1) (a ). On May 15, he pleaded guilty to two counts of indecent assault and battery on a child under fourteen years of age, and was sentenced to two and one-half years in a house of correction, eighteen months of which to serve. Although he met the age and service time requirements to be eligible for superannuation retirement benefits, the Essex Regional Retirement Board3 (board) on June 27, 2003, voted to deny his application pursuant to G.L. c. 32, § 10(1), based on a finding of forfeiture due to moral turpitude.4 On July 14, 2004, after a hearing, an administrative magistrate of the Division of Administrative Law Appeals issued an order affirming the board's denial of the plaintiff's application for superannuation retirement benefits. On February 18, 2005, the Contributory Retirement Appeal Board (CRAB) accepted the administrative magistrate's findings of fact and affirmed her decision.
The plaintiff sought judicial review pursuant to G.L. c. 30A, § 14. In June, 2009, a Superior Court judge reversed CRAB's decision and entered judgment for the plaintiff, directing the board to grant plaintiff's application for superannuation retirement benefits, retroactive to the date of his resignation. The judge found that the board and CRAB made an error of law in their interpretation of G.L. c. 32, § 10(1), concluding that a member of a retirement system forfeits his retirement benefits under § 10(1) where the member is “removed or discharged from his office or position” because of the member's moral turpitude, not where, as here, the plaintiff voluntarily resigned his position. The judge determined that a member who resigns his position is entitled to superannuation retirement benefits for which he qualifies regardless whether his resignation was motivated by the member's moral turpitude or by the likelihood that his misconduct will lead to an involuntary discharge. The Appeals Court affirmed the judgment. See Herrick v. Essex Regional Retirement Bd., 77 Mass.App.Ct. 645, 655, 933 N.E.2d 666 (2010).
Subsequently, the board on March 31, 2011, issued a check to the plaintiff for $191,165.76, which represented his superannuation retirement benefits retroactive to the date of his resignation, but did not include any interest thereon. The plaintiff then filed a motion in the Superior Court, claiming that he was entitled to interest on the retroactive payment pursuant to G.L. c. 231, § 6C, at the rate of twelve per cent per annum. A judge concluded that § 6C applied and ordered that “interest be awarded at the rate of [twelve per cent] on each amount of plaintiff's unpaid benefits commencing from the date that such amount became payable.” The judge later clarified that he regarded each past failure of the board to pay the plaintiff his monthly retirement benefit as a breach of contract, so that the plaintiff was entitled to twelve per cent simple interest on each unpaid monthly payment from the date that payment was due. The board appealed the judge's award of interest, the case was entered in the Appeals Court, and we transferred it to this court on our own motion.
Discussion. General Laws c. 30A, § 14, which provides for judicial review of the final decisions of agencies in adjudicatory proceedings, is silent as to the question of interest where an agency decision denying the payment of money is reversed. Section 14(7) provides only that the reviewing court “may set aside or modify the decision, or compel any action unlawfully withheld or unreasonably delayed, if it determines that the substantial rights of any party may have been prejudiced.”
The plaintiff contends, and the judge ruled, that he is entitled to the award of interest under G.L. c. 231, § 6C, which provides, in part:
“In all actions based on contractual obligations, upon a verdict, finding or order for judgment for pecuniary damages, interest shall be added by the clerk of the court to the amount of damages, at the contract rate, if established, or at the rate of twelve per cent per annum from the date of the breach or demand” (emphasis added).
By its terms, § 6C only applies to an action “based on contractual obligations.” A contractual obligation may be created by an agreement or be imposed by statute, and § 6C applies to contracts derived from both sources. Lexington v. Bedford, 378 Mass. 562, 576, 393 N.E.2d 321 (1979). The plaintiff claims that he has a contractual right to his retirement benefits that is imposed by G.L. c. 32, § 25(5), which provides:
“Effect of Amendments or Repeal.—The provisions of sections one to twenty-eight, inclusive, and of corresponding provisions of earlier laws shall be deemed to establish and to have established membership in the retirement system as a contractual relationship under which members who are or may be retired for superannuation are entitled to contractual rights and benefits, and no amendments or alterations shall be made that will deprive any such member or any group of such members of their pension rights or benefits provided for thereunder, if such member or members have paid the stipulated contributions specified in said sections or corresponding provisions of earlier laws.”
In Opinion of the Justices, 364 Mass. 847, 856–860, 303 N.E.2d 320 (1973), we declared that § 25(5) was intended to reject the thesis suggested by a number of cases that contributory retirement plans were “State-granted gratuities” that did not establish contractual relationships with vested rights constitutionally protected against subsequent legislation reducing or eliminating retirement benefits. “The minimal meaning of this change is that the ‘contract’ is formed when a person becomes a member by entering the employment, and he is entitled to have the level of rights and benefits then in force preserved in substance in his favor without modification downwards.” Id. at 860, 303 N.E.2d 320. We added:
“ ‘Contract’ ․ should be understood here in a special, somewhat relaxed sense․ It is not really feasible—nor would it be desirable—to fit so complex and dynamic a set of arrangements as a statutory retirement scheme into ordinary contract law which posits as its model a joining of the wills of mutually assenting individuals to form a specific bargain. As the commentators show, a retirement plan for public employees does not readily submit itself to analysis according to Professor Williston's canons․ When, therefore, the characterization ‘contract’ is used, it is best understood as meaning that the retirement scheme has generated material expectations on the part of employees and those expectations should in substance be respected.”
Id. at 861, 303 N.E.2d 320. In contrast with a traditional contract, the contractual commitment provided in § 25(5) “protects the member of a retirement plan in the core of his reasonable expectations, but not against subtractions which, although possibly exceeding the trivial, can claim certain practical justifications.” Id. at 862, 303 N.E.2d 320. Therefore, § 25(5) creates “something less than a full contractual relationship, but one that protects the ‘core’ of a member's ‘reasonable expectations' of ‘vested pension rights.’ ” State Bd. of Retirement v. Woodward, 446 Mass. 698, 706, 847 N.E.2d 298 (2006), quoting Opinion of the Justices, supra at 856–862, 303 N.E.2d 320.
In the Woodward case, we noted that, “[w]here the Legislature intended to give a retirement board ․ an ‘action in contract’ under G.L. c. 32, it did so explicitly.” Id. at 705–706, 847 N.E.2d 298, and statutes cited. We held in that case that a pension forfeiture is not an action in contract and therefore concluded that the State Board of Retirement had the authority to forfeit the pension of a convicted public official after the expiration of the six-year statute of limitations for contract actions.5 Id. at 706, 847 N.E.2d 298. Where the forfeiture of a pension is not an action in contract, an action challenging the lawfulness of the forfeiture of a pension is also not an action in contract. See id. Cf. Robinson v. Teachers' Retirement Bd., 414 Mass. 340, 342, 607 N.E.2d 746 (1993) (nothing in G.L. c. 32 suggests that claims for accidental death benefits are contractual). Therefore, we conclude that interest may not be awarded under G.L. c. 231, § 6C, because judicial review of the board's decision to forfeit the plaintiff's pension is based on “something less” than a contractual obligation.6
The plaintiff on appeal contends, in the alternative, that he is entitled to an award of interest under G.L. c. 231, § 6H.7 Section 6H is a catch-all interest provision that applies to “any action in which damages are awarded, but in which interest on said damages is not otherwise provided by law,” and provides for interest at twelve per cent per annum calculated from the commencement of the suit. G.L. c. 231, § 6H.8 See G.L. c. 231, § 6B. By its terms, therefore, § 6H does not apply if interest is “otherwise provided by law.” We conclude that § 6H does not apply to this judgment because another rate of interest—the interest rate that will yield the “actuarial equivalent,” as defined in G.L. c. 32, § 19 —has been “otherwise provided by law” under G.L. c. 32, § 20(5) (c ) (2), which applies when a retirement board makes an error regarding a benefit determination or calculation.10
By enacting § 20(5) (c ) (2), the Legislature “recognize[d] that, in a complicated system of this type, errors are bound to occur.” Boston Retirement Bd. v. McCormick, 345 Mass. 692, 698 n. 5, 189 N.E.2d 204 (1963). While the statute speaks of errors in record-keeping and computation, its overriding purpose is to enable a retirement board to correct an honest error by putting members and beneficiaries in the same position they would have been had the error not been made. Cf. Bianchi v. Retirement Bd. of Somerville, 359 Mass. 642, 650, 270 N.E.2d 792 (1971) (“The error in the present case was that of the board, and that error can readily and fairly be corrected now without prejudice to the board, [the decedent's] estate or the widow”); Boston Retirement Bd. v. McCormick, supra at 698, 189 N.E.2d 204 (“We see nothing in the statute which prevents a member from receiving those benefits because of an honest error which can readily and fairly be corrected”). Under the plain meaning of the statute, where a retired public employee receives a lesser amount of retirement benefits because of a record-keeping or computational error made by a retirement board, the retiree, once the error is discovered, shall receive the actuarial equivalent of the pension to which he is correctly entitled. We see no reason why the Legislature would have intended the corrective action by the board to be any different where the retired public employee erroneously was deprived of all his retirement benefits and where the board's error was an error of law rather than of record-keeping or computation. Therefore, we interpret § 20(5) (c ) (2) to provide a remedy for all errors made by the board that affect the amount of benefits a member or beneficiary receives, allowing the error to be corrected so that members and beneficiaries receive the actuarial equivalent of the benefits they would have received had the board not erred. Because the board's actuary must determine an appropriate interest rate to yield the actuarial equivalent, the interest rate must be determined by the board, not the court clerk, on remand from a reversal of a board's decision under G.L. c. 30A.11 Conclusion. For these reasons, we reverse the judgment awarding twelve per cent simple interest under G.L. c. 231, § 6C, on the retroactive award of superannuation retirement benefits, and order that the case be remanded to the Superior Court for entry of a judgment directing the board forthwith to determine the rate of interest that will yield the “actuarial equivalent of the pension or benefit” to which the plaintiff was correctly entitled under G.L. c. 32, § 20(5) (c ) (2), and to make a one-time, lump-sum payment to the plaintiff amounting to the difference between that actuarial equivalent and the $191,165.76 that has already been paid.
So ordered.
GANTS, J.
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Docket No: SJC–11239.
Decided: July 15, 2013
Court: Supreme Judicial Court of Massachusetts,Essex.
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