16-005326 Willie James 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

WILLIE JAMES,

Petitioner ,

vs. Case No . 1 6 - 5326

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 at least six

calendar months .

PRELIMINARY STATEMENT

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

informed Petitioner by lett er 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 Inte rnal Revenue Service

regulations , and unless Petitioner or the County repa id

$474,932.62 to his Investment Account by September 30, 2016, he

must terminate employment with the County for at least six

calendar 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 - 5327, which involved a

simi lar 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.

SBA Exhibit 1 was accepted in evidence. T he County presented

the testimony of one witness. Joint Exhibits 1 - 8 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), w hich

hav e been considered in the preparation of this Recommen ded

Order.

FINDINGS OF FACT

1. The FRS is comprised 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 th e

Investment Plan. S ection 121.4501(13) charges the 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

Investm ent Plan. He switched plans in order to have ready

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 regul ations.

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 obtaine d legal representation and

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

terminated b ecause of his race and gender.

7 . Without a job or income, o n September 4 , 8, and 9,

2015, Petitioner withdrew distributions totaling $474,932.62

from his Investment Plan account.

8 . Before taking a n Investment Plan distribution, 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 elected to apply on - line. 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 ineligibl e to take a distribution.

Even though he had a pending discrimination 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 lat er review of his

distribution and seek repayment if it was determined to be

invalid.

10 . During the distribution process, members have access

to Ernst & Young planners on the MyFRS Financial Guidance Line

to answer any questions they have concerning the distribution.

Although he was aware of th i s educational resource, Petitioner

chose not to call a planner.

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

entered into a Settlement Agreement and Mutual General Release

(Settlement Agreement) to re solve the discrimination lawsuit .

Without admitting 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 cr edit re stored for the

period March 2014 through 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 w as not a party to

the agreement.

12 . Following the execution of the Settlement Agreement,

but before payment of the settlement funds, the County was

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

and the termination set aside, an in - servic e distribution had

occurred in September 2015 , and Mr. James 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 Se ttlement

Agreement confirming that Mr. James 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

employ ment with the County. This information was orally

conveyed to Petitioner'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 Petitione r 's

attorney . It read in pertinent part as follows:

[ T ] his will confirm that you advised you met

with Mr. James 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 t o the

Agreement payments and FRS disbursements.

This will also confirm that although Orange

County offered to enter into an alternate

agreement form with Mr. James (for the same

consideration) that would be acceptable to

FRS and not require repayment of F RS

disbursements, Mr. James elected to remain

bound by the terms of the current Agreement

and you advised Mr. James will make any FRS -

related payments necessary.

As we previously discussed, in the event

Mr. James does not repay sums due and owing

the FRS , Orange County will not repay such

sums on his behalf. Further, in the event

of Mr. James ' non - repayment of funds to the

FRS, we understand from Orange County that

it may be compelled by FRS to separate

Mr. James from his employment pursuant to

applic able statutory laws, rules and

regulations. In light of the serious

consequences to Mr. James 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 r equire repayment to

FRS is preferred by Mr. James , 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 conse quences if he chose 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. James would not repay funds to

the FRS , and Mr. James intended to return 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 Settlemen t 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 determined 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 ser vice 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 emp loyer after six months. 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. De p't of Trans p . v .

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

1 8 . The I nvestment P lan must be administered so as to

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

Fla. Stat. Benefit payments from the FRS that are not vali d

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] employe rs, 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 - c overed

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 distribution" 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 within 90 days of the member's

rece ipt 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 . In sum, s ection 121.591(1)(a)5. ma kes 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 prec isely 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 position of the SBA. O n

January 7, 201 0, 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. James, she neglected to advise

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

her distribution . 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

"unretired," or terminating employ ment 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

recommended and final orders. A sim ilar 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 liable for repayment of the distribu tion. 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 retirement trust fund from which t he

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. James' employment.

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

undersigned has considered the arguments raised by Petitioner.

In the Amended Pre - H earing Stipulation, he conten ds 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 virtue of the

terms of the a greement, he became "unretired" and subject to the

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

further argues that the Settlement Agreement does not address in

detail the ramifications of taking an in - service distribution of

his retirement f unds. 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 tha t 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 declared a

retiree and ineligib le 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

Administr ative 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

t his 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

Tallahassee, 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 exceptions to

this Recommended Orde r should be filed with the agency that will

render a final order in this matter.