REX C. BISHOP, JESSIE N. KARP, ) AND STANLEY E. ROSENBERGER, )
vs. ) CASE NO. 80-1297
Respondent. )
Pursuant to notice, hearing was held in Tallahassee, Florida, on February 6, 1981, before the Division of Administrative Hearings and its duly designated Hearing Officer, R. T. Carpenter. The parties were represented by:
For Petitioners: Ben R. Patterson, Esquire
For Respondent: Diane K. Kiesling, Esquire
Petitioners are retired State of Florida teachers who believe they are entitled to annual annuity payments equal to one percent of their final average salaries. They are receiving less than this amount and seek either retroactive and continuing adjustment in their annuity payments to the one percent level or return of the funds contributed.
The parties filed proposed findings of fact on April 20, 1981. To the extent these proposed findings have not been adopted or are inconsistent with the findings herein, they have been specifically rejected as irrelevant or not supported by the evidence.
The Respondent, State of Florida, Division of Retirement, is charged with the general administration and the responsibility for the proper operation of the retirement system, and for implementing the provisions of Chapter 238, Florida Statutes. The Division of Retirement was created in 1972, and is the trustee of the annuities savings trust fund and the pension accumulation trust
fund of which Petitioners are beneficiaries. In this capacity Respondent is successor to prior trustees, the Teachers Retirement System and the State Board of Administration.
Subsection 238.07(2)(d), Florida Statutes, provides for a teacher's retirement upon reaching the age of 50 after 25 years of service (known as Plan D). Petitioners retired in 1973 an 1974, having satisfied the requirements of Plan D and are receiving retirement allowances under this plan. The allowance consists of a pension funded by the State of Florida and an annuity funded by member contributions.
Petitioner, Rex C. Bishop, was a teacher in the Dade County Public School System from 1949 until his retirement under Plan D in 1974. At retirement on August 1, 1974, Mr. Bishop began receiving an annual retirement allowance of $5,656.40 which included an annual pension of $3,477.65 and an equal annuity of $2,178.75. The annuity was financed by the member's accumulated contributions plus accrued interest of $34,422.07, resulting in a monthly benefit of $471.37 under the option chosen by Mr. Bishop.
Petitioner, Jessie N. Karp, was a teacher in the Alachua County Public Schools from 1950 until 1969, at Lake City Community College from 1969 through 1972, and the University of Florida, Gainesville, Florida, from 1972 until her retirement in 1973 under Plan D. At retirement on July 1, 1973, Mrs. Karp began receiving an annual retirement allowance of $4,158.85 which included an annual pension of $2,676.67 and an annual annuity of $1,482.18. The annuity was financed by the member's accumulated contributions plus accrued interest of
$25,111.13, resulting in a monthly benefit of $346.58 under the option chosen by Mrs. Karp.
Petitioner, Stanley G. Rosenberger, was a member of the faculty of the University of Florida, Gainesville, Florida, from 1947 until his retirement in 1974 under Plan D. At retirement on January 1, 1975, Mr. Rosenberger began receiving an annual retirement allowance of $7,446.33 which included an annual pension of $4,708.44 and an annual annuity of $2,737.89. The annuity was financed by the member's accumulated contributions plus accrued interest of
$41,572.08, resulting in a monthly benefit of $620.53 under the option chosen by Mr. Rosenberger.
Plan D provides for a pension to be funded from monies paid by the State equal to one one-hundredth (one percent) of the average final compensation times the number of years served. Plan D also includes a variable annuity funded by the member's accumulated contributions. The total benefit or retirement allowance is not a fixed percent of average salary because the annuity is variable. However, Plan D was designed to provide an annual retirement benefit equal to approximately one-half of the average final compensation after twenty-five years of service at age fifty. This would require an annuity of one percent, which would approximately match the state funded pension. 1/
When Mr. Rosenberger, who was the only Petitioner to testify in this proceeding, elected to participate in Plan D effective in 1947, he was advised by the personnel administrators at both the Florida Agricultural Extension Service and the University of Florida that he would receive half of his average income at the retirement age of 50 after 25 years of service. This information was consistent with the goal of Plan D as established in Chapter 238, Florida Statutes.
An actuary had assisted in setting up Plan D in 1947, based on 1939 data. However, no actuary was utilized again until about 1955. By the early 1950's, it became apparent to retirement system administrators that Plan D was not obtaining the funds required for the one percent annuity. Factors contributing to annuity benefits of less than one percent included increasing average salaries, low earnings on investments, and a limitation on contribution rates.
The rate of contribution to Plan D as initially set by the actuarial firm of George Buck & Company, New York, was 9.24 percent to 13.58 percent of salary depending upon the member's age at entry into Plan D. That rate of contribution was later raised to 9.49 percent to 13.83 percent based on a legislative increase in the Survivor's Benefit Fund under Subsection 238.09(5), Florida Statutes (1957). The actuarial funding of a one percent annuity would ultimately have necessitated raising the contribution rate to between fifteen and twenty percent of salary during the years of active employment. Rather than increase contribution rates to levels considered prohibitive, retirement system administrators closed Plan D to new members on July 1, 1951.
When the annuity funding problems became apparent to administrators, various meetings were held with teachers' groups and letters were mailed to personnel officials in the state school system to advise Plan D members that they could not expect the proposed one percent annuity to be realized. However, retirement system officials did not attempt to inform individual members of the Plan D annuity shortfall since mailing addresses were not maintained.
Petitioner Rosenberger first became aware of the shortfall in 1972, when he began preparing for retirement.
Until 1957, the funds were invested by the Board of Trustees of the Teachers Retirement System. During this period, investments were limited by law to government guaranteed securities. Interest was distributed to member accounts by determining total earnings in the annuity trust fund, subtracting expenses, and distributing the remainder proportionally to each member's account. The interest credited to members' accounts from 1947 to 1957 did not exceed three percent.
After 1957, the State Board of Administration assumed responsibility for investing all state funds including retirement funds. Interest credited to member accounts increased from three percent in 1957 to seven percent in 1974. During comparable years, U.S. Treasury Note interest payments generally exceeded these annual interest credits by one to two percentage points. High grade corporate bond interest rates and new home mortgage yields were substantially higher than the interest credited to member accounts during comparable years.
The annuities Petitioners now receive are the actuarial equivalent of their accumulated contributions on the basis of the assumptions in effect at the time of their retirement in 1973 and 1974. Had Petitioners retired before an annuity rate table change in 1972, they would have received a 15 percent higher annuity with respect to their final salaries. These reduced rates resulted from changes in mortality assumptions and interest rates, and cost of living escalation mandated by the Legislature.
As a result of changes in the system and the early funding shortfalls, each Petitioner suffers a deficit in anticipated retirement benefits in excess of $1,000 annually. However, each Petitioner had the opportunity to make a lump sum contribution to the retirement trust account in order to assure a retirement allowance equal to one-half of his or her prospective average final
compensation. See Subsection 238.09(1)(f), Florida Statutes. Mr. Rosenberger specifically declined the limp sum contribution option when it was called to his attention. The remaining Petitioners were presumably aware of this provision and likewise declined.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter and the parties to this action. Petitioners are persons having substantial, material interests in determination of the proper retirement allowance due to each of them.
The Respondent is a proper party to this proceeding, both as current administrator of the retirement program at issue and as the successor agency to earlier State of Florida retirement program administrators. The Respondent, as trustee of the annuity savings trust fund and pension accumulative trust fund, stands in a fiduciary relationship to Petitioners, beneficiaries of the trust.
Petitioners allege that Respondent breached its legal duty to obtain the highest possible return on investment and was thus unable to pay the expected one percent annuity. However, Petitioners did not demonstrate negligence of inappropriate investment practices given the limitations placed on Respondent to invest in government guaranteed securities. A mere comparison of interest rates without more does not prove negligence or breach of trust in these circumstances.
Subsection 238.09(1)(a), Florida Statutes, provides in part: [T]he actuary of the retirement system shall
determine for each member the proportion of
earnable compensation which, when deducted from . . . his prospective . . . compensation
. . .. An annuity equal to one one-hundredth of his average final compensation multiplied by the number of his years of membership service in the case of each member electing to retire under the provisions of Plan D.
Respondent failed to deduct the payroll amounts required to meet the statutory goal of a one percent annuity. Although an actuary was used to set up the Plan D annuity program in 1946, no actuarial review was conducted until about 1953. The failure of Respondent to utilize an actuary as required by the above quoted provision was a breach of its duty to Petitioners and a primary cause of insufficient member contributions.
Subsection 238.09(1)(f), Florida Statutes, provides in part: In addition to the deduction from salary . . .
any member may deposit in the Annuities Savings
Trust Fund, by a single payment . . . for the purchase of an additional annuity . . . [which] shall not exceed the amount computed to provide with his prospective retirement allowance, a total retirement allowance of one-half of his prospective average final compensation. . .
The above provision indicates legislative recognition of a possible shortfall in funding the one percent annuity exclusively by payroll contributions. Thus, the one percent annuity cannot be considered a return on payroll contributions which is guaranteed by statute. Rather, it is a goal of the Teachers Retirement System Law, which includes provisions for onetime contributions to correct shortfalls.
Respondent did not personally notify Petitioner Rosenberger of deficiencies in the Plan D Annuity Program which were known to exist as early as 1951. Rather, Mr. Rosenberger learned of the shortfall some twenty years later when he made pre-retirement inquiries. Respondent's failure to properly inform this Petitioner is not excused by its failure to maintain a mailing list. However, Petitioners have not shown any lack of good faith by Respondent, nor have they demonstrated any specific damages which arose from this failure in communication.
Section 768.28, Florida Statutes, which became effective on July 1, 1974, waived the sovereign immunity of the state and its agencies for tort liability. However, there has been no waiver of sovereign immunity for breach of contract against the state or its agencies. Circuit Court of Twelfth Judicial Circuit v. Department of Natural Resources, 339 So2d 1113 (Fla. 1976).
Retirement benefits vest at the time of retirement and at the time the retiree receives his first retirement check. Arnow v. Williams, 343 So.2d 1309 (Fla. 1st DCA 1977); City of Jacksonville Beach v. State, 151 So.2d 430 (Fla. 1963). Petitioner Karp retired on July 1, 1973. Therefore, all her claims based on a tort theory are barred by sovereign immunity since Respondent's breach of duty occurred prior to her retirement.
Additionally, the tort claims of all the Petitioners are barred by the four-year statute of limitations established in Subsection 768.28(11), Florida Statutes. Petitioners ceased to be contributors to the retirement system as of the dates of their retirement in 1973 and 1974. The responsibilities which Respondent failed to discharge properly also ceased as of these dates which were more than four years prior to institution of this action.
Petitioners apparently recognize the absence of a remedy in law, and are now seeking only the return of their contributions (Petitioners' Proposed Findings of Fact and Conclusions of Law). Although this is a seemingly appropriate request, Petitioners cite no authority upon which such equitable relief can be granted.
From the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Administration, Division of Retirement,
enter a final order dismissing the Petition. 2/
DONE AND ENTERED this 12th day of May, 1981, in Tallahassee, Leon County, Florida.
R. T. CARPENTER Hearing Officer
Filed with the Clerk of the Division of Administrative Hearings this 12th day of May, 1981.
1/ A one percent annual pension plus a one percent annual annuity times 25 years service equals 50 percent (or one-half) of the member's average final compensation.
2/ This recommendation disposes of Respondent's motions to dismiss and for directed verdict.
Ben R. Patterson, Esquire Post Office Box 4289 Tallahassee, Florida 32303
Diane K. Kiesling, Esquire Department of Administration Division of Retirement Cedars Executive Center
