ALJDEC decisions subject to certification as final

19F-002-ARB · Arizona State Retirement System · 2019-03-06

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: February 21, 2019, at 8:30 a.m. APPEARANCES: Jeffrey T. Pichotta (“Appellant”) appeared telephonically on his own behalf; the Arizona State Retirement System (“ASRS”) was represented by Mark A. Fuller, Esq., Gallagher & Kennedy, P.A. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky

FINDINGS OF FACT 1. Appellant appealed to the ASRS Board ASRS’s determination that it had overpaid him $43,210.75 in LTD (“LTD”) benefits. ASRS referred the matter to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing. 2. A hearing was held on February 21, 2019. ASRS submitted 21 exhibits and presented the testimony of Jenna Golab, a Member Advocate. Appellant testified telephonically on his own behalf. Hearing Evidence 3. Although Appellant was employed by Parker Unified School District in August 1996, he elected to withdraw his ASRS contributions and terminate his membership in ASRS when he terminated his employment on or about July 21, 2001. In 2003, Appellant was employed by Baboquivari Unified School District, but also elected to withdraw his ASRS contributions and terminate his membership in ASRS when his employment by Baboquivari Unified School District terminated on or about June 17, 2008. On or about December 25, 2010, Appellant was employed by Tucson Unified School District and began again contributing to ASRS.[1] 4. Appellant became disabled on September 26, 2013, when he began suffering severe anxiety and agoraphobia and could no longer function as a teacher. Because ASRS is required by statute to wait six months after the onset of a disability to begin paying LTD benefits, Appellant began receiving ASRS LTD benefits on March 26, 2014. Appellant’s LTD benefits were 66 2/3% of his salary while he was employed,[2] or $2,148 per month.[3] During his LTD, Appellant continued to accrue years of service that would be used to calculate his ASRS retirement benefit when he turned 65 years old. 5. Ms. Golab testified that ASRS must follow the statutes that govern payment of benefits because it is a public program. Ms. Golab testified that a person who is eligible to receive ASRS LTD benefits may also be eligible to receive Supplemental Security Income (“SSI”) benefits from the federal Social Security Administration (“SSA”). 6. Ms. Golab testified that Arizona statute requires requires that a member who has been found to be eligible for ASRS LTD benefits must also apply for SSI benefits and that, if the member is found to be eligible for SSI benefits, ASRS must reduce the member’s ASRS LTD benefits by a percentage of the SSI benefits that he has or will receive. ASRS also must assume that the member is eligible for SSI benefits until such benefits are awarded or a federal administrative law judge dismisses the member’s appeal of the denial of SSI benefits. 7. Ms. Golab testified that ASRS had contracted with Sedgwick the responsibility of administering the LTD program when Appellant was initially determined to be eligible for LTD benefits. In September 2016, ASRS contracted with Broadspire to administer the LTD program through the state procurement process. 8. Ms. Golab testified that Sedgwick provided advocacy services to Appellant to help him obtain SSI benefits from the SSA. Applicable statute does not allow ASRS to recover attorney’s fees for the advocacy services from any overpayment of LTD benefits that may eventually have been made before a member is determined to be eligible for SSI benefits from the SSA. 9. Ms. Golab testified that, once Appellant was found to be eligible for LTD benefits, on September 8, 2014, Sedgwick sent a Social Security Disability Insurance (“SSDI”) application to Appellant for him to complete. A cover letter would have accompanied the application, informing Appellant that he was required to apply for SSI benefits and that his LTD benefits from ASRS would be reduced by any SSI benefits that he eventually received from SSA. A Promise to Repay would have been enclosed with the form letter.[4] 10. The record does not include Promise to Repay signed by Appellant. 11. Sedgwick/Broadspire’s contact log with Appellant showed that the SSDI Application was sent to Appellant on September 8, 2014, and that, after Appellant did not complete a return the application, Sedgwick called and left several messages for Appellant, but that he did not respond. On October 6, 2014, Sedgwick send a second SSDI application packet to Appellant with a letter informing him that if the completed application form was not received within 14 days, his LTD benefits would be suspended. On October 20, 2014, Appellant’s ASRS LTD benefits were suspended after Appellant failed to return a completed SSDI application. On October 22, 2014, Appellant returned the completed SSDI application.[5] 12. On April 1, 2016, Sedgwick informed Appellant that his eligibility to receive ASRS LTD benefits based on his inability to perform his former teaching job had expired. nder A.R.S. § 38-797.07(A)(11), his continued eligibility for LTD benefits would depend on his inability to “to perform any work for compensation or gain for which the member is reasonably qualified by education, training or experience in an amount at least equal to the scheduled LTD program benefits.” The letter also advised Appellant that he “should . . . report any other benefit provided for the same disability by any Federal, State, County, or other governmental agency or under Workers’ Compensation” and “suggest[ed] that [he] hold any initial payment or other income until we determine if the income has caused your LTD claim to be overpaid.”[6] 13. Ms. Golab testified that after Appellant’s SSDI claim to the SSA was filed, it took over three and a half years to process. Appellant’s SSI claim was initially denied on October 15, 2015 and February 19, 2016, but was finally approved on February 5, 2018.[7] Ms. Golab testified that, in the meantime, while Appellant’s SSI claim was pending, ASRS continued to pay him the full amount of his ASRS LTD benefits to avoid any hardship to him. 14. On February 5, 2018, Appellant sent an email to Broadspire to inform it that his claim for SSI benefits had been approved and attaching SSA’s letter. Appellant’s eligibility for SSI benefits was retroactively effective to April 2014, and his SSI benefits had been increased by four cost-of-living increases, from $1,235 to $1,285 per month. Shortly after February 5, 2018, Appellant received a check for $50,429 for unpaid SSI benefits dating to April 2014.[8] 15. Broadspire/Sedgwick’s contact log shows that on February 7, 2018, Broadspire “sent an email to [Appellant] notifying [him] that the SS award letter was received and to not spend the money if he received a lump sum payment since he was approved from April 2014 which will generate an overpayment. Also, informed of 85% offset from the [LTD] benefit and that an overpayment letter will be mailed to him . . . to repay the overpayment amount.”[9] 16. On May 22, 2018, Broadspire sent a letter to Appellant, informing him that his SSI benefits would only be offset at $1,049.75, which was 85% of his monthly award, and that “we have recalculated the [LTD] benefits due to you for the period of April 1, 2014 through May 31, 2018 and find that there is an overpayment of $43,210.75.”[10] Broadspire’s letter requested full reimbursement. 17. Ms. Golab testified that ASRS did not seek reimbursement for the four cost-of-living adjustments or the $6,000 in attorney’s fees that Sedgwick/Broadspire had expended to advocate on Appellant’s behalf before the SSA to obtain SSI benefits for him. Ms. Golab testified that since Appellant was only required to reimburse ASRS for 85% of the SSI benefits that he had received for the period between April 2014, and May 31, 2018, he was still better off than he would have been had he not received an SSI award and that he would be able to keep approximately $7,000 of the lump sum payment. 18. Ms. Golab testified that ASRS attempts to inform members who receive LTD benefits about their responsibilities through LTD Guides,[11] Member Handbooks,[12] and the ASRS website[13] that were published between 2014, and the present. The salient information has not changed and all of these reference guides inform members who receive LTD benefits from ASRS of their responsibilities to apply for SSI benefits and, if they are found eligible for SSI benefits, to reimburse ASRS for LTD overpayments. 19. Appellant testified that he never received any information about his responsibility to repay LTD overpayments and that ASRS cannot prove that he received or rejected any information because the various communications were not sent to him via certified mail. He never signed any agreement to repay ASRS if he received SSI benefits. Appellant argued it was ASRS’s burden to show that he was either informed of or that he agreed to repay ASRS for part of the SSI benefits that he received in 2018. 20. Appellant pointed out that SSA sent the lump sum check for retroactive SSI benefits to him, not to ASRS or Broadspire. The money that SSA sent him was his money, not ASRS’s or Broadspire’s. 21. Appellant argued that he is disabled due to his emotional and cognitive deficits. When he is under stress, he “freaks out” and is not able to function like most people. His state of mind is important to ASRS’s duty to inform him. CONCLUSIONS OF LAW 1. The Arizona legislature has required ASRS to recover overpayments to members and that it “as far as practicable shall adjust the payments in a manner so that the actuarial equivalent of the benefit to which the member . . . was correctly entitled is paid.”[14] This matter lies with the ASRS Board’s jurisdiction. 2. ASRS bears the burden of proof to establish that Appellant’s LTD benefits were overpaid and that Appellant is required to reimburse these overpayments by a preponderance of the evidence.[15] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[16] A preponderance of the evidence is “evidence which is of greater weight or more convincing than evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not.”[17] 3. A.R.S. § 38-797.07 provides in relevant part as follows: A. The LTD program is subject to the following limitations:

1. [M]onthly LTD program benefits shall not exceed two-thirds of a member's monthly compensation, reduced by: . . . .

(b) For a member whose disability commences on or after July 1, 2008, eighty-five percent of social security disability benefits that the member and the member's dependents are eligible to receive, but not including:

(i) The amount of attorney fees approved pursuant to social security administration rules and reasonable documented costs paid to an attorney to secure that disability benefit.

. . . .

10. Members are eligible to receive the LTD program benefits and payments described in paragraph 1 of this subsection, and the reductions provided by paragraph 1 of this subsection apply even though the social security benefits are not actually paid as follows:

(a) For primary and dependent social security benefits, the members are eligible for the social security benefits until the social security benefits are actually awarded, or if the social security benefits are denied, until the member pursues the social security appeal process through a hearing before a social security administrative law judge or until the insurance company or claims administrator determines that the member is not eligible for social security benefits. . . . .

D. ASRS may suspend or terminate benefits under this article if a member fails to provide information, data, paperwork or other materials that are requested by ASRS or the insurance company or claims administrator that is selected by the board to administer the LTD program. If the member provides the information requested, ASRS shall retroactively reinstate the benefits or claim for which the member qualifies under this article.

(Emphasis added”) A.R.S. § 38-797.08 provides as follows: If any change or error in the records results in any member receiving from the LTD program more or less than the member would have been entitled to receive if the records had been correct, the board shall correct the error and shall adjust the payments in a manner so that the equivalent of the benefit to which the member was correctly entitled is paid. The board shall correct any change or error and shall pay the appropriate monies to a member or shall recover monies from the member if the member is overpaid. The board shall recover monies by reducing any benefit that is otherwise payable by ASRS or the LTD program to an active, inactive, member with a disability or retired member, survivor, contingent annuitant, beneficiary or alternate payee.

(Emphasis added.) “In applying a statute . . . its words are to be given their ordinary meaning unless the legislature has offered its own definition of the words or it appears from the context that a special meaning was intended.”[18] “In a statute, ‘the expression of one or more items of a class indicates an intent to exclude all items of the same class which are not expressed.’”[19] “A cardinal rule of statutory interpretation is to give full effect to each statutory word or phrase so that no part is rendered void, superfluous, contradictory or insignificant.”[20] “‘Shall is a word used in laws, regulations, or directives to express what is mandatory . . . .’ The ordinary meaning of the word ‘shall,’ in the context of a statute, is to impose a mandatory duty. The use of the word ‘shall’ indicates a mandatory intent.”[21] 4. A.R.S. § 38-797.07(A)(1)(b) requires ASRS to offset a member’s LTD benefits by any SSI benefits that he has received or will receive. ASRS established that it overpaid Appellant $43,210.75 in LTD benefits between April 2014, and May 31, 2018, due to the delay in SSA approving Appellant’s application for SSI benefits. 5. Neither A.R.S. § 38-797.07 nor A.R.S. § 38-797.08 require ASRS to give the member any advance notice for the member to be liable to reimburse any overpayment to ASRS. Everyone is presumed to know the law.[22] “As a matter of public policy, all persons are charged with knowledge of law pertaining to their transactions . . . .”[23] Because everyone is presumed to know the law’s requirements, a mistake as to such requirements does not excuse failure to meet them.[24] 6. Appellant has not established that he is entitled to keep the excess LTD payments or that he is able or willing to repay these excess payments. Because A.R.S. § 38-797.07(A)(1)(b) requires ASRS to offset Appellant’s LTD benefit by 85% of his SSI benefit and A.R.S. § 38-797.08 requires ASRS requires ASRS to recover any monies paid in error, ASRS is required to reduce Appellant’s future LTD benefits to recover the overpayment. RECOMMENDED ORDER Based on the foregoing, it is recommended that the ASRS Board actuarially reduce the benefits paid to Appellant to recover a total of $43,210.75. 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 (5) days from the date of that certification. Done this day, March 6, 2019.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

Paul Matson, Director Arizona State Retirement System ----------------------- [1] See Exhibits 1, 2, 3, and 4. [2] See A.R.S. § 38-797.07(A) [3] See Exhibit 4. [4] See Exhibit 7. [5] See Exhibit 6. [6] Exhibit 10. [7] See Exhibits 8, 9, and 11. [8] See Exhibit 11. [9] Exhibit 6 (second to last page). [10] Exhibit 12. [11] See Exhibits 15 and 16. [12] See Exhibits 18, 19, and 20. [13] See Exhibit 17. [14] A.R.S. § 38-765. [15] See A.A.C. R2-19-119; see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [16] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [17] Black’s Law Dictionary at page 1182 (6th ed. 1990). [18] Mid Kansas Federal Savings and Loan Ass’n of Wichita v. Dynamic Development Corp., 167 Ariz. 122, 128, 804 P.2d 1310, 1316 (1991). [19] Piper v. Bear Medical Systems, Inc., 180 Ariz. 170, 176, 883 P.2d 407, 413 (App. 1994) (quoting Pima County v. Heinfeld, 134 Ariz. 133, 134, 654 P.2d 281, 282 (1982)). [20] Westburne Supply, Inc. v. Diversified Design and Construction, Inc., 170 Ariz. 598, 600, 826 P.2d 1224, 1226 (App. 1992). [21] In the Matter of the Appeal in Navajo County Juvenile Action No. JV- 94000086, 182 Ariz. 568, 570, 898 P.2d 517, 519 (App. 1995) (citations omitted). [22] See Conway v. State Consolidated Publishing Co., 57 Ariz. 162, 171, 112 P.2d 218 (1941). [23] Turner v. State Employees Retirement System, 485 So. 2d 765 (Ala. App. 1986). [24] See Newman v. Fidelity Savings and Loan Ass’n, 14 Ariz. 354, 359, 128 P. 53 (1912).

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Office of Administrative Hearings 1740 West Adams Street, Lower Level Phoenix, Arizona 85007 (602) 542-9826