ALJDEC decisions subject to certification as final

22F-006-ARB · Arizona State Retirement System · 2022-10-19

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Byron Jaspers,

Appellant,

Arizona State Retirement System,

Respondent.

No. 22F-006-ARB

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: September 22, 2022, with the record held open until October 7, 2022 for receipt of the transcript.

APPEARANCES: Appellant Byron Jaspers appeared via Google Meet on his own behalf. 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

_____________________________________________________________________

FINDINGS OF FACT

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

Appellant first became an ASRS member in July 1976. He forfeited his membership and was refunded his ASRS account in August 1979. In August 1989, he again became an ASRS member and in 1993, he bought back his prior forfeited service.

Appellant retired from his employment at ASRS employer Yavapai County on February 16, 2018, and started receiving a monthly pension benefit of $7,500.91.

In 2021, ASRS conducted an audit of Yavapai County and discovered that Yavapai County made a large final contribution to ASRS for a large sum of money Appellant received at the end of his employment, in the amount of $42,940.28 beyond his normal salary (the “Final Contribution”). The Final Contribution was reported to ASRS as regular pay during the contribution reporting process. However, Yavapai County reported the Final Contribution as termination pay on the Ending Payroll Verification (“EPV”).

Once ASRS realized the Final Contribution was improperly included as regular pay, rather than termination pay, ASRS recalculated the Average Monthly Compensation (AMC), as required under A.R.S. §38-765. Under A.R.S. § 38-711(5), termination pay should not be included in the 36-month contribution. Thus, the correct calculations to examine were:

Calculation 1 – 60 months + termination pay:

o Range February 2013 through January 2018 = $10,878.20

Calculation 2 – 36 months + no termination pay:

o Range February 2015 through January 2018 = $10,451.80

After correcting the 36-month AMC calculation to no longer include the Final Contribution as regular pay or termination pay, the 36-month AMC calculation was less than the 60-month calculation, which included the Final Contribution as termination pay. Thus, Appellant’s correct highest AMC is $10,878.80, and Appellant’s monthly retirement benefit using the correct AMC was adjusted to $7,079.91.

Unfortunately, the adjustment to Mr. Jasper’s monthly retirement benefit using the corrected AMC, also created an overpayment in the amount of $16,193.37. This represented the amount he was overpaid from his retirement date of February 16, 2018, through this pension correction in April 2021.

ASRS informed Mr. Jaspers of the pension adjustment and overpayment on April 16, 2021, and also informed him that beginning May 1, 2021, ASRS would start deducting up to 10% of his monthly benefit for up to 36 months to recover the overpayment, as permitted under A.A.C. Rule R2-8-805. Recoupment of the overpayment would result in a monthly deduction of $704.06 of Mr. Jaspers’ monthly retirement benefit for 23 months.

On or about September 29, 2021, Appellant appealed the adjustment. Appellant requested that ASRS restore his benefits retroactively, and refund all withheld benefits with interest.

On or about October 29, 2021, ASRS responded to Appellant denying his request.

On or about December 21, 2021, Appellant delivered an appeal to ASRS Director Paul Matson. On or about February 4, 2022, Anthony Guarino, Deputy Director and Chief Operations Officer for ASRS sent a response again denying the appeal.

On or about March 7, 2022, Appellant submitted his Appeal to the ASRS Board. On March 22, 2022, a Notice of Hearing was issued setting a hearing for April 26, 2022 before the Office of Administrative Hearings.

After a continuance, a hearing was held on August 30, 2022. Appellant failed to appear at the hearing, but later that day, he filed a Motion to Continue, explaining that he had mis-calendared the hearing. The tribunal granted the Motion and set hearing for September 22, 2022.

At the time of hearing, Appellant’s current monthly benefit was $7,079.71 less $117.34 per month to recoup the overpayment. This recoupment was scheduled to end in May 2027.

At hearing, ASRS presented the testimony of Ryan Guerra and submitted 18 exhibits into evidence.

Mr. Guerra was the ASRS Member Advocate. He testified that this matter originally came to pass due to an audit of Yavapai County in 2021, and not due a specific audit of Appellant.

Mr. Guerra testified that during the audit, ASRS discovered the large Final Contribution to Appellant’s salary. The amount of the Final Contribution included accrued vacation and sick pay. Further, Mr. Guerra testified that while Yavapai County properly reported the final pay in its ending payroll verification summary, when it entered the amounts in the computer system, the Yavapai County incorrectly mislabeled the final pay. Mr. Guerra testified that this caused the calculation error.

In addition, Mr. Guerra testified how the calculation error occurred. Mr. Guerra explained that because Appellant had purchased forfeited service, this reinstated the highest of a 36-month or 60-month Average Monthly Compensation (“AMC”) calculation. Therefore, ASRS should have used whichever calculation was higher of:

• Using the highest 60 months of contributions over the last 10 years of contributions, including termination pay; or

• Using the highest 36 months of contributions over the last 10 years of contributions, not including termination pay.

Mr. Guerra testified however that ASRS used the following AMC calculations:

Calculation 1 – 60 months inflated regular pay + no termination pay:

o Range February 2013 through January 2018 = $10,878.20

Calculation 2 – 36 months inflated regular pay + no termination pay:

o Range February 2015 through January 2018 = $11,525.70

Mr. Guerra also testified that there is a current balance of $7,040.59 for the overpayment.

Finally, Mr. Guerra testified that there was no statutory authority for Appellant to be paid out more than he was entitled to.

Counsel for the state also argued that despite Appellant receiving different estimates, it actually turned out that the December 29, 2017 estimate of $7,037.41 was very close to what he was currently receiving. Further, counsel argued that when he started receiving nearly $500.00 more than the estimate, Appellant did not call or inquire as to why the amount was higher.

Appellant testified on his own behalf and submitted 2 exhibits into evidence.

Appellant testified that prior to his retirement after 32 years with Yavapai County, he received a variety of very different estimates as to the amount of his retirement benefits and the new calculation should be disallowed, due to the negligence and incompetence of ASRS.

Further, Appellant testified that it took them three and a half years to audit this and that he did nothing improper. He also testified that the statutes did not alleviate ASRS from responsibility of its errors.

Appellant also argued that challenging this was nearly impossible as the system was cumbersome and to hire an attorney was too expensive.

Finally, Appellant argued that ASRS breached the contract and he was requesting that the original amount be restored and that he be awarded his attorneys fees.

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. § 38-711(5) provides in pertinent part:

"Average monthly compensation" means:

(a) For a member whose membership in ASRS commenced before January 1, 1984 and who left the member's contributions on deposit or reinstated forfeited credited service pursuant to section 38-742 for a period of employment that commenced before January 1, 1984, the higher of either:

(i) The monthly average of compensation that is calculated pursuant to subdivision (b) of this paragraph.

(ii) The monthly average of compensation on which contributions were remitted during a period of sixty consecutive months during which the member receives the highest compensation within the last one hundred twenty months of credited service. Any month for which no contributions are reported to ASRS or that falls within a period of nonpaid or partially paid leave of absence or sabbatical leave shall be excluded from the computation. The sixty consecutive months may entirely precede, may be both before and after or may be completely after any excluded months. If the member was employed for less than sixty consecutive months, the average monthly compensation is based on the total consecutive months worked. Payments for accumulated vacation or annual leave, sick leave, compensatory time or other forms of termination pay that, before August 12, 2005, constitute compensation for members whose membership in ASRS commenced before January 1, 1984, do not cease to be included as compensation if paid in the form of nonelective employer contributions under a 26 United States Code section 403(b) plan if all payments of employer and employee contributions are made at the time of termination. Contributions shall be made to ASRS on these amounts pursuant to sections 38-735, 38-736 and 38-737.

(b) For a member whose membership in ASRS commenced on or after January 1, 1984 but before July 1, 2011, the monthly average of compensation on which contributions were remitted during a period of thirty-six consecutive months during which a member receives the highest compensation within the last one hundred twenty months of credited service. Any month for which no contributions are reported to ASRS or that falls within a period of nonpaid or partially paid leave of absence or sabbatical leave shall be excluded from the computation. The thirty-six consecutive months may entirely precede, may be both before and after or may be completely after any excluded months. If the member was employed for less than thirty-six consecutive months, the average monthly compensation shall be based on the total consecutive months worked.

A.R.S. § 38-765 provides:

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 Yavapai County entered the incorrect amount in the computer system despite properly notifying ASRS of the terms of the final pay, 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 incorrectly calculated Appellant’s benefits at retirement, in an amount which was higher than what was estimated just a few months prior. While the tribunal disagrees with ASRS’s counsel that Appellant could have called and questioned the difference, Appellant presented no legally persuasive evidence to implore the tribunal to not follow the statutes for calculation and correcting errors as quoted above.

Further, based upon the evidence provided as to the recoupment of the overpayment, the tribunal believes that the amount of $117.43 is fair and just in the circumstances, and ASRS should not revert to an amount higher unless Appellant so agrees in writing.

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. It is also recommended that no more than $117.43 be deducted from Appellant’s monthly amount unless he so agrees in writing.

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.

-54864001

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-137160-45720000Done this day, October 19, 2022.

/s/ Adam D. Stone

Administrative Law Judge

Transmitted electronically to:

Paul Matson, Director

Arizona State Retirement System

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-137160-45720000By Miranda Alvarez

Legal Secretary