B-147928, MAR. 27, 1962

B-147928: Mar 27, 1962

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ATTORNEYS AT LAW: REFERENCE IS MADE TO YOUR LETTER DATED JANUARY 3. IN WHICH THE INDIVIDUAL CLAIMANT WAS SEEKING INCREASED RETIRED PAY COMPUTED UNDER THE PROVISIONS OF THE CAREER INCENTIVE ACT OF 1955. IS STATED TO BE TYPICAL OF THESE CLAIMS. YOU INDICATE THAT YOU NOW HAVE IN YOUR POSSESSION A CHECK ISSUED IN HIS FAVOR IN PAYMENT OF OUR CLAIMS DIVISION SETTLEMENT OF NOVEMBER 30. YOU ARE ADVISED THAT. INSOFAR AS THIS OFFICE IS CONCERNED. INFORMATION FURNISHED BY THE DEPARTMENT OF THE NAVY SHOWS THAT MANUEL WAS TRANSFERRED TO THE FLEET NAVAL RESERVE IN 1935 WITH OVER 16 YEARS' SERVICE. WHEN HE WAS RETIRED ON NOVEMBER 1. IT IS ASSUMED THAT SUCH RETIREMENT WAS FOR DISABILITY. IT IS STATED THAT HE IS RECEIVING RETIRED PAY COMPUTED UNDER LAWS IN EFFECT PRIOR TO OCTOBER 1.

B-147928, MAR. 27, 1962

TO KING AND KING, ATTORNEYS AT LAW:

REFERENCE IS MADE TO YOUR LETTER DATED JANUARY 3, 1962, RELATIVE TO A LARGE NUMBER OF CLAIMS FILED IN THIS OFFICE DURING 1961, IN WHICH THE INDIVIDUAL CLAIMANT WAS SEEKING INCREASED RETIRED PAY COMPUTED UNDER THE PROVISIONS OF THE CAREER INCENTIVE ACT OF 1955, 69 STAT. 18, AS INTERPRETED BY THE COURT OF CLAIMS IN LOUIS E. FAGAN, ET AL. (LEWIS L. GOVER, PLAINTIFF NO. 2) V. UNITED STATES, CT.CL.NO. 535-57, DECIDED MAY 4, 1960, AND BY 40 COMP. GEN. 222, AS WELL AS CREDIT FOR PERIODS OF "CONSTRUCTIVE SERVICE" UNDER THE DECISION OF THE COURT OF CLAIMS IN THE JOHNSON CASE, CT.CL.NO. 217-56, DECIDED MAY 3, 1961. THE CLAIM OF DIONICIO MANUEL, NO. Z-1354802, IS STATED TO BE TYPICAL OF THESE CLAIMS. YOU INDICATE THAT YOU NOW HAVE IN YOUR POSSESSION A CHECK ISSUED IN HIS FAVOR IN PAYMENT OF OUR CLAIMS DIVISION SETTLEMENT OF NOVEMBER 30, 1961, ALLOWING HIM THE BENEFITS OF THE RULE OF THE GOVER CASE.

YOU STATE THAT ON JANUARY 3, 1962, THE COURT OF CLAIMS GRANTED A MOTION TO AMEND THE PETITION FOR CHARLES HOWARD LEONARD, PLAINTIFF NO. 21 IN THE CLASS ACTION OF EARLEN BYRD BAILEY, ET AL. V. UNITED STATES, CT.CL.NO. 505 -59, TO PERMIT YOU TO MAKE A FURTHER CLAIM FOR CREDIT FOR PERIODS OF CONSTRUCTIVE SERVICE; THAT THIS ACTION HAS BEEN A DIRECT RESULT OF THE CONCLUSION REACHED IN B-138416, DATED OCTOBER 31, 1961, THAT THE JOHNSON DECISION DOES NOT AUTHORIZE CREDIT FOR PERIODS OF "CONSTRUCTIVE SERVICE" FOR PAY PURPOSES. YOU REQUEST TO BE ADVISED WHETHER THE CHECKS ISSUED TO MANUEL AND THE OTHER PERSONS TO WHOM YOU REFER MAY BE CASHED WITHOUT JEOPARDIZING CLAIMS AT A FUTURE TIME, IF THE CIRCUMSTANCES WARRANT IT, FOR ADDITIONAL RETIRED PAY BASED ON CONSTRUCTIVE SERVICE.

YOU ARE ADVISED THAT, INSOFAR AS THIS OFFICE IS CONCERNED, THE CHECKS ISSUED ON OTHERWISE PROPER SETTLEMENTS MAY BE CASHED WITHOUT PREJUDICE TO ADDITIONAL CLAIMS BASED ON "CONSTRUCTIVE SERVICE.' HOWEVER, INFORMATION FURNISHED BY THE DEPARTMENT OF THE NAVY SHOWS THAT MANUEL WAS TRANSFERRED TO THE FLEET NAVAL RESERVE IN 1935 WITH OVER 16 YEARS' SERVICE. SINCE HE HAD LESS THAN 30 YEARS' SERVICE, ACTIVE AND INACTIVE, WHEN HE WAS RETIRED ON NOVEMBER 1, 1940, IT IS ASSUMED THAT SUCH RETIREMENT WAS FOR DISABILITY. IN A REPORT OF SEPTEMBER 18, 1961, FROM THE DEPARTMENT OF THE NAVY, IT IS STATED THAT HE IS RECEIVING RETIRED PAY COMPUTED UNDER LAWS IN EFFECT PRIOR TO OCTOBER 1, 1949, AND THAT "NO ELECTION OF PAY WAS INVOLVED.'

SECTION 411 OF THE 1949 ACT GAVE PERSONS THERETOFORE RETIRED FOR DISABILITY AND THEN ENTITLED TO RECEIVE RETIRED OR RETIREMENT PAY THE CHOICE OF TWO OPTIONS: (A) TO QUALIFY UNDER SECTION 402 (D) AND THUS HAVE THEIR RETIRED PAY COMPUTED BY EITHER (1) THE LONGEVITY METHOD (BASIC PAY AS THERE PROVIDED MULTIPLIED BY YEARS OF ACTIVE SERVICE, MULTIPLIED BY 2 1/2 PERCENTUM), OR (2) THE DISABILITY METHOD (BASIC PAY MULTIPLIED BY PERCENTAGE OF DISABILITY WHEN RETIRED); OR (B) ONE OF THE TWO METHODS OF COMPUTATION UNDER SECTION 511 OF THE ACT CONSISTING OF (A) THE RETIRED PAY AUTHORIZED BY THE PROVISIONS OF LAW IN EFFECT ON SEPTEMBER 30, 1949, AND (B) A LONGEVITY METHOD SIMILAR TO THAT IN SECTION 402 (D) (1). DISABILITY RETIREMENT PAY COMPUTED UNDER THE LAWS IN EFFECT ON SEPTEMBER 30, 1949, AS WELL AS RETIREMENT PAY BASED ON PERCENTAGE OF DISABILITY AFTER THAT DATE, WAS NOT INCLUDABLE IN A PERSON'S GROSS INCOME FOR TAX PURPOSES. HOWEVER, UNDER THE PROVISIONS OF SECTION 402 (H) AS INTERPRETED BY THE INTERNAL REVENUE SERVICE, TREASURY DEPARTMENT, DISABILITY RETIREMENT PAY COMPUTED BY THE LONGEVITY METHOD IS EXEMPT FROM INCOME TAX ONLY TO THE EXTENT THAT IT DOES NOT EXCEED THE DISABILITY RETIRED PAY WHICH WOULD HAVE BEEN RECEIVED IF SUCH PAY WERE COMPUTED ON THE BASIS OF PERCENTAGE OF DISABILITY. PERSONS OTHERWISE ELIGIBLE TO ELECT UNDER SECTION 411 WERE REQUIRED TO EXERCISE THEIR ELECTION PRIOR TO OCTOBER 1, 1954. ALL OTHER MEMBERS RETIRED BEFORE OCTOBER 1, 1949, CAME UNDER THE PROVISIONS OF SECTION 511 WITHOUT CHOICE AND THEY RECEIVED RETIRED PAY UNDER THE METHOD INDICATED IN SECTION 511 WHICH GAVE THEM THE MOST FAVORABLE RETURN. THE GOVER CASE HOLDS THAT A MEMBER COVERED BY SECTION 511 HAD A RIGHT TO RECOMPUTATION BETWEEN THE TWO METHODS THERE PRESCRIBED AND THAT THIS RIGHT CONTINUED TO EXIST UNTIL CUT OFF BY THE ACT OF MAY 20, 1958, 72 STAT. 122.

IT IS WELL SETTLED THAT WHERE THERE WAS NO RETROACTIVE CHANGE IN STATUS, NO INCORRECT INFORMATION WAS FURNISHED FROM ADMINISTRATIVE SOURCES AND THE MEMBER WAS IN POSSESSION OF SUFFICIENT FACTS UPON WHICH TO EXERCISE A SOUND JUDGMENT AS TO AN ELECTION UNDER SECTION 411, HE IS BOUND BY THE 5- YEAR LIMITATION PROVIDED IN THAT SECTION WITHIN WHICH THE ELECTION IS AUTHORIZED. 34 COMP. GEN. 646; 35 COMP. GEN. 557. IN ADDITION TO THE ELECTIONS AVAILABLE UNDER SECTION 411 OF THE 1949 ACT, SECTION 519 SAVED TO ANYONE THEN IN RECEIPT OF RETIRED PAY THE RETIRED PAY TO WHICH HE WAS ENTITLED UNDER ANY OTHER PROVISIONS OF LAW IN EFFECT PRIOR TO OCTOBER 1, 1949. FOR A RETIRED MEMBER TO CONTINUE TO ENJOY THE BENEFITS OF THE ACTS IN EFFECT PRIOR TO OCTOBER 1, 1949, NO ACTION WAS REQUIRED ON HIS PART; WHEREAS, TO RECEIVE RETIRED PAY IN THE AMOUNT, WHICHEVER WAS GREATER, COMPUTED UNDER ONE OF THE METHODS PROVIDED IN SECTION 511, AN AFFIRMATIVE ELECTION WAS REQUIRED UNDER OPTION (B) OF SECTION 411, PRIOR TO OCTOBER 1, 1954. RETIRED MEMBERS INELIGIBLE TO EXERCISE AN OPTION UNDER SECTION 411, SUCH AS THE PLAINTIFF IN THE GOVER CASE WERE COVERED AUTOMATICALLY BY SECTION 511.

AS STATED ABOVE, A MEMBER IS NOT BOUND BY THE 5-YEAR PERIOD FOR MAKING AN ELECTION UNDER SECTION 411, IF IT APPEARS THAT HE WAS GIVEN MISLEADING OR ERRONEOUS INFORMATION AS TO HIS ELECTION RIGHTS. HOWEVER, THAT RULE RELATES TO RETIRED PAY RIGHTS WHICH COULD BE ASCERTAINED UNDER THEN EXISTING LAWS. IN VIEW OF THE PROVISIONS OF EXECUTIVE ORDER NO. 10124, APRIL 25, 1950, REQUIRING SUCH ACTION, IT IS ASSUMED THAT MANUEL WAS APPROPRIATELY ADVISED AS TO THE AMOUNTS PAYABLE UNDER EACH OF THE ELECTIONS WHICH WERE OPEN TO HIM UNDER SECTION 411. HENCE, IT APPEARS THAT THE INFORMATION FURNISHED HIM AT THAT TIME CORRECTLY INFORMED HIM THAT THE RETIRED PAY THEN BEING PAID TO HIM WAS GREATER THAN WAS THEN PAYABLE UNDER ANY OF THE DIFFERENT METHODS OF COMPUTING RETIRED PAY UNDER SECTION 411. WHILE HE WAS NOT ADVISED AS TO THE RECOMPUTATION RIGHTS OF PERSONS ELECTING TO BE COVERED BY SECTION 511--- RETIRED PAY COMPUTED BY EITHER METHOD (A) OR (B), WHICHEVER IS GREATER, IF THEY VARIED FROM TIME TO TIME--- NO RIGHT TO A RECOMPUTATION OF RETIRED PAY WOULD HAVE ACCRUED TO HIM PRIOR TO OCTOBER 1, 1954, IF HE HAD MADE AN ELECTION UNDER SECTION 411 (B). THUS, HE SUFFERED NO LOSS OF RETIRED PAY BEFORE THAT DATE AS A RESULT OF HIS INACTION.

A PREDICTION PRIOR TO OCTOBER 1, 1954, AS TO WHAT, IF ANY, LAWS MIGHT BE ENACTED BY THE CONGRESS AFTER THAT DATE WHICH WOULD AFFECT RECOMPUTATION RIGHTS UNDER SECTION 511 COULD NOT BE MADE. THE MATTER WAS ENTIRELY CONJECTURAL. OTHER UNKNOWN FACTORS INFLUENCING A POSSIBLE 411 (B) ELECTION BEFORE THAT DATE WERE THOSE RELATING TO FUTURE INCOME TAX LIABILITIES WHICH COULD VARY FROM TIME TO TIME. IN VIEW OF SECTION 402 (H), IT IS POSSIBLE TO ENVISION SITUATIONS WHERE A PERSON MAKING SUCH ELECTION BEFORE OCTOBER 1, 1954, WOULD BE PLACED IN A DISADVANTAGEOUS FINANCIAL POSITION BY A RECOMPUTATION UNDER A FUTURE LAW SUCH AS THE CAREER INCENTIVE ACT OF 1955, 69 STAT. 18--- ON WHICH ALL GOVER CASE BENEFITS ARE BASED--- SINCE THE INCREASED TAX IN SUCH SITUATIONS MIGHT EXCEED THE INCREASED RETIRED PAY. RECOMPUTATIONS UNDER SECTION 511 WERE REQUIRED TO BE MADE WITHOUT REGARD TO INCOME TAX MATTERS. IN THIS CONNECTION, IT WOULD APPEAR THAT, IF THE FAILURE TO MAKE AN ELECTION SHOULD BE REGARDED AS THE EQUIVALENT OF AN ELECTION OF SAVED-PAY UNDER SECTION 511 (A), AN AUTOMATIC RECOMPUTATION OF RETIRED PAY FOLLOWING ENACTMENT OF THE CAREER INCENTIVE ACT WOULD BE REQUIRED AND THUS THE MEMBER WOULD BE DEPRIVED OF HIS RIGHT TO DECIDE WHETHER, BECAUSE OF THE INCOME TAX PROBLEM AND UNCERTAINTY AS TO THE EXTENT, IF ANY FUTURE LAWS MIGHT AFFECT HIS RIGHT TO RETIRED PAY, HE WANTED TO TAKE THE RISKS OF BEING REQUIRED TO ACCEPT A RECOMPUTATION UNDER SECTION 511 (B). THE RIGHT TO ELECT TO BE COVERED BY SECTION 511 WAS PERSONAL TO HIM AND NECESSARILY COULD BE EXERCISED ONLY AFTER CONSIDERATION OF VARIOUS FACTORS KNOWN ONLY TO THE INDIVIDUAL CONCERNED.

IN THE CIRCUMSTANCES, THE LEGALITY OF PERMITTING A SECTION 411 (B) ELECTION RETROACTIVE TO APRIL 1, 1955, EFFECTIVE DATE OF THE CAREER INCENTIVE ACT, BY THOSE WHO NOW FIND IT TO THEIR ADVANTAGE TO MAKE SUCH AN ELECTION IS OF SUCH A DOUBTFUL NATURE AS NOT TO WARRANT APPROVAL BY THIS OFFICE. SEE LONGWILL V. UNITED STATES, 17 CT.CL. 288, AND CHARLES V. UNITED STATES, 19 CT.CL. 316.

THERE BEING NO EVIDENCE THAT MANUEL MADE AN AFFIRMATIVE ELECTION TO RECEIVE THE BENEFITS OF SECTION 511, IT APPEARS THAT THE SETTLEMENT OF NOVEMBER 30, 1961, WAS ERRONEOUS. ACCORDINGLY, THE CHECKS NOW IN YOUR POSSESSION ISSUED TO HIM AND TO ANY OTHER PERSONS, SIMILARLY SITUATED, WHO WERE RETIRED FOR DISABILITY PRIOR TO OCTOBER 1, 1949, AND WHO MADE NO ELECTION TO RECEIVE THE BENEFITS OF SECTION 511, SHOULD BE RETURNED TO THIS OFFICE FOR CANCELLATION.