ALJDEC decisions subject to certification as final

19F-004-ARB · Arizona State Retirement System · 2019-03-25

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: March 8, 2019, at 1:00 p.m. APPEARANCES: Robert Pruszynski (“Appellant”) appeared 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 Background and Procedure 1. ASRS is a public pension plan for workers employed by various government entities within and for the State of Arizona. The state agency administers retirement benefits, among other benefits, to qualified government employees. ASRS is governed by a Board that acts as fiduciary of the ASRS trust fund with powers and duties as outlined in A.R.S. §§ 38-713 and 38-714. 2. Appellant is a former member of ASRS. He appeals ASRS’ termination of his previous membership after he made an irrevocable election to join another Arizona pension plan, the Corrections Officers’ Retirement Plan (“CORP”), even though he later made an irrevocable Payroll Deduction Agreement (“PDA”) to purchase service based on previous employment with an ASRS employer. 3. ASRS referred the matter to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing. A hearing was held on March 8, 2019. Appellant submitted seven exhibits and testified on his own behalf. ASRS submitted 36 exhibits and presented the testimony of Jenna Golab, an ASRS Member Advocate. Hearing Evidence 4. Appellant began his career in public service on or about August 12, 1988, as an assistant head resident/assistant men’s basketball coach at Eastern Arizona College.[1] In July 2005, Appellant’s employment at Eastern Arizona College ended and he filed an application for return of his contributions to ASRS under A.R.S. § 38-740. ASRS returned Appellant’s contributions and his rights and benefits as an ASRS member ended. 5. On or about February 18, 2006, Appellant became employed as a juvenile detention officer for Graham County.[2] Ms. Golab testified that, although there was a legislative change to pension statutes in 2006 that became effective 2007 that made detention officers members of CORP, not ASRS, when Appellant was hired as a detention officer by Graham County, as a result of the recently enacted statutes, such employees could elect whether to join ASRS or CORP.[3] 6. On May 16, 2007, Appellant submitted a request to become a member of CORP for his pension benefits as a juvenile detention officer in Graham County.[4] Ms. Golab testified that, at that time, Appellant had only been working for Graham County for 1.33 years, a relatively brief period of service. 7. ASRS submitted a publication dated April 13, 2007, entitled “Frequently Asked Questions Regarding Judiciary Probation, Surveillance and Juvenile Detention Officers Joining [CORP].” The publication stated that the decision to join CORP or remain in ASRS was irrevocable. The publication also included the following two questions and answers: 12. What about payroll deductions? I’m currently buying back some military service and have fifteen more years of payroll deductions at $100.00 per pay period. Can I pay that off early? I was told this was an irrevocable contract and I can’t get out of it.

The [PDA] you signed to pay for the purchase of service is irrevocable and continues until you separate from the service either by retirement, termination or death. You can’t change the payment amount nor can you pay it off early. If you transfer to CORP, you will continue to make the same payment to ASRS until your contract is paid off or until you separate from service. Assuming that AOC agrees, this service will be transferred annually (as it is paid) from ASRS to the member’s account in CORP. . . . . . . .

14. What are the requirements for a normal retirement? Does CORP have an early retirement?

Normal retirement requires the completion of twenty (20) years of service (at any age), completion of ten (10) years of service and age 62 or where the sum of the member’s age and years of credited service equals eighty. CORP does not have an early retirement provision.[5]

8. On or about June 19, 2007, Appellant submitted a Service Purchase Payment Request to ASRS to purchase the 17 years of service between 1988 and 2005 at Eastern Arizona College for which ASRS had returned his contributions, in the total amount of $74,420.56, through a PDA for $700.00 per pay period.[6] Related documents stated that the PDA was irrevocable.[7] 9. Ms. Golab pointed to an entry in ASRS’ member contact log with Appellant dated June 25, 2007, at 3:21:54 that described the following in-person contact: Comments: recvd PDA agreement for FS. Will send up to SP department. Mbr needs PDA to start by June 30th 2007 for it to transfer to CORP. Mbr had somebody drive from Thatcher to Tucson to drop off the agreement. Mbr did not submit page three, just page one and two of the agreement. Will email Charles B in SP to let him know that this is urgent. Mbr knows that PDA set up might not be in time for it to transfer to CORP but Mbr wanted to give it a try anyways.[8]

10. Ms. Golab testified that under A.R.S. § 38-922, the plan that is receiving the contributions, which in Appellant’s case was CORP because he was a member of CORP at that time, was responsible for determining the amount of service purchased and the cost of the purchased service. If Appellant had elected to stay in ASRS, instead of transferring to CORP, ASRS would have made those decisions. Ms. Golab testified that the amount of Appellant’s gross refund in 2005 had been $65,593.60, reflecting a net payment post-tax of $49,125.25. The cost to purchase the years of service was the gross amount of the refund plus interest, which was 8% for Appellant.[9] 11. On June 15, 2012, Appellant completed his PDA, paying the total principal amount of $74,420.56 to purchase 17 years of ASRS service.[10] 12. On or about June 22, 2012, Appellant submitted a request to transfer his 17 years of service credit from ASRS to CORP.[11] Ms. Golab testified that CORP would initiate the transfer into its system and would request ASRS to provide information. Ms. Golab explained that because ASRS is a separate system and CORP does not release documents without its members’ authorization, ASRS did not possess CORP documents about the transfer. At one point, CORP stopped the transfer because Appellant was still employed. Therefore, the funds are still on account at ASRS. 13. On July 18, 2012, ASRS informed Appellant that it had received his request to transfer his ASRS credited service and dollars to CORP under A.R.S. § 38-922 and that the process could take up to 90 days to complete. ASRS informed Appellant that he would receive an election form from CORP detailing this transfer.[12] 14. On or about July 27, 2012, CORP responded to Appellant’s request to transfer his 17 years of purchased service from ASRS to CORP. The cost of transferring 17 years of service to CORP would be $224,508.00 and the amount to be transferred from ASRS was $95,228.35, which left a difference of $129,279.75. The amount of service credit that Appellant would receive from CORP based on his payments from ASRS if Appellant declined to pay the difference was 7.211 years.[13] 15. On March 22, 2018, ASRS sent a letter to Appellant, in relevant part as follows: [ASRS] recently received your Application to Transfer or Redeem Service Credit Between Arizona Retirement Plans. Unfortunately, the ASRS cannot process you transfer request as you have not terminated your employment with Graham County.

Pursuant to [A.R.S.] § 38-750 an employee that has entered into a [PDA] with ASRS, made an election to transfer to another defined benefit retirement system or plan pursuant to A.R.S. § 38-902 and transfers participation to another defined benefit retirement system or plan without a termination of employment shall complete the terms of an irrevocable [PDA].

Upon termination of employment with Graham County and within 30 days you may elect to transfer the amount paid for the purchase of service credit pursuant to A.R.S. § 38-922.

If you choose not to transfer as instructed above, you then have additional days to apply for a return on the amount paid for the purchase of service credit. If you don’t apply for the return on the amount paid for the purchase of service credit within the allotted time the ASRS will issue the payment directly to you less applicable taxes.

NOTE: Although your secure myASRS account may indicate other options are available, the only options are those described within this letter.[14]

16. Ms. Golab testified that although CORP and ASRS are separate pension systems, they still share some employers. For example, administrative employees of the Department of Corrections are ASRS members, although prison guards are members of CORP. Ms. Golab testified that different statutes and rules apply to CORP and ASRS. ASRS uses graded multipliers based on years of service to determine benefits and CORP does not. Normal retirement is calculated differently for the two pensions. Early retirement at ASRS is calculated differently from normal retirement. Ms. Golab testified that CORP provides more options for retirement than ASRS, including retiring after 20 years of service at any age, as described in the April 13, 2007 publication. 17. Ms. Golab testified that no documents promulgated by ASRS or CORP suggested that the irrevocable choice of pension plan could be altered or that a person could retire and receive benefits from both plans. She looked at ASRS’ website and did not find anything that could be interpreted as a person being able to retire with more than one pension or alter an irrevocable choice of pension plan. Because Appellant indicated that he had been told that could be a member of both pension plans, Ms. Golab looked at the event log for Appellant’s communications with ASRS and did not find any indication that anyone ever told Appellant that he could be a member of both pension plans before retirement.[15] 18. Ms. Golab testified that a person can be a member of more than one pension system only if he retires from one system and becomes eligible to receive pension benefits, then accepts employment with another employer that provides pension benefits from another system. Ms. Golab explained that because Appellant did not retire from an ASRS employer or from a CORP employer, but instead chose to become a member of CORP and transfer his years of ASRS credit to CORP, he had only one, not two, benefit plans. 19. On March 30, 2018, ASRS sent another letter to Appellant, in relevant part as follows: [ASRS] is contacting you today to provide clarification regarding your status with the ASRS.

You initially became an ASRS member upon your employment with Graham County. During your membership, you elected to purchase eligible service credit by means of an irrevocable [PDA] agreement. In September 2007, you elected to transfer from the ASRS to [CORP]. The ASRS transferred your ASRS retirement account to CORP. Although you transferred to another retirement plan, you continued your employment with Graham County. State and Federal laws required your employer to continue the PDA withholding from your biweekly salary due to the ASRS irrevocable PDA agreement.

When a member transfers from one Arizona public retirement system to another, they relinquish all membership rights and benefits under their prior plan and are no longer a member of that prior plan. By transferring to CORP, you terminated your rights and membership with the ASRS. As a result, you are not eligible to collect a retirement benefit from the ASRS and the service on account is only due to the PDA contributions which were required to continue after your transfer to CORP was complete. In reviewing your account, we show a benefit estimate was quoted and provided verbally to you in error due to a system limitation caused by your transfer out to CORP. I apologize for you receiving incorrect information from the ASRS.

Pursuant to [A.R.S.] § 38-750, when you terminate employment with Graham County, you have two options available to you, under law, concerning the PDA balance:

1.) Transfer the principal of PDA contributions to CORP prior to retiring from CORP, or

2.) Receive a direct return of the principal PDA contributions that have not been transferred to CORP.[16]

20. Ms. Golab testified that there was a disconnect between the secure account information that was available online to someone like Appellant, who had transferred from ASRS to CORP. If Appellant had gone online at any time before March 2018, he would have seen estimated retirement benefits that purportedly were still available from ASRS, even though he had transferred to another retirement system. Ms. Golab testified that she has learned that, before the error was fixed, Appellant received a verbal estimate from ASRS on the benefits that he would be eligible to receive from ASRS after retirement on or about November 13, 2017.[17] Ms. Golab testified that the number of members who would have received misinformation about ASRS benefits after the legislature allowed juvenile detention officers to join CORP was 100 or less of ASRS’ approximately 550,000 members. Ms. Golab testified that if the computer system had been more ideal, Appellant would have received more accurate advice. She pointed out, however, that November 13, 2017, was more than a decade after Appellant made the irrevocable decision to transfer to CORP. 21. On June 18, 2018, Appellant’s job as a juvenile detention officer was terminated because Eastern Arizona Regional Juvenile Detention Facility was closing due to a lack of funding.[18] 22. On or about July 19, 2018, CORP again responded to Appellant’s request to transfer his 17 years of purchased service from ASRS to CORP. The cost of transferring 17 years of service to CORP would be $491,048.00 and the amount to be transferred from ASRS was $136,929.80, which left a difference of $354,118.20. The amount of service credit that Appellant would receive from CORP based on his payments from ASRS if Appellant declined to pay the difference was 4.740 years.[19] 23. ASRS provided two options to Appellant for the $74,420.56 that he had paid to ASRS for service credit pursuant to the irrevocable PDA: (1) To transfer the principal amount, plus interest at eight percent (8%), totaling $136,929,80 (as of July 2018), to CORP; or (2) To have ASRS return the principal amount plus four percent (4%) interest for July 1, 2005 through June 30, 2013, and two percent (2%) interest for July 1, 2013 to present, totaling $92,000,86 (as of July 2018), to Appellant as either a pre-tax rollover to another eligible retirement account or as a taxable, direct payment.[20] 24. Appellant requested a hearing because he wished to be considered a member of ASRS and use the 17 years of service credit that he purchased toward an ASRS retirement pension.[21] 25. Ms. Golab acknowledged that if Appellant had not transferred to CORP in 2007, he would have had 29 years of service in the ASRS retirement system. Ms. Golab testified that if Appellant had not cashed out his pension benefits from his employment at Eastern Arizona College or entered into the irrevocable PDA, his service credit still would have transferred to CORP once he elected to leave ASRS and join CORP. 26. Appellant testified that he thought when he transferred to CORP that it was only his year and a half of service with Graham County was affected. Appellant testified that the value of the money that he paid ASRS pursuant to the irrevocable PDA was depreciating. 27. Appellant testified that he knows people who continue to who receive benefits from two pension plans. Appellant testified that he dreamed of retiring at 62 with benefits from both CORP and ASRS. Appellant testified that he was thinking of returning to teaching and would like to add to the 17 years’ service credit that he purchased for his years of service at Eastern Arizona College. 28. Appellant acknowledged that the people he knew who were receiving benefits or were accruing years of service to obtain benefits from more than one pension plan had retired and started receiving benefits from one plan before they started payment contributions for another plan. Appellant testified that he did not know he had to retire from one pension system and start receiving benefits before he could join another system. 29. Appellant acknowledged that no one at ASRS misled him when he decided to transfer to CORP in 2007. Appellant testified that he did not read the Frequently Asked Questions for transferring to CORP until last summer, after he filed his appeal. / / / / CONCLUSIONS OF LAW 1. Pursuant to A.R.S. § 38-714, the ASRS Board has jurisdiction over the subject matter in this appeal. 2. Appellant bears the burden to show that he is entitled to remain a member of ASRS and to keep the 17 years of service as part of his pension from ASRS by a preponderance of the evidence.[22] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[23] Further, a preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”[24] 3. A.R.S. § 38-747 concerns purchases of credited service and provides in relevant part as follows: A. A member who purchases credited service pursuant to section 38-738, 38-742, 38-743, 38-744, 38-745 or 38-922 shall either:

1. Make payments directly to ASRS as provided in subsection H of this section. . . . . 7. If a member transfers employment from one participating employer with which the member has made an irrevocable election pursuant to this subsection to another participating employer, the member and the successor participating employer shall complete the terms of the irrevocable election that the member made with the original participating employer. . . . .

D. Any member contributions that are required by section 38-771, subsection D or that are allowed pursuant to section 38-771.01, subsection F, paragraph 3 are deemed to be made by the member to ASRS through a salary reduction program in accordance with the following: . . . .

7. If a member transfers employment from one participating employer with which the member has made an irrevocable election pursuant to this subsection to another participating employer, the member and the successor participating employer shall complete the terms of the irrevocable election that the member made with the original participating employer.

4. A.R.S. § 38-750 concerns transfers between pension plans and provides in relevant part as follows: A. If an employee has made an irrevocable election pursuant to section 38-747, subsection B or D and transfers participation to another defined benefit retirement system or plan of this state without a termination of employment, within ninety days after the date of the transfer, ASRS shall transfer to the subsequent defined benefit retirement system or plan the amount the employee paid for the purchase of the credited service plus interest as determined by ASRS. . . . .

C. The transferred employee and the employer shall complete the terms of the irrevocable election by making payments to ASRS.

D. If the employee is given an election to transfer to another defined benefit retirement system or plan of this state or to remain with the employee's current retirement system, on termination of employment the employee shall elect to have ASRS:

1. Promptly transfer to the subsequent defined benefit retirement system or plan the amount paid by the employee for the purchase of credited service plus interest as determined by ASRS. If an unfunded liability is created, subsection B of this section applies. If the employee fails to elect to have the assets transferred within thirty days after termination of employment, the employee is deemed to have made an election as prescribed in paragraph 2.

2. On written request by the employee, promptly return to the employee the amount paid by the employee for the purchase of credited service plus interest as determined by ASRS. If no application is received by ASRS within sixty days after termination of employment, ASRS shall issue the payment directly to the employee.

5. “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.”[25] A.R.S. § 38-750(A) and (D) unequivocally provide that, if a person transfers from ASRS to another pension plan, ASRS shall continue to accept payments pursuant to a PDA but that it shall transfer the contributions to the other plan when the purchase is complete or the member retires. 6. In July 2005, Appellant terminated his employment at Eastern Arizona College and obtained a return of his contributions to ASRS. His membership in ASRS ceased at that point and he was not entitled to any future pension benefits. In February 2006, Appellant again became a member of ASRS when he started working for Graham County as a juvenile detention officer. In 2007, Appellant became eligible to join CORP and, in May 2007, he submitted a request to become a member of CORP. In June 2007, Appellant submitted a Service Purchase Payment Request to ASRS to purchase the 17 years’ service for which, in 2005, he had received a return of all contributions. The Frequently Asked Questions that ASRS submitted clearly states that, if Appellant elected to become a member of CORP, ASRS would continue to accept contributions for a previously made PDA, but would transfer them to CORP upon the person’s retirement. 7. For estoppel to be appropriately levied against a state agency, the agency’s communication giving rise to the estoppel must be formal, usually in writing, and made by “a person authorized to act in the area under consideration.”[26] “In general, the state may not be estopped due to the casual acts, advice, or instructions issued by nonsupervisory employees.”[27] Appellant has not pointed to any written or oral communications from ASRS that stated that if he entered an irrevocable PDA to purchase service credits after he elected to join CORP, it would revive his membership in ASRS. Although a glitch in ASRS’ computer system caused it to provide estimated retirement benefits after Appellant elected to join CORP, this information was provided after he made his election and he has not alleged that he relied on the information to make any decisions about which pension plan to join or when to retire. Although Respondent did not understand the consequences of his decisions, he has not shown that ASRS provided incorrect information about his options at any time. RECOMMENDED ORDER Based on the foregoing findings of facts and conclusions of law, IT IS ORDERED affirming ASRS’ decision to offer Appellant Robert Pruszynski two choices regard the return of the $74,420.56 in principal that he paid to ASRS for service credit, to wit: (1) To transfer the principal amount, plus interest at eight percent (8%) totaling $136,929,80 (as of July 2018) to CORP; or (2) To have ASRS return the principal amount plus four percent (4%) interest for July 1, 2005 through June 30, 2013, and two percent (2%) interest for July 1, 2013 to present, totaling $92,000,86 (as of July 2018), to Appellant as either a pre-tax rollover to another eligible retirement account or as a taxable, direct payment. 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 25, 2019.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

Paul Matson, Director Arizona State Retirement System ----------------------- [1] See ASRS’ Exhibit B at 3. [2] See ASRS’ Exhibit A. [3] See ASRS’ Exhibits N and O. [4] See ASRS’ Exhibit R. ASRS also submitted an ASRS Member Maintenance request that persons who wanted to stay in ASRS would have filled out. See ASRS’ Exhibits Q, S. [5] ASRS’ Exhibit P at 2-3. [6] See ASRS’ Exhibit J. ASRS also submitted the documents related to Appellant’s PDA. See ASRS Exhibits H – M. [7] See, e.g., ASRS’ Exhibit L. [8] ASRS’ Exhibit W at 6. [9] See A.R.S. Exhibit L at 2, #13. [10] See ASRS’ Exhibit H. [11] See ASRS’ Exhibit X. [12] ASRS’ Exhibit 6. [13] See Appellant’s Exhibit 2. [14] ASRS’ Exhibit AA; Appellant’s Exhibit 6/ [15] See ASRS’ Exhibit W. [16] ASRS’ Exhibit BB; Appellant’s Exhibit 3. [17] See ASRS’ Exhibit W at 2. [18] See Appellant’s Exhibit 1. [19] See Appellant’s Exhibit 2. [20] See ASRS’ Exhibit HH and JJ. [21] See ASRS’ Exhibit II. [22] See A.A.C. R2-19-119(A); see also Vazanno v. Super. Ct, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [23] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [24] Black’s Law Dictionary at 1220 (8th ed. 1999). [25] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [26] See Id. at 577, 959 P.2d at 1268. [27] Id.

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