ALJDEC decisions subject to certification as final

18F-004-ARB · Arizona State Retirement System · 2018-01-22

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

William C. Arnold,

Appellant,

v.

Arizona State Retirement System,

Respondent.

No. 18F-004-ARB

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: January 8, 2018, at 8:00 a.m.

APPEARANCES: William C. Arnold (“Appellant”) appeared on his own behalf; Respondent the Arizona State Retirement System (“ASRS”) was represented by Jothi Belgan, Esq., Assistant Attorney General.

ADMINISTRATIVE LAW JUDGE: Diane Mihalsky

_____________________________________________________________________

ASRS referred this matter to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing. The parties presented evidence on the issue of the effective date of Appellant’s rescission of the joint-and-survivor annuity that he had elected before the death of his wife. Appellant testified on his own behalf and submitted six exhibits. ASRS presented the testimony of Member Advocate Jenna Orozco and submitted 20 exhibits. Based on the entire record and applicable law, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law, and Recommended Order to the Arizona State Retirement System Board.

FINDINGS OF FACT

Appellant is a member of ASRS. When Appellant retired from ASRS employer Maricopa County effective on June 1, 2006, he completed an ASRS Application for Retirement Benefit to receive a 100% joint-and-survivor benefit and named his wife, Sharon Kay Arnold, as the only beneficiary.

Ms. Orozco testified that the straight-life annuity, which does not provide survivor benefits, is the highest paid retirement option. ASRS calculates the joint-and-survivor monthly payment based on the life expectancies of the member and the contingent beneficiary, resulting in a monthly payment that is less than the payment would have been made had the member elected a straight-life annuity, which is based solely on the member’s years of service multiplied by a factor based on the member’s average monthly compensation while employed.

Sometime before July 10, 2006, Appellant started receiving monthly annuity checks in the amount of $538.39, with the first payment including payments that were retroactive to his June 1, 2006 retirement date.

On November 1, 2012, Appellant’s wife, Sharon Kay Arnold, died due to complications of chronic Chrohn’s disease. Because Appellant had been his wife’s primary caregiver for many years, her death affected him deeply.

In April 2013, Appellant began experiencing fatigue, low grade fevers, and joint stiffness after he went to Florida to help his mother with her house. On or about May 2, 2013, Appellant was diagnosed with Lupus. Since May 2013, Appellant has been treated for chronic Lupus.

On December 20, 2013, Appellant’s mother died at her home in North Lauderdale, Florida.

Appellant credibly testified that his wife’s death, his Lupus diagnosis, and his mother’s death turned his life upside down. For several years, it was all he could do to keep functioning. He did not think about the possible effect of his wife’s death on his ASRS annuity.

For almost five years after his wife’s death, Appellant did not notify ASRS verbally or writing that his wife had died. On or about March 8, 2013, he logged into his account at ASRS’ member website to change his marital status.

On September 5, 2017, when Appellant was reviewing the beneficiary section of his account on ASRS’ member website, he noticed that his wife was still listed as the beneficiary.

On September 6, 2017, Appellant called ASRS to inform it that his wife had passed away on November 1, 2012, and that he was unable to update the beneficiary information at the member website. The ASRS member services representative who took the call told Appellant that he could not update the beneficiary online and advised Appellant of his option to rescind the joint-and-survivor annuity and to receive a straight-life annuity with an increased monthly payment.

On September 7, 2017, ASRS sent Appellant an Application to Rescind, Revert or Change Contingent Annuitant, with instructions on how to complete the form.

On September 8, 2017, Appellant returned to ASRS the completed Application to Rescind, Revert or Change Contingent Annuitant, electing to rescind the joint-and-survivor annuity and to convert his retirement benefit to the straight-life annuity option.

On September 12, 2017, ASRS advised Appellant that it had processed his request to rescind his original joint-and-survivor annuity and to change his retirement option to a straight-life annuity. ASRS recalculated Appellant’s monthly annuity payment as $624.73, retroactively effective to September 8, 2017.

On September 19, 2017, Appellant appealed the retroactive effective date of his straight-life annuity, requesting that the straight-life annuity be retroactively effective on November 1, 2012, when his wife passed away. Appellant explained that after his wife passed away, his life was turned upside down and he “didn’t have the presence of mind to realize [he] needed to send a form notifying ASRS of her death.”

On September 26, 2017, ASRS’ Assistant Director, Member Services Division Dave King denied Appellant’s appeal, explaining that A.R.S. § 38-760(B)(1) required Appellant to provide written notice to rescind his election of the joint-and-survivor annuity and that he did not provide such written notice until September 8, 2017.

Appellant sent an email to ASRS’ Director, appealing Mr. King’s decision and pointing out that A.R.S. § 38-760(B)(1) was silent about what should happen if the contingent annuitant passed away before the retired member, as happened in his case. Appellant argued that after his wife passed away, because she could not receive his retirement benefits if he died, she could not be the contingent annuitant.

On October 20, 2017, ASRS’ Deputy Director and Chief Operations Officer, Anthony Guarino denied Appellant’s appeal, explaining as follows:

[A.R.S.] § 38-760(B)(1) governs that it is up to the member to request, in writing, the [rescission] of the elected Joint and Survivor option. What this means is that ASRS requires written notification electing to change the retirement option before any change can take effect, and without that notification, the retirement option remains as is, even if the named beneficiary has passed away. The higher monthly payments would only begin from the date the written notification had been received by the ASRS. When you selected the Joint and Survivor 100% option, your monthly pension was actuarially reduced for your lifetime, and that option can only be changed by written notice from you, not by the ASRS. This is because some members may elect not to rescind their Joint and Survivor option and instead would like to name a new, eligible contingent annuitant beneficiary under the annuity.

On November 9, 2017, Appellant requested a hearing on ASRS’ denial of his appeal based on the arguments in his previous appeal letters. Appellant also argued that ASRS should allow at least five years between a spouse’s death and the time a member was required to notify ASRS in writing to “provide much needed time for the surviving spouse and family to mourn their loss, consult with each other and deal with any health issues they may have.” Appellant also alleged that ASRS failed to inform him of the need for written notice:

There are no periodic communications from ASRS about the beneficiary elections in publications such as ASRS “Financial Horizons”. Remember we are seniors that may not recall specifics about the forms we filled out years ago when we retired.

It would have helped me to receive a targeted direct annual communication to [retirees] with beneficiaries. This would have suggested that I might want to review the contingent annuitant information and beneficiaries each year, particularly as regards to what would be needed at the death of a spouse or other beneficiaries.

Ms. Orozco testified that ASRS provides benefits for nearly 500,000 members, including 205,000 active members who are still making contributions, 245,000 inactive members, and 140,000 retired members. ASRS employers include the State of Arizona and approximately 520 political subdivisions in Arizona and their agencies.

Ms. Orozco testified that members who retired before July 1, 2008, like Appellant, can rescind their retirement option at any time, can revert back to a previously selected option, and can change their retirement option without any event to justify the change.

Ms. Orozco testified that, in contrast, members who retire after July 1, 2008, can only change their retirement option one time without a court order, including changing the beneficiary or changing the retirement option from a joint-and-survivor annuity to a straight life annuity in the event of divorce or the death of a beneficiary. Ms. Orozco testified that due to the different rules for members who retire before and after July 1, 2008, ASRS must make sure that its general advice to members applies to both groups of retired members.

Ms. Orozco testified that ASRS does not assume that if a beneficiary spouse dies, the member will elect a straight- life annuity because some members elect to change their beneficiary in the event of a divorce or death of a spouse and remarriage.

Ms. Orozco testified that ASRS does not receive death information for retired members or their beneficiaries, although it does receive a Berman Report for retirees who have died while receiving benefits to prevent a dead member from receiving benefits to which he or she is not entitled.

Ms. Orozco testified that ASRS communicates with its members in several ways, including regular newsletters, group meetings before retirement, a call center where service representatives answer members’ questions, and a walk-in center, where ASRS member services technicians answer members’ questions 1 on 1.

ASRS submitted excerpts from the handouts that it provides to members who are contemplating retirement at group meetings, which explained ASRS’ calculation of benefits for the straight-life annuity and joint-and-survivor annuity. Included in the topic, Member Responsibilities, is the requirement that the retired member must submit all changes to ASRS in writing, including changes to beneficiaries. The handouts also provided contact information for ASRS.

ASRS also submitted the Member Guide publication that was effective when Appellant retired. The Member Guide explained the joint-and-survivor option and advised members that “[i]f you choose this option at retirement, you may elect at any time to name a new contingent annuitant or change your option to the straight life annuity.”

ASRS also submitted a screenshot of its current website, including the Frequently Asked Question, “What if my beneficiary pre-deceases me?” and the following answer:

If your beneficiary passes away it is important for you to designate a new one as soon as possible. If you are retired you may be eligible to get a higher retirement benefit, depending which option you chose when you retired. . . .

ASRS also submitted its current job aid for employees and the job aid in effect when Appellant retired, which both stated that “[a] Member can change their beneficiary at any time . . . .” Ms. Orozco testified that if Appellant had contacted ASRS, he would have received correct information on his right to rescind his joint-and-survivor annuity on the death of his wife and receive a straight-life annuity and the need to submit a request in writing to make the change.

ASRS also submitted its publication, Retirement Annuity Options, which Ms. Orozco testified all ASRS benefit advisors receive during their five-week training for the position. The publication states that a member who retired before July 1, 2008, can name a different contingent annuitant or rescind a joint-and-survivor annuity at any time.

ASRS’ also submitted excerpts from its publications Financial Horizons and Your Retirement. Ms. Orozco testified that Financial Horizons was published annually and Your Retirement was published quarterly. Ms. Orozco testified that the publications were either mailed to or emailed to all retired members at their addresses of record. Ms. Orozco testified that ASRS had Appellant’s email address.

The 2013 Financial Horizons included the article, “Got a Beneficiary?” that that advised members, “[i]t is important that you, the member, keep the ASRS informed of any changes related to your beneficiaries, such as address changes, deaths or changes in relationships.” The 2015 Financial Horizons included the article, “Help Us Protect Your Account” that advised members that they could access their retirement accounts online and “view and update beneficiary information.” The 2016 Financial Horizons advised members that they could view and print a copy of their Member Statement online at any time, including beneficiary information.

Ms. Orozco testified that the Your Retirement publication was sent only to retirees. The Your Retirement for the first quarter of 2014 included the article, “Who’s Your Beneficiary, that explained the process for reviewing and updating beneficiary information. The Your Retirement for the second quarter of 2014 included the article, “How to Settle a Loved One’s Financial Affairs.” The first page of the Your Retirement for the first quarter of 2015 contained the article, “What Is a Qualifying Event” that may require a change in the retired members ASRS option, including death of a spouse, and advised members that “[i]f you have a qualifying event and . . . are required to make a change in your benefit plan . . ., you must notify the ASRS in writing, within 31 days of the event to request a change.” Ms. Orozco testified that ASRS repeatedly encourages its retired members to go online to review and update their beneficiaries.

Appellant testified that his pension for the joint-and-survivor annuity was $538.39 per month and the straight-life pension he received after September 8, 2017, was $624.73 per month, a difference of $86.34 per month. Appellant pointed out that he received only $538.39 for 57 months after his wife passed away on November 1, 2012. Appellant requested that ASRS be ordered to pay him a total of $4,921.38 in retroactive retirement benefits.

RELEVANT STATUTE

A.R.S. § 38-760, which is entitled “Optional Forms of Retirement Benefits,” provides in relevant part:

A. On retirement, members may elect an optional form of retirement benefit as provided in this section.

B. The optional retirement benefits available under this section include the following:

1. Joint and survivor annuity in a reduced amount payable to the retiring member during life, with the provisions that after the member's death all, two-thirds or one-half of the retirement income, as the member elects, shall be continued during the lifetime of the contingent annuitant designated by the retiring member subject to the restrictions prescribed in section 38-764. The amount of retirement income shall be the actuarial equivalent of the retirement income to which the member would be entitled under normal or early retirement. . . . At any time after benefits have commenced, the member may name a different contingent annuitant or rescind the election by written notice to the board as follows:

(a) If a different contingent annuitant is named, the annuity of the member under the same joint and survivor annuity option previously elected shall be adjusted to the actuarial equivalent of the original annuity, based on the age of the new contingent annuitant. The adjustment shall include all postretirement increases in retirement income that are authorized by law after the member's date of retirement. Payment of this adjusted annuity shall continue under the provisions of the option previously elected by the member.

(b) If the member rescinds the election, the member shall thereafter receive a straight life annuity equal to what the member would otherwise be entitled to receive if the member had not elected the joint and survivor annuity option, including all postretirement increases in retirement income that are authorized by law after the date of retirement. The increased payment shall continue during the remainder of the member's lifetime.

(c) If a member whose original date of retirement is before July 1, 2008 rescinds the joint and survivor annuity option previously elected and receives the straight life annuity pursuant to subdivision (b) of this paragraph, the member may again elect the same joint and survivor annuity option previously elected subject to the same restrictions prescribed in subdivision (a) of this paragraph.

[Emphases added.]

CONCLUSIONS OF LAW

This matter lies within the Board’s jurisdiction.

Appellant bears the burden of proof to establish that he is entitled to rescind her election of a joint and survivor annuity, retroactively effective to November 1, 2012, by a preponderance of the evidence. “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”

Legal issues involving statutory construction are resolved de novo without reference to the burden of proof or deference to the agency’s interpretation of the statute. The only issue in dispute is the statutory construction of the words “[a]t any time after benefits have commenced, the member may name a different contingent annuitant or rescind the election by written notice to the board” in A.R.S. § 38-760(B)(1) and the timing of the consequences of such written notice under A.R.S. § 38-760(B)(1).

“A basic tenet of statutory construction is that the legislature is presumed to express its meaning in as clear a manner as possible.” We must “read the statute as a whole, and give meaningful operation to all of its provisions.”

A.R.S. § 38-760(B)(1) unambiguously required Appellant to notify ASRS in writing of his intent to rescind his election of a joint-and-survivor annuity, which notice he provided on September 8, 2017. A.R.S. § 38-760(B)(1)(b) unambiguously provides that after Appellant rescinded his election of a joint-and-survivor annuity by providing written notice to ASRS and electing a straight-life annuity option, he would begin receiving the straight-life annuity. No statute imposes a duty of ASRS to investigate whether its retired members’ beneficiaries are still alive or to advise them that they must inform ASRS in writing of any change in the beneficiaries’ status.

Where different statutory provisions deal with the same subject matter, the statutes should be construed together in an attempt to arrive at a result in accord with the intent expressed therein. ASRS’ attorney pointed out that A.R.S. § 38-764(A) provides that retirement commences on the date selected by the member, while A.R.S. § 38-715(D)(4) allows ASRS under some circumstances to designate a retroactive date for a member’s retirement to commence. In contrast, A.R.S. § 38-760(B)(1) does not allow ASRS to make a member’s change of benefit options retroactive to the member’s written request for such change.

Appellant argued that ASRS should be estopped from enforcing A.R.S. § 38-760(B)(1) because ASRS never told him that he needed to rescind the joint-and-survivor annuity after his wife died. ASRS established that it regularly advises its retired members that they must keep ASRS apprised of any changes in their beneficiaries or beneficiaries’ status. ASRS provided accurate advice and information to all of its 140,000 retired members, including Appellant. Neither A.R.S. § 38-760 nor any other statute imposed a duty on ASRS to do anything more.

RECOMMENDED ORDER

Based on the foregoing, it is recommended that the Arizona State Retirement System Board find that because Appellant William Charles Arnold did not rescind his election of the joint-and-survivor annuity by providing written notice to the Arizona State Retirement System until September 8, 2017, ASRS properly determined that he should begin receiving the straight-life annuity on that date. Therefore, Appellant’s appeal should be dismissed.

In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order will be five days from the date of that certification.

Done this day, January 22, 2018.

/s/ Diane Mihalsky

Administrative Law Judge

Transmitted electronically to:

Paul Matson, Director

Arizona State Retirement System