STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ROBERT E. JAGGER, )

)

Petitioner, )

)

vs. ) CASE No. 92-3031

) DEPARTMENT OF MANAGEMENT SERVICES, ) DIVISION OF STATE EMPLOYEES' ) INSURANCE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Veronica E. Donnelly, held a formal hearing in the above styled case on July 24, 1992, in St. Petersburg, Florida.

APPEARANCES

For Petitioner: Robert E. Jagger, Esquire

557 173rd Avenue

N. Redington Beach, Florida 33708

For Respondent: John M. Carlson, Esquire

Department of Management Services

438 Carlton Building Tallahassee, Florida 32399 1550

STATEMENT OF THE ISSUES

Whether Petitioner is entitled to make additional payments to his Medical Reimbursement Account.

PRELIMINARY STATEMENT

In a letter dated April 10, 1992, the Respondent, Department of Administration n/k/a Department of Management Services, Division of State Employees' Insurance (the Department) advised Petitioner, Robert E. Jagger (Jagger) that no changes would be made to his Flexible Benefits Plan during the plan year currently in operation. Although this letter failed to advise Petitioner of his right to contest the agency decision in a Chapter 120 proceeding, he promptly requested a formal administrative hearing. The case was referred to the Division of Administrative Hearings on May 19, 1992, and was scheduled for hearing on July 24, 1992.

Prior to the taking evidence at the formal proceeding, the Hearing Officer advised the parties that Section 120.535, Florida Statutes, was in effect as the agency decision to rely on a nonrule policy to deny Petitioner pretax benefits occurred after March 1, 1992. The parties were advised about the burdens of proof in effect if the agency intended to support its decision through nonrule

policy. These cautionary instructions were given because the agency letter did not cite any rule authority as the basis for its decision to deny Petitioner's request for an amendment to his pretax benefits which are administered by the Department.

Upon receiving this information and after being advised that this proceeding could be continued so that Petitioner could challenge the nonrule policy utilized by the Department, Petitioner elected to waive this opportunity and to go forward as scheduled.

During the hearing, the Petitioner moved the petition with attachments into evidence. Seven additional exhibits were filed and received into evidence. The Petitioner testified in his own behalf. The Department presented one witness and filed copies of the rules used in the administration of the State Employees Pretax Benefits Program.

A transcript was not ordered. The opportunity to file proposed findings of fact was waived by Petitioner. A proposed recommended order was timely filed by the Department. Rulings on the proposed findings are in the Appendix to this Recommended Order.

FINDINGS OF FACT

1. At all times material to these proceedings, Petitioner Jagger was an "employee," as defined by Section 110.161(2), Florida Statutes, which made him eligible to participate in the pretax benefit program established by the Legislature and administered by the Department.

   
   

2. Petitioner participated in the medical reimbursement account portion of the pretax benefits program during the 1991 benefit year. The annual benefit election form used by the Department required a participant to place the full annual amount he or she intended to put into the medical reimbursement account on the election form. Petitioner elected to place $100.00 per month into the account for an annual total amount of $1,200.00.

   
   

3. During an open enrollment period the following year, the Department changed the term of the program from 12 months to 13 months. Consequently, a portion of the annual benefit election form relating to the medical reimbursement account was also changed. Instead of requiring an employee to enter the annual amount he or she intended to place in the medical reimbursement account for a twelve-month period, the new form mandated that the total amount for the 13-month plan year be written into the blank provided for this purpose.

   
   

4. Petitioner placed a monthly amount of $150.00 in the blank provided as opposed to a total amount of $1,950.00 for the 13-month plan year beginning December 1991.

   
   

5. Petitioner was not the only participating employee who made this error. Most of the other errors, however, were noticed and corrected by employees within the election period or during the first two salary warrants issued to employees which reflected the changes. For agencies with biweekly pay warrants, this occurred by December 27, 1991. For agencies with monthly pay warrants, this occurred by January 31, 1992. Ultimately, only thirteen participants suffered from having made this type of error.

   
   

6. The limited opportunity to correct errors was published by the Department in Division of State Employees' Insurance Memoranda 91-20 and 91-27.

   In addition to the correction process set forth in the memoranda, the Department personally notified some individuals of obvious errors.

   
   

7. Petitioner's error was not discovered during the enrollment period or his later review of two pay warrants as contemplated in the memoranda. Petitioner first became aware of the error in February 1992, when his explanation of benefits revealed he had used all of the deposit made in his medical reimbursement account for the current plan year of December 1, 1991 through December 21, 1992.

   
   

8. Once Petitioner discovered the error and the basis for the error, he notified the Department in writing and explained what had occurred.

   
   

9. The medical treatment scheduled by Petitioner during December 1991 through February 1992 is consistent with his representation that he intended to contribute $1,950.00 to the medical reimbursement program for the December 1, 1991 through December 31, 1992 plan year.

   
   

10. If medical reimbursement account statements issued by the Department in December 1991 and January 1992, had reflected what his year-to-date deposits in the new plan year were, Petitioner would have had notice by another means that the error had occurred. Instead, he received two explanation of benefits forms that showed he had used all of the funds deposited in his flexible benefits plan for 1990-1991.

    
    

11. When the Department was notified of the error made concerning Petitioner's participation amount, he was denied the opportunity to have the error corrected during the current plan year.

    
    

12. In its denial letter, the agency explained his request was denied because Memorandum 91-20 stated the agency would not make changes after the employee received two pay warrants. The Department also interpreted Section 125 of the Internal Revenue Code to mean his earlier mistake was irrevocable.

    
    

13. Section 125 of the Internal Revenue Code is silent on the question of the irrevocability of employee mistakes made during the election process.

    
    

14. The Department chose to deny Petitioner the opportunity to correct an inadvertent mistake in order to prevent any controversy with the Internal Revenue Service if the program is ever audited by that entity.

    
    

15. The use of the pay warrants as a means to detect errors in contribution amounts was ineffective in Petitioner's case because he had his pay directly deposited into two separate accounts. In addition, there were other changes to his take home pay at this time of year because his social security contributions were already made for 1991 in December but began anew in January for the 1992 tax year.

    
    

    CONCLUSIONS OF LAW

    
    

16. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter pursuant to Section 120.57(1), Florida Statutes.

    
    

17. Section 110.161, Florida Statutes, contains the State Employees Pretax Benefits Program Act. The purpose of the program, as it relates to this proceeding, is twofold. First, the program allows individual employees to establish expense reimbursement plans from their gross salaries on a pretax

    basis to pay for qualified medical care. Second, the state saves itself from having to pay the full amount of the FICA contribution usually paid by an employer to the federal government based upon an employee's gross salary.

    Instead, the state makes the FICA contribution based upon the gross salary less pretax contributions elected by the employee. As a result, both the employer and employee receive a tax savings benefit from an employee's election to participate in the program.

    
    

18. The facts presented in this case demonstrate that the Department contemplated that employees would make errors in their election forms when flexible reimbursement accounts were being created each year. In an attempt to cure such errors, the Department decided to allow corrections to occur after the election date of October 31, 1991 until the date of January 31, 1992. The allowance of such open enrollment changes was created in Division of State Employees' Insurance Memoranda 91-20 and 91-27.

    
    

19. Unfortunately, the mechanisms relied upon by the Department to reveal such mistakes were ineffective in Petitioner's case. His December 31, 1991 salary warrant was routinely different than earlier warrants because his social security contributions were already made for the year. His January 31, 1992 salary warrant was automatically deposited in two separate accounts so he did not discover the error until after the deadline.

    
    

20. Section 110.161(5), Florida Statutes, delegates the responsibility for developing rules for the pretax benefit program to the Department. All such rules, however, must be approved by a majority vote of the Administration Commission. Clearly, it was deemed necessary by the Department to have a way to correct election mistakes in order to implement the pretax benefits program. In spite of this necessity, the legislative mandate for rules that have received Commission approval was ignored and circumvented with Memoranda 91-20 and 91-27.

    
    

21. The Department's preliminary decision to prevent the correction of the Petitioner's error was designed to eliminate potential burdens on agency staff if an audit of the program is ever conducted by the Internal Revenue Service. This self serving decision ignores one of the primary purposes of the program which is to benefit the employee.

    
    

22. It is obvious that Petitioner made a mistake in his entry on the form due to the amount of his election the year before and his full use of that benefit. His medical treatment in 1992, which went into effect as if his intended contribution had been made, further confirms his unintentional error.

    
    

23. The Department's decision to cure the mistakes made by some employees on the election form and to ignore other mistakes that were not as readily apparent is arbitrary and unfair in the administration of this benefit program.

RECOMMENDATION

Based upon the foregoing, it is RECOMMENDED:

1. That Petitioner Jagger be allowed to contribute the full amount of

   $1,950.00 into his Medical Reimbursement Account for 1991-1992.

   
   

2. That any qualified medical care bills previously submitted by Petitioner be reviewed and reimbursed as if he had access to the intended contributions.

DONE and ENTERED this 21 day of August, 1992, in Tallahassee, Leon County, Florida.

VERONICA E. DONNELLY

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904)488-9675

Filed with the Clerk of the

Division of Administrative Hearings this 21 day of August, 1992.

APPENDIX

Respondent's proposed findings of fact are addressed as follows:

1. Accepted. See Conclusions of Law.

   
   

2. Accepted.

   
   

3. Accepted. See HO #1.

   
   

4. Rejected. Contrary to fact. See HO #4.

   
   

5. Accepted. See HO #7.

   
   

6. Accepted.

   
   

7. Accepted.

   
   

8. Accepted.

   
   

9. Rejected. Petitioner was not testifying in his status as the Public Defender.

   
   

10. Rejected. Irrelevant. Due process violation. Rule 22FB-1.006(13), F.A.C. never given by agency as basis for its denial. This is a clearly erroneous interpretation of this rule which does not contemplate employee mistake.

COPIES FURNISHED:

ROBERT E JAGGER 557-173RD AVE

N REDINGTON BCH FL 33708

JOHN M CARLSON ESQ SENIOR ATTORNEY

DEPT OF MANAGEMENT SERVICES

438 CARLTON BLDG TALLAHASSEE FL 32399 1550

LARRY STRONG SECRETARY

DEPT OF MANAGEMENT SERVICES 2737 CENTERVIEW DR - STE 307

TALLAHASSEE FL 32399 0950

SUSAN KIRKLAND ESQ ACTING GENERAL COUNSEL

DEPT OF MANAGEMENT SERVICES 2737 CENTERVIEW DR

TALLAHASSEE FL 32399 0950

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 92-003031

Orders for Case No: 92-003031