ALJDEC decisions subject to certification as final

22F-002-ARB · Arizona State Retirement System · 2021-10-25

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Wayne Jacobsen

Appellant,

Arizona State Retirement System,

Respondent.

No. 22F-002-ARB

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: September 28, 2021, with the record held open until October 13, 2021 for receipt of the transcript.

APPEARANCES: Appellant Wayne Jacobsen appeared on his own behalf along with his wife, Laurie Jacobsen. Assistant Attorney General Cassie Adams represented Respondent Arizona State Retirement System. Ryan Guerra appeared as a witness for the Arizona State Retirement System.

ADMINISTRATIVE LAW JUDGE: Adam D. Stone

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FINDINGS OF FACT

This hearing was noticed due to the Arizona State Retirement System (“ASRS”) Director’s determination that ASRS has paid Appellant Wayne Jacobsen (“Appellant”) all benefits to which he is lawfully entitled, and Appellant has appealed such determination.

Appellant first became an ASRS member in February 2004, when he became an employee of the University of Arizona. See Exhibit 1.

During each year of his employment, Appellant’s income exceeded the maximum compensation limits set by the Internal Revenue Code (IRC).

According to ASRS records, Appellant’s employer reported his contributions correctly throughout his employment and never received excess contributions from the University of Arizona on Appellant’s behalf.

After he retired, Appellant informed ASRS on April 23, 2021, that he was receiving less than the amount of monthly pension benefits than he was expecting based on communications with ASRS staff. See Exhibit 7.

On May 12, 2021, ASRS responded to Appellant denying his appeal under A.R.S. § 38-746 and IRC § 401(a)(17). See Exhibit 8.

On June 9. 2021, Appellant contacted ASRS again stating he believed his pension calculation was incorrect. See Exhibit 9. On July 3, 2021, ASRS again responded, in a six page letter, that it reviewed Appellant’s case and was denying his appeal. See Exhibit 10.

On August 2, 2021, Appellant filed an appeal with the Board Appeals Committee of ASRS. See Exhibit 11.

On August 24, 2021, a Notice of Hearing was issued referring the matter to the Office of Administrative Hearings, an independent state agency. A hearing was held on September 28, 2021, at 8:00 a.m.

At hearing, Ryan Guerra, ASRS Member Advocate, testified that the misinformation was provided to Appellant as a result of Appellant being in a unique position compared to a vast majority of ASRS members.

Mr. Guerra testified that because Appellant was earned over the salary cap limits, his contributions were capped at some point through the year. For example, Appellant hit the contribution cap after only eight months of employment in his final year. Mr. Guerra further testified that there were no excess contributions once Appellant hit the cap and that he would have retained the full salary in the pay periods after reaching the cap.

Mr. Guerra testified too that Appellant received a full year of service credit however even if it took Appellant less than the full year to reach the cap. So if for example, Appellant hit the cap after six months, he would still receive a full year of service credit.

In addition, Mr. Guerra testified and acknowledged that the benefits estimates (see Exhibit 5), Appellant received were erroneous, but that they were just estimates, and a more accurate calculation was completed.

Mr. Guerra also testified that up until 2017, Appellant never made any inquiries as to what his estimated benefits were, and was told multiple times thereafter that he would be subjected to the contribution cap.

Mr. Guerra testified that while he was apologetic to Appellant for ASRS’s mistake in providing him erroneous information, there was no statutory authority to pay Appellant more than what he was entitled to receive, and that ASRS is statutorily required to correct any accounting and reporting errors. Mr. Guerra cited to A.R.S. § 38-765.

Appellant testified generally that he was given misinformation about is pension payment and believed that he was entitled to a higher amount or a lump sum to make up for the difference of what he believed he was going to receive based upon ASRS’ representations.

Appellant testified that he believed that his pension was based upon his salary and not IRS codes.

While Appellant admitted that he did not contact ASRS from 2004-2017, he believed he did not have to because of the ASRS brochures he received. Appellant testified that he relied on the information given in the brochures and how they defined “salary” and “wages”. Finally, Appellant testified that as a layperson, how was he supposed to know about the contribution cap when the brochure did not even mention the same?

CONCLUSIONS OF LAW

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).

A.R.S. § 38-746 governs a member’s compensation limits, the statute applicable to Appellant’s request. That statute provides in pertinent part:

A. Except as provided in subsection E, beginning on July 1, 2002, the annual compensation of each employee taken into account under ASRS for any fiscal year or for any other specified twelve consecutive month period shall not exceed two hundred thousand dollars.

Further, 26 U.S.C. § 401(17) provides the compensation limits as follows:

(17)Compensation limit.—

(A)In general.—

A trust shall not constitute a qualified trust under this section unless, under the plan of which such trust is a part, the annual compensation of each employee taken into account under the plan for any year does not exceed $200,000.

(B)Cost-of-living adjustment.—

The Secretary shall adjust annually the $200,000 amount in subparagraph (A) for increases in the cost-of-living at the same time and in the same manner as adjustments under section 415(d); except that the base period shall be the calendar quarter beginning July 1, 2001, and any increase which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000.

A.R.S. § 38-765 provides as follows:

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 or beneficiary or shall recover monies from the member or beneficiary if the member or beneficiary is overpaid. ASRS shall recover monies by reducing any benefit otherwise payable by ASRS or the LTD program established by article 2.1 of this chapter to an active, inactive, person with a disability or retired member, survivor, contingent annuitant, beneficiary or alternate payee.

While the Administrative Law Judge is sympathetic to Appellant’s position and the fact that ASRS provided erroneous information to Appellant, the fact remains that ASRS is required to abide by the statutes by which it is governed. In this case, from the evidence presented, ASRS correctly calculated Appellant’s benefits at retirement. Further, Appellant received numerous statements commencing in 2017, which he then knew would be at an amount significantly lower than he expected. He could have taken the money that was contributed to the pension and invested that amount into a private fund, but chose not to. While it is undoubtedly disconcerting that ASRS gave out incorrect information multiple times, they ultimately made the correct calculation according to the statues. Moreover, A.R.S. § 38-765 precludes ASRS from paying benefits to which a member is not eligible.

Therefore, the preponderance of the evidence shows that ASRS paid Appellant the correct amount upon his retirement.

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 ASRS improperly denied Appellant’s appeal.

/ / /

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.

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-137160-45720000Done this day, October 25, 2021.

/s/ Adam D. Stone

Administrative Law Judge

Transmitted electronically to:

Paul Matson, Director

Arizona State Retirement System

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-137160-45720000