ALJDEC decisions subject to certification as final

25F-003-ARB · Arizona State Retirement System · 2025-03-02

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Celina Freeman,

Appellant,

v.

Arizona State Retirement System,

Appellee.

No. 25F-003-ARB

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: January 28, 2025 at 9:00 AM.

APPEARANCES: Celina Freeman (“Appellant”) appeared on her own behalf. Assistant Attorney General Cassie Adams, Esq. appeared on behalf of the Arizona State Retirement System (“ASRS”) with Allison Alvarado as a witness. Teresa Watson (CCR No. 50876) served as the certified court reporter for these proceedings. Ryan Guerro observed.

ADMINISTRATIVE LAW JUDGE: Jenna Clark.

EXHIBITS ADMITTED INTO EVIDENCE: The Notice of Hearing and Appellee Exhibits 1-9 were admitted into the evidentiary record.

_____________________________________________________________________

Having heard the evidence and testimony and having considered the record in this matter, the undersigned Administrative Law Judge hereby makes the following Findings of Fact and Conclusions of Law and issues the following Recommended Order to the Board of ASRS.

FINDINGS OF FACT

Background and Procedure

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 Arizona Revised Statutes (“Ariz. Rev. Stat.”) §§ 38-713 and 38-714.

Employee contributions to ASRS are required as a condition of State employment, which are made pursuant to payroll deductions and commence upon the twenty-seventh week of employment. Full-time State employees are eligible for membership with limited exceptions. New members begin on the first day of a pay period after a 183-day waiting period. Employer contributions are determined annually by an actuary selected by the Board.

On March 09, 2024, Appellant was hired by the Arizona Health Care Cost Containment System (“AHCCCS”) Administration as a Nurse Consultant.

On August 30, 2024, Appellant became an active member of ASRS, which was the start of her 27th week of employment with AHCCCS. At that time, Appellant began to accrue service credits under her ASRS membership.

On September 09, 2024, Appellant requested to “opt-out” of ASRS membership, citing (a) financial strain, (b) alleging theft of funds by ASRS, and (c) a violation of Article II sections 1 and 2 of the Arizona Constitution.

On September 19, 2024, Appellant submitted a supplemental appeal and request to “opt-out” of ASRS membership.

On September 20, 2024, ASRS issued a denial of Appellant’s opt-out request, citing, in pertinent parts, that Appellant admitted she understood ASRS membership was mandatory from her acceptance of employment with AHCCCS, and that there were no statutory provisions that permitted an employee to opt-out of ASRS membership for the reasons Appellant provided. Appellant was further advised that pursuant to Ariz. Rev. Stat. §§ 38-711(1), 38-711(12), 38-711(23), 38-727(A)(2), 38-736(A), 38-671(A), 38-671(C)(1-2), and 38-712(A)(1-5), she became a contributing ASRS member after her 27th week of AHCCCS employment, and that her retirement package was a part of her total compensation as a State employee. Ultimately, Appellant was informed that ASRS was unable to waive her membership as she satisfied all membership criteria and did not fall into a statutorily enumerated exception.

On October 08, 2024, Appellant submitted a timely appeal to the Deputy Director of ASRS under Arizona Administrative Code (“Ariz. Admin. Code”) Title 2, Chapter 8, Article 4, whereby she noted that although she had engaged local representatives and legislators, she was unable to obtain an amendment to the pertinent statutes regarding ASRS membership or mandatory contributions.

On November 05, 2024, the Deputy Director of ASRS issued a determination that upheld the agency’s prior denial of Appellant’s opt-out request, citing, in pertinent parts, that applicable statutory framework kept the plan well-funded and furthered the agency’s purpose of providing comprehensive and competitive retirement packages to entice and maintain quality employees in State service. Additionally, the Deputy Director noted that agencies educate employees about membership and required participation during onboarding, and that application and acceptance of State employment was voluntary.

On December 05, 2024, Appellant submitted a timely appeal and request for State Fair Hearing to the Board, on the grounds of religious discrimination in violation of Ariz. Rev. Stat. §§ 41-1463(B)(1-3), 41-1493.01(A-B) , 41-1493.01(D), 41-1493.02(A-C), and the Arizona Constitution generally.

On December 11, 2024, the Board referred the matter to the Office of Administrative Hearings (“OAH”), an independent state agency, for an evidentiary hearing at 9:00 a.m. on January 28, 2025. Per the December 23, 2024, Notice of Hearing the issue(s) to be determined is whether Appellant was correctly required to become an active member of the ASRS upon her 27th week of employment, as she was meeting ASRS membership criteria defined per statute, and if so, whether she was lawfully required to make ASRS payroll contributions from that time.

Hearing Evidence

In Arizona, laws are made by the legislative branch of government; persons elected by citizen vote. ASRS does not make any laws.

Since its inception, ASRS has never had the statutory authority to amend, modify, disregard, nullify, or otherwise veto laws or regulations passed by the legislature.

ASRS has historically applied all applicable statutes and regulations to its members equally.

Appellant voluntarily applied and accepted employment with AHCCCS.

Shortly after Appellant was hired by AHCCCS, she participated in orientation whereby she learned about ASRS. At no time since has Appellant voluntarily terminated her employment with AHCCCS.

Appellant began making contributions once she reached her 27th week of employment with AHCCCS.

At no time prior to her hire with the State of Arizona, or any time thereafter, did Appellant ever disclose her religious beliefs, if any, to AHCCCS or ASRS.

Additional Evidence

Ms. Alvarado testified that ASRS is a tax-qualified defined benefit plan under section 401(a) of the Internal Revenue Code. ASRS provides lifelong monthly benefit payments to qualified retirees. It is a “cost-sharing model” which means that both employer and member-employee contribute. Per Article XXIX, Section 1(C) of the Arizona Constitution, membership in ASRS is a contractual relationship that is subject to Article II, section 25, and can never be diminished or impaired.

Appellant testified that, in her opinion, Article II, sections 1 and 2 of the Arizona Constitution was “diminished” by ASRS-related statutes because they reduced citizens’ power and protections to maintain individual rights – such as the right to “opt-out” of ASRS participation and maintain State employment.

Closing Arguments

In closing, Appellant argued that she should be able to decide whether she participated in ASRS as a State employee, and that her past and current contributions make it difficult for her to financially support herself. Appellant opined that she has been “robbed” of the salary she agreed to accept as a term of her employment, and argued that a system like ASRS did not benefit someone in her financial position. Appellant argued that she does not intend to reach five (5) years of employment with AHCCCS, and opined that the money used for contributions would be better spent and more appropriately used as investment funds, “far better than what the government can give.” Appellant also opined that retiring at age sixty-five (65) of seventy (70) was inconceivable in the 21st century, which is why “opting-out” of ASRS should be permitted as “the spirit of entrepreneurship should never be trampled on.” Appellant further opined that “those that govern above us” were not properly protecting citizens from infringement of rights. Appellant argued that it felt to her as though it was more important to contribute to ASRS than uphold the Constitution, individual rights, or care about the welfare of the people and their choices.

In closing, ASRS argued that applicable statutes require membership in ASRS as a condition of employment pursuant to Ariz. Rev. Stat. § 38-671(A), 38-727(A)(2), and 38-736(A). Per ASRS, Appellant’s acceptance and continuation of employment constituted conditional acceptance of State retirement benefits as a part of her total compensation. ASRS opined that most, if not all, of Appellant’s arguments were misplaced, as “the power to the people” in a democratic society was rooted in voting, including voting for State legislators whose job it is to create new laws and amend or modify existing laws. ASRS argued that it was not a legislative body and did not have the authority to change any of the statutes Appellant took issue with. ASRS further argued that because Appellant had failed to sustain her burden of proof, that her appeal should be denied.

CONCLUSIONS OF LAW

Pursuant to Ariz. Rev. Stat. § 38-714 the ASRS Board has jurisdiction over the subject matter in this appeal. The matter was properly brought before OAH for adjudication.

Appellant bears the burden of proof in this matter, which is a preponderance of the evidence.

“A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” 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.”

Chapter 4, Article 5, and Chapter 5, Article 2, of the Ariz. Rev. Stat. Title 38 codify rules and regulations regarding State employee compensation and benefits, and ASRS, respectively.

Ariz. Rev. Stat. § 38-671(A) provides that State employees hired after July 20, 2011, is not eligible to become an ASRS member prior to their 27th week of employment, but shall become an ASRS member on the 27th week of employment is all other membership criteria are met.

Ariz. Rev. Stat. § 38-671(C)(1) defines a “state employee” as an individual employed by an agency, department, board, commission, university under the jurisdiction of the Arizona Board of Regents, the judicial branch whose salary is paid through the Department of Administration, the Arizona Corporation Commission, or the Legislature.

Ariz. Rev. Stat. § 38-711(23)(b) defines “member” as an employee of an employer eligible for membership under section 38-727, and who works at least 27 weeks each fiscal year at no less than 20 hours per week.

Ariz. Rev. Stat. § 38-712(A)(1-5) provides that the primary intent of ASRS is to (1) provide recruitment and retention incentives for high-quality employee; (2) contribute toward a total compensation package generally equivalent to comparable employment in other public and private sectors within the state; (3) provide a retirement system that encourages employees to remain in service for periods of time that will provide public employers with the full benefit of the training and experience gained by the employees; (4) provide an orderly method of promoting and maintaining a high level of service to the public through an equitable separation procedure that is available to employees at retirement or on becoming a person with a disability; and (5) provide a base retirement benefit that is less than 100% of a member's post-retirement income requirements.

Ariz. Rev. Stat. § 38-727(A)(1) provides that ASRS membership is not mandatory on the part of (a) any employee who is eligible and who elects to participate in the optional retirement programs established by the Arizona Board of Regents under section 15-1451; (b) a state elected official subject to term limits; or (c) any employee or officer eligible to participate and who participates in the elected officials' retirement plan pursuant to article 3.

Ariz. Rev. Stat. § 38-727(A)(2) provides, in pertinent part, that all state employees declared as such by the legislature for retirement purposes whose compensation is provided wholly or in part from state monies are members of ASRS.

Ariz. Rev. Stat. § 38-736(A) provides that 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. As of July 01, 2011, member contributions are equal to their employer’s contribution as required by section 38-737. Amounts so deducted by employers shall be deposited in the ASRS depository.

“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.” “[A] statute should be explained in conjunction with other statutes to the end that they may be harmonious and consistent; . . . if statutes relate to the same subject and are thus in pari materia, they should be construed together with other related statutes as though they constituted one law.” Statutes are not interpreted in a vacuum and legal relationships mandated by one statute cannot be ignored in interpreting another. An agency may not disregard clear statutory directives or legislative intent. When statutes conflict, a special statute will prevail over a general statute.

Because retirement benefit and pension plans are adopted in a beneficial spirit and “not as business ventures or money-making syndicates, but rather to provide for the security of faithful servants [and] to improve their morale and to give them peace of mind in their dedication to public service,” statutes creating such plans are generally construed “with a view of promoting the object for which they were adopted.”

An Administrative Law Judge must apply equitable principles in making her recommendation to the Board in an effort to avoid an unconscionable or unjust result.

Here, Appellant argues that she should be permitted to lawfully “opt-out” of ASRS contributions, despite her status as a State employee and ASRS member, based on her interpretations of the Arizona Constitution, as well as anti-discrimination statutes and freedom of religion statutes codified at Ariz. Rev. Stat. §§ 41-1463(B)(1-3), 41-1493.01(A-B) , 41-1493.01(D), 41-1493.02(A-C). The Tribunal is not in agreement.

Appellant failed to establish that she was a member of any religion or faith-based practice, nor did she offer any evidence of how ASRS discriminated against her on that basis. Although Appellant did not provide any concrete evidence to establish “financial strain,” her testimony regarding such was sufficient, but irrelevant, as was her allegation of “theft of funds” regarding her ASRS contributions. Furthermore, none of Appellant’s constitutional arguments were compelling, as the evidence of record does not establish that Appellant’s rights were violated as a result of her plan membership.

What the credible and relevant evidence of record does establish is that Appellant is an active member of ASRS under Ariz. Rev. Stat. §§ 38-711(1) and (23) because she meets membership eligibility under Ariz. Rev. Stat. §38-727 through her employment at AHCCCS. Appellant thusly makes lawfully mandated contributions to the ASRS under Ariz. Rev. Stat. §38-736.

Appellant was not forced or otherwise coerced to apply or accept her position at AHCCCS Administration, a State of Arizona agency, her conduct was completely volitional. By accepting and continuing her employment at AHCCCS, Appellant also accepted the State’s offer of retirement benefits, which required her to pay member contributions into the ASRS. Appellant admits that upon hire she was unequivocally informed by AHCCCS that part of her employee benefits included a lifelong pension, funded by mandatory employer and employee contributions; or more specifically, that her paycheck would be subject to automatic payroll deductions for her personal contribution to the fund. Rather than resigning, Appellant maintained her employment with AHCCCS. After 27 weeks of employment, and satisfying all other requisite conditions, Appellant became eligible for ASRS membership and mandatory contributions were deducted from her paycheck.

Arizona voters have determined that pension rights are contractual and have protected those rights in the Arizona Constitution, which specifically holds that, “[t]he Contract Clause applies to the general contract provisions of a public retirement plan, while the Pension Clause applies only to public retirement benefits. Therefore, the Pension Clause confers additional, independent protection for public retirement benefits separate and distinct from the protection afforded by the Contract Clause.” Thus, the State has a duty to pay retirement benefits as part of its contract with its employees, and it may not impair or abrogate that contract without offering consideration and obtaining the consent of the employee. It cannot be reasonably held that ASRS acted unlawfully, impermissibly, or otherwise inappropriately in this matter.

Based on the relevant and credible evidence in the record the Tribunal holds that Appellant has failed to sustain her burden of proof. Neither the US Constitution, Arizona Constitution, nor any applicable state law permit(s) waiver, opt-out, withdrawal, or disenrollment from ASRS.

Therefore, the Administrative Law Judge concludes that the most equitable outcome permitted by law, given this case’s factual particulars, is to deny Appellant’s opt-out request and uphold the November 05, 2024, denial under appeal.

RECOMMENDED ORDER

In light of the foregoing,

IT IS RECOMMENDED that Appellant’s appeal be denied by the Board.

NOTICE

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 03, 2025.

Office of Administrative Hearings

/s/ Jenna Clark

Administrative Law Judge

Transmitted electronically to:

Paul Matson, Director

ATTN: Legal - Allison Alvarado

Arizona State Retirement System, Appellee

3300 N. Central Ave.

Phoenix, AZ 85012-0250

[email redacted]

[email redacted]

Cassie Adams, Esq., Assistant Attorney General

Office of the Attorney General, Counsel for ASRS

2005 N. Central Ave.

Phoenix, AZ 85004-1592

[email redacted]

[email redacted]

Celina Freeman, Appellant

14828 W. Riviera Dr.

Surprise, AZ 85379-7200

[email redacted]

By: OAH Staff