ALJDEC decisions subject to certification as final

20F-004-ARB · Arizona State Retirement System · 2019-12-16

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Pepi Sandhaus

Appellant,

Arizona State Retirement System,

Respondent.

No. 20F-004-ARB

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: November 26, 2019

APPEARANCES: Richard Treon, attorney, appeared on behalf of Pepi Sandhaus, Appellant. Cassie Adams, Assistant Attorney General, appeared on behalf of the Arizona State Retirement System.

ADMINISTRATIVE LAW JUDGE: Antara Nath Rivera

_____________________________________________________________________

FINDINGS OF FACT

Between August 18, 1989, and May 23, 2009, Pepi Sandhaus (Appellant) was employed full-time as a teacher by the Peoria Unified School District (PUSD).

Between September 4, 1992, and May 23, 2009, Appellant was a member of the Arizona State Retirement System (ASRS).

On or about August 20, 1999, Appellant filed an “Other Public Employee Retirement System Service Verification” (Verification) and began a service purchase request. In the Verification, Appellant indicated employment in Stamford, Connecticut between the dates of September 1967, and June 1972.

Appellant purchased the remaining service credit available (0.82 years) for $3,785.20. However, Appellant chose not to complete the service purchase for any additional years of credited service.

On or about February 20, 2009, Appellant filed an Application for Retirement Benefits (Application). Appellant chose the Straight Life Annuity option.

On or about May 23, 2009, Appellant terminated her employment with PUSD.

The ASRS processed Appellant’s Application and upon auditing the retirement benefit, the ASRS calculated Appellant’s ASRS retirement benefit using Appellant’s correct years of credited service which was 24.18 years.

The ASRS determined that Appellant’s correct monthly retirement benefit was $3,138.29.

On or about March 14, 2019, the ASRS notified Appellant of a routine post-retirement audit. In the letter, the ASRS provided, in relevant part, as follows:

The Arizona State Retirement System (ASRS) recently performed a routine post-retirement audit on your account to ensure you are receiving the correct retirement benefit.

Our audit found your pension is understated. Your new monthly benefit changes to a gross amount of $3,341.05 effective with your April 01, 2019 pension check. The details are included in this letter.

Any retroactive amounts will also be included and will be shown as miscellaneous adjustment on your deposit summary. If you are retired under a Partial Lump Sum option, any partial lump sum amounts due to you will be distributed as you indicated on your retirement application under a separate check. Should you need further information, please visit the ASRS public website at AzASRS.gov, log in to your secure myASRS account to send a secure message, or call us at one of the phone number shown above.

You can view your administrative rights by visiting the ASRS website at AzASRS.gov.

In addition to the monthly benefit increase, Appellant received a lump sum payment of $23,984.43.

On or about June 18, 2019, Appellant’s husband, Kenneth Sandhaus sent a letter to the ASRS inquiring about interest on the changed payment. In the letter, Mr. Sandhaus provided, in relevant part, as follows:

I am corresponding on behalf of my wife, Pepi Sandhaus. Please direct your response to her.

Thank you for discovering this discrepancy. We appreciate this payment.

The question remains Why was no interest included? We would have had some earnings had these funds been provided on a timely basis. As it stands now, any growth or income has inured to the plan and not to Pepi.

I look forward to hearing from you.

Sincerely,

Kenneth Sandhaus

All errors in original.

The ASRS responded to Mr. Sandhaus’ letter. In summary, the ASRS stated that while Appellant had the right to appeal, Appellant’s spouse did not have that same right. In its letter, the ASRS also indicated the following:

Following a thorough review of the request submitted for your account, we regret that we must deny any request to receive ‘interest earned’ on the retroactive pension benefits, paid to you in a lump sum gross total of $23,984.43, and will explain to you why the ASRS is unable to do so.

When you originally retired, the ASRS used the formula to determine your gross benefit, which was communicated to you via a letter dated June 30, 2018:

24.18 Years X 2.15% Graded Multiplier X $6,074.64 Average Monthly Salary = $3,138.29 Monthly Pension

In reviewing your account, we find that in your initial retirement calculation contributions from a June 19, 2009 pay period for 301 monies were not included and neither was s service purchase from the conclusion of your Payroll Deduction Authorization (PDA) agreement. .... Now, upon the pension audit of your account uncovering additional service credit and salary that should be included in your retirement calculations, your formula was adjusted as detailed below:

25.00 Years X 2.20% Graded Multiplier X $6,074.64 Average Monthly Salary = $3,341.05 Monthly Pension

Arizona Revised Statute (A.R.S.) § 38-765 states, “If any change or error in the records results in any member or beneficiary receiving from ASRS more or less than the member or beneficiary would have been entitled to receive if the records had been correct, ASRS shall correct the error and as far as practicable shall adjust the payments in a manner so that the actuarial equivalent of the benefit to which the member or beneficiary was correctly entitled is paid. ASRS shall correct any change or error and shall pay the appropriate monies to a member...” This statute does not authorize either the charge or payment of interest on any correction the ASRS must make pursuant to this law. Instead, it clearly directs the ASRS to adjust a member’s account to the actuarial equivalent of what should be paid, no more no less. ....

All errors in original.

On or about August 5, 2019, Appellant appealed the ASRS’ decision.

On or about September 4, 2019, the ASRS upheld its decision and denied Appellant’s appeal to receive interest on retroactive retirement fund benefits paid. The ASRS treated Appellant’s letter as a Director-level appeal and reiterated that A.R.S. § 38-765 did not authorize the ASRS to either pay or charge interest on payments under or overpaid to its members. This was relayed to Appellant by Deputy Director and Chief of Operations Office Anthony Guarino.

Appellant requested a hearing and this matter was thereafter scheduled for administrative hearing before the Office of Administrative Hearings, an independent state agency.

A hearing was held on November 26, 2019 at 8:00 a.m.

HEARING EVIDENCE

At hearing, the ASRS presented the testimony of Jenna Golab, Program Manager of Operations and Analysis. Ms. Golab testified that a member’s retirement benefit was calculated using a formula which takes a member’s average monthly salary, a member’s years of service, and a graded multiplier based off of that member’s years of service and calculates a continuing monthly benefit for the member based off of those factors.

Ms. Golab stated that Appellant retired on May 23, 2009. Appellant elected the Straight Life Annuity option. Appellant’s monthly benefits were calculated to be $3,138.29. When Appellant retired, she did not complete the service purchase. The ASRS calculated the remaining available for purchase at 0.82 years, from the date of retirement, in the amount of $3,785.20. While the ASRS received Appellant’s check, no audit was triggered.

Ms. Golab acknowledged that the ASRS was in error in not auditing Appellant’s account sooner. A system error may have been a possible reason why an audit was not triggered.

In March 2019, the ASRS conducted a post-retirement audit where it discovered that Appellant was underpaid. The ASRS calculated the new monthly amount to be $3,341.05 and a lump sum payment owed to Appellant in the amount of $23,984.43. The date range for the amount calculated was May 23, 2009, to March 31, 2019. The ASRS recognized 25 years of service when it calculated the new monthly amount.

The ASRS was not obligated to pay interest pursuant to A.R.S. § 38-765 or A.R.S. § 38-719. Additionally, the ASRS was exempt from ERISA under 29 U.S. Code §1003(b)(1).

The ASRS was apologetic to Appellant for its mistake in under payment.

Mr. Sandhaus testified on behalf of Appellant. Mr. Sandhaus testified that he was a licensed certified public accountant. The ASRS owed Appellant interest, on the under payment, due to inflation and actuarial analysis. Had Appellant received the correct amount in a timely manner, she would have invested it accordingly. A 10 year system error was gross negligence committed by the ASRS. Appellant was deprived of potential investment of $5,000.00 to $34,000.00 depending on how aggressively she invested it. Appellant must be made whole.

CONCLUSIONS OF LAW

The Arizona legislature has required the ASRS to reimburse underpayments 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.” This matter lies with the ASRS Board’s jurisdiction.

Appellant bears the burden of proof and the standard of proof on all issues in this matter is that of a preponderance of the evidence. Ariz. Admin. Code § R2-19-119.

A preponderance of the evidence is:

The 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.

Black’s Law Dictionary 1373 (10th ed. 2014).

The primary goal when construing statutes is to fulfill the intent of the legislature. Backus v. State of Ariz., 220 Ariz. 101, 203 P.3d 499 (2009).

An agency’s authority is limited to that which is found in its enabling legislation. Ariz. State Bd. of Regents v. Ariz. State Pers. Bd., 195 Ariz. 173, 985 P.2d 1032 (1999).

The tribunal may not expand or extend a statute to include that which is not within its provisions. State ex rel. Morrison v. Anway, 87 Ariz. 206, 349 P.2d 774 (1960).

The ASRS is required to correct errors in member records by A.R.S. § 38-765 because the ASRS is trust fund for all members. A.R.S. § 38-712.

Furthermore, A.R.S. § 38-719 does not authorize the ASRS to pay interest to members.

The preponderance of the evidence shows that ASRS was not obligated to pay Appellant interest on the new payment.

The Administrative Law Judge concludes that in the absence of controlling authority to the contrary, Appellant failed to establish by a preponderance of the evidence that the ASRS improperly denied Appellant’s request for interest.

RECOMMENDED ORDER

Based on the foregoing, it is recommended that the ASRS Board affirm its denial of Appellant’s appeal.

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, December 10, 2019.

/s/ Antara Nath Rivera

Administrative Law Judge

Transmitted electronically to:

Paul Matson, Director

Arizona State Retirement System

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