STATE OF NORTH CAROLINA



STATE OF NORTH CAROLINA IN THE OFFICE OF

ADMINISTRATIVE HEARINGS

COUNTY OF DAVIDSON 06 DST 2256

Teresa B. Sink, )

Petitioner, )

v. ) DECISION

)

)

The Retirement Systems Division )

Respondent. )

___________________________________________________________________________

This matter came on for hearing before Administrative Law Judge Joe L. Webster on March 26, 2007, in High Point, North Carolina.

APPEARANCES

For Petitioner: Teresa B. Sink, pro se

For Respondent: Joyce Rutledge, Special Deputy Attorney General

ISSUES

The issues to be resolved are (1) whether in its Final Agency Decision (R-18) Respondent properly calculated Petitioner’s total years of creditable service and (2) whether in its Final Agency Decision (R-18) Respondent properly calculated Petitioner’s Average Final Compensation (AFC), i.e., whether both those calculations were according to applicable law.

STATUTES AND RULES IN ISSUE

N.C.G.S. §§ 135-1(5), definition of AFC; 135-1(7a)c., exclusion of salary payments from “compensation” when no retirement contributions are made thereon; 135-1(26), definition of year “unless otherwise defined by regulation of the Board of Trustees”; 135-4(b), prohibiting the provision of more than one year of creditable service for each year worked; 135-4(e), specification of what is to be included in creditable service upon retirement; 135-5(a)(1), setting out the timing for application for service retirement; 135-5(b19)(2)a., factors to be used in computation of service benefit; 135-6(f), authority of Board of Trustees to adopt rules and regulations; 20 N.C.A.C. 02B.0201, Board’s definition of year and its method for determining AFC, including proportional adjustment “to the regular term of annual employment.”

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]. January 2006 Retirement Handbook

[P-2]. E-mail from Lucinda Black to Petitioner dated July 10, 2006, attaching purported excerpts from website (2 pp.)

[P-3]. 2006 issue of “On the Horizon” Newsletter from Retirement System (2 pp.)

Admitted for Respondent:

R-1. Preliminary Estimate of Retirement Benefits dated 2/24/06

(With effective retirement date of 6/1/06)

R-2. Report of Estimated Retirement Benefits dated 6/2/06

R-3A. Final Report of Retirement Benefits dated 7/17/06

R-3B. Print Screen dated 7/27/99 Re: 1977 & 1982 School Contracts with Handwritten Notes

R-3C. Records Section Biographical Updated dated 7/27/99, adding “+.0556”

R-3D. Comparison Chart – “Discrepancy in Service Count for Teresa B. Sink”

R-4. Initial Dispute Letter from Petitioner to System dated 7/14/06, received 7/18/06

R-5. Response dated 7/31/06 by Petitioner to 7/14/06 Letter from Earnest D. Bowie, III

R-6. Response to 7/31/06 Letter from Petitioner to Earnest D. Bowie, III dated 8/4/06

R-7. Letter #1 from Petitioner to Treasurer Moore dated 8/22/06 with Attachments

R-8. Letter #2 from Petitioner to Treasurer Moore dated 9/5/06 with Statutes Attached

R-9. Formal Appeal Letter from Petitioner to Garry Austin dated 9/26/06

R-10. Retirement System Documents Generated in Connection with Investigation of File

R-11. Microfilm Print-Out of Petitioner Sink’s 1977 Salary and Contributions History

R-12. FAX from Davidson County Community College to Retirement System dated 11/2/06 concerning Petitioner’s Final Contract before Retirement

R-13. Letter of Response to Appeal Letter from Garry Austin to Petitioner dated 11/2/06

R-14. N.C.G.S. § 135-1(5) – Definition of Average Final Compensation (AFC)

R-15. Retirement Board of Trustees’ Administrative Regulation – 20 N.C.A.C. 02B.0201 Re: AFC and “Adjusted Proportionally”

R-16. Response to 11/2/06 Letter from Petitioner to Garry Austin dated 11/6/06

R-18. Final Agency Decision Letter from Debra Bryan to Petitioner dated 11/20/06

R-19. Petitioner’s 1988 Annual Retirement Account Statement

R-20. Petitioner’s 1997 Annual Retirement Account Statement

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 1977, by virtue of her commencing a teaching position with the public schools. She retired from teaching at a community college effective June 1, 2006. R-13; T pp. 105-06

2. During her career, Petitioner had annual teaching contracts of differing lengths, pursuant to which her annual salary was paid out over a specific number of consecutive months. Some years she was on a 9-month contract; some years she had a 10-month contract term; and other years she was paid her annual salary over a 12-month period. T pp. 106; 127 Petitioner’s final four contract terms, immediately prior to her retirement in mid-2006, were 12 months, 12 months, 12 months and 9 months, respectively. T pp. 96; 113 (R-18)

3. Petitioner did not work all the months of every one of her contract terms during her teaching career. Because she took some leave in 1982, she did not work or earn creditable service under TSERS for 5 of the 10 months of her 1981-82 contract term. R-3B & R-3D

4. On the date of her retirement, Petitioner also had unused accrued sick leave which was converted, for retirement purposes, to 1.4444 years of additional creditable service. The parties in this case have no dispute about this 1.4444 years, which was added to Petitioner’s earned (work) service pursuant to N.C.G.S. § 135-4(c) and (e) for purposes of calculating Petitioner’s total years of creditable service. T pp. 165 & 183 (testimony of Petitioner)

5. Instead, the dispute as to creditable service in this contested case is whether Petitioner had a total of 30 years, which at one point in the hearing she testified she had, T p. 133 (“I have thirty years”), or whether she had a total of 29.9444 years, which is the number which the updated, finalized System records show she had as of June 1, 2006, T p. 79; R-3A; R-18.

6. The administrator testifying for Respondent at trial, who had personally reviewed Petitioner’s file and then confirmed the accuracy of the System’s calculation of Petitioner’s service record in cooperation with other staff investigators, T p. 99, has worked for the System for 30 years, with significant experience in records analysis, service computations and benefit calculations. T pp. 72-73 & 70-71 In fact, he has performed “thousands” of computations such as the ones at issue in this case. T p. 110 This witness credibly testified that he had “no doubt in his mind whatsoever” that the System had correctly calculated both Petitioner’s creditable service and her AFC. T pp. 113-14

7. Retiring members with 29.9444 years of service at retirement receive unreduced monthly retirement benefits, as do members who retire with 30 or more years of service. R-8 (System did not reduce Petitioner’s benefit based on an early retirement)

8. However, the actual service count for each retiree with many years of service is still important, in that the monthly benefit for TSERS retirees is based on a statutory factor (currently 1.82) multiplied by the total years of service multiplied by AFC. N.C.G.S. § 135-5(b19)(2)a.

9. On cross-examination, Petitioner was asked to review her responses to Respondent’s Second Set of Interrogatories (included in the record as Ex. 6 on Respondent’s Motion for Summary Judgment). Petitioner admitted that she had completed those responses and that her responses showed that she earned only a total of 28.5 years of service. T pp. 167 & 168

10. When these 28.5 years of earned service are added to the 1.4444 years derived from her unused sick leave, Petitioner’s total creditable service comes to 29.9444 years. This number is the same as the creditable service accorded to Petitioner by the System in its Final Audit. R-3A

11. On the basis of Petitioner’s admissions in discovery and again at trial, it is clear that the System’s calculation of her creditable service – in the total amount of 29.9444 years – is both accurate and complete. In fact, Petitioner admitted as much at trial. See, e.g., T p. 172 (“correct” at 29.9444 years) she likewise admitted that she has no evidence that she had worked thirty years. T p. 174

12. Petitioner appeared at trial to base her assertion that she had 30 years of total creditable service on the fact that, beginning in 1999 and continuing until early 2006, the System annually reported to her an even number as her total years of service (e.g., 21, 22, 23 and so on), consistent with an “amendment” made to her record in mid-1998. T p. 167

13. Petitioner conceded at trial, however, that each of the Annual Statements on which the System reported her total earned service contained disclaimer language at the top, and that these disclaimers appeared on her Annual Statements in 1999, 2000, 2001, 2002, 2003, 2004 and 2005. T p. 173 She did not receive an Annual Statement from the System in 2006. Id.

14. In earlier years, her Annual Statement bore the following disclaimer: “This statement is informational only. Every effort has been made to make this information as accurate as possible based on computer information concerning service credits, contributions and other factors. Since there is a possibility of human error, your actual service and contributions may be different from that shown on this statement. Your retirement benefit is subject to the law and the information on this statement cannot change the benefit payable to you upon retirement or withdrawal.” R-19 (emphasis added); T p. 118

15. In later years, the disclaimer on Petitioner’s Annual Statement read as follows: “This is a statement of your accumulated contributions and years of service for retirement purposes. Every effort has been made to make the information included herein as accurate as possible; however, this information is subject in all respects to the detailed provisions of Retirement System law. Errors in this information cannot change the benefit payable to you upon retirement or withdrawal.” R-20 (emphasis added); T pp. 118-119

16. A similar disclaimer appears on the “Preliminary Estimate of Retirement Benefits” sent to Petitioner by the System in late February 2006. R-1; T pp. 74-76 & 90 (regarding attachment to R-7) Exhibit [P-1], the 2006 Retirement Handbook, also contains a prominent disclaimer, saying that no information contained in or omitted from that employee-retiree manual can change controlling retirement law.

17. In the face of such disclaimers, Petitioner could not justifiably rely on her Annual Statements and her Preliminary Estimate as a source of definite information about her service count, as all these documents contain language putting her on direct notice that human error might make her service count different from the number indicated on the document and that any such errors would not, and could not, change the benefit ultimately payable to her upon retirement.

18. In addition, statutory law requires the System to base a retiring member’s creditable service at retirement on “the membership service rendered . . . since [s]he last became a member . . . [and] sick leave.” N.C.G.S. § 135-4(e)(emphasis added). Thus, the System was legally required to use Petitioner’s actual membership service and her unused accrued sick leave in calculating her total creditable service. That is, in fact, exactly how the System calculated Petitioner’s creditable service in this case.

19. Rather than have the System adhere to this plain statutory language, Petitioner wants to be given an extra 0.0556 year’s credit, for time which a System employee erroneously added to Petitioner’s creditable service when performing a calculation for her account in July 1999. R-3B & R-3C; T pp. 79-82; 83-84 But Petitioner admits that she has only 29.9444 years of actual creditable service, T p. 172, even if she believes she is somehow entitled to creditable service of 30 years, T p. 133.

20. When shown this erroneous calculation at trial, however, Petitioner herself also admitted that the System employee had made two separate errors in the July 1999 calculation. First, Petitioner acknowledged that she was not a 9-month employee in September through December 1977; so that it was error for her to have received 4/9 of a year credit for those months, when the credit should have been 4/10, a smaller number. Second, Petitioner acknowledged that giving Petitioner a 1/9 credit for January 1982 likewise overstated her credit, as she was a 10-month employee under her 1981-82 academic year contract; and the correct fraction should have been 1/10. T pp. 171-72

21. The Retirement System only detected these two errors, amounting to .0556 too much credit, when its staff performed the Final Audit on Petitioner’s file in conjunction with her retirement. R-3A Final audits are performed on all retiree files, and can be performed only after a retiree returns her Election of Benefits form to the System. T pp. 77-78 The System received Petitioner’s Election form in late June 2006. T p. 78 It sent her the Final Audit within a few weeks of receiving that Election form. R-3A The System follows an identical method for performing Final Audits with all retirees. T pp. 116-17

22. In calculating Petitioner’s total years of creditable service, the System complied in all respects with N.C.G.S. § 135-4(e) and other statutory provisions; and Petitioner has produced no evidence to the contrary. More particularly, the System would be in violation of N.C.G.S. § 135-4(b) if it credited Petitioner with more time than she actually had.

23. On the other issue in this contested case, her AFC, Petitioner contends she is entitled to an AFC calculated over a full forty-eight months. As she testified at the hearing, “Specifically what I’m asking . . . is that my retirement pay be based on my last continuous forty-eight months.” T p. 128

24. As a mathematical fact, it is true that a calculation of Petitioner’s average annual salary, based on all the pay she received from June 2002 through May 2006, produces an AFC somewhat higher than the AFC of $ 59,490.44 calculated by the System and used as its AFC factor for the computation of Petitioner’s retirement benefit. However, Petitioner’s “method” for calculating AFC is not the methodology used by the System, under applicable statutory and regulatory law, for employees whose final year (of the highest four years of salary) is a contract term less than 12 months.

25. N.C.G.S. § 135-1(5) defines AFC as “the average annual compensation of a member during the four consecutive calendar years of membership service producing the highest such average.” R-14 (emphasis added) The statute further defines “year” as the State’s regular fiscal year “unless otherwise defined in regulation of the Board of Trustees.” N.C.G.S. 135-1(26) (emphasis added).

26. As is clear from the text of the statute, the legislature has not defined AFC to be a member’s 48 highest consecutive months of salary. Instead, the statute instructs the Retirement System to calculate a retiring member’s average annual compensation “during” the four highest consecutive years of membership service; and the legislature endows the Board of Trustees with the authority to define a “year” by regulation. Petitioner admitted at the hearing that she was not aware of all the relevant statutes. T pp. 158-59

27. Petitioner claimed at trial that, over and over again, the Retirement System had informed members that their AFCs would be based on 48 months. However, Petitioner’s supposed evidence of such statements did not support her assertion. T pp. 139-41, 150-52 To the contrary, the System’s documents usually refer to salary earned “during” a period of four years.

28. And, in the only instance cited by Petitioner in which the System even mentions 48 months, it is clear that there is no single universal rule applied to all retirees: “Your retirement benefit is generally based, in part, upon the salary earned and reported to the Retirement Systems [sic] during your last 48 months of employment.” [P-2] (emphasis added); T pp. 152-53

29. The point on which Petitioner’s argument on the AFC issue ultimately founders is her ignorance of, or refusal to consider, the Board of Trustees’ regulation, 20 N.C.A.C. 02B.0201, defining “consecutive calendar years” for the purpose “of determining retirement allowances” as “a period of time consisting of a number of calendar months of creditable service equal to 12 times the number of years specified by statute . . . adjusted proportionally to the regular term of annual employment.” R-15 (emphasis added); T pp. 92-97

30. During the pendency of her internal appeal at the Retirement Systems Division, staff advised Petitioner about the existence of this administrative regulation orally, T p. 136, and even sent her its text, T pp. 92; 130; R-13. Staff also explained to Petitioner, on the telephone and in person, how they had calculated Petitioner’s AFC, R-4 (p. 4); R-9 (p. 1); T p. 91; and this same proportional calculation method was described in detail at trial. R-13; T pp. 108-10.

31. The Board’s adoption of this regulation in 1976 lies within its statutory discretion to “adopt rules and regulations to prevent injustices and inequalities which might otherwise arise in the administration of” North Carolina public retirement law. N.C.G.S. § 135-6(f).

32. On cross-examination, Petitioner conceded that her own calculation of AFC had not made any sort of proportional adjustment. T p. 137 Moreover, she admitted that her brother, a CPA, who also attempted to calculate Petitioner’s AFC, did not use any type of proportional adjustment. T pp. 163; 131-32 This single discrepancy in calculation methods explains the difference between the AFC as calculated by the System and the AFC as calculated by Petitioner and her CPA.

33. Petitioner believes that the Board’s proportional adjustment regulation cannot apply to her because she thinks the regulation only applies to retirees who work four consecutive annual contracts with the same term (e.g., all 9 or 10 or 12 months each). R-16 (Petitioner’s letter dated November 6, 2006); T p. 153; see also T p. 137 (“I also have a different interpretation of what adjusted proportional would mean”)

34. Petitioner’s belief and interpretation of the proportional adjustment regulation is, however, wholly unsupported in the record. Her belief is not only completely contrary to the System’s various written communications with Petitioner, see, e.g., R-13 & R-18, but it is also completely contrary to Mr. Austin’s explanation at trial of the Board’s rationale in adopting its proportionality regulation and of its application to Petitioner, T pp. 92-95; 96-97; 104; 108-10. See also R-5 (letter from the System to Petitioner dated July 31, 2006, explaining that the System used its “conversion process” -- namely its proportional adjustment – in calculating the AFC in her case because its “records show that you converted contract periods from 12 month to 9 month” and members “not required to work 12 months for [the salary received] for their contract year do not have their Average Final Compensation based on 48 months”)(emphasis added). Petitioner presented no credible admissible evidence to refute Respondent’s evidence that it uses the proportional adjustment method for calculating AFC with all retiring TSERS participants who, like Petitioner, end their highest paid four-year period with a contract term of less than 12 months.

35. In fact, the System treats all employees who end their highest four consecutive annual salary contracts on less than a 12-month contract exactly the same as Petitioner has been treated in this case. R-5 (p. 1) The use of proportional adjustment is the way that the System accounts for the fact that persons such as Petitioner are receiving, in the months prior to retirement, more than 1/12 of their annual contract salary during each month of regular monthly salary. At trial, Petitioner admitted that she received nine-ninths of her annual salary in a nine-month period, i.e., one-ninth salary each month, in the final highest year of her employment. T p. 155; 164-65 Identical information had been received by the System from her employer. R-12; T p. 104

36. When asked on cross-examination if she had any evidence of a retiree’s AFC which was not calculated like hers, Petitioner mentioned the example of a faculty administrator who held four consecutive 12-month contracts and whose AFC at retirement was based on a full 48-month period. T pp. 160-61 This example illustrates nothing, as the very point of the Board’s proportional adjustment of AFC is to have the AFC of a person retiring on a less-than-12-month contract made as close as feasibly possible to the AFC of a person who retires during a 12-month contract, with regular monthly salary being 1/12 of the annual salary. Petitioner further admitted that she had no evidence that anyone with a sequence of annual contracts like hers had been treated differently by the System. T p. 162

Based upon the above Findings of Fact, the undersigned makes the following:

CONCLUSIONS OF LAW

1. As a retiring member of TSERS, part of Petitioner’s retirement contract with the State of North Carolina, as set out in Chapter 135 of the General Statutes, was to have both her total years of creditable service and her Average Final Compensation properly determined by the Retirement System under applicable law, in order for the System to be able to calculate her exact and accurate monthly retirement benefit upon retirement.

2. The Board of Trustees for TSERS is charged with administering the detailed provisions of Chapter 135, together with the day-to-day activities delegated to Retirement System staff. The Board also has the statutory authority to adopt rules and regulations to foster uniformity and equity among System members and retirees. N.C.G.S. § 135-6(f).

3. The proportional adjustment regulation adopted by the Board of Trustees, and used by the System for more than thirty years now, is thus a valid exercise of the Board’s statutory powers.

4. Retirement System staff are required to follow both the regulations of the Board and all statutory applicable provisions in carrying out their delegated duties.

5. Petitioner’s total years of creditable service and her Average Final Compensation were properly determined by the Retirement System. Nothing in Petitioner’s evidence so much as intimated to the contrary.

6. OAH may take official notice as well, under N.C.G.S. § 150B-41(d), of the fact that this forum has, in another recent case, upheld the Retirement System’s method for calculating creditable service, on facts relating to a teacher and her changing contract periods not unlike the facts in this case. Fish v. Dep’t of State Treasurer, Retirement Systems Division, 06 DST 1353.

Based upon the above Findings and Conclusions, the undersigned makes the following:

DECISION

The Retirement System properly determined that Petitioner’s total years of creditable service as of the effective date of her retirement was 29.9444 years. The System also correctly calculated her AFC, for retirement benefit purposes, by using the proportional adjustment adopted by the TSERS Board of Trustees in 20 N.C.A.C. 02B.0201, on the ground that Petitioner’s final contract called for her to receive 1/9 of her salary for 9 full months, whereas 12-month employees who are retiring receive only 1/12 of their annual salaries during each of the full months immediately prior to retirement, regardless of whether salary payments are monthly or twice monthly.

ORDER

It is hereby ordered that the agency serve a copy of the final decision on the Office of Administrative Hearings, 6714 Mail Service Center, Raleigh, NC 27699-6714, in accordance with N.C.G.S. § 150B-36(b).

NOTICE

The agency making the final decision in this contested case is required to give each party an opportunity to file exceptions to this decision and to present written arguments to those in the agency who will make the final decision. N.C.G.S. § 150B-36(a).

The agency is required by N.C.G.S. § 150B-36(b3) to serve a copy of the final decision on all parties and to furnish a copy to the parties’ attorney of record and to the Office of Administrative Hearings.

The agency that will make the final decision in this contested case is the Board of Trustees of the Teachers’ and State Employees’ Retirement System.

This the 26th day of June, 2007.

__________________________________

Joe L. Webster

Administrative Law Judge

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