We affirm. Where, as here, "[a] challenged determination was made [by respondent] without a hearing, judicial review is limited to whether the determination is arbitrary and capricious and without a rational basis" (Matter of Moraghan v New York State Teachers' Retirement Sys., 237 A.D.2d 703, 705 [3d Dept 1997]; see Matter of Schafer v New York State Teachers' Retirement Sys., 175 A.D.3d 1644, 1646 [3d Dept 2019]; Matter of Maillard v New York State Teachers' Retirement Sys., 57 A.D.3d 1299, 1300 [3d Dept 2008], lv denied 12 N.Y.3d 705 [2009]). The pension benefit for a tier 4 member of respondent
ent's] statutory responsibility, supported by broad public policy considerations, requires that it take all necessary steps to insure the financial integrity of the pension fund" ( Matter of Galanthay v New York State Teachers' Retirement Sys., 50 NY2d 984, 986; see Education Law § 525). Indeed, as "even an award of benefits erroneously made in good faith would affect the integrity of the public retirement system, the presence or absence of good faith on the part of the employer is irrelevant in determining whether an error occurred" ( Matter of Blais v New York State Teachers' Retirement Sys., 68 AD3d at 1268, citing Matter of Galanthay v New York State Teachers' Retirement Sys., 50 NY2d at 986). As respondent rendered its determination without a hearing, our review is limited to ascertaining whether the determination is arbitrary and capricious or without a rational basis ( see Matter of Maillard v New York State Teachers' Retirement Sys., 57 AD3d 1299, 1300, lv denied 12 NY3d 705; Matter of Moraghan v New York State Teachers' Retirement Sys. 237 AD2d 703, 705). Although the record contains no contract between petitioner and PLTW, Inc., the evidence reveals that petitioner's work involved promoting and facilitating participation in PLTW among school districts statewide to the benefit of PLTW, Inc., and the cost of petitioner's BOCES salary and benefits and the overhead for her BOCES office were reimbursed to BOCES by that private entity. In view of respondent's statutory obligation to preserve its integrity, it was appropriate — in ascertaining whether petitioner is properly credited with service — to look beyond the labels placed on the transaction by the parties and examine its substance ( see Matter of Holbert v New York State Teachers' Retirement Sys., 43 AD3d 530, 532; Matter of Van Haneghan v New York State Teachers' Retirement Sys., 6 AD3d 1019, 1021).
The issue before this Court on the Article 78 is whether the determination of the NYSTRS, dated January 4, 2006, was arbitrary and capricious or without a rational basis ( Pell v. Board of Ed. of Union Free School Dist. No. 1 of Towns of Scarsdale and Mamaroneck, Westchester County, 34 NY2d 222, 356 NYS2d 833). This is the standard to review an administrative determination made without a hearing ( Moraghan v. New York State Teachers' Retirement System, 237 AD2d 703, 654 NYS2d 852 [3rd Dept., 1997], Connor v. Deer Park Union Free School Dist., 195 AD2d 216, 607 NYS2d 742 [3rd Dept., 1994]). The NYSTRS had determined that $72,939.99 which the Petitioner received during the period starting with the 2000-2001 school year and ending on the Petitioner's retirement in August of 2003 were "excess salary increases" and were not includable in the calculation of his final average salary.
Conversely, the MOU settling petitioner's subsequent grievances did not concede, in any manner, that the denial of petitioner's coaching applications for the 2005–2006 and 2006–2007 school years had resulted in any contractual violations and it, in fact, reiterated the school district's assertion that petitioner “was unqualified for the coaching position at issue.” That the school district opted to pay petitioner in exchange for a complete settlement of his claims against it does not create a basis to find that petitioner was eligible for the coaching appointments and, therefore, that the MOU settlement payment constituted compensation that he would have earned, thereby requiring respondent to include such payment in its calculation of his final average salary (see Matter of Andrews v. New York State Teachers' Retirement Sys., 80 A.D.3d 939, 941, 915 N.Y.S.2d 687 [2011] ; Matter of Moraghan v. New York State Teachers' Retirement Sys., 237 A.D.2d 703, 704–705, 654 N.Y.S.2d 852 [1997] ). As respondent's determination, which was rendered without a hearing, was rational and not arbitrary and capricious, it shall remain undisturbed (see Matter of Evans v. New York State Teachers' Retirement Sys., 98 A.D.3d at 1222, 951 N.Y.S.2d 267 ; Matter of Jensen–Dooling v. New York State Teachers' Retirement Sys., 68 A.D.3d 1264, 1266, 892 N.Y.S.2d 206 [2009], lv. denied 14 N.Y.3d 705, 899 N.Y.S.2d 129, 925 N.E.2d 933 [2010] ).
Petitioners now appeal. Preliminarily, we note that since NYSTRS's determination was rendered without a hearing, our review is limited to whether it is arbitrary, capricious or without a rational basis ( see Matter of Moraghan v New York State Teachers' Retirement Sys., 237 AD2d 703, 705). Turning to the merits, a three-year final average salary is used for computing retirement benefits for tier II members under Retirement and Social Security Law § 443 (a). It is defined as "the highest average annual regular salary earned by a member over a period covering three consecutive years of New York State service credit" ( 21 NYCRR 5003.1 [a]; see Retirement and Social Security Law § 443 [a]). Certain payments, such as those made in anticipation of retirement, or for deferred compensation, sick leave or accumulated vacation credit, are specifically excluded ( see Retirement and Social Security Law § 443 [a]). In this regard, the pertinent regulation states that "[r]egular salary earned shall exclude termination pay and payments which are not part of the salary base and/or are not paid over a period of years; for example, bonuses and one-time-only increments" ( 21 NYCRR 5003.1 [a] [emphasis added]).
As relevant here, Education Law § 501 (11) (b) provides: "`Final Average Salary' shall mean the average regular compensation earned as a teacher during the three years of actual service immediately preceding his [or her] date of retirement . . . exclusive of any lump sum payments for sick leave, annual leave or any other form of termination pay; provided, however, if the compensation earned in any [12] months exceeds that of the previous [12] months by more than [20%], the amount in excess of [20%] shall be excluded in the computation of final average salary" (emphasis added). The purpose of section 501 (11) "is to prevent artificial inflation of final average salary by payments made in anticipation of retirement" ( Matter of Moraghan v New York State Teachers' Retirement Sys., 237 AD2d 703, 704; see Matter of Horowitz v New York State Teachers' Retirement Sys., 293 AD2d 861, 861, lv denied 98 NY2d 614). Thus, in determining what constitutes average regular compensation within the meaning of the statute, "we must look to the substance of the transaction and not to what the parties may label it" ( Matter of Van Haneghan v New York State Teachers' Retirement Sys., 6 AD3d 1019, 1021 [citations and internal quotation marks omitted]; see Matter of Davies v New York State Local Police Fireman Retirement Sys., 259 AD2d 912, 914, lv denied 93 NY2d 810). Moreover, we will uphold respondent's determinations in this regard, as well as its calculations of a retiree's final average salary, so long as they are not arbitrary and capricious ( see Matter of Cooper v New York State Teachers' Retirement Sys., 19 AD3d 724, 726; Matter Of Moraghan v New York State Teachers' Retirement Sys., supra at 705).
Turning to the merits, the Highway Superintendent's testimony regarding petitioner's absences, as well as petitioner's acknowledgment that he knew that it was "wrong" to "just blow off a day from work," provided substantial evidence to support respondent's determination adopting the Hearing Officer's findings. Petitioner's testimony that he was unaware that his conduct was insubordinate presented a credibility issue for the Hearing Officer's resolution and does not "'merit judicial interference'" ( Matter of Cooper v. New York State Teachers' Retirement Sys., 19 AD3d 724, 726, quoting Matter of Moraghan v. New York State Teachers' Retirement Sys., 237 AD2d 703, 705). Finally, given the Hearing Officer's conclusions that petitioner "repeatedly disregard[ed] the instructions of his supervisor" and that "this pattern of insubordinate behavior would have continued to the detriment of the Department" because petitioner refused to admit that he had done anything wrong, it cannot be said that the "penalty is 'so disproportionate to the offense, in . . . light of all the circumstances, as to be shocking to one's sense of fairness'" ( Matter of Correll v. Bucci, 19 AD3d 919, 921, quoting Matter of Pell v. Board of Educ. of Union Free School Dist. No. 1 of Towns of Scarsdale Mamaroneck, Westchester County, 34 NY2d 222, 233 [internal quotation marks and citations omitted]; see Matter of Kelly v. Safir, 96 NY2d 32, 38).
This raise, in its entirety, was included in petitioner's five-year final average salary calculation. Clearly, the legislative intent of Education Law § 501 is to insure that retirement benefits are based upon "a percentage of `regular salary' earned over a period of years" ( Matter of Simonds v. New York State Teachers' Retirement Sys., 42 AD2d 470, 472) and "to prevent artificial inflation of final average salary by payments made in anticipation of retirement" ( Matter of Moraghan v. New York State Teachers' Retirement Sys., 237 AD2d 703, 704). In the case at bar, the school district stated that the disproportionate raise was intended to compensate petitioner for assuming the duties of another employee.
Petitioner's "[f]inal average salary" for purposes of determining retirement benefits is "the average annual compensation earnable as a teacher during any five consecutive years of state service" (Education Law § 501 [a]). In order "to prevent artificial inflation of final average salar[ies] by payments made in anticipation of retirement" (Matter of Moraghan v. New York State Teachers' Retirement Sys., 237 A.D.2d 703, 704), termination pay is includable in the calculation of final average salaries only if "it constitutes compensation earned as" an administrator ( 21 NYCRR 5003.2 [b]). "`In determining what constitutes termination pay or compensation paid in anticipation of retirement, we must look to the substance of the transaction and not to what the parties may label it'" (Matter of Davies v. New York State Local Police Fireman Retirement Sys., 259 A.D.2d 912, 914, lv denied 93 N.Y.2d 810, quotingMatter of Green v. Regan, 103 A.D.2d 878, 878-879). Payments that are over and above the compensation to which an administrator would otherwise be entitled and given to induce his or her resignation are excludable (see Matter of Horowitz v. New York State Teachers' Retirement Sys., 293 A.D.2d 861, 861, lv denied 98 N.Y.2d 614; Matter of Hall v. New York State Teachers' Retirement Sys., 266 A.D.2d 638, 639, lv denied 94 N.Y.2d 759).
Both parties appeal, and we now affirm. In applying Education Law § 501(11)(b), we have held that "payments made near the end of an applicant's career of benefits which he [or she] accumulated throughout the course of his [or her] working life will not be included in the ultimate determination of his [or her] retirement income" (Matter of Martone v. New York State Teachers' Retirement Sys., 105 A.D.2d 511, 512; see, Matter of Moraghan v. New York State Teachers'Retirement Sys., 237 A.D.2d 703, 704). Here, despite petitioner's contention to the contrary, the record fails to show that the payments to his annuity were for services performed during the time period covered by the 1996 collective bargaining agreement.