16-005327 Stacy Mclean vs. State Board Of Administration Status: Closed Recommended Order on Wednesday, December 21, 2016.

Summary: By taking an in-service distribution of retirement funds, Petitioner was required to repay the distribution or terminate employment for six months.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

STACY MCLEAN,

Petitioner ,

vs. Case No . 1 6 - 532 7

STATE BOARD OF ADMINISTRATION,

Respondent ,

and

ORANGE COUNTY,

Intervenor.

_______________________________/

RECOMMENDED ORDER

D. R. Alexander, A dministrative L aw J udge of the Division

of Administrative Hearings (DOAH) , conducted a hearing in this

case in Tallahassee, Florida , on November 14, 2016 .

APPEARANCES

For Petitioner : Jerry Girley, Esquir e

The Girley Law Firm, P.A.

125 East Marks Street

Orlando, Florida 32803 - 3816

For Respondent : Brian A. Newman, Esquire

Brandice D. Dickson, Esquire

Pennington, P.A.

Post Office Box 10095

Tallahassee, Flo rida 32302 - 2095

For Intervenor: Sarah P. L. Reiner, Esquire

GrayRobinson, P.A.

301 East Pine Street , Suite 1400

Orlando, Florida 32801 - 2741

STATEMENT OF THE ISSUE

The issue is whether Petitioner took an in - service

distribution from his Investment Plan retirement account , and if

so, must either repay the distribution in full or ter minate

employment with all FRS - participating employers, including his

current employer, Orange County (County) , for six calendar

months .

PRELIMINARY STATEMENT

On August 1, 2016, the State Board of Administration (SBA)

informed Petitioner by letter that a r outine audit revealed he

had received an "in - service " distribution from his FRS

Investment Plan account while still employed by the County .

The letter stated that such a distribution is prohibited by

section 121.591, Florida Statutes, and Internal Reve nue Service

regulations , and unless Petitioner or the County repa id

$ 991,811.60 to Petitioner's Investment Account by September 30,

2016, he must terminate employment with the County for at least

six months . Petitioner timely requested a hearing, and the

matter was referred b y the SBA to DOAH to be set for hearing.

The County was later authorized to intervene in this proceeding.

By agreement of the parties, t h is case was heard on a

consolidated record with Case No. 16 - 532 6 , which involved a

similar case with another County employee. However, separate

recommended orders are being entered.

At the final hearing , Petitioner testified on his own

behalf. The SBA presented the testimony of one witness. The

County presented the testimony of one witness. Joi nt Exhibits

1 - 10 were accepted in evidence. The undersigned also granted

the SBA's request to take official recognition of the case of

Colford v. Department of Transportation , Pub. Emp. Rel. Comm.,

Case No. CS - 2011 - 0278 (Recommended Order April 21, 2011,

Final Order May 9, 2011) .

A one - volume Transcript of the hearing was prepared. The

parties timely filed p roposed r ecommended o rders (PROs) , which

hav e been considered in the preparation of this Recommended

Order.

FINDINGS OF FACT

1. The FRS is compris ed of the Pension Plan , which is a

defined benefit plan , and the Investment Plan , which is a

defined contribution plan. The Division of Retirement

administers the Pension Plan, while the SBA administers the

Investment Plan. S ection 121.4501(13) charges t he SBA with

administering the Investment Plan in compliance with the

Internal Revenue Code in order to re tain its q ualified status .

2. Until March 4 , 2014, Petitioner was a member of the

FRS Pension Plan by virtue of his employment as a Lieutenant

with the Orange County Fire Rescue D epartment . The County

participates in the FRS.

3 . Effective March 1, 2014, Petitioner used his one - time

Second Election to switch from the FRS Pension Plan to the FRS

Investment Plan. He switched plans in order to have re ady

access to his FRS retirement funds should he be terminated from

employment by the County.

4 . On March 4, 2014, Petitioner was terminated from his

employment for allegedly violating County rules and regulations.

5 . On March 10, 2014, Petitioner filed a formal grievance

seeking reinstatement and all benefits. The decision to

terminat e his employment was later upheld.

6 . After the grievance was denied, but before he took a

distribution, Petitioner obtained legal representation and

initiated a lawsuit a gainst the County on the basis that he was

terminated b ecause of his race and gender.

7 . O n June 19 and July 1, 2014, Petitioner withdrew

distributions totaling $ 991 ,8 11.60 from his Investment Plan

account.

8 . Before taking a n Investment Plan distrib ution, a member

is required to answer several questions , either on - line or by

telephone, to verify that he is eligible to take a distribution.

Petitioner requested his distributions by telephone. One

question asks if the member is "pending reemployment," a term

that means , among other things, the member is seeking

reinstatement through a pending action against his employer at

the time of the distribution. If a member answers yes, he is

ineligible to take a distribution. Even though he had a pending

disc rimination lawsuit against his employer, which could lead to

reinstatement if he prevailed , Petitioner answered no. Had he

answered the question correctly, Petitioner w ould not have been

allowed to take a distribution.

9 . The SBA does not check in real time the veracity of a

member's answers to the questions asked during the distribution

request process. Petitioner was advised by written information,

however, that the SBA might undertake a later review of his

distribution and seek repayment if it was d etermined to be

invalid.

10 . During the distribution process, i f a member has a

question regarding the distribution or other financial topics,

they are provided access to Ernst & Young planners on the MyFRS

Financial Guidance Line . Although offered tha t educational

resource, Petitioner stated he had no questions.

11 . On May 24, 2016, Petitioner and his former employer

entered into a Settlement Agreement and Mutual General Release

(Settlement Agreement) to resolve the discrimination lawsuit .

Without ad mitting liability, the County agreed , among other

things, for Petitioner to be reinstated to his former position

with all seniority, benefits, and accrued back pay effective

June 6, 2016 . He also had service credit re stored for the

period March 2014 throu gh June 2016. The Settlement Agreement

further provided that a letter of reprimand would replace the

termination notice. Petitioner was represented by an attorney

during the settlement negotiations. The SBA was not a party to

the agreement.

12 . Followi ng the execution of the Settlement Agreement,

but before payment of the settlement funds, the County was

advised by the SBA that because Mr. McLean was being reinstated

and the termination set aside, an in - service distribution had

occurred in September 201 5 , and Mr. McLean would be required to

either pay back the distribution in full or terminate employment

with the County for at least six months. The County was also

advised that a change to the language in the Settlement

Agreement confirming that Mr. McLe an had in fact been separated

from employment with the County for a period of six months would

resolve the in - service distribution issue and make it

unnecessary to rep ay the distribution or be separated from

employment with the County. This information wa s orally

conveyed by the County to Peti tioner's counsel.

1 3 . Despite this warning, Petitioner declined to modify

the Settlement Agreement. T he County reconfirmed this

information in a letter dated June 14, 2016, to Petitioner 's

attorney . It read in pe rtinent part as follows:

[ T ] his will confirm that you advised you met

with Mr. McLean and counseled him on the

potential implications of his acceptance of

the enclosed payments under the Agre e ment

(a copy of which was previously provided for

your records) , including the requirement

that he repay to the Florida Retirement

System (FRS) all sums that he previously

received as disbursements from the FRS , and

his responsibility for all penalties and tax

consequences, if any, related to the

Agreement payments an d FRS disbursements.

This will also confirm that although Orange

County offered to enter into an alternate

agreement form with Mr. McLean (for the same

consideration) that would be acceptable to

FRS and not require repayment of FRS

disbursements, Mr. McLe an elected to remain

bound by the terms of the current Agreement

and you advised Mr. McLean will make any

FRS - related payments necessary.

As we previously discussed, in the event

Mr. McLean does not repay sums due and owing

the FRS, Orange County will no t repay such

sums on his behalf. Further, in the event

of Mr. McLean's non - repayment of funds to

the FRS, we understand from Orange County

that it may be compelled by FRS to separate

Mr. McLean from his employment pursuant to

applicable statutory laws, rules and

regulations. In light of the serious

consequences to Mr. McLean of non - repayment

of the FRS funds, in an abundance of

caution, Orange County once again advises

that if an alternate form of settlement

agreement that does not require repayment to

FRS is preferred by Mr. McLean , Orange

County stands ready to execute such an

agreement in the form previously provided

for your consideration.

Jt. Ex. 8, p p . 00 01 - 000 2. This was fair warning to Petitioner

that there were serious consequences if he chos e to ignore the

SBA's concerns .

1 4 . On June 15, 2016, Petitioner's counsel replied b y

letter that the settlement checks which accompanied the County's

June 14 letter were cas hed, Mr. McLean would not repay funds to

the FRS , and Mr. McLean intended to retu rn to work with the

County . Id. at pp. 0 003 - 0 004. As of the date of the hearing,

Petitioner had not repaid the distribution, and pending the

outcome of this hearing, he has continued to work as a County

employee pursuant to the Settlement Agreement.

1 5 . Based upon an audit by t he Division of Retirement

a fter Petitioner was reinstated, which showed that Petitioner

had received a distribution , he was currently receiving FRS

contributions from his employer , and he h ad no County

termination date, the SBA de termined the distribution was

invalid .

16. On August 1, 2016, Petitioner was notified by the SBA

that his September 201 5 distributions were considered "in -

service" distributions based on reinstatement to his FRS - covered

position and service credit given for the period from March 2014

through June 2016 . He was offered the option of returning the

distributions to his account by September 30, 2016, or being

terminated by his employer , with leave to be reemployed by an

FRS - participating employer after six m onths. A copy of the

letter was also sent to the County. Petitioner declined this

option and filed an appeal.

CONCLUSIONS OF LAW

1 7 . Petitioner has the burden of proving by a

preponderance of the evidence that he is e ntitled to the relief

requested in his Petition. See , e.g. , Fla. Dep't of Trans p . v .

J.W.C. Co., Inc. , 396 So. 2d 778, 788 (Fla. 1st DCA 1981).

1 8 . The Investment Plan must be administered so as to

comply with the Internal Revenue Code. See § 121.4501(13)(a),

Fla. Stat. Benefit paymen ts from the FRS that are not valid

jeopardize the qualified status of the plan.

19. Section 121.591(1)(a)3. and 4. governs when payments

of benefits under the Investment Plan may be made. It reads as

follows:

3. The member must be terminated from all

employment with all [FRS] employers, as

provided in s. 121.021(39).

4. Benefit payments may not be made until

the member has been terminated for 3

calendar months.

See also Blaesseer v. State Bd. of Admin. , 134 So. 3d 1013, 1014

(Fla. 1st DCA 2012)( "an employee must terminate all FRS - covered

employment in order to receive a benefit " under the Investment

Plan ).

2 0 . If an Investment Plan member takes a distribution in

contravention of section 121.591(1) (a) 3. and 4., t he member has

taken an "invalid dist ribution" and must either return the

distribution or terminate employment for at least six months .

Florida Administrative Code Rule 19 - 11.003(9) implements the

statute and requires that the member or former member "repay the

entire invalid distribution wi thin 90 days of the member's

receipt of a final notification from the SBA, or in lieu of

repayment, the member must terminate employment from all

participating employers." Otherwise, the qualified status of

the Investment Plan would be in jeopardy.

2 1 . I n sum, s ection 121.591(1)(a)5. makes clear that under

the facts of this case Petitioner must: (1) repay or terminate

employment; and (2) if he fails to repay, he is subject to

section 121.122, which prohibits him from further participation

in the FRS. In this case, the SBA is doing precisely what the

law requires. The County agrees with this analysis.

2 2 . A lthough Petitioner argues otherwise, t he Colford

case, officially recognized, is strikingly similar to the

circumstances here and supports the positi on of the SBA. On

January 7, 2010, Colford , a DOT employee, was terminated from

employment for allegedly violating DOT rules and regulations.

Colford elected to grieve her dismissal pursuant to her union

contract. While the grievance was pending, d ue to financial

difficulties, Colford elected to withdraw all of her funds from

the Investment Plan. Like Mr. McLean , she neglected to advise

FRS about the pending grievance . On May 3, 2010, the

distribution was taken . A week later, her Step 3 grievance was

sustained, and DOT was ordered to reinstate her with back pay.

She was reinstated effective July 6, 2010. After a routine

audit , the SBA determined that the distribution was invalid and

offered her the option of repaying the distribution and becoming

"un retired," or terminating employment with DOT for at least six

months. Because she declined to repay the distribution, the SBA

(and DOT) concluded termination of her employment was required

by chapter 121. This determination was affirmed in both the

recom mended and final orders. A similar result is required

here.

23. The SBA contends that under section 121.091(9)(d)2.,

if Petitioner fails to repay the distribution and the County

does not terminate his employment, the County is jointly and

severally liabl e for repayment of the distribution. That

section provides that if a n FRS retiree is employed within six

calendar months of his termination date, the employee and

employer are "jointly and severally liable for reimbursement of

any benefits paid to the ret irement trust fund from which the

benefits were paid." The County asserts the statute does not

apply under the circumstances presented here. A resolution of

that issue is unnecessary, as the County represents in its PRO

that if Petitioner fails to repay the distribution, it will seek

to avoid liability by "any lawful means," including terminating

Mr. McLean's employment.

2 4 . Finally, in reaching the above conclusion s , the

undersigned has considered the arguments raised by Petitioner.

In the Pre - Heari ng Stipulation, he contends the Settlement

Agreement is "ambiguous" because it does not explicitly state

that he would be treated as never having been t erminated. By

operation of the terms of the agreement, however, the

termination notice was specifically replaced by a letter of

reprimand . This meant he no longer had a termination date , and

therefore he was no t eligible for a distribution. Pet itioner

also contends he was not an employee when he received the

distributions in September 2015. Again, by vir tue of the terms

of the agreement, he became "unretired" and subject to the

Investment Plan distribution rules. In his PRO, Mr. McLean

further argues that the Settlement Agreement does not address in

detail the ramifications of taking an in - service distri bution of

his retirement funds. While this may be true, before the

settlement checks were cashed, these details were explicitly

outlined in the County's letter dated June 14, 2016.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that the State Board of Administration enter a

final order dismissing the Petition for Hearing and de termining

that unless Petitioner repays the distribution to FRS within

30 days from the date of the final order , he must be decla red a

retiree and ineligible for future participation in the FRS ; any

retirement contributions received from Petitioner or the County

after his first distribution on September 4, 201 5 , must be

returned ; service credit awarded for the period from March 2014

through June 2016 must be vacated ; and Petitioner must be

immediately terminated from employment for at least six calendar

months.

DONE AND ENTERED this 21st day of December, 201 6 , in

Tallahassee, Leon County, Florida.

S

D. R. ALEXANDER

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 21st day of December, 2016.

COPIES FURNISHED :

Jerry Girley , Esquire

The Girley Law Firm, P.A.

125 East Marks Street

Orlando, Florida 32803 - 3816

(eServed)

Brian A. Newman, Esquire

Pennington, P.A.

Post Office Box 10095

T allahassee, Florida 32302 - 2095

(eServed)

Sarah P.L. Reiner, Esquire

GrayRobinson, P.A.

301 East Pine Street, Suite 1400

Orlando, Florida 32801 - 2741

(eServed)

Ash Williams, Executive Director

and Chief Investment Officer

State Board of Administration

1801 Hermitage Boulevard, Suite 100

Post Office Box 13300

Tallahassee, Florida 32317 - 3300

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

1 5 days of the date of this Recommended Order. Any exception s to

this Recommended Order should be filed with the agency that will

render a final order in this matter.