STATE OF NORTH CAROLINA IN THE OFFICE OF
ADMINISTRATIVE HEARINGS
COUNTY OF ALAMANCE 07 DST 0452
ELAINE SCARLETT, )
Petitioner, )
)
)
v. ) DECISION
DEPARTMENT OF STATE TREASURER, )
RETIREMENT SYSTEMS DIVISION, )
)
Respondent. )
This matter came on for hearing before Administrative Law Judge Joe L. Webster on August 2, 2007, in Raleigh, North Carolina.
APPEARANCES
For Petitioner: Elaine Scarlett, Pro Se
For Respondent: Joyce S. Rutledge, Special Deputy Attorney General
ISSUE
Whether Petitioner can produce any evidence tending to show the impropriety of Respondent’s reliance on the statutory requirements set out in Respondent’s Final Agency Decision (P-9) with respect to its charging her $ 5,097.87 for the purchase of her withdrawn service.
STATUTES AND RULES IN ISSUE
N.C.G.S. § 135; N.C.G.S. § 135-4(k), method of calculation of cost for purchase of withdrawn service.
WITNESSES
For Petitioner: Petitioner
For Respondent: Garry Austin, Special Assistant to the Senior Deputy of the
N.C. Retirement Systems Division
EXHIBITS
Admitted for Petitioner:
P-1. 2004 Retirement Account Statement and Letter from Cathy Spruill at RSD to Petitioner dated 3/22/07 with service count breakdown
P-2. Statement of Cost to Purchase Withdrawn Service dated 3/8/06 for $ 6,975.25
P-3. Letter from Pam Christie at RSD to Petitioner dated 8/30/06 Re: $ 5,097.87 cost
P-4. Letter from Petitioner to Garry Austin dated 10/23/06 Re: Appeal from 8/30/06 letter
P-5. Certified Mail Green Cards to Garry Austin and Richard Moore with delivery dates of 11/9/06
P-6. Letter from Garry Austin to Petitioner dated 11/14/06 in response to Petitioner’s 10/23/06 letter
P-7. Certified Mail Green Card to DST/RSD with delivery dates of 11/27/06
P-8. Acknowledgment of Receipt from RSD to Petitioner of payment of $ 5,097.89 and
Certified Mail Green Cards to Garry Austin and Richard Moore with delivery dates of 2/22/07
P-9. Final Agency Decision letter from Michael Williamson at RSD to Petitioner dated 2/27/07
P-10. Letter from Petitioner to OAH dated 3/9/07 Re: Request for Forms and Filings
with Certified Mail Green Card to OAH stamped 3/26/07
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P-11. Letter from Maria Erwin at OAH to Petitioner Re: Requirement to file a Certificate of Service for the Petition dated 3/27/07; Notice of Contested Case and Assignment; Scheduling Order; and Order for Prehearing Statements for Scarlett v. DST, 07 DST 0452
P-12. Petition to Appeal Decision on My Retirement Account with N.C. State Retirement System signed by Petitioner and dated 4/26/07
P-13. Application to Purchase Service Credits Under Voluntarily Withdrawn Accounts
Received in March 2001
P-14. Statement of Cost to Purchase Service Credits for $ 1,620.76 dated 4/17/01 and Retirement Form 337, Request for Full Actuarial Cost and/or Blue Sheet Cost with “blue sheet”; “withdrawn” marked and dated 3/13/01
P-15. Statement of Cost to Purchase Withdrawn Service for $ 1,620.76 dated 11/27/01
P-16. 1969 Salary/Contribution Inquiry stamped “Bad Copy”; 1970 Salary/Contribution Inquiry stamped “Bad Copy”; 1971 Salary/Contribution Inquiry stamped “Bad Copy”; 1972 Salary/Contribution Inquiry stamped “Bad Copy”
P-17. Respondent’s Motion for Summary Judgment dated 6/18/07 with Attachments
including Affidavit of Garry Austin with Attachment A, 1973 Withdrawal
Worksheet; Attachment B, Chart of Interest Compounding at 6 ½% and
Corrected Calculation v. Initial Calculation; and excerpts from Petitioner’s Responses to Respondent’s Requests for Admissions
Admitted for Respondent:
R-1. Withdrawal Worksheet from 1973
R-2. Application to Purchase Service Credits Under Voluntarily Withdrawn Accounts
Received in March 2001
R-3. Statement of Cost to Purchase Service Credits for $ 1,620.76 dated 4/17/01
R-4. N.C.G.S. § 135-4(k)
R-5. Chart of Interest Compounding at 6 ½%
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R-6. Corrected Calculation v. Initial Calculation
R-8. Employee Handbook Dated 2002 available on-line
Based upon careful consideration of the sworn testimony of witnesses presented at the hearing, documents received and admitted into evidence, the arguments of the parties and the entire record in this proceeding, the undersigned makes the following findings of fact.
In making these findings, the undersigned has weighed all the evidence and has assessed the credibility of the witnesses by taking into account the appropriate factors for judging credibility, including by not limited to the demeanor of the witness; the background and experience of the witness with the issues involved in this case; any interest, bias or prejudice the witness may have; the opportunity of the witness to see, hear, know and remember the facts or occurrences about which the witness testified; whether the testimony of the witness is reasonable; and whether such testimony is consistent with all other believable evidence in the case.
FINDINGS OF FACT
1. Petitioner was enrolled as a contributing member in the Teachers’ and State Employees’ Retirement System (TSERS) in 1964, by virtue of her commencing a teaching position with the public schools. In 1968, Petitioner left the public school system. R-2;P-13
2. In January 1973, Petitioner submitted an Application of Member for Return of Accumulated Contributions she had made to the System over the years. TSERS members are permitted to withdraw their own contributions, with interest, at any time prior to retirement.
3. Petitioner withdrew her contributions in 1973, as she did not think she would ever return to teaching.
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4. As a result of her application, Petitioner received a refund check from TSERS in the amount $ 869.89, representing her contributions, made between 1964 and 1968, plus interest at the statutory rate up to the withdrawal date. R-1; P-17
5. In the early 1990s Petitioner returned to teaching. After a period of time, she became eligible to buy back her withdrawn service. In March 2001, Petitioner therefore applied to the System to buy back her withdrawn account. R-2; P-13
6. To respond to her purchase request, TSERS staff had to retrieve Petitioner’s withdrawn account record from microfilm. That record was needed to perform a cost estimate, as it shows the amount of dollars sent to the member upon withdrawal of service. The microfilm was of a very poor quality, however, P-16; and staff working on retrieval of the withdrawn account failed to notice that Petitioner’s withdrawn account number was W292251, while the withdrawn account actually printed out from microfilm and imaged into Petitioner’s file was W 292151.
7. Based on the poor quality print-outs, the System sent a Statement of Cost to Purchase Service Credits to Petitioner on April 17, 2001, quoting a total cost of $ 1,620.76 to purchase 3.0000 years of withdrawn service. R-3; P-15 Although Petitioner had some 3.7778 years of withdrawn service, she did not contact the System at that time to inquire about the discrepancy between 3.0000 and 3.7778 years of service. Indeed, she did not bring the discrepancy to the System’s attention until early 2006, as she got closer to retirement.
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8. Instead, in November 2001, Petitioner paid $ 1,620.76 to the Retirement System for the purported 3.0000 years of withdrawn service; and Respondent then credited Petitioner’s account with 3.0000 years of service.
9. It was not until February 16, 2006, that Petitioner called the System to inquire into her service count and to request a retirement estimate. Thus it was only in early 2006, more than five years after the 2001 purchase, that Petitioner requested that the System review her old microfilm records. Petitioner indicated, when making this request for research, that she felt she had an additional 7 months service that was somehow not accounted for and had not been included in her 2001 purchase.
10. In response to this contact from Petitioner, System staff researched the issue and discovered for the first time that the 2001 transaction had been based on another member’s withdrawn account which had been erroneously indexed into Petitioner’s imaged file. Petitioner did not receive a letter from the System about the discovery of this error, nor did she receive a refund check for her mistaken purchase amount.
11. From early 2006 until approximately August 21, 2006, the System had no further contact from Petitioner. Therefore, System personnel considered the refund issue resolved.
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12. On August 21, 2006, however, Petitioner made an in-person visit to the System offices in Raleigh and asked to speak to someone about her account and withdrawn service transaction from 2001. At that time, Pam Christie reviewed Petitioner’s file and confirmed that an error had been made in 2001 in calculating the cost to purchase the service Petitioner had withdrawn in 1973. Ms. Christie spent time with Petitioner’s record and with Petitioner, explaining what had happened in 2001 and what was to have happened in March 2006. P-4 (pp. 1-2)
13. On or about August 30, 2006, an apology, letter of explanation and replacement refund check in the amount of $ 1,620.76 were mailed to Petitioner by Ms. Christie. P-3 This letter reiterated that the withdrawn account information scanned into Petitioner’s file belonged to another individual’s withdrawn account. Since the documents were old and of poor quality, the System’s analysts did not realize they were working with the wrong documents when the cost to purchase the withdrawn service had been calculated in 2001. P-3
14. The letter further stated that the correct cost to purchase Petitioner’s service withdrawn in 1973 and “purchased” as of 2001 would be $ 5,097.87. This revised cost to purchase Petitioner’s withdrawn service of 3.7778 years was calculated as of her original transaction date of 2001, as a courtesy to Petitioner. The cost for such a purchase in 2006 would have been almost $ 2,000 higher. P-2
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15. The System reversed the 2001 transaction as required by law. The System’s authority to permit purchases of withdrawn service derives exclusively from the detailed requirements in Chapter 135. Similarly, Petitioner’s contract with TSERS derives exclusively from the statutory provisions in Chapter 135. See, e.g., Wells v. Consolidated Judicial Retirement System of North Carolina, 136 N.C. App. 671, 677, 526 S.E.2d 486 (2000), aff’d, 354 N.C. 313, 553 S.E.2d 887 (2001); Simpson v. N.C. Local Gov’t Employees’ Retirement System, 88 N.C. App. 224, 363 S.E.2d 90, 94 (1987) (noting that members of the public retirement systems in North Carolina have a contractual relationship with the systems, and may rely on the terms of their contract as set out in the applicable statutes). The System can neither ignore nor modify the statutory requirements for calculating a purchase of withdrawn service under N.C.G.S. § 135-4(k).
16. On October 23, 2006, Petitioner formally appealed the System’s cancellation of the erroneous 2001 transaction. P-4 Garry Austin, Special Assistant to the System’s Senior Deputy Director, responded in writing on November 14, 2006, in a letter which included an explanation of why Petitioner’s payment from 2001 needed to be refunded back to her. This letter once again pointed out that Petitioner’s purchase of withdrawn service was based on another member’s file and hence on an incorrect withdrawal amount, thereby making it non-conforming with statutory requirements. P-6
17. On November 14, 2006, a second check was sent to Petitioner in the amount of
$ 283.50, representing the 4% statutory interest that had accrued in Petitioner’s account as a result of her erroneous payment in 2001. The System regularly makes interest payments on funds returned to members, consistent with applicable statutes.
18. In late November 2006, Petitioner paid $ 5,097.89 to the System to purchase her withdrawn service at the correct cost, although she sent her check under protest. As a result of this payment, the System was able to credit an additional 3.7778 years of service to Petitioner’s account. P-8
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19. On February 19, 2007, Petitioner forwarded a second “appeal” letter, still disagreeing with Respondent’s decision. In response, Respondent issued its Final Agency Decision dated February 27, 2007, clearly citing N.C.G.S. § 135-4(k) as the only method that could be used in both late 2001 and 2006 to calculate a member’s cost to purchase withdrawn service. P-9
20. The cost to purchase withdrawn service is set by statute. The statutorily-defined 2001 cost in Petitioner’s case is $ 5,097.89. R-4
21. The statutory cost to purchase back creditable service has nothing at all to do with the years of service which were withdrawn. The four sole determinants for the purchase of withdrawn service under the statute are: (1) the amount of money withdrawn, $ 869.89 in this case; (2) the year of the withdrawal, 1973 in this case; (3) application of 6 ½% interest compounding to the sum determined under item (1) from the year of withdrawal to the year of purchase, 1973 to 2001 in this case; and (4) a $ 25.00 administrative fee.
22. Because Petitioner’s refund in 1973 was $ 869.89 and because, compounded annually at 6 ½% interest from 1973 to 2001, that sum comes to $ 5,097.89 as of late 2001 (when Petitioner asked to purchase her withdrawn service), $ 5,097.89 was the correct 2001 purchase price for Petitioner’s service withdrawn in 1973. R-1; R-4; R-5
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23. The administrator testifying for Respondent at trial, who had personally reviewed Petitioner’s file and then confirmed the accuracy of the System’s 2006 calculation of a 2001 cost for Petitioner’s withdrawn service in cooperation with other staff investigators, has worked for the System for 30 years, and has significant experience in records analysis, service computations, benefit calculations, and withdrawn service purchase calculations. In fact, he has performed hundreds of computations such as the ones at issue in this case.
24. This witness credibly testified that he had no doubt that in 2006 the System had correctly calculated Petitioner’s 2001 cost of withdrawn service according to N.C.G.S. § 135-4(k). The same witness testified that $ 5,097.89 was the lowest amount which Petitioner could have been charged in 2001 for her account withdrawn in 1973.
25. Petitioner also conceded during the hearing that $ 5,097.89 was the correct cost, using the statutory calculation method, for a purchase of her withdrawn service made in 2001.
Based upon the above Findings of Fact, the undersigned makes the following:
CONCLUSIONS OF LAW
1. In late 2006, Respondent properly provided Petitioner with a 2001 cost of
$ 5,097.89 to purchase her service withdrawn in 1973, in accordance with the controlling statute, N.C.G.S. § 135-4(k), which states:
[A]ny person who withdrew his contributions...and who subsequently returns to service may, upon completion of five years of membership service, repay in a total lump sum any and all of the accumulated contributions previously withdrawn with interest compounded annually at the rate of six and one-half percent (6.5%) for each calendar year from the year of withdrawal to the year of repayment plus a fee to cover expense of handling... and receive credit for the service forfeited at time of withdrawal.