How Would You Handle These Issues?
1. Plaintiffs were participants in a deferred compensation plan. The plan authorized the state treasurer to administer the plan which included retaining investment providers. The state treasurer charged an administration fee to the investment providers. The investment providers in turn passed on the administrative fee to the plan members. The plan members brought suit against the state treasurer challenging the administrative fees. How would you rule?
2. In 1974, a law was passed requiring a state retirement system to pay a portion of the premium for health care benefits for plan members. At that time, a maximum of $25.00 per month was paid on behalf of each member. Over the years, the amount of the premium paid by the retirement system increased. Each year the law was changed to reflect the increased premium amount. In 2000, the retirement system board of trustees amended the health care plan. The health insurance deductibles paid by the retirees increased from $145.00 per month for individual coverage to $165.00 per month, and from $290.00 per month to $330.00 per month for family coverage. The retirees filed suit challenging the increase to the deductibles, claiming that the changes to the plan impaired their contractual right to retirement benefits. Do the changes to the health care plan violate the retirees’ contractual right to retirement benefits?
3. A retirement board promulgated rules relating to the amount of the monthly benefit payable under a duty disability benefit statute and the effective date of the disability payments. A retired firefighter who was granted disability benefits challenged the authority of the board to promulgate rules, arguing that he should be entitled to his benefit from the date of injury rather than the date the disability was granted. Did the board have the authority to promulgate a rule providing for the effective date of the disability?
4. A state legislature had changed a plan’s accidental disability retirement benefit standard requiring that the disability be a direct result of a “traumatic event” occurring during the performance of duty. A member applying for disability benefits was employed as a toll taker. While in the toll booth, an automobile coming in his direction went airborne, struck another automobile and was coming directly towards his toll booth. Rather than striking the toll booth, the automobile struck a tractor trailer and landed a few inches in front of the toll booth. When the member saw the automobile coming towards him, he jumped to the rear of the toll booth to avoid being struck and injured his back. The system denied the disability application finding that the incident was not a traumatic event. Was the trustees’ decision correct?
5. Two individuals who had been denied disability benefits filed suit against the retirement system. They claimed that the medical panel who examined them in connection with the disability was biased against them as they had a financial interest in determining that they were not disabled, so that they would receive additional business from the system. They also claimed that the medical panel used an incorrect form to transmit their medical findings as the retirement system had approved a new form which contained the standards governing eligibility for disability benefits. How should the case be decided?
6. A Hispanic police officer claimed entitlement to service connected disability benefits. The Board of Trustees initially granted a non-service connected benefit and continued the hearing to determine the service connected aspect of the injury. At the second hearing, the Board denied the entitlement to service connected benefits but voted to continue the non-service benefits. The officer appealed the decision of the Board arguing that the decision was against the manifest weight of the evidence, and was arbitrary and capricious. The Board was the named party in the appeal. The decision of the Board was affirmed by a state court judge. The officer subsequently filed a federal discrimination suit against the employer Village, the Board of Trustees of the System and an individual trustee. The suit claimed that he was discriminated against because of his race and national origin, and that the Board retaliated against him by denying him a service connected benefit because of testimony he had given on behalf of another officer in an unrelated discrimination suit. The officer had not raised any discrimination arguments in the original administrative disability hearings, or in the state court appeal of the Board’s disability decision. How did the Court rule in the federal discrimination suit against the Village, the Board of Trustees, and the individual trustee?
7. Five archaeologists performed work on behalf of a state department of transportation. The archaeologists were treated as independent contractors instead of employees. The state had contracted with the 5 archaeologists for their services. They were not part of any retirement system and no contributions were made to a system on their behalf. After working for the state for 6 years, one of the archaeologists inquired about his employment status. After an audit was conducted, a conclusion was reached that the archaeologists were improperly classified as independent contractors. The auditors recommended that the state department of transportation be responsible for paying the full cost of the archaeologists’ retroactive enrollment in the retirement system available to employees. The retirement board of the system conducted a hearing and assessed a fee of $345,284.62 against the department of transportation. The department of transportation appealed the decision of the retirement board. How did the court rule on the appeal?
8. A police officer who has served for 28 years was convicted of a federal felony. As a result of the conviction, according to state law, the Retirement Board denied the officer’s request for benefits and forfeited his pension. The officer then applied for and received a return of his employee contributions. Ten years later, the officer received a full and unconditional presidential pardon from William Jefferson Clinton. What effect, if any, did the pardon have on the officer’s right to receive a pension?
What Were They Thinking?
Now We Find Out!
1. The court determined that the plan members did not have standing to sue the state treasurer as there was no contractual privity or relationship between the members and the treasurer. The real parties in interest in the case were the investment advisors who would have had standing to challenge whether the administrative fees charged by the state treasurer were appropriate. The investment advisors would have been a necessary party to the suit. Even if plan members could have prevailed in a suit against the state treasurer, it would not have invalidated the administrative fees that the members were paying to the investment advisors.
Nedeau v. Gallagher, 851 So.2d 214 (Fla. 1st DCA 2003)
2. Health insurance benefits were not a contractual retirement obligation that could not be modified. The Michigan Constitution contained a provision which provided that the “accrued financial benefits” of each pension plan of the state shall be contractual obligations which shall not be diminished or impaired. The issue in the case was whether health benefits were “accrued financial benefits” under the constitutional provision. The court examined the legislative history and determined that the legislature meant to prescribe a narrow meaning for the term “benefit” when the constitutional provision was passed. The court determined that the increase to the deductible did not affect the terms of any contract as the retirement system continued to pay the entire monthly premium for the health benefit. The statute required the system to pay the full cost of the premium. Even though there was an increase in the deductible paid by retirees, the system was still paying the full monthly premium on behalf of the retirees.
Studier v. Michigan Public School Employees’ Retirement Board, 2004 WL 202896 (C.A.Mich. 2004)
3. A retirement board of trustees has the authority to promulgate rules interpreting the laws governing the plan. As long as the administrative rule does not conflict with the plain language contained in the plan document, it is a valid exercise of a board of trustee’s duties. A state statute conferred upon agencies the authority to make rules interpreting the provisions of any statute enforced or administered by the agency. Rule-making is particularly important in the pension area to ensure consistency of behavior. Funds should establish administrative rules dealing with the conduct of hearings, the conduct of day-to-day business and any other aspect of business not specifically provided for by the legislation governing the plan.
Kuester v. Wisconsin Retirement Board, 674 N.W.2d 877(C.A. Wis. 2003)
4. In reaching the determination to deny accidental disability benefits in this case, the board erred in its interpretation of the term “traumatic event.” The heightened standard for one to receive accidental disability benefits requires the injury to be outside the normal scope of risks a member would be subject to making the member deserving of additional compensation. A traumatic event could occur either as a result of a contact or non-contact situation even though the applicant had voluntarily jumped back in reaction to the car, the employee did not set the risk of the car coming towards him in motion. The decision of the retirement board was reversed by the court.
Angiola v. Board of Trustees, 821 A.2d 98 (N.J.A.D. 2003)
5. In the absence of actual evidence of bias, the decision of the retirement board should be affirmed. The mere fact that the medical panel was retained by the system and paid by the system does not automatically create a finding of bias. The medical panel conducting the examination was paid approximately $100,000.00 over the course of three years performing examinations on behalf of the retirement system or the employer. Employees claimed that the volume of work would lead the medical panel to skew its examination results in favor of the retirement system or city. Even though the form used by the medical panel to report the disability was updated, use of the old form was not improper in this case as the new form had heightened the standards governing the eligibility for disability benefits.
Houde v. Contributory Retirement Appeal Board, 787 N.E.2d 581 (C.A. Mass. 2003)
6. The doctrine of res judicata (meaning that a matter has been adjudged) will operate to bar a subsequent lawsuit if the issues have already been litigated and judgment entered in a prior proceeding involving the same parties. A judgment of a state court sitting in an administrative review capacity would have a preclusive effect on a subsequent lawsuit. In order for res judicata to bar a subsequent suit, the initial case must 1) have had judgment entered on the merits; 2) involve the same parties or parties in privity therewith; and 3) constitute the same cause of action as the subsequent claim. The Court in this case determined that res judicata barred the officer from proceeding with his federal lawsuit against all named defendants. Judgement was entered in the appeal of the disability case. The case involved the same parties. The Board was the named party in the disability appeal. The Court found that there was privity between the Board, and both the Village (the Board is an agent of the Village) and the individual trustee (the trustee being an agent of the Board and the Village). The Court held that both cases involved the same causes of action because the same evidence would be needed to prove each of the causes of action. When two cases arise from the same set of operative facts, res judicata will apply to bar the second suit. The Court determined that both cases involved the reasons leading up to and including the Board’s decision to deny the member disability benefits.
Garcia v. Village of Mount Prospect, 2004 WL 324903 (7th Cir. Ill. February 23, 2004)
7. The board’s determination of the archeologists’ status as employees rather than independent contractors was not arbitrary and capricious. The provisions of the retirement system gave the authority to the board to determine who is an employee for purposes of plan membership. The audit conducted was based on interviews with department of transportation employees, a review of department of transportation documentation, and was conducted in accordance with the applicable law and policies of the department of transportation. The court determined that substantial evidence supported the finding of the retirement system. Of the $345,284.62 award, $138,809.49 was interest assessed on the unpaid employer/employee contributions. The department of transportation was required to pay the full amount of the employer contribution, the employee contribution, and interest thereon.
State of Nevada Department of Transportation v. Public Employees’ Retirement System of Nevada, 83 P.3d 815 (Nev. 2004)
8. The officer had been convicted of making false declarations before a grand jury. He had argued that since he was pardoned from the crime, he should be entitled to his pension. He argued that the forfeiture of his pension was intended to be a punishment for his conviction. The Court agreed that in light of the pardon, the state cannot continue to punish him for the conviction. However, the Court then examined whether the request for the refund of the pension contributions was voluntary. The officer argued that his acceptance of the refund was involuntary, he had no choice but to receive a refund of his employee contributions as his pension had been forfeited. The Court disagreed and determined that the officer voluntarily submitted the request for the return of contributions and the Board did not force him to accept the refund. The Court refused to grant the officer a return of his pension, holding that the conscious decision of the officer to regain control of his money was not a punishment meted out by the state that can be set aside by a pardon. The Court went so far as noting that the officer could have “waited out the pardon process and thus retained his property interest.”
Yasak v. Retirement Board of the Policemen’s Annuity and Benefit Fund of Chicago, 357 F.3d 677 (7th Cir. February 4, 2004)