05-003287 Verna M. Johnson vs. Department Of Management Services, Division Of Retirement Status: Closed Recommended Order on Friday, March 3, 2006.

Summary: Petitioner entitled to retired status, retirement and DROP benefits where she had already resigned, terminated and entitled to DROP money before her second and current employer entered into an agreement to become a Florida Retirement System employer.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

VERNA M. JOHNSON, )

)

Petitioner, )

)

vs. ) Case No. 05 - 3287

)

DEPARTMENT OF MANAGEMENT )

SERVICES, DIVISION OF )

RETIREMENT, )

)

Respondent. )

)

REC OMMENDED ORDER

This cause came on for final hearing, as noticed, before

P. Michael Ruff, duly - designated Administrative Law Judge of the

Division of Administrative Hearings. The hearing was conducted

in Gainesville, Florida on October 31, 2005. The appe arances

were as follows:

APPEARANCES

For Petitioner: Verna M. Johnson, pro se

3432 Northwest 52nd Avenue

Gainesville, Florida 32605

For Respondent: Thomas E. Wright, Esquire

Department of Management Services

Division of Retirement

4050 Esplanada Way, Suite 160

Tallahassee, Florida 32399 - 0950

STATEMENT OF THE ISSUE

The issue to be resolved in this proceeding concerns

whether the Petitioner, Verna M. Johnson, terminated a ll

employment with a Florida Retirement System employer, or

employers, as defined in Section 121.021(39)(b), Florida

Statutes, when she concluded or terminated her "DROP"

participation and therefore whether she actually, finally

retired.

PRELIMINARY STATEM ENT

This cause arose when the Petitioner requested a formal

proceeding to contest an initial agency action of the Division

of Retirement (Division) in which it determined that Ms. Johnson

the Petitioner had never retired.

The Petitioner had been an emp loyee of the Alachua County

School Board and member of the Florida Retirement System (FRS).

On August 1, 1998, while employed by the School Board,

Ms. Johnson entered the Deferred Retirement Option Program

(DROP) participating in it while continuing to wor k for the

Alachua County School Board. On June 9, 1999, the Petitioner

terminated her employment with the Alachua County School Board

and ended her participation in the DROP program thus, in her

belief, finally retiring and terminating employment.

In t he meantime, and during her continuing employment with

the Alachua County School Board, the Petitioner, with her

husband, founded the Caring and Sharing Learning School, a

Charter School, on January 28, 1998. On July 16, 1999, less

than a month after the Petitioner terminated her employment with

Alachua County Schools and ended her participation in DROP, the

Charter School where she worked in some capacity, joined the FRS

as a participating employer. That election by the Division of

Retirement for the Cha rter School to participate as a

participating employer with the FRS was made retroactive, by

their agreement, to August 24, 1998.

Some years passed an external compliance audit of the

Charter School was conducted by the Division during the week of

March 15, 2004. In that compliance audit it was discovered that

the Petitioner had been employed by the Charter School

continuously since the Charter School's inception. After

requesting materials from the school to aid it in determining

the Petitioner's emplo yment status with the Charter School and

after reviewing information provided by the school and the

Petitioner, the final agency action at issue was issued on

June 15, 2005, determining that Ms. Johnson had never retired

because her employment had continue d at the Charter School

before and after it became an FRS employer and that therefore,

even though she had terminated work for the Alachua County

School Board, she had never ceased working for an FRS employer

for at least one calendar month (the Charter Sc hool). In the

view of the Division, therefore, she had never actually retired.

After requesting a formal proceeding to contest that

initial action by the Division, the cause was referred to the

Division of Administrative Hearings and ultimately the

und ersigned Administrative Law Judge. The cause came on for

hearing, as noticed, at which the Petitioner testified in her

own behalf and offered six exhibits, which were admitted into

evidence. The Respondent presented testimony from Joyce Morgan,

the benef its administrator of the Division and offered 23

exhibits, which were admitted into evidence. Official

recognition was also taken of Sections 121.021 and 121.091,

Florida Statutes(2005), and Florida Administrative Code Rule

60S - 1.004.

Upon concluding the proceeding the parties elected to file

proposed recommended orders. The parties requested an extension

on filing proposed recommended orders which was approved. The

Proposed Recommended Orders have been considered in the

rendition of this Recommended Or der.

FINDINGS OF FACT

1. The Petitioner was employed by the Alachua County

School Board in 1998 and 1999 and prior to that time. She was a

regular class member of the FRS who begin participating in the

DROP program on August 1, 1998. Thereafter, on Ju ly 9, 1999,

the Petitioner terminated her employment with Alachua County

Schools to begin receiving her DROP accumulation and her monthly

FRS retirement benefits.

2. The Petitioner and her husband had founded the Caring

and Sharing Learning School (Chart er School) back on January 28,

1998, while the Petitioner was employed by the Alachua County

School District and had not yet retired or entered the DROP

program. She was a full - time FRS employee with the Alachua

County School system. The Charter School w as not then an FRS

employer, nor were retirement contributions made on the

Petitioner's behalf by the Charter School.

3. She worked most of the ensuing year after entering the

DROP program, and on June 9, 1999, ended her employment

relationship by exerci sing her resignation from the Alachua

County School District employment, at which point she began

receiving FRS benefits and her DROP accumulation. Thereafter,

on July 16, 1999, the Director of State Retirement for the FRS,

and the Charter School, entered into an agreement for admission

of the Charter School to the FRS as an FRS employer. It had not

been an FRS - enrolled employer before July 16, 1999, slightly

over a month after the Petitioner had terminated her employment

with the school district and bega n receiving her DROP

accumulation and retirement benefits. That agreement provided

that the effective date of admission of the Charter School into

the status of an FRS employer (with attendant compulsory FRS

membership by all employees) was related back w ith an effective

date of August 24, 1998. The record does not reflect the reason

for this earlier effective date. The Petitioner continued to

work as an administrator with the Charter School even through

the date of hearing in 2005.

4. The Division p erformed an external audit of the Charter

School during the week of March 15, 2004. In the process of

that audit the Division received some sort of verification from

the school's accountant to the effect that the Petitioner was

employed as an administrato r and had been so employed since

August 24, 1998.

5. Because of this information, the Division requested

that the Charter School and the Petitioner complete "employment

relationship questionnaires." The Petitioner completed and

submitted these forms to the Division. On both questionnaires

she indicated that the income she receives from the school was

reported by an IRS form W - 2 and thus that the employer and

employee - required contributions for employees had been made.

She further indicated that she was covered by the school's

workers' compensation policy. On both forms the Petitioner

stated that her pay was "more of a stipend than salary." On the

second form she added, however, "when it started, at this time

it is salary." She testified that she was paid a regular

percentage of her total income from the Charter School before

her DROP termination and the stipend after. She added that she

just wrote what she "thought they wanted to hear" (meaning on

the forms). The check registers provided to the Division by the

Petitioner also indicate "salary" payments for "administrators"

in September 1999. It is also true that the Petitioner from the

inception of the Charter School in January 1998, and was on the

board of directors of the Charter School corpor ation.

6. According to the Division, the Petitioner was provided

at least "three written alerts" by the Division that she was

required to terminate all employment relationships with all FRS

employers for at least one calendar month after resignation, o r

her retirement would be deemed null and not to have occurred,

requiring refund of any retirement benefits received, including

DROP accumulations. The Division maintains that based on the

material provided it by the Petitioner, that the Petitioner was

an employee of the Charter School from August 24, 1998 (the date

the "related - back agreement" entered into on July 16, 1999,

purportedly took effect) through at least May 12, 2005. It is

necessary that a member of the FRS earning retirement service

credits, or after retirement or resignation, receiving

retirement benefits have been an "employee," as that is defined

in the authority cited below, in order for the various

provisions of Chapter 121, Florida Statutes, and related rules

to apply to that person's s tatus. This status is determinative

of such things as retirement service credit contributions and

benefits, including DROP benefits, entitlement, and

accumulations and the disposition made of them.

7. In any event, the Division determined that the

Pet itioner had been an employee of the Charter School, as

referenced above, and took its agency action determining that

the Petitioner failed to terminate all employment relationships

with all FRS employers (that is she kept working for the Charter

School) be fore and during the month after resignation from the

Alachua County School Board and continuing through May 12, 2005,

as an employee in the Division's view of things. Therefore,

because she was still employed by an FRS employer during the

calendar month o f July 1999 (only because of the agreement

entered into between the Charter School and the division

director on July 16, 1999,) her retirement (which had ended her

employment with the Alachua County School System) was deemed

null and void. The Division th us has demanded that she refund

all retirement benefits and DROP accumulations earned or accrued

between the date of entry into DROP which was August 1, 1998,

through approximately May 12, 2005. This apparently totals

approximately $169,000.00.

CONCLUSI ONS OF LAW

8. The Division of Administrative Hearings has

jurisdiction of the subject matter of and the parties to this

proceeding. §§ 120.569 and 120.57(1), Fla. Stat. (2005).

9. The Florida retirement System was created by the

Legislature in 19 70 and is codified in Chapter 121, Florida

Statutes (2004).

10. Section 121.091(13)(c)5.d., Florida Statutes (2004),

provides:

A DROP participant who fails to terminate

employment as defined in s. 121.021(39)(b)

shall be deemed not to be retired, and the

DROP election shall be null and void.

Florida Retirement System membership shall

be re - established retroactively to the date

of commencement of the DROP, and each

employer with whom the participant continues

employment shall be required to pay to the

Sys tem Trust Fund the difference between the

DROP contributions paid in paragraph (i) and

the contributions required for the

applicable Florida Retirement System class

of membership during the period the member

participated in the DROP, plus 6.5 percent

inter est compounded annually.

11. Section 121.021(39)(b), Florida Statutes (2004),

provides:

"Termination" for a member electing to

participate under the Deferred Retirement

Option Program occurs when the Deferred

Retirement Option Program participant ceases

all employment relationships with employers

under this system in accordance with s.

121.091(13), but in the event the Deferred

Retirement Option Program participant should

be employed by any such employer within the

next calendar month, termination will b e

deemed not to have occurred, except as

provided in s. 121.091(13)(b)4.c. A leave

of absence shall constitute a continuation

of the employment relationship.

12. Section 121.021(11), Florida Statutes (2004),

provides:

"Officer or employee" means any p erson

receiving salary payments for work performed

in a regularly established position and, if

employed by a city or specific district,

employed in a covered group.

13. Florida Administrative Code Rule 60S - 1.004(4)(b),

provides:

Membership in the Florid a Retirement System

shall be compulsory if the employee is

filling a full - time or part - time regularly

established position. An employee filling a

regularly established position shall be

enrolled on the first day of employment,

even if the employee is serv ing a

probationary period, or working part - time.

A position meeting the definition below

shall be considered a regularly established

position. . . .

(b) A regularly established position in a

local agency (district school board, county

agency, community c ollege, city or special

district) is an employment position which

will be in existence beyond 6 consecutive

months.

14. The Division thus contends that the Petitioner was

filling a regularly established position with the Charter School

from the date the Charter School's FRS membership as an employer

became effective on August 24, 1998, by virtue of the agreement

entered into on July 16, 1999, between the Charter School and

the director of the Division of Retirement. It thus maintains,

that since the Pet itioner continued employment with the Charter

School before and after the Petitioner's termination date and

end of DROP participation on June 9, 1999, that, in effect, by

virtue of the agreement entered into between the Charter School

and the Division on J uly 16, 1999, that the Petitioner

effectively was an employee continuing to work for an FRS

employer, in a regularly established position, during the first

calendar month (July 1999) after her resignation and termination

of DROP participation. It thus con tends that she never effected

her retirement, her retirement was null, and that she must

reimburse the Division with all retirement contributions and

DROP accumulations previously credited to her.

15. The Petitioner presented differing versions of her

pa y, status, and work duties with the Charter School apparently,

in essence, maintaining she was an independent contractor and

not a regularly established employee in a regularly established

employment position. However, even if she were in a regularly

esta blished and compensated employment position with the Charter

School (as an FRS employer,) that determination is not

dispositive of the ultimate dispute between the parties

concerning the Petitioner's true retirement status, including

the issue of whether o r not she must reimburse the Division for

retirement benefits and DROP accumulations received.

16. In fact, the Petitioner, in reliance on her legal

status as an FRS employee of the Alachua County School Board on

August 1, 1998, submitted her resignation (post - dated) necessary

to beginning on that day her participation in the DROP program.

Neither at that time, nor at the time of her resignation from

school board employment and termination in participation of the

DROP program, on June 9, 1999, was the Ch arter School an FRS

employer or member of the FRS system. That membership was

enacted pursuant to the agreement entered between the FRS

Division, or the Division director, and the Charter School

entity on July 16, 1999, over one month after the Petitioner had

resigned her employment with the Alachua County School System

and terminated her participation in the DROP program, under the

agreement which arose when she entered the DROP program and

elected retirement status on August 1, 1998, which entitled her

t o her monthly FRS benefits and DROP accumulation.

17. When she entered that DROP/Retirement status by her

election on August 1, 1998, an agreement, a contract if you

will, arose between her and the Alachua County School District

and the Division of Retirement. That agreement or DROP

participation thus predated even the Division's conceived date

for FRS employer status for the Charter School. She relied on

that agreement and that legal arrangement, established by the

above - cited legal authority, in entering her retired/DROP

participation status and in terminating that status on June 9,

1999, in anticipation of receiving her retirement benefits and

DROP accumulation.

18. She relied on that effective agreement to her

detriment. The execution o f the agreement between the FRS and

its Division director and the Charter School on July 16, 1999,

by its relating back to a prior effective date of August 24,

1998, would under the Division's theory, allow a change in the

Petitioner's status, render her t o be still employed with an

"FRS employer" within one calendar month of her resignation from

the Alachua County School Board, thus abrogating her retirement,

abrogating her drop accumulation benefits, and effectively

requiring her to reimburse monies becau se under the legal theory

she had never retired. Such an eventuality would amount to the

abrogation and impairment of a pre - existing agreement which

arose between the Alachua County School District, the

Petitioner, and the FRS. Under that lawful arrangem ent the

Petitioner's status as retired and entitled to her benefits and

her DROP accumulations upon termination had occurred well before

the agreement was entered into rendering the Charter School be

an FRS employer and member of the FRS system, regardless of

whether it related back to its effective date of August 24,

1998. Such an impairment of the preexisting obligation or

contractual relationship, or abrogation of it, is simply

unlawful, whether one considers it so under the theory of the

prohibition ag ainst impairment of a pre - existing contractual

agreement or whether one considers that the FRS is estopped to

deny the status she attained when she entered DROP on August 1,

1998, or when she terminated on June 9, 1999, before the

agreement between the Cha rter School and the FRS was ever

entered into. In any event, the Petitioner should be deemed to

be lawfully retired, to be lawfully entitled to her retirement

benefits and her DROP accumulation and to owe no reimbursement

to the FRS.

RECOMMENDATION

Having considered the foregoing findings of fact,

conclusions of law, the evidence of record, the candor and

demeanor of the witnesses and the pleadings and arguments of the

parties, it is, therefore,

RECOMMENDED: That a final order be entered by t he

Department of Management Services, Division of Retirement,

determining that the Petitioner's retirement was effective and

lawful, that she was entitled to the retirement benefits accrued

and paid from June 9, 1999, forward, including the DROP

accumulati ons that accrued up from August 1, 1998, until that

date.

DONE AND ENTERED this 3rd day of March, 2006, in

Tallahassee, Leon County, Florida.

S

P. MICHAEL RUFF

Administrative Law Judge

Division of Administrative Hearin gs

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675 SUNCOM 278 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 3rd day of March, 2006.

C OPIES FURNISHED :

Sarabeth Snuggs, Director

Division of Retirement

Department of Management Services

Post Office Box 9000

Tallahassee, Florida 32399 - 0950

Alberto Dominguez, General Counsel

Division of Retirement

Department of Management Services

Post Off ice Box 9000

Tallahassee, Florida 32399 - 0950

Verna M. Johnson

3432 Northwest 52nd Avenue

Gainesville, Florida 32605

Thomas E. Wright, Esquire

Department of Management Services

4050 Esplanade Way, Suite 160

Tallahassee, Florida 32399 - 0950

NOTICE OF RIG HT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the final order in this case.