Arkansas Teacher Retirement System delivered $323,872 to deceased members

Teacher system updates procedure for checking on deaths of members

House Speaker Matthew Shepherd, R-El Dorado, is shown in this file photo.
(AP file photo/Danny Johnston)
House Speaker Matthew Shepherd, R-El Dorado, is shown in this file photo. (AP file photo/Danny Johnston)

The Arkansas Teacher Retirement System discovered that the retirement benefits of two deceased members outside the state had not been discontinued at the time of their deaths, resulting in overpayments of more than $300,000 in one case and more than $17,000 in the other, a deputy legislative auditor told lawmakers Thursday.

One death was not reported to the system by the member's survivors, while the notation of the other death was not correctly entered by the agency, Deputy Legislative Auditor Tom Bullington said in his report on the findings of an audit of the system for fiscal 2019 that ended June 30.

The Teacher Retirement System identified these overpayments through the implementation of new procedures, he said.

System Executive Director Clint Rhoden said the system has contacted the FBI to investigate the case involving the overpayment of $306,686 over about 20 years.

The other case involved the overpayment of $17,186, Bullington said.

"In doing some research about our current procedures of how we become notified of deaths ... it was brought to our attention that our current process of using this national database and relying exclusively on that is not 100% accurate obviously, or it would have found these two individuals that showed up on this finding," Rhoden said during a meeting of the Legislative Joint Auditing Committee's Committee on State Agencies.

"As a result of that, we have improved our processes," Rhoden said. "We are doing a lot more outreach to try to verify that the 50,000 members that we are paying benefits to are essentially still living and entitled to those benefits.

"These are two self-reported overpayments that we reported to [Arkansas Legislative Audit]," he said.

The Teacher Retirement System is state government's largest such agency with more than 100,000 working and retired members. The system's investments were valued at roughly $17.8 billion as of Wednesday a decline of about $300 million since last Friday, Rhoden said after the committee's meeting.

As of June 30, the system included 68,457 working members, who are not in its deferred retirement plan, with an average annual salary of $39,065, and 3,707 other working members, who are in its deferred retirement plan, with an average annual salary of $62,812, according to an actuary report from Gabriel, Roeder, Smith & Co.

The system also included 48,677 retired members with an average annual benefit of $23,588, Gabriel reported.

Rhoden told lawmakers that the system started sending out retirement-benefit verification letters in late August. The system asked that the letter be notarized and returned, and "we actually got some push-back from that from a lot of members, thinking it was a scam or threatening or whatever," he said.

He noted that the Arkansas Democrat-Gazette in September wrote an article about the system trying to make sure that member retirement benefits are not being fraudulently diverted by a third party.

Rhoden said system officials didn't disclose the $300,000 overpayment in September "because of the sensitive nature of the individual."

"Actually in my opinion this being part of the public record now actually helps that mission, so we can communicate to our members that there is a reason you are getting a letter every year or every five years to say, 'Are you still with us and entitled to your benefit?'" he said.

The system formerly got a verification every month that a retired member was living when the person endorsed the benefits check and took it to the bank, but "with direct deposit, we don't have that anymore," Rhoden said. "It has been actually a little harder to find when people have died."

The system has increased its processes "to make that much more foolproof," and increased the procedures for looking each month for whether out-of-state retired members have died, he said.

House Speaker Matthew Shepherd, R-El Dorado, pressed Rhoden to explain how these two overpayments occurred and what's being done to recoup these funds.

"It is pretty alarming to have two instances that are fairly large amounts," Shepherd said.

Rhoden said, "Both of these ... were out of state and they both were with electronic direct deposit, so there was no handwritten endorsement on a check each month.

"For the 20-something years that this went on, every single month, these two members were sent to the national database clearance service and came back clean, so we had no indication from that service that these members had died," he said.

"It took some extensive research and essentially detective work to actually find the death certificate for the $300,000 [overpayment]," Rhoden said.

"We have actually contacted the FBI to do an investigation, so we have started working with law enforcement," he said.

"We send demand letters obviously asking for them to pay it and, then after that, it is a legal process of looking for assets, going down the legal lien process."

Shepherd asked what prompted the system to look at the names of these two deceased retirees.

"It sounds like potentially there could be tens or hundreds of individuals, particularly out-of-state individuals who may be very well deceased that we just don't have knowledge of," he said.

Rhoden said, "That is essentially correct, and that was an alarming fact when I learned that last year.

"I was notified actually by a vendor who wanted to help" the system with this information, he said. "The statistic they gave us is essentially if you are only relying on a national database-type search, you are probably 99.9% or 99.99% accurate, which sounds really accurate until you apply it to 50,000 people, and 99.99% accurate means there are five people we are overpaying.

"By my count, we found two. I'm still looking," Rhoden said.

Sen. Jason Rapert, R-Conway, said, "We hope you are successful. I think the committee should know what is the resolution, whether there is success in being able to recoup any of that."

photo

Teacher Retirement System Executive Director Clint Rhoden is shown in this photo. (Special to the Arkansas Democrat-Gazette)

A Section on 02/28/2020

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