ALJDEC decisions subject to certification as final

22F-004-ARB · Arizona State Retirement System · 2022-01-24

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Julie Allen

Appellant,

Arizona State Retirement System,

Respondent.

No. 22F-004-ARB

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: December 16, 2021, with the record held open until January 4, 2022, for receipt of the transcript.

APPEARANCES: Appellant Julie Allen appeared on her own behalf. The Arizona State Retirement System was represented by Assistant Attorney General Cassie Adams.

ADMINISTRATIVE LAW JUDGE: Tammy L. Eigenheer

_____________________________________________________________________

FINDINGS OF FACT

In January 1996, Appellant Julie Allen became a contributing member of Respondent Arizona State Retirement System (ASRS) by virtue of her employment with the Round Valley Unified School District (RVUSD).

From 1996 through 1998, Appellant was working full-time with RVUSD as determined by the ASRS.

Through an error, Appellant’s full-time status was not correctly reported to the ASRS. As a result, the proper contributions were not withheld by RVUSD or deposited with the ASRS.

Appellant’s ASRS record detailed the following terms of service for each year:

1996 – 0.67

1997 – 0.11

1998 – 0.56

In total, Appellant was credited with 1.34 years of service during the time period she should have been credited with 3.00 years of service. As a result, 1.66 years of service was unaccounted for.

Annually, Appellant was sent a Member Statement outlining her credited years of service and account balance until the ASRS stopped sending those statements in 2011.

Of note, Appellant’s June 30, 2004 Member Statement included a Salary History chart that included the following information:

Fiscal Year

Ending Annual

June 30 Salary

2004 $33,195.58

2003 $34,264.50

2002 $33,582.50

2001 $28,978.80

2000 $27,750.69

1999 $25,890.18

1998 $13,444.26

1997 $1,514.00

1996 $12,907.00

In 2020, Appellant realized that her total years of service on record with the ASRS was not accurate and made an inquiry regarding the issue.

After researching Appellant’s account, the ASRS was able to determine the source of the problem and related its findings to Appellant. The ASRS informed Appellant that, because the misreporting occurred more than 15 years prior to discovery of the error, Appellant’s only recourse was to purchase the missing 1.66 years of service as Other Public Service (OPS). If the error had been reported within 15 years of its occurrence, it could have been correct through a Contributions Not Withheld (CNW) process established by statute.

Cass Pond, Business Manager with RVUSD, also made an inquiry to the ASRS to determine how it might be able to correct its error in reporting Appellant’s status from 1996 through 1998.

The ASRS responded to Mr. Pond that the CNW method of correcting a past error was no longer available to Appellant because the misreporting was more than 15 years prior. Further, the ASRS informed Mr. Pond that it was unable to accept payment from RVUSD on behalf of Appellant in completing purchase of the missing years of service as OPS due to Internal Revenue Service regulations. The ASRS did indicate that “if the school district [was] willing to assist [Appellant] with the payment, that [was] outside the ASRS jurisdiction.”

Appellant appealed the determination by the ASRS that the error could not be rectified through the CNW process.

At hearing, Appellant explained that she was unable to purchase the missing years of service as OPS because she was told it would cost approximately $33,000.00, which she did not have. Appellant indicated that RVUSD was willing to make the payment necessary to correct the issue, but the ASRS would not accept the payment directly from the school district on her behalf.

At hearing, Mr. Pond acknowledged that the reporting error was the fault of RVUSD and indicated that RVUSD wanted to assist Appellant in correcting the error. Mr. Pond testified that, due to auditing issues, RVUSD was unable to make a payment directly to Appellant that would allow her to purchase the missing years of service as OPS. Mr. Pond stated that RVUSD was able to pay the ASRS directly for the missing years of service and wanted to do so because Appellant had been a loyal employee for more than 20 years.

The ASRS’s position was that Appellant failed to bring the error to its attention within 15 years and therefore, the only recourse for Appellant was to purchase the missing years of service as OPS. ASRS noted that Appellant was provided with annual Member Statements showing her years of service and that she should have recognized the contribution error within 15 years of its occurrence.

CONCLUSIONS OF LAW

ASRS has jurisdiction over the appeal in this matter.

Appellant has the burden of proof and the standard of proof on all issues is by a preponderance of the evidence. See A.R.S. § 41-1092.07(G); A.A.C. R2-19-119.

A preponderance of the evidence is “such proof as convinces the trier of fact that the contention is more probably true than not.” Morris K. Udall, Arizona Law Of Evidence § 5 (1960).

Proof by preponderance of the evidence “is evidence which is of greater weight or more convincing than the 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.” Black’s Law Dictionary at 1182 (rev. 6th ed. 1990).

The burden of proof at an administrative hearing falls to the party asserting a claim, right, or entitlement, and the standard of proof on all issues is by a preponderance of the evidence. See Arizona Administrative Code (A.A.C.) R2-19-119.

A.R.S. § 38-711(23)(b) defines a “Member” as “all employees of an employer who are eligible for membership pursuant to section 38-727 and who are engaged to work at least twenty weeks in each fiscal year and at least twenty hours each week.”

A.R.S. § 38-711(9) defines “Credited service” to mean “subject to section 38-739, the number of years standing to the member's credit on the books of ASRS during which the member made the required contributions.”

A.R.S. § 38-739 provides, in pertinent part, as follows:

B. A member shall earn proportionate credited service for each month for which the member performs service and is compensated equal to the ratio that the month bears to the number of months in the member's service year.

C. If a member is compensated for less than a full service year, the member shall earn credited service equal to the ratio that the number of months actually compensated bears to the number of months in the full service year.

A.R.S. § 38-736 provides, in pertinent part, as follows:

A. Member contributions are required as a condition of employment and shall be made by payroll deductions. Member contributions shall begin simultaneously with membership in ASRS. Beginning July 1, 2011, member contributions are a percentage of a member's compensation equal to the employer contribution required pursuant to section 38-737. Amounts so deducted by employers shall be deposited in the ASRS depository.

B. The employer shall pay the member contributions required of members on account of compensation earned. The paid contributions shall be treated as employer contributions for the purpose of determining tax treatment under the internal revenue code. . . . The employer shall pay the member contributions from monies that are established and available in the retirement deduction account and that would otherwise have been designated as member contributions and paid to ASRS. Member contributions paid pursuant to this subsection shall be treated for all other purposes, in the same manner and to the same extent, as member contributions made before the approval of the United States internal revenue service pursuant to this section.

A.R.S § 38-738 provides, in pertinent part, as follows:

B. If less than the correct amount of employer or member contributions is paid into ASRS by an employer, the following apply . . . .

C. Subsection B of this section applies to eligible verified service that occurred less than or equal to fifteen years before the date the initiator of the request for correction of salary history and service credits on the records of ASRS provides ASRS with credible evidence in writing that less than the correct amount of contributions was paid into ASRS or ASRS otherwise determines that less than the correct amount of contributions was made.

D. Eligible verified service that is more than fifteen years before the date the initiator of the request for correction of salary history and service credits on the records of ASRS provides ASRS with credible evidence in writing that less than the correct amount of contributions was paid into ASRS or ASRS otherwise determines that less than the correct amount of contributions was made is considered public service credit. The member may purchase this service pursuant to section 38-743.

A.R.S. § 38-743 provides, in pertinent part, as follows:

A. If an active member of ASRS or a member who is receiving benefits pursuant to section 38-797.07 was previously employed by the United States government, a state, territory, commonwealth, overseas possession or insular area of the United States or a political subdivision of a state, territory, commonwealth, overseas possession or insular area of the United States, excluding any time worked for a prison while the member was incarcerated, the member may receive credited service for this prior employment if the member pays into ASRS the amount prescribed in subsection B of this section.

The facts of the case were not in dispute. RVUSD erroneously reported Appellant’s years of service from 1996 through 1998 as 1.34 rather than 3.00, a difference of 1.66 years of service. The error was not discovered by Appellant or reported to the ASRS until 2020, more than 15 years after the error occurred.

Because Appellant did not submit a CNW request within 15 years of the error, Appellant’s only recourse was to purchase the additional years of service as OPS.

The ASRS statutes provide that OPS must be purchased by the member. The ASRS is not capable of accepting payments from third-party for the purchase of OPS.

Although Appellant did not cause the error in the first place and her predicament is unfortunate, the ASRS statutory scheme does not provide a mechanism to allow RVUSD to pay the ASRS directly for the purchase of the OPS on her behalf.

RECOMMENDED DECISION

Based on the foregoing, it is recommended that the appeal in this matter be denied.

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 the certification.

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-137160-45720000Done this day, January 24, 2022.

/s/ Tammy L. Eigenheer

Administrative Law Judge

Transmitted electronically to:

Paul Matson, Director

Arizona State Retirement System

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-137160-45720000