LITTLE ROCK — The director of the Arkansas Teacher Retirement System said Tuesday that he will request an opinion from the state attorney general on whether the system has the legal authority to collect millions of dollars from retirees who returned to work but failed to report their earnings to the system.
Under a state law in place until July 1, teacher system retirees who returned to work and earned more than a certain amount were required to have a portion of their pension payments withheld. But as it began collecting information from employers this summer, the retirement system discovered that many retirees, especially those who retired from school districts and went to work at colleges, had been working for years but didn't know they were subject to the income limit.
George Hopkins, who took over as the system's director on Dec. 29, said he's also discovered that the system failed to follow its own policies in collecting information from employers. Also, a law passed in 1995 exempted at least some college and university employees from the limit.
Depending on the answers to the legal questions, the retirement system could actually end up owing money to retirees who did report their earnings, although the amount owed would likely be less than $1 million, Hopkins said.
Hopkins said he is drafting a list of questions and will likely submit it to Attorney General Dustin McDaniel today. McDaniel may decline to issue an official opinion about a pending legal matter, but his office has agreed to make attorneys available to research concerns and give advice, Hopkins said.
He said it's important to have an independent legal opinion "so that I can prevent this issue from being one in which it appears that ATRS has a mess that we've uncovered and that we're just re-covering it."
Until July 1, retirees younger than 65 who returned to work for an employer that participates in the retirement system were required to have $1 withheld from their pensions for every $2 they earned above a limit set by state law. Last school year, the limit was $27,120.
System officials have said they relied on an "honor system" for retirees to report their earnings and had no method in place for collecting information about retirees on employers' payrolls.
But Hopkins said Tuesday that he discovered a policy, adopted by the system's board of trustees in 2005, that required employers to co m p l e te a Statement of Employment form for each retiree they hire. Despite the policy, the system's staff never created such a form, Hopkins said.
The system has also not followed policies, in place for more than a decade, that require employers to submit regular reports with information about retirees on their payrolls, Hopkins said.
Asked why the policies weren't followed, Hopkins said, "I don't know the answer to that. I'm not sure if anyone will ever know the answer to that."
The system did begin collecting information about retirees on employers' payrolls this summer in response to Act 743, which erased the earnings limit but required employers to contribute 14 percent of all employees' pay to the system, including employees who are collecting pensions.
Last month the system sent notices to 11 college and university employees seeking to collect amounts ranging from $9,000 to $230,000 that it had determined should have been withheld from their pensions. On the basis of information gathered so far, Hopkins estimated that more than 100 other retirees also failed to report their income and the total amount owed could top $10 million.
But since the first batch of notices went out, several employees complained that they didn't know they were subject to the income limit, and they have filed appeals asking Hopkins to reconsider.Hopkins said he has also been fielding calls from other retirees, attorneys and legislators complaining that the collection effort is unfair. Last week Hopkins suspended efforts to collect the money until the legal questions are resolved.
Among the questions is whether the system can legally seek to collect money now after failing to make any effort to collect it for years, Hopkins said.
Also unclear is the effect of a law passed in 1995 that exempted employees at colleges and universities from the income limit. The law was repealed in 1997, but the system continued to grant the exemption for retirees who had worked for a college or university while the law was in effect. Other retirees who were vested in the system when the 1995 law was passed might have a legal argument that they are also entitled to the exemption, Hopkins said.
Hopkins said he is also unsure whether the law establishing the income limit was ever intended to apply to retirees who work for colleges and universities. Under Arkansas Code 24-7-708, the limit applied to retirees who work for "a public employer whose employees are covered by the Arkansas Teacher Retirement System." While most employees of colleges and universities can choose to participate in the teacher system, they are not required to, Hopkins noted.
"We can only apply the earnings limitation to ATRS employers, and under the law, I am no longer convinced that there is certainty" that colleges and universities are covered by the law, Hopkins said.
Hopkins said he also wants to know whether any statute of limitations applies to money owed by the retirees. He will also ask whether retirees could argue that applying the income limit to some retirees but not others is a violation of the 14th Amendment's guarantee of equal protection under the law.
"There has to be an identifiable, rational basis that a court considers rational and reasonable for treating one group different from another," Hopkins said.
Donna Morey, president of the Arkansas Education Association, said the 17,000-member teacher's union supports the retirement system's efforts to collect money its owed on a "case-by-case basis" while also putting rules in place to "clear up any ambiguities which may exist."
"The Arkansas Education Association believes that the Arkansas Teacher Retirement System has a fiduciary responsibility to ensure that its funds are properly used for retiree pensions in accordance with the laws," she said.
Front Section, Pages 1, 7 on 09/23/2009