Cross v. Elected Officials Retirement Plan – 5/15/2014

May 20, 2014

Arizona Court of Appeals Division One Holds That Pension Plan May Recalculate Benefits After Overpaying Member Who Continued Working After Retiring.

The administrator of the Elected Officials Retirement Plan purportedly retired after 20 years of service.  He requested and began to receive a monthly pension.  Immediately after retiring, however, he returned to work, performing the same duties for the same salary as before his retirement.  After he finally left for good, the Plan realized it had been paying him too much in pension benefits.  The Plan determined that it had overpaid him by more than $600,000 because he should not have been eligible for any pension benefits for when he was still working and because his bonuses and payments for unused vacation and sick pay should not have been used to calculate his pension benefits.  The Plan recalculated his pension payments and suspended them until it recouped the overpayments. 

The administrator sued.  The superior court reversed the decisions of the Plan.  The Plan then appealed to the Court of Appeals, which reversed the superior court, in effect affirming most of the decisions of the Plan to recalculate the administrator’s pension.

The administrator argued that he should be entitled to keep the benefits he had been paid.  He relied upon Fields v. Elected Officials’ Retirement Plan for the proposition that his benefits cannot be modified.  The Court of Appeals disagreed, explaining that Fields protects properly calculated benefits, but does not entitle a pensioner to keep miscalculated benefits.  Similarly, any contract between a pensioner and the Plan does not entitle him to more than what he is owed when properly calculated.

The Court of Appeals also addressed the specific overpayments.  It agreed with the Plan that the administrator was not entitled to begin collecting payments when he “retired” in name only but then immediately continued to work.  Under A.R.S. § 38-805(A), a member of the Plan who “ceases to hold office” may receive retirement benefits, but a member who continued to work uninterrupted did not “cease[] to hold office.”  The court acknowledged that after 20 years of service the administer could receive a pension of 80% of his salary.  By continuing to work and forgoing the 80% pension benefit, he would effectively be working for 20% of his salary.  That reality, however, did not excuse the requirement that he “cease[] to hold office” before receiving benefits. 

The other form of overpayment met the same result.  The Court of Appeals agreed with the Plan that benefits based upon “average annual salary” do not include bonuses or paid-out sick time and vacation days. 

Finally, the superior court held that based upon principles of equitable estoppel, any adjustments to benefits could be prospective only and the Plan could not recoup the past overpayments.  Invoking equitable estoppel requires finding an injury resulting from the actions at issue.  The administrator alleged that he was injured because if he had known how the Plan would later determine his pension, then he could have sought employment elsewhere while still receiving his pension from the Plan.  The Plan requested findings of fact on this point but the superior court did not make findings.  As a result, the Court of Appeals vacated that part of the judgment for further proceedings.

Chief Judge Johnsen authored the opinion; Judges Swann and Kessler concurred.