Findings Of Fact At all material times, Respondent Sauer was licensed in Florida as an ordinary life agent working for Money-Plan International, Inc. (Money-Plan) and selling National Western Life Insurance Company (National Western) insurance and annuity contracts. From October 10, 1984, until sometime prior to the events in question, Respondent Sauer had been an agent for Northern Life Insurance Company (Northern Life). Respondent Sauer had about five years' relevant job experience at the time of the events in question. At all material times, Respondent Connell was licensed in Florida as an ordinary life agent working for Money-Plan and selling National Western insurance and annuity contracts. Respondent Connell had no significant job experience prior to his employment with Money-Plan about three months prior to the events in question. His principal employment at all material times has been as a real estate broker. During the spring of 1986, Money-Plan was soliciting employees of the Manatee County School District for the purchase of two types of National Western annuity contracts. The flexible-premium annuity contract permits periodic contributions in such amounts and at such times as the policyholder selects. The single-premium annuity contract involves only a single premium, such as in the form of a rollover from another tax-qualified retirement plan. The Manatee County School Board had approved these National Western contracts and an annuity contract offered by Northern Life for sale to Manatee County School District employees, who could pay the premiums by a payroll-deduction plan. Each client described below, except for Jack Dietrich, is a schoolteacher employed by the Manatee County School Board; Mr. Dietrich is a principal of a Manatee County elementary school. Each Respondent used the same general sales procedure. First, he would contact the client, set up an appointment, make the sales presentation, and often obtain a signed application at the end of the appointment. He would then leave the client a copy of the application and a National Western brochure. Upon delivery of the annuity contract some weeks later, the client would have a chance to review the specific provisions and, if she did not like them, reject the contract without cost or further obligation. The front side of the two-sided, one-page application requires some basic identifying information concerning the annuity contract selected and the applicant. The back side contains five disclosure paragraphs in somewhat larger print than that on the front side. The first disclosure paragraph does not apply to the annuity contracts sold by Respondents in these cases. The last disclosure paragraph reminds the policyholder to review annually the tax status of the contract. The second disclosure paragraph applies to the single-premium contract. This paragraph warns that: a) a withdrawal of more than 10% of the Cash Value during the first seven years after the contract is issued will result in the loss of 10% of the contribution and b) if the policyholder fails to use one of the approved settlement options, the contribution will earn interest at the lower Cash Value rate rather than the higher Account Balance rate. The third disclosure paragraph applies to the flexible-premium annuity contract. This paragraph provides: FLEXIBLE PREMIUM ANNUITY FORM 01-1063 If, prior to the annuity date, I withdraw my contributions in excess of the renewal contributions made during the previous twelve months or if I do not use one of the retirement benefit options under the policy for distribution of my account on the annuity date, my account will be subject to the following: (a) a charge of twenty percent (20%) will be made against my contributions during the first contract year and all contribution increases during a twelve (12) month period from the date of any increase (a contribution increase occurs when the new contribution is greater than the initial contribution plus the sum of all prior increases) unless such contributions are not withdrawn prior to the end of the seventh (7th) contract year following the year of receipt, and (b) interest will be credited on my contributions at rates applicable under the Cash Value provisions and not the Account Balance provisions. The fourth disclosure paragraph applies to both the single-premium and flexible-premium annuity contracts. This paragraph identifies two types of guaranteed interest rates. Four guaranteed annual rates, ranging from 9 1/2% for the first year after issuance of the contract to 4% after ten years, apply to the Account Balance. A single guaranteed annual rate of 4% applies to the Cash Value. The brochure describes the flexible-premium contract as having: "Stop and Go privileges: Contributions are fully flexible and nay be increased, decreased or stopped, subject to employer rules and IRS regulations." Elsewhere, the brochure states: "To avoid the surrender charge, the participant simply annuitizes the contract and elects one or more settlement options." (Emphasis supplied.) The brochure states that the policyholder is not currently taxed on the portion of her salary deducted by the employer to pay for the premium or, as to both types of contract, the interest earned by the premiums within the annuity contract. National Western offers in the brochure to calculate for any policyholder the maximum amount of salary that she may defer so as to avoid current income tax on her periodic contributions. The brochure explains how a policyholder may, subject to restrictions imposed by law, borrow her annuity funds without the loan being treated as a taxable distribution. The brochure cautions that the loan must be repaid within five years unless the proceeds are used for certain specified purposes relating to a principal residence. The brochure states in boldface: "Each participant will have an Account Balance and a Cash Value Balance." The Account Balance is defined as all of the contributions or premiums with interest from the date of receipt to the annuity starting date (of, if earlier, the death of the annuitant). The brochure explains: "The Account Balance is the amount available when the participant retires or [elects to begin receiving payments] and selects one or more of the approved settlement options." In such event, "[t]here are no charges or fees deducted from the Account Balance ..." The Cash Value for the flexible-premium contract is defined as 80% of the first-year premiums and 100% of renewal premiums with interest from the date of receipt to the date of withdrawal. If the policyholder increases the amount of her premiums in any year, the amount of the increase is treated as first-year premiums. The policyholder vests as to the remaining 20% of the first-year premiums seven years after the issuance of the contract or, if applicable, seven years after the year in which the premiums are increased. The brochure explains: The Cash Value is the amount received if the participant surrenders the contract without electing one of the approved settlement options, which are described in the next section of the brochure. The brochure offers no explanation of the provisions governing the vesting of 10% of the Cash Value of the single-premium contract. The brochure sets forth the differences in interest rates between the Account Balance and Cash Value in a clear boldface table. The table notes that the Cash Value guaranteed interest rate may be higher for the first year if a higher rate is in effect at the time of the issuance of the contract. Neither the application or the brochure mentions the interest rate applicable to policy loans. The flexible-premium annuity contract generally conforms to the above- described provisions of the application and brochure. This is the type of contract that the Respondents sold to each of the clients described below. No sample of the single-premium annuity contract was offered into evidence. This is the type of contract that Respondent Sauer sold to Mr. Dietrich, in addition to a flexible-premium contract. The flexible-premium annuity contract adds an important additional requirement for the policyholder to vest in the remaining 20% of the first-year premiums when calculating the Cash Value. The flexible-premium contract requires that the policyholder pay, in the six years following the first anniversary of the contract, sufficient additional premiums so that the accrued Cash Value, immediately before the 20% credit, equals anywhere from four to seven times the total first-year premium, depending upon the age of the policyholder when the contract is issued. In the case of a policyholder with an issue age of 57 years or less, the multiple is four. No such requirement would be applicable to a single-premium contract where the parties intend from the start that there shall be no additional premiums. More favorable to the policyholder, the flexible-premium annuity- contract provides that, after ten years, the annual interest rate on the Cash Value will be the greater of the guaranteed rate or one point less than the rate then credited to the Account Balance. Concerning policy loans, the flexible-premium annuity contract states that the policyholder may obtain a loan "using the contract as loan security." The amount borrowed may not exceed 90% of the Cash Value. Interest on the loan must be paid in advance. The rate of interest, which remains in effect for an entire contract year, is the greater of the Moody's Corporate Bond Yield Average, which is determined twice annually, or one point greater than the Cash Value interest rate in effect on the contract anniversary. The initial annual loan rate stated in the annuity contract issued to Rebecca McQuillen was 10 1/2%. Each flexible-premium annuity contract issued contains a statement of benefits. The one-page statement contains four columns showing, by Cash Value and Account Balance, the accrual of benefits if guaranteed interest rates apply or if current interest rates apply. The statement warns: "This contract may result in a loss if kept for only 3 years, assuming withdrawal values are based on guaranteed rate and not on current rate." The initial guaranteed rates were, for a contract issued on April 15, 1986, 10 1/2% on the Account Balance and 8% on the Cash Value and, for a contract issued on May 15, 1986, 10% and 7 1/2%, respectively. Respondent Connell visited Ms. McQuillen and Virginia Taylor on separate occasions in the spring of 1986 for the purpose of selling National Western annuity contracts. During these visits, Henry James Jackson, Jr. accompanied Respondent Connell and made the sales presentations to the clients as part of the training that Respondent Connell was then undergoing. Mr. Jackson is the vice-president of Money-Plan and supervisor of Respondent Sauer, who manages the Sarasota office of Money-Plan and supervises four or five agents, including, at the time, Respondent Connell. Respondent Connell signed the applications of Ms. McQuillen and Ms. Taylor, as the selling agent, in order to receive the credit for the sales. Respondent Connell earned this credit by arranging the appointments. In their applications, Ms. McQuillen projected periodic contributions totalling, on an annual basis, $2400 from her to the flexible-premium contract, and Ms. Taylor projected a total annual contribution of $2280. Respondent Connell subsequently visited Linda Rush, to whom he was referred by Ms. McQuillen. Respondent Connell himself made the sales presentation to Ms. Rush. In his meeting with Ms. Rush, Respondent Connell explained the mechanics of the flexible-premium annuity contract. He discussed the current interest rates and how they were set by market conditions. Although he did not discuss the specifics of the Account Balance versus the Cash Value, he gave Ms. Rush a copy of the application and the brochure. He also discussed generally that the annuity contract was primarily a retirement policy and that Ms. Rush would not enjoy all of its benefits, partly due to penalties, if she failed to keep it until retirement. Ms. Rush signed an application at the conclusion of their meeting. She projected a total annual contribution of $1200. Later, at Ms. McQuillen's request, Respondent Connell attended a meeting with her and a friend of hers named Mike Donaldson, who represents Northern Life. Mr. Donaldson had informed the clients of both Respondents, directly or indirectly, that his company's annuity contract was superior to those of National Western because of the latter's "two-tiered" interest rate whereby a lower rate of interest was credited to the Cash Value than the Account Balance. Respondent Connell did not perform well in the confrontation with his more experienced counterpart. Subsequently, the three above-described clients timely cancelled their contracts at no cost to themselves. In the spring of 1986, Respondent Sauer made a sales presentation to Mr. Dietrich. Mr. Dietrich's issue age was 56 years and he had owned a 15-year old tax-sheltered annuity with a surrender value of $8200. Meeting with Mr. Dietrich six times for a total of six to eight hours, Respondent Sauer discussed at length tax-sheltered annuities, as well as life insurance. The discussions involved the flexible-premium annuity contract that was purchased by all of the other clients involved in these cases, as well as a single-premium annuity contract for the $8200 rollover contribution. With regard to the flexible-premium annuity contract, Respondent Sauer discussed with Mr. Dietrich the lower interest rate used if the policyholder surrendered the contract, the penalty of 20% of the first-year premiums if the contract was surrendered in the first seven years, and the various ways that the policyholder could avoid the penalties. Respondent Sauer explained generally the similar penalties and lower interest rate applicable to a prematurely terminated single-premium annuity contract. In making the sales presentations to Mr. Dietrich, Respondent Sauer emphasized the loan options available with the these tax-sheltered annuities. Respondent Sauer stressed the small margin between the interest credited on the contract and the interest charged on a policy loan and stated that, at times, a National Western policyholder could borrow his annuity funds at a lower interest rate than he was being paid on the funds by the company. He also informed Mr. Dietrich that he did not need to pay back the loan, but could instead roll it over every five years. The loan options in the National Western annuity contracts are a major selling point and offset to some degree the so-called "two-tiered" interest rate. These tax-sheltered annuities compare favorably to other annuity contracts because the National Western policyholder does not earn a lower interest rate on that portion of the policy balance encumbered by the loan. Also, National Western has historically maintained a more favorable margin than that maintained by other companies between the loan rates charged and the interest paid on the Account Balance. At the time of the hearing, for example, the interest paid annually on the Account Balance was 9.5% and the interest charged annually on policy loans was 9.09%. Mr. Dietrich signed two applications. In the application for a flexible-premium contract, he projected a total annual contribution of $3850. In the application for a single-premium contract, he projected a rollover contribution of $8200. Respondent Sauer left Mr. Dietrich a copy of the application and the brochure. In the spring of 1986, Respondent Sauer made a sales presentation of the flexible-premium contract to Noah Frantz. Respondent Sauer explained to Mr. Frantz the different interest rates applicable to the Account Balance and the Cash Value, as well as the 20% penalty for early surrender. The sales presentation to Mr. Frantz took place shortly after the confrontation between Respondent Connell and Mr. Donaldson representing Northern Life. Respondent Sauer therefore found it necessary to inform Mr. Frantz that Respondent was familiar with the Northern Life tax-sheltered annuity because he used to sell it. Respondent Sauer emphasized the point by showing his Northern Life license to Mr. Frantz. Respondent Sauer obtained a signed application for a flexible-premium contract from Mr. Frantz, who projected a total annual contribution of $300. Respondent Sauer left Mr. Frantz a copy of the application and brochure. Subsequently, Mr. Dietrich and Mr. Frantz timely cancelled their annuity contracts at no cost to themselves. An important feature of the tax-sheltered annuities is their favorable federal income tax treatment. Within certain limits, the policyholder is able to exclude front his gross income the amount of his salary used to pay the premiums. The contributions, whether periodic or one-time, then earn tax-free interest, which is taxed when distributed later in the form of annuity payments. The Tax Equity and Fiscal Responsibility Act (TEFRA) imposes certain requirements on loans involving tax-sheltered annuities. In general, if these requirements are not satisfied, a nontaxable loan is converted into a taxable distribution. Both before and after TEFRA, however, a loan would be converted into a taxable distribution if the borrower, at the time of taking out the loan, had no intention of repaying it. An intent to roll over the loan periodically rather than repay it is evidence of a taxable distribution rather than a true loan. The use of a tax-sheltered annuity as security for a loan increases the risk that the policyholder will be forced to surrender prematurely the contract. In such event, the interest rate on the policy loan would generally be greater than the interest rate credited to the Cash Value because the loan interest rate is at least one point over the current Cash Value interest rate. The only time that a favorable margin could develop would be if, subsequent to setting the loan rate for the next year, the Cash Value rate increased by more than one point. It is more likely that a favorable margin would exist between the higher Account Balance interest rate and the loan interest rate. However, in April, 1986, the two stated rates were equal, although the effective rate charged on loans would presumably be somewhat higher because the annual interest is paid in advance at the beginning of each year. The viability of the strategy of borrowing at lower rates than are credited to the contract during the term of the loan depends upon the ability of National Western to establish and maintain a favorable margin between the Account Balance rate and the loan rate and the ability of the policyholder to retain his eligibility for the higher Account Balance rate. Neither Respondent made any material misrepresentations or omissions with respect to the flexible-premium contracts sold to Ms. McQuillen, Ms. Taylor, Ms. Rush, or Mr. Frantz. Each sales presentation gave an accurate and reasonably complete description of a somewhat complicated insurance product. Any possible material omissions in the presentation, or in the client's understanding of the material presented, were substantially cured by the application and brochure. The sales presentation to Mr. Dietrich was inaccurate with respect to Respondent Sauer's recommendation that Mr. Dietrich could, by continually rolling over loans, borrow against his contract without ever repaying the loan. By neglecting to mention the possible adverse tax consequences of such a strategy, Respondent Sauer inadvertently misled Mr. Dietrich. The sales presentation to Mr. Dietrich concerning the flexible-premium contract contained another omission. There was no mention in the application, brochure, or sales presentation of the requirement that Mr. Dietrich contribute, in the next four years, a sum equal to four times the amount of his first-year contributions in order to vest the unvested 20% of his first-year contributions when calculating his Cash Value. To the contrary, the brochure emphasized the flexibility accorded the policyholder in setting the amount of his contributions, as described in Paragraph 11 above. Although this omission occurred in all of the presentations, it had greater significance in the case of Mr. Dietrich, who planned on making- significantly greater first-year contributions than the other clients planned to make. In purchasing the flexible-premium annuity, Mr. Dietrich was obligating himself to contribute, based on his projected first-year contributions, an additional $15,400 over the next six years into what he had assumed was a flexible-premium contract.
Recommendation In view of the foregoing, it is hereby RECOMMENDED that a Final Order be entered finding Respondent Connell and Respondent Sauer not guilty and dismissing the Administrative Complaint filed against each of them. ENTERED this 30th day of November, 1988, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of November, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NOS. 88-3302, 88-3303 Treatment Accorded Petitioner's Proposed Findings 1-4. Adopted in substance. Rejected as irrelevant. Adopted. 7 & 9. Rejected as unsupported by the evidence. 8. First sentence adopted. Second and third sentences rejected as recitation of testimony. Fourth sentence rejected as unsupported by the evidence. Rejected as recitation of evidence. First sentence adopted. Second and fourth sentences rejected as unsupported by the evidence. Third sentence rejected as legal argument. & 14. Adopted in substance. & 15-16. Rejected as irrelevant, except that last eight words of first sentence of Paragraph 16 are adopted. 17 & 21. Rejected as unsupported by the evidence. Adopted. Rejected as irrelevant. Adopted in substance, except that first 16 words arerejected as unsupported by the evidence. Treatment Accorded Respondent's Proposed Findings 1-3 & 6. Adopted. 4 & 5. Rejected as subordinate. 7-11. Adopted in substance. Rejected as recitation of evidence. Adopted through word "policy." Remainder rejected asirrelevant. Last sentence rejected as subordinate. Remainder rejected as recitation of testimony. Rejected as recitation of evidence and legal argument. First sentence adopted. Remainder rejected as recitation of evidence. Rejected as irrelevant. 18-19. Rejected as recitation of evidence. 20. First two sentences adopted, except that from "and" through end of first sentence rejected as irrelevant. Last sentence rejected as not finding of fact. 21-22 & 25. Adopted in substance. 23-24. Adopted. 26. Rejected as unsupported by the evidence. 27-28. Rejected as recitation of testimony. 29-31. Adopted in substance. 30. Adopted. 32. Rejected as irrelevant through "policy." Remainder adopted in substance. 33-34. Adopted in substance, except that first sentence ofParagraph 34 is rejected as recitation of testimony. Rejected as irrelevant. Rejected as unsupported by the evidence, except that the first and tenth sentences are adopted. Adopted in substance. Rejected as irrelevant. COPIES FURNISHED: William W. Tharpe, Jr., Esquire Office of Legal Services 413-B Larson Building Tallahassee, Florida 32399-0300 Richard R. Logsdon, Esquire 1423 South Fort Harrison Avenue Clearwater, Florida 34616 Hon. William Gunter State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, Esquire General Counsel The Capitol, Plaza Level Tallahassee, Florida 32399-0300 =================================================================
The Issue Whether Petitioner is entitled to receive retroactive retiree health subsidy payments from the Florida Retirement System in addition to those already received.
Findings Of Fact The Division of Retirement (Division) is, and was at the times material to this case, the state agency charged with the responsibility of administering the Florida Retirement System (FRS). Petitioner, Olga Magnusen, was employed by Florida International University (FIU) from February 18, 1974, until her retirement. FIU is an FRS-participating employer. Thus, by reason of her employment, Petitioner was enrolled in the FRS. Mrs. Magnusen requested an estimate of her retirement benefits in September 2003. In response to this request, the Division audited Petitioner’s account and sent her an "Estimate of Retirement Benefit" for purposes of the Deferred Retirement Option Program (DROP). The benefit estimate was mailed to Petitioner’s address of record which was 11441 SW 83rd Terr, Miami, Florida 33173-3617 (Miami address). Enclosed with Petitioner’s benefit estimate was an option selection document and an informational booklet or brochure entitled "Preparing to Retire," which reads in pertinent part as follows: THE RETIREE PACKET After your name is placed on the retired payroll to begin receiving monthly benefits, we will mail you a Retiree Packet. You should receive this packet around the same time you receive your first benefit payment. If you are a DROP participant, your name will not be placed on the retired payroll until your DROP participation ends and the Division receives a properly completed DROP Termination Notification, Form DP-TERM. Retiree Packets contain the following items: -An information letter This letter summarizes your retirement information and lists the contents of your Retiree Packet. It also highlights issues of importance to you as a new retiree. * * * Health Insurance Subsidy Certification, Form HIS-1. This form is used to apply for additional payment to assist you with some of the cost of maintaining health insurance. Please refer to the 'Health Insurance Subsidy' section on page 17 for eligibility information. * * * An After You Retire Booklet This booklet contains helpful information and answer [sic] questions you might have as a new retiree. You should review and retain this booklet. If you have questions related to your FRS benefit that are not addressed by this booklet, please contact the Division. * * * HEALTH INSURANCE SUBSIDY (HIS) The HIS is additional money available to eligible FRS retirees to help offset some of the cost of maintaining health insurance coverage. DROP participants are not eligible to receive HIS payments until after their DROP participation ends. . . . * * * The current subsidy is $5 per month for each year of creditable service at retirement. The minimum HIS payment is $30 per month and the maximum is $150 per month. A Health Insurance Subsidy Certification, Form HIS-1, will be included in the Retiree Packet mailed so you may apply for the HIS benefit. You will receive your packet around the time you receive your first monthly benefit payment. You must return a completed Form HIS-1 to the Division of Retirement within six months after your monthly retirement benefits start in order for the subsidy to be paid retroactive to your retirement date or, in the case of DROP retirees, to the month following your DROP termination date. If you do not return the form within this six month period, retroactive subsidy payments will be limited to a maximum of six months. You are responsible for obtaining certification of your health insurance coverage and applying for the HIS. The HIS benefit is included in your monthly FRS retirement benefit. (emphasis in original) A copy of the booklet and forms sent to Petitioner are not reflected in Petitioner’s file, as the Division does not place copies of forms or booklets sent automatically. Mrs. Magnusen completed the necessary forms to enter the DROP program and entered DROP on or about March 1, 2004. By letter dated April 14, 2004, the Division sent another letter to Mrs. Magnusen advising her of the completion of the final calculation of her monthly FRS DROP accrual for the retirement benefit option she selected. The letter provided in pertinent part: At the end of the DROP, your name will be placed on the regular retired payroll. You will receive information about withholding federal taxes from your retirement benefits, an application for the Health Insurance Subsidy and an application for the direct deposit of your monthly retirement benefit payment with the bank or financial institution of your choice. The above-referenced letter was again sent to Petitioner’s Miami address referenced in paragraph 3 above. By letter dated September 29, 2005, Petitioner notified FIU of her intention to terminate her employment effective on or about December 29, 2005. By letter dated October 20, 2005, FIU provided the Division with a copy of Petitioner’s resignation letter and requested that the Division begin processing Petitioner’s DROP termination. On October 24, 2005, the Division sent a letter with certain forms and informational material relevant to her DROP termination to Petitioner at the Miami address. The letter read in pertinent part as follows: When your name is added to the retired payroll, you will receive a 'retiree packet' that contains an information letter, 'After you Retire' booklet, W-4P 'Witholding Certificate for Pension Payments', Health Insurance Subsidy application, and Direct Deposit Authorization. The retiree packet is mailed approximately one week before you receive your first monthly benefit. By letter dated December 9, 2005, the Division acknowledged receipt of Petitioner’s DROP payout form in a letter mailed to Petitioner’s Miami address. The letter read in pertinent part as follows: After your name is added to the retired payroll, you will receive a ‘retiree packet’ that contains an information letter, 'After you Retire' booklet, W-4P 'Witholding Certificate for Pension Payments', Health Insurance Subsidy application, and Direct Deposit Authorization. The retiree packet is mailed approximately one week before you receive your first monthly benefit. In late December 2005, Mrs. Magnusen and her husband moved from Miami to 2044 Darlington Drive, The Villages, 32162 (The Villages address.) While Petitioner did not expressly testify that she notified the Division of her change of address, Mrs. Magnusen and her husband "notified people and organizations about our address change and made provisions with the Post Office to forward our mail from the old to the new address." A state warrant dated January 6, 2006, in the amount of $51,483.36, Petitioner’s net lump sum DROP payment amount, was issued and mailed to Petitioner at the Miami address. The warrant was endorsed by Petitioner for deposit on or about January 18, 2006. It is presumed, therefore, that the warrant was forwarded to The Villages address. It is the Division’s practice to send each retiree added to the system a 'retiree packet' that includes, among other things, an application for the HIS and an explanation of the subsidy, as well as a booklet containing an explanation of all of the benefits available to retirees and beneficiaries under the FRS. The process of sending out retiree packets is automated, so that a packet is sent to every retiree and beneficiary when he or she are first entered into the system. Pursuant to this automated regular practice, Petitioner's retiree packet would have been sent in late January 2006. Included in the retiree packet was an informational letter which included the following: YOUR RETIREMENT PACKET INCLUDES: 'After You Retire' Brochure-PLEASE READ FOR ADDITIONAL INFORMATION * * * Health Insurance Subsidy Certification (Form HIS-1) * * * HEALTH INSURANCE SUBSIDY (HIS): It is your responsibility to obtain certification of health insurance coverage and apply for the HIS. The HIS is money added to your retirement benefit to help pay the cost of health insurance. The member or other payee who is the spouse or financial dependent of the member may be eligible if he/she has health insurance, Medicare, or CHAMPUS. Please read the instructions on Form HIS-1. If the HIS-1 form is not received by the Division within six months, retroactive subsidy payments will be limited to a maximum of six months. (Emphasis supplied in original) Also included in the retiree packet was an informational booklet entitled "After You Retire" which reiterated that it is the retiree’s responsibility to obtain health insurance coverage and apply for this benefit, and that a retiree will not automatically receive the HIS. Ms. Shirley Beauford is a Benefits Administrator in the retired payroll section of the Division. She has worked at the Division for approximately 19 and one-half years. According to Ms. Beauford, a report is generated each month when the payroll is approved, which indicates which retirees have not participated in the HIS. Ms. Beauford reviewed the "hardcopy documentation" of the June 2006 list of retirees not receiving the HIS and saw Petitioner’s name on the list. The Division automatically sends a reminder letter about five months after the beginning of a person’s retirement benefits to those retirees who have not applied for the HIS. Because Petitioner’s name appears on the June 2006 list, Ms. Beauford is confident that Petitioner was sent the reminder, as it is the standard practice of the Division to do so. There is no evidence that the Division deviated from its standard practice. The reminder would have been sent to Petitioner’s address of record in June 2006. The record is not clear whether Petitioner’s address of record was the Miami address or The Villages address at that time. Mrs. Magnusen does not recall receiving the packet and acknowledges that the nine-month period from the summer of 2005 to March 2006 was a tumultuous time for her and her husband. They moved, were affected by two hurricanes, and were confronted with some health problems. Mrs. Magnusen also recalls making numerous phone calls during that time regarding her husband’s health insurance coverage and premiums because of some confusion regarding his coverage. Mrs. Magnusen believes these calls were made to both FIU and the Division. However, the Division does not administer health insurance coverage for retirees. Twice a year, the Division automatically distributes a newsletter to all FRS retirees and beneficiaries. The HIS was specifically referenced in articles in the July 2007, January 2008, and July 2008 newsletters, including a reminder to retirees and beneficiaries to look under the summary of benefits and deductions on their statements for a "Health Ins. Subsidy" listing. Respondent mails retired members a Statement of Benefit Payments at the end of January and July each year, and any other time the retiree’s benefit changes. The Division sent statements to Petitioner’s address of record in February 2006, June 2006, July 2006, January 2007, April 2007, July 2007, December 2007, and January 2008. None of the statements has a Health Insurance Subsidy listing under the summary of benefits and deductions section. Additionally, the Division mails retired members an annual statement in January each year. These annual statements contain a category entitled "Health Ins. Subsidy." The amount of $0.00 is reflected on Petitioner’s 2006, 2007, and 2008 annual statements under the category "Health Ins. Subsidy." In contrast, the summaries reflect specific amounts under the category "Retirement Benefit." There is no evidence of record to indicate that any of the statements or mailings of any kind from the Division to Petitioner were returned. Mrs. Magnusen called the Division on or about January 5, 2009, to inquire about changing banks for the direct deposit of her FRS payments. During this telephone conversation, the Division’s representative reminded Petitioner that she was not receiving the HIS benefit. As Petitioner’s insurance premiums were already being deducted, Petitioner’s HIS application was taken over the phone. Petitioner began receiving the $150 per month HIS benefit effective January 30, 2009 and a six-month retroactive HIS benefit of $900. On January 10, 2009, Mrs. Magnusen sent a letter to the Division requesting three years of retroactive HIS benefits retroactive to her DROP termination date. By letter dated January 16, 2009, the Division’s Director informed Petitioner that retroactive HIS benefits are limited by law to six months, citing Section 112.363(9), Florida Statutes, as authority. Petitioner sent another letter in response requesting further consideration of her request for a full retroactive HIS payment. By letter dated February 23, 2009, the Division informed Petitioner that a detailed review had been completed of her retirement account, again informed that the retroactive payments are limited to six months, and provided Petitioner with a point of entry into the administrative hearing process.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law set forth herein, it is RECOMMENDED: That Respondent enter a final order denying Mrs. Magnusen’s request for additional HIS benefits retroactive to the date of her termination of DROP. DONE AND ENTERED this 30th day of July, 2009, in Tallahassee, Leon County, Florida. S BARBARA J. STAROS Administrative Law Judge Division of Administrative Hearings 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 30th day of July, 2009.
The Issue Whether Respondent owes $1,568,399.00 or $2,323,765.60 as a penalty for failing to secure workers' compensation insurance for its employees, as required by Florida law.
Findings Of Fact Based on the evidence adduced at hearing, and the record as a whole, the following findings of fact are made to supplement and clarify the sweeping factual stipulations set forth in the parties' June 1, 2005, Joint Stipulation3: Legislative History of the "Penalty Calculation" Provisions of Section 440.107(7), Florida Statutes Since October 1, 2003, the effective date of Chapter 2003-412, Laws of Florida, Section 440.107(7)(d)1., Florida Statutes, has provided as follows: In addition to any penalty, stop-work order, or injunction, the department shall assess against any employer who has failed to secure the payment of compensation as required by this chapter a penalty equal to 1.5 times the amount the employer would have paid in premium when applying approved manual rates to the employer's payroll during periods for which it failed to secure the payment of workers' compensation required by this chapter within the preceding 3-year period or $1,000, whichever is greater. Prior to its being amended by Chapter 2003-412, Laws of Florida, Section 440.107(7), Florida Statutes, read, in pertinent part, as follows: In addition to any penalty, stop-work order, or injunction, the department shall assess against any employer, who has failed to secure the payment of compensation as required by this chapter, a penalty in the following amount: An amount equal to at least the amount that the employer would have paid or up to twice the amount the employer would have paid during periods it illegally failed to secure payment of compensation in the preceding 3-year period based on the employer's payroll during the preceding 3- year period; or One thousand dollars, whichever is greater. The Senate Staff Analysis and Economic Analysis for the senate bill that ultimately became Chapter 2003-412, Laws of Florida, contained the following explanation of the "change" the bill would make to the foregoing "penalty calculation" provisions of Section 440.107(7), Florida Statutes4: The department is required to assess an employer that fails to secure the payment of compensation an amount equal to 1.5 times, rather than 2 times, the amount the employer would have paid in the preceding three years or $1,000, which is greater. There was no mention in the staff analysis of any other "change" to these provisions. The NCCI Basic Manual The National Council on Compensation Insurance, Inc. (NCCI) is a licensed rating organization that makes rate filings in Florida on behalf of workers' compensation insurers (who are bound by these filings if the filings are approved by Florida's Office of Insurance Regulation, unless a "deviation" is permitted pursuant to Section 627.11, Florida Statutes). The NCCI publishes and submits to the Office of Insurance Regulation for approval a Basic Manual that contains standard workers' compensation premium rates for specified payroll code classifications, as well as a methodology for calculating the amount of workers' compensation insurance premiums employers may be charged. This methodology is referred to in the Basic Manual as the "Florida Workers Compensation Premium Algorithm" (Algorithm). According to the Algorithm, the first step in the premium calculating process is to determine the employer's "manual premium," which is accomplished by applying the rates set forth in the manual (or manual rates) to the employer's payroll as follows (for each payroll code classification): "(PAYROLL/100) x RATE)." Adjustments to the "manual premium" are then made, as appropriate, before a final premium is calculated. Among the factors taken into consideration in determining the extent of any such adjustments to the "manual premium" in a particular case are the employer's loss experience, deductible amounts, premium size (with employers who pay "larger premium[s]" entitled to a "Premium Discount"), and, in the case of a "policy that contains one or more contracting classifications," the wages the employer pays its employees in these classifications (with employers "paying their employees a better wage" entitled to a "Contracting Classification Premium Adjustment Program" credit). Petitioner's Construction of the "Penalty Calculation" Provisions of Section 440.107(7), Florida Statutes In discharging its responsibility under Section 440.107(7), Florida Statutes, to assess a penalty "against any employer who has failed to secure the payment of compensation as required," Petitioner has consistently construed the language in the statute, "the amount the employer would have paid," as meaning the aggregate of the "manual premiums" for each applicable payroll code classification, calculated as described in the NCCI Basic Manual. It has done so under both the pre- and post-Chapter 2003-412, Laws of Florida, versions of Section 440.107(7). This construction is incorporated in Petitioner's "Penalty Calculation Worksheet," which Florida Administrative Code Rule 69L-6.027 provides Petitioner "shall use" when "calculating penalties to be assessed against employers pursuant to Section 440.107, F.S." (Florida Administrative Code Rule 69L-6.027 first took effect on December 29, 2004.) Penalty Calculation in the Instant Case In the instant case, "1.5 times the amount the [Respondent] would have paid in premium when applying approved manual rates to [Respondent's] payroll during periods for which it failed to secure the payment of workers' compensation" equals $2,323,765.60.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner order Respondent to pay a $2,323,765.60 penalty for failing to secure workers' compensation insurance for its employees. DONE AND ENTERED this 5th day of August, 2005, in Tallahassee, Leon County, Florida. S STUART M. LERNER Administrative Law Judge Division of Administrative Hearings 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 5th day of August, 2005.
The Issue The issue presented is whether the Department's audit assessment against Petitioner for additional insurance premium tax for the tax years 1989 and 1990 is proper.
Findings Of Fact Prior to the Final Hearing, the parties agreed to numerous facts and entered into a Joint Prehearing Statement. The Hearing Officer entitles the Findings of Fact section of the Recommended Order "Agreed Facts"; however, instead of reciting the actual stipulation facts submitted by the parties, the Hearing Officer paraphrases and adds facts that were not agreed to by the parties. The "Agreed Facts" section should only recite the facts that were actually agreed to by the parties. Accordingly, the Department substitutes the Joint Prehearing Statement for the Hearing Officer's "Agreed Facts" numbers 1 through 6 as follows: Central Dade is, and at all material times was, a Medical Malpractice Self Insurance Fund as defined in Sec. 627.357, Fla. Stat. Central Dade is a trust, not a corporation. It has been in existence and operation since 1979. Its sole purpose is to provide medical malpractice insurance for its members, i.e., approximately 100 doctors in Dade County. Central Dade has no capital and is not operated for profit. It does not and cannot, absent permission from the Department of Insurance, legally pay dividends to its members; rather it is required by law to hold one hundred percent of its premium and investment income to fund medical malpractice claims and pay its operating expenses (including taxes). Central Dade's members are individually liable or assessable for any shortfall in its trust funds. Central Dade has standing to challenge Fla. Admin. Code Rule 12B- 8.001(5) because it is substantially affected by the Rule. The Department, as an agency within the Executive Branch of the government of the State of Florida, is authorized by Chapters 213 and 624, Fla. Stat., to conduct audits and make assessments of tax pursuant to Chapter 624, Fla. Stat., (Insurance Premium Tax). The Department conducted an audit of Central Dade for the audit period of 12/31/89 through 12/31/90 for Insurance Premium Tax. After the conclusion of the audit and after administrative protest of the proposed assessment by Central Dade, an assessment was issued on July 20, 1994. The assessment became a Final Assessment on July 20, 1994. Central Dade was assessed $8,996.31 tax; $899.63 penalty; and $2,346.58 interest through March 10, 1993. Central Dade paid the entire assessment and is seeking a refund of the payment through this action. Central Dade timely filed a Petition seeking to have the tax assessment declared invalid. Additionally, Central Dade filed a Petition pursuant to Sec. 120.56, Fla. Stat. challenging Fla. Admin. Code Rule 12B-8.001(5) as invalid. Upon Motion by the Parties, the cases were consolidated for Final Hearing. Medical Malpractice Self-insurance Funds became subject to the Insurance Premium Tax beginning July 1, 1989. Ch. 88-206, ss. 6, Laws of Fla. Fla. Admin. Code Rule 12B-8.001(5) became effective March 25, 1990. The parties agree the Rule was correctly promulgated and the Petitioner is only challenging the applicability of the Rule to Petitioner and the substance of the Rule. The dispute between the parties concerns whether Petitioner is entitled to the credits contained in Sec. 624.509.(4), Fla. Stat. The parties additionally stipulated to the following: If the Department prevails in this action, the Petitioner will not be entitled to any refund for the tax years 1989 and 1990. [Joint Exhibit Two] Any overpayment made by the Petitioner will be applied to subsequent tax years. 1/ If the Petitioner prevails in this action, it will be entitled to a refund of $23,774.76 for the tax years 1989 and 1990. [Joint Exhibit Two] The Department rejects the Hearing Officer's "Agreed Fact" number 7 because it is a conclusion of law and not a finding of fact. The Department rejects the Hearing Officer's "Agreed Fact" number 8 as irrelevant to this proceeding. The Department makes the following additional findings of fact based on competent and substantial testimony and evidence presented at the Final Hearing: A premium tax on "medical malpractice self-insurance [funds]" was first imposed in 1989. Effective July 1, 1989, Chapter 88-206, ss. 6, Laws of Fla., amended Sec. 627.357, Fla. Stat. to provide: 627.357 Medical malpractice self-insurance -- (9) Premiums, contributions, and assessments received by a fund are subject to s. 624.509 (1), (2), and (3), except that the tax rate shall be 1.6 percent of the gross amount of such premiums, contributions and assessments. E.S. The premium tax imposed on medical malpractice self-insurers was, pursuant to the above-quoted statute, 1.6 percent of the gross amount of the premiums, contributions and assessments. A premium tax on "dental service plan corporations" self-insurance funds was first imposed in 1989. Effective July 1, 1989, Chapter 88-206, ss. 6, Laws of Fla., amended Sec. 627.357, Fla. Stat. to provide: 637.406 Tax on premiums, contributions, and assessments. Premiums, contributions, and assessments received by a dental service plan corporation are subject to the tax imposed by s. 624.509. The premium tax imposed on dental service plan corporations in 1988 was 2 percent of the gross amount of the premiums, contributions, and assessments pursuant to Sec. 624.509(1)(a), Fla. Stat. (1989). The Legislature in the same Bill that added the amendments to Sec. 627.357 Fla. Stat., which subjected medical malpractice self-insurers to subsections (1), (2) and (3) 2/ of Sec. 624.509, Fla. Stat., 3/ and made dental service plan self-insurers subject to "s. 624.509" in its entirety also made multiple employer welfare arrangements, 4/ Commercial self-insurance funds, 5/ professional liability self-insurance, 6/ and group self-insurer funds subject to subsections (1), (2), and (3) of Sec. 624.509, Fla. Stat.; but made other insurers, such as the continuing care contracts, 7/ subject to Sec. 624.509, Fla. Stat., in its entirety. Further, all those entities which the Legislature specifically made subject to noncredit paragraphs (1), (2) and (3) of Sec. 624.509, Fla. Stat. (Supp. 1988) were given a lower 1.6 percent tax rate by the Legislature. In contrast, those entities made subject to Sec. 624.509, Fla. Stat., in its entirety, such as the dental service plan self-insurers, without a listing of the specific paragraphs, and which are clearly entitled to the credits therein, were made subject to the higher 2 percent tax rate provided in Sec. 624.509(1), Fla. Stat. (Supp. 1988). 18. Sec. 624.509(1), (2), (3), (4), and (9), Fla. Stat. (Supp. 1988), states in pertinent part: 624.509 Premium tax; rate and computation. In addition to the license taxes provided for in this chapter, each insurer shall also annually, and on or before March 1 in each year, except as to wet marine and transportation insurance taxed under s. 624.510, pay to the Department of Revenue a tax on insurance premiums, risk premiums for title insurance, or assessments, including membership fees and policy fees and gross deposits received from subscribers to reciprocal or interinsurance agreements, and on annuity premiums or considerations, received during the preceding calendar year, the amounts thereof to be determined as set forth in this section, to wit: An amount equal to 2 percent of the gross amount of such receipts on account of life and health insurance policies covering persons resident in this state and on account of all other types of policies and contracts (except annuity policies or contracts taxable under paragraph (b)) covering property, subjects, or risks located, resident, or to be performed in this state, omitting premiums on reinsurance accepted, and less return premiums or assessments, but without deductions: For reinsurance ceded to other insurers; For moneys paid upon surrender of policies or certificates for cash surrender value; For discounts or refunds for direct or prompt payment of premiums or assessments; and On account of dividends of any nature or amount paid and credited or allowed to holders of insurance policies; certificates; or surety, indemnity, reciprocal, or interinsurance contracts or agreements; and An amount equal to 1 percent of the gross receipts on annuity policies or contracts paid by holders thereof in this state. Payment by the insurer of the license taxes and premium receipts taxes provided for in this part of this chapter is a condition precedent to doing business within this state. Notwithstanding other provisions of law, the distribution of the premium tax and any penalties or interest collected thereunder shall be made to the General Revenue Fund in accordance with rules adopted by the Department of Revenue and approved by the Administration Commission. The intangible tax imposed under chapter 199, the income tax imposed under chapter 220, and the emergency excise tax imposed under chapter 221 which are paid by any insurer shall be credited against, and to the extent thereof shall discharge, the liability for tax imposed by this section for the annual period in which such tax payments are made. As to any insurer issuing policies insuring against loss or damage from the risks of fire, tornado, and certain casualty lines, the tax imposed by this section, as intended and contemplated by this subsection, shall be construed to mean the net amount of such tax remaining after there has been credited thereon such gross premium receipts tax as may be payable by such insurer in pursuance of the imposition of such tax by any incorporated cities or towns in the state for firemen's relief and pension funds and policemen's retirement funds maintained in such cities or towns, as provided in and by relevant provisions of the Florida Statutes. For purposes of this subsection, payments of estimated income tax under chapter 220 and of estimated emergency excise tax under chapter 221 shall be deemed paid either at the time the insurer actually files its annual returns under chapter 220 or at the time such returns are required to be filed, whichever first occurs, and not at such earlier time as such payments of estimated tax are actually made. (9) As used in this section "insurer" includes any entity subject to the tax imposed by this section.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered finding that the Department's assessment issued July 20, 1994, was improper and finding Petitioner entitled to a refund in the amount of $23,774.76. DONE and ORDERED this 19th day of May, 1995, at Tallahassee, Florida. LINDA M. RIGOT, 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 19th day of May, 1995. APPENDIX TO RECOMMENDED ORDER Petitioner's proposed findings of fact numbered 4, 5 and 7 have been adopted either verbatim or in substance in this Recommended Order. Petitioner's proposed findings of fact numbered 1, 3, 6, and 8 have been rejected as not constituting findings of fact. Petitioner's proposed findings of fact numbered 2, and 9-11 have been rejected as being subordinate to the issues involved herein. Respondent's proposed findings of fact numbered 1, 4, 5 and 12 have been adopted either verbatim or in substance in this Recommended Order. Respondent's proposed findings of fact numbered 3, 6-10, 13, and 15-19 have been rejected as not constituting findings of fact. Respondent's proposed finding of fact numbered 2 has been rejected as being subordinate to the issues herein. Respondent's proposed findings of fact numbered 14, 20, and 21 have been rejected as being irrelevant to the issues in this cause. Respondent's proposed findings of fact numbered 11 and 22 have been rejected as not being supported by the weight of the competent evidence in this cause. COPIES FURNISHED: Curtis H. Sitterson, Esquire Stearns, Weaver, Miller, et al. Museum Tower 150 West Flagler Street Miami, Florida 33130 Linda Lettera, General Counsel Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668 Lisa M. Raleigh, Esquire Office of the Attorney General Tax Section, The Capitol Tallahassee, Florida 32399-1050 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
Findings Of Fact Based on the testimony and documentary evidence presented at hearing, the demeanor and credibility of the witnesses, and on the entire record of this proceeding, the following findings of fact are made: Respondent is the state agency charged with the responsibility of administering the FRS, including the HIS benefit. The HIS benefit is a program authorized by Florida law. The HIS benefit is calculated at five dollars times the number of years of creditable state service at the time of retirement. Only those members of the FRS who receive monthly retirement benefits are eligible to apply for the HIS. Petitioner worked for the Duval County School Board and earned creditable state service in the FRS. In July 2004, Petitioner began his participation in the FRS Deferred Retirement Option Program (DROP). Petitioner's anticipated DROP termination date was June 30, 2009. In September 2004, Respondent mailed Petitioner an acknowledgement of receipt of his DROP application to his address of record on file with Respondent. Along with the acknowledgement of DROP application, Respondent provided Petitioner an estimate of his pension benefit and enclosed the "Preparing to Retire" brochure referenced in the estimate. The "Preparing to Retire" brochure discussed the HIS benefit and stated, in pertinent part, that: Around the time you receive your first monthly benefit payment after termination, an application for HIS, Form HIS-1, will be mailed to you. You must return a completed HIS application to the Division of Retirement within 6 months after your retirement benefit starts in order to be paid retroactive to your retirement date. If you fail to return the form within the 6- month period, retroactive subsidy payments will be limited to a maximum of 6 months. You are responsible for obtaining certification of your health insurance coverage and applying for the HIS. (Emphasis provided in the original.) In March 2009, Respondent mailed Petitioner forms, brochures and informational material relevant to his upcoming DROP termination to the address of record on file with Respondent. The cover letter advised Petitioner that: After your name is added to the retired payroll, you will receive a retiree packet that contains an information letter, After You Retire booklet, Tax Withholding Certificate for Pension Payments (Form W -4P), Health Insurance Subsidy application (Form HIS-1) and Direct Deposit Authorization form. The retiree packet is mailed approximately one week before you receive your first monthly benefit. (Emphasis provided in the original.) On or about June 9, 2009, Petitioner completed his DROP termination form and the form was received by Respondent. In July 2009, Respondent added Petitioner to the retired payroll for him to begin receiving his monthly pension benefit. In July 2009, Respondent also mailed Petitioner's retiree packet to his address of record on file with Respondent. The retiree packet contained a cover letter, an information brochure titled "After You Retire," a direct deposit authorization form, a tax withholding form, and an HIS application. The cover letter of the retiree packet included the following: YOUR RETIREMENT PACKET INCLUDES: - "After You Retire" Brochure - PLEASE READ FOR ADDITIONAL INFORMATION * * * -Health Insurance Subsidy Certification (Form HIS-1) and Instructions Page * * * HEALTH INSURANCE SUBSIDY (HIS): The HIS is extra money that is added to the monthly retirement benefit of eligible payees to help with the cost of health insurance. The member, or other payee who is the spouse or other financial dependent, may be eligible if he/she has health insurance, Medicare, or Tricare. If you are eligible to apply for the HIS, Form HIS-1 has been enclosed. It is your responsibility to obtain certification of your health insurance coverage and submit the enclosed Form HIS-1 to the Division. Please note that if Form HIS-1 is NOT received by the Division within six months of your first benefit payment, retroactive HIS benefits will be limited to a maximum of six months as long as your health insurance certification covers all six months. (Emphasis provided in the original.) The "After You Retire" brochure, included in the retiree packet, dedicates several pages to explaining the HIS benefit. It reiterates that it is the retiree's responsibility to obtain health insurance coverage, and to apply for the benefit by completing the HIS application included in the retiree packet. It is the Respondent's practice to comply with the requirements of Florida Administrative Code Rule 608-4.020, by mailing the retiree packet, which includes the HIS application, to retirees when they are placed on the retired payroll. In a separate mailing in July 2009, Respondent sent Petitioner's first monthly pension benefit check to his address of record. Petitioner has continued to receive his monthly pension benefit check from Respondent by mail uninterrupted to the date of the hearing. Within the first five months of a retiree’s being placed on the retired payroll, Respondent runs an HIS reminder listing to notify it of retirees who have not submitted their HIS applications. Respondent's practice is to send an HIS reminder letter to retirees on the HIS reminder listing to notify them that their HIS applications have not been received, encouraging them to file for the HIS benefit, and enclosing an HIS application. Petitioner was listed on Respondent's December 2009, HIS reminder listing. In January 2010, Respondent mailed Petitioner an HIS reminder letter to his address of record. The HIS reminder letter included yet another HIS application. Each January and July, Respondent mails a newsletter to retirees (FRS Retiree Newsletter). The HIS benefit is specifically referenced in articles in the July 2009, January 2010, July 2010, July 2011, and January 2012, FRS Retiree Newsletters. The articles range in substance and include information regarding a retiree's responsibility to apply for the HIS benefit; an explanation that the HIS benefit is not guaranteed; notification that the Florida Legislature can reduce or eliminate it; information about the tax consequences of the HIS benefit; notice that retirees can see whether they are receiving the HIS benefit by reviewing their annual statement; and that if they have questions they can consult their "After Your Retire" brochure, go online, or call the Retired Payroll Section. In January of each year, Respondent mails retirees who have received retirement benefits during the prior year information to assist them in preparing their tax returns. Included in the January mailing is the IRS Form 1099-R, an annual statement detailing the income payment types received (Retiree Annual Statement), and the January FRS Retiree Newsletter. The Retiree Annual Statement identifies two different types of income payments made to retirees: (1) the monthly retirement benefit, and (2) the monthly HIS benefit. The amount of HIS benefit reflected on Petitioner's 2009, 2010 and 2011 Retiree Annual Statement is $0.00. Petitioner disputes whether he received Respondent's various mailings regarding the HIS benefit. However, Petitioner does not dispute that he has received his monthly pension benefit check by mail from Respondent each month from July 2009, to present. Petitioner receives "a lot of junk mail," but he keeps a close eye out for his monthly pension benefit check. Respondent's records reflect, and Petitioner does not dispute, that his address at the time he retired was 1923 Durkee Drive West. Respondent's records reflect that Petitioner's address changed to 10836 Peaceful Harbor Drive, effective May 3, 2010. These two addresses are the only addresses where Petitioner has lived since he retired. It is incumbent upon a retiree to keep Respondent notified of any change of address. Respondent's records reflect that its mailings to Petitioner, including his monthly pension benefit check, have not been returned as undeliverable to Respondent. At some point in 2012, Petitioner called Respondent to inquire about changing his tax deduction status. During the course of that conversation, Respondent reminded Petitioner that he had not applied for and was not receiving the HIS benefit. Petitioner then submitted his HIS application to Respondent in December 2012. Petitioner began receiving his HIS benefit effective December 2012. Based on the date of receipt of Petitioner's HIS application, Petitioner was eligible for six months of retroactive HIS benefit, effective June 2012. Petitioner argues that Respondent should have communicated the requirement for him to apply for the HIS benefit by certified mail, by an active telephone call, or by notification in the envelope he receives his monthly pension benefit check. Petitioner asserts no statutory, regulatory, or other authority for this proposition. Petitioner also alleges that Respondent ultimately sent the HIS application to him by certified mail, and that it was the only certified mail he has received from Respondent. However, the record reflects that the certified mail Petitioner is referring to is Respondent's January 25, 2013, final agency action letter sent to Petitioner. Petitioner further asserts that the HIS benefit is an earned right, an entitlement, not subject to arbitrary forfeiture, and is unclaimed property under chapter 717, Florida Statutes. Again, Petitioner provides no authority for this argument.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Management Services, Division of Retirement, enter a final order denying Petitioner’s request for additional HIS benefits retroactive to his retirement date. DONE AND ENTERED this 22nd day of November, 2013, in Tallahassee, Leon County, Florida. S W. DAVID WATKINS 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 22nd day of November, 2013.
The Issue Whether the Petitioner, Edward J. Miller, is entitled to be licensed as a resident life and variable annuity insurance agent.
Findings Of Fact The Petitioner, Edward J. Miller, is employed at Washington Mutual Bank. His supervisor is Tracy Tarach. It was Ms. Tarach's desire that Mr. Miller become licensed as a resident life and variable annuity insurance agent. To that end, she and Mr. Miller filed the necessary papers with Washington Mutual Bank to approve the application process as well as the course to become licensed. The process of having the bank issue the check to cover the licensing procedure was timely. Additionally, the Petitioner could only be scheduled for the licensure class and completion of the licensing process when the bank took favorable action on the request. Accordingly, for this Petitioner the licensing process was dragged out over the course of several months. In January 2003 the Petitioner completed the state application for licensure but did not transmit it to the state. He submitted the request to the bank for course approval and planned to submit the paperwork when it was successfully completed. At that time, the Petitioner did not have any criminal charges pending against him and the answers noted on the application were all correct and truthful. In February 2003 the Petitioner was stopped for DUI. The next workday the Petitioner went to his supervisor and fully disclosed the arrest as well as the charge. The Petitioner made no effort to hide the arrest from his employer and the employer considers the Petitioner a valuable employee, despite the incident. In March 2003 the Petitioner was formally charged with DUI, a misdemeanor. Meanwhile, the bank approved the Petitioner's request to take the course for licensure. The forty-hour course in another work location required the Petitioner to travel to the school site and reside in a hotel for a week while the course work was completed. Obviously the Petitioner's supervisor was willing to invest the costs of licensure school and accommodations for the Petitioner with full knowledge of the Petitioner's pending criminal matter. After successfully completing the licensure course in April 2003 the Petitioner submitted the license application to the state. He failed to double-check the forms. He failed to correct an answer that was now incorrect. That is, he failed to fully disclose the arrest. Subsequently, the criminal case went to hearing, and the Petitioner entered a plea and was placed on probation. The resolution of the DUI charges was completed after the application was submitted. Section 3 of the license application asks several screening questions of applicants for licensure. Applicants are required to answer "yes" or "no", depending on the information sought. In this case, it is undisputed that the Petitioner failed to correct his answers to the questions posed in Section 3. More specifically, the Petitioner failed to truthfully disclose that he had been arrested for DUI. This failure was an oversight on the Petitioner's part, and not intended to deceive the Department. The answers should have been corrected when the Petitioner amended the application form to include the information regarding his completion of the Gold Coast School of Insurance class on April 11, 2003. He did not do so. When the Department reviewed the Petitioner's application and discovered the false answer, it took action to deny the licensure request. That denial was entered on January 22, 2004. A notice of the denial was provided to the Petitioner and he timely challenged the proposed action. On October 31, 2003, the Petitioner completed all of the terms of his court-ordered probation and the entire DUI incident was put to rest.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services enter a Final Order granting the Petitioner's application for licensure. DONE AND ENTERED this 30th day of July, 2004, in Tallahassee, Leon County, Florida. S ___________________________________ J. D. PARRISH Administrative Law Judge Division of Administrative Hearings 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 30th day of July, 2004. COPIES FURNISHED: Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Pete Dunbar, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Dana M. Wiehle, Esquire Department of Financial Services 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399 Edward J. Miller 6205 Northwest West Deville Circle Port St. Lucie, Florida 34986
The Issue The issue in this case is whether Respondent, Bobbie Lynn Teddlie, Jr., should be disciplined on charges that he violated various provisions of the Insurance Code in connection with the replacement of an 82-year-old's retirement investments with an annuity.
Findings Of Fact Respondent, Bobbie Lynn Teddlie, Jr., is a Florida- licensed life insurance agent, life and health insurance agent, health insurance agent, and life and health variable annuity contracts salesman. He is not licensed to sell or broker securities. There was no evidence that Respondent previously was subject to license discipline. In May 1998, while he was employed with Senior Estate Services, Respondent visited Genevieve Rathje, an 82-year-old widow and retiree, for purposes of delivering a revocable living trust prepared at her request, having it executed, and listing Rathje's assets that would be subject to the trust. Rathje's 40- year-old son, Larry, one of two beneficiaries under her estate planning arrangements, was at her home when the documents were delivered. After delivery and execution of the trust, Rathje's assets were discussed; they included an Edward Jones securities account, a COVA Financial Life Insurance Company (COVA) annuity, and a SunTrust account. Rathje mentioned that she was not happy about the market risk and fluctuations in the value of the Edward Jones account. Her son concurred. They showed Respondent some recent Edward Jones statements showing the fluctuations and some negative returns. In discussing their concerns, Respondent compared the Edward Jones account to the COVA annuity, with its guaranteed rates of return. Ultimately, Rathje and her son both stated that they preferred the annuity investment. (According to Rathje's deposition testimony, she also had been advised by an estate planning attorney to replace her Edward Jones account, which would be subject to probate on her death, with an annuity.) Respondent then presented an American Investors Life Insurance (American Investors) annuity offered by Senior Estate Services. Rathje and her son decided to liquidate and replace her investments, less approximately $30,000 for capital gains taxes and purchase of a new condominium, with an American Investors annuity. There was no evidence that Respondent misrepresented the American Investors annuity to Rathje or her son; to the contrary, there was convincing evidence that there were no misrepresentations. Nor was there any convincing evidence that Respondent made any misrepresentations to induce Rathje to liquidate her investments to purchase the American Investors annuity. To facilitate the transaction, Respondent arranged to have Rathje's Edward Jones account liquidated through Financial West Group (Financial West), a California securities broker associated with Senior Estate Services. There was no convincing evidence that Respondent made these arrangements against the wishes of Rathje and her son, or without their knowledge and approval. There was no evidence that either Rathje or her son had any complaint about the use of Financial West. Respondent also had Respondent cash in the COVA annuity, less surrender charges. The proceeds, less approximately $30,000 for capital gains taxes and the new condominium, were used to purchase an American Investors annuity. Less than 30 days later, Senior Estate Services went out of business, and Respondent obtained employment with Professional Insurance Systems. Respondent decided to replace the American Investors annuity because his commission was being held, and Respondent did not think it ever was going to be paid to him. In his new employment, Respondent was able to offer Rathje a United Life and Annuity Insurance Company (United Life) annuity, which was superior to the American Investors annuity in several respects. Since the 30-day "free look" period on the American Investors annuity had not yet expired, it was possible to replace it with a United Life annuity without any penalty or surrender charge. Respondent returned to Rathje's home with a more experienced Professional Insurance Systems agent named Phil Mednick to offer the United Life annuity and compare it to the American Investors annuity. Rathje's son was there to participate in his mother's decision, since he was a beneficiary. Respondent's presentation persuaded Rathje and her son that the United Life annuity was superior to the American Investors annuity. Arrangements were made to rescind the American Investors annuity for a full refund and replace it with a United Life annuity. (Respondent's commission on the sale of the American Investors annuity was reversed, so Respondent received no additional compensation by replacing the American Investors annuity with the United Life annuity. To the contrary, he had to split the commission on the United Life annuity with Mednick-- $4,500 each.) At Rathje's request, it was arranged for United Life to pay her monthly interest checks in the amount of $200 (according to Respondent) prior to the "Annuity Commencement Date" (July 28, 2008). There was no evidence that Respondent made any misrepresentations in comparing the two annuities. Two weeks later, Respondent and Mednick returned to Rathje's home to deliver the United Life annuity. Rathje's son, Larry, was there again. During this visit, Rathje expressed dissatisfaction with her IRA account at SunTrust. Respondent and Mednick told them about a Life USA Fixed Index Annuity. Rathje and her son agreed that it was better than the SunTrust account, and arrangements were made to liquidate the SunTrust account and replace it with a Life USA Fixed Index Annuity. Since the IRA was being rolled over, there were no tax consequences. It is not clear from the evidence how or why the complaint against Respondent was filed. Neither Rathje's son, Larry, nor anyone from the Department of Insurance testified. Rathje's deposition testimony was unclear. Apparently, when she was having her income tax return prepared in 1999, she "got a little alarmed" when her "tax man" told her she had no money "in there" (presumably the Edward Jones account). This apparently led to a Department of Insurance inquiry into Respondent's role in these transactions and eventually to a complaint being filed by Rathje. Yet in her deposition, Rathje testified: "I didn't say [Respondent] did anything wrong. I'm not sure if he did." Asked in her deposition what she thought the problem was, Rathje answered: "I don't know. Why ask me?" Rathje also became upset when she requested $2,300 (presumably from United Life) to put new hurricane shutters on her house and, according to Rathje's deposition testimony, was told: "You're already getting $400 a month." (This statement does not make sense and never was explained by the evidence.) Apparently, one basis for the charges against Respondent was that Rathje was not made to understand that the United Life annuity was subject to its own terms regarding withdrawal of funds before the "Annuity Commencement Date," and related surrender charges. But the greater weight of the evidence was that Respondent explained all of this to both Rathje and her son. In addition, it was clearly explained in the annuity documents themselves. It was not proven that Respondent misled Rathje and her son with respect to withdrawal of funds and surrender charges under the United Life annuity. The other basis for the charges against Respondent was the Department's assertion that the liquidation of the Edward Jones account and COVA annuity and their replacement with the United Life annuity patently was to Rathje's financial detriment. (Respondent presented some evidence that the United Life annuity was better than the American Investors annuity, but the Department presented no evidence of the specifics of the American Investors annuity.) According to the March 1998 Edward Jones account statement, Rathje had assets with a total value of $171,329.56. Included in the account were several stock and bond mutual funds, taxable and non-taxable bonds, and a GNMA mortgage-backed security fund. Also reflected on the Edward Jones statement as being held outside Edward Jones was the COVA annuity. These assets are detailed in Findings 11 through 16. The Income Fund of America, Inc. and the Putnam Growth and Income Fund were funds consisting of a mix of stocks and bonds. The Income Fund of America, Inc. had a value of $17,132.97, an unrealized capital gain of $1,323.09, and an estimated annual yield of 4.26%. The Putnam Growth and Income Fund had a value of $15,055.70, an unrealized capital gain of $2,528.96, and an estimated annual yield of 1.59%. The Putnam High Yield Advantage Fund was a taxable bond fund with a current value of $25,928.17, an unrealized capital loss of $1,071.83, and an estimated annual yield of 9.4%. The Putnam Tax-Free Income Trust High Yield Fund was a non-taxable bond fund with a value of $28,131.57, an unrealized capital gain of $818.31, and an estimated annual tax-free yield of 4.88%. As a Class B fund, Rathje could have been assessed a sales charge on the sale of shares of this fund. There were two Van Kampen American Capital Municipal Income Funds. Both were tax-free municipal bond funds. One was a Class A fund, which charges an up-front load on the purchase of shares but no sales charge on the sale of shares; the other was a Class B, which did not charge an up-front load on the purchase of shares but imposed a charge on their sales. The Class A fund had a value of $7,314.69, and an estimated annual tax-free yield of 5.38%. The Class B fund had a value of $15,544.23 and an estimated annual tax-free yield of 4.65%. The unrealized gain or loss of the Van Kampen funds was stated as "not available," probably because the cost bases of the funds were not known. There was a municipal bond issued by the Metropolitan Sewer District of Walworth County, Wisconsin, which had current (maturity) value of $15,000, an unrealized gain of $708.75, and a tax-free yield of 6.3%. There also was a taxable corporate bond issued by the Philadelphia Electric Company with a current (maturity) value of $26,000, an unrealized capital loss of $1,007.50, and an estimated yield of 7.125%. The GNMA fund paid interest of 9.5%. It had a principal value of $1,000 but a current value of $990. The COVA annuity was a five-year fixed annuity in the amount of $10,000 with a current value of $17,814.28. It was issued on May 25, 1990, and was renewed five years later for a second five-year term. As of March 1998, it was paying 6% interest, tax-deferred; this appears to have been the interest rate for the five-year renewal period. The COVA annuity was subject to a 6% surrender charge and an interest (or market) adjustment. At the time the COVA annuity was liquidated, there was a net surrender charge of $780, after credit was given for a positive $202.08 interest adjustment. The United Life annuity ultimately purchased by Rathje also paid 6% interest, tax-deferred, but paid a 1% bonus in addition the first year. On the $120,000 annuity purchased by Rathje, the bonus was worth a total of $1,200. After the first year, interest was subject to adjustment annually but was guaranteed not to fall below 4%. Surrender charges were 10% in the first year, decreasing 1% each year until the eighth year, to 3%, where it would remain until eliminated in year 11. Contrary to the Department’s argument, it was not patently against Rathje’s financial interest to liquidate the Edward Jones investments and replace them with cash (for capital gains taxes and a new condominium) and the United Life annuity. While some of the Edward Jones investments were performing well (and arguably better than the United Life annuity) at the time, it is not clear that all of them were performing that well, and all of them were subject to market fluctuations. Two of the investments were showing unrealized capital losses in March 1998. (Even the individual bonds were subject to the market on a sale before their maturity; the return of the principal only was guaranteed if held until maturity.) It was not patently unreasonable for Rathje to resort to an annuity to reduce her exposure to losses if the market went down. It certainly was not so obvious that the transaction was contrary to Rathje’s financial interests that Respondent, who was not an expert in securities investing, should have refused to participate. Less easily explained was the decision to liquidate the COVA annuity, at a loss of $780 in net surrender charges (after credit for the interest adjustment.) Even taking into account the United Life annuity’s one-time 1% bonus, this only resulted in $174 on the $17,418.77 net surrender value of the COVA annuity on August 5, 1998, for a net loss of approximately $606 on the exchange. It would be five years before the surrender charge on the United Life annuity fell to the 6% surrender charge on the COVA annuity; by that time, the COVA renewable term would have expired, and the value of the COVA annuity could have been reinvested at no surrender charge. There was no basis in the evidence to predict the interest adjustment on the COVA annuity if liquidated later but before expiration of the renewal period. The only apparent financial reason to prefer the exchange of annuities would have been the potential for the United Life annuity to pay more than 6% (on the assumption that the COVA annuity was locked-in at 6% until expiration of the renewal period.) But there also was the potential for the United Life annuity’s interest to decrease to the guaranteed floor of 4%, and preference for such market sensitivity would have run counter to Rathje’s primary stated objective of eliminating market fluctuations. The only other logical reason for Rathje to liquidate the COVA annuity and replace it with United Life would have been to reduce the number of her investments to just one. Respondent testified that Rathje and her son indeed expressed such a desire. Although Respondent omitted this claim in his written statement to the Department (Petitioner's Exhibit 2), there was no evidence to the contrary. In the absence of any coherent complaint by Rathje or her son, Respondent's testimony is accepted as a valid explanation for Respondent's participation in the liquidation of the COVA annuity, even at a net cost of $606. As a result, not only was the evidence insufficient to prove intent to defraud or misrepresent, it also was insufficient to prove negligent analysis of the transaction and improper advice to Rathje. A fortiori, the evidence was insufficient to prove lack of fitness, incompetence or untrustworthiness.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Insurance enter a final order finding Respondent, Bobbie Lynn Teddlie, Jr., not guilty of the charges alleged in the Administrative Complaint. DONE AND ENTERED this 25th day of May, 2000, in Tallahassee, Leon County, Florida. J. LAWRENCE JOHNSTON Administrative Law Judge Division of Administrative Hearings 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 25th day of May, 2000. COPIES FURNISHED: James A. Bossart, Esquire Department of Insurance 200 East Gaines Street 612 Larson Building Tallahassee, Florida 32399-0333 Stacey L. Turmel, Esquire 412 East Madison Street, Suite 803 Tampa, Florida 33602 Bill Nelson State Treasurer and Insurance Commissioner Department of Insurance The Capitol, Plaza Level 2 Tallahassee, Florida 32399-0300 Daniel Y. Sumner, General Counsel Department of Insurance The Capitol, Lower Level 26 Tallahassee, Florida 32399-0300
The Issue The issues which developed were: Did Jackson Greene receive the coverage as asserted by the Department of Administration, and What deductions were made from Greene for the coverage, and What deductions were required for the coverage, and Did Greene owe any additional sums for the coverage?
Findings Of Fact Mr. Jackson Greene was employed by the State of Florida, Department of insurance, on October 15, 1983. When he was employed, Greene became eligible for participation in the state's health insurance plan. He applied for coverage on October 17, 1983, filling out and signing the application form, Petitioner Exhibit 1. Mr. Greene indicated he desired Family I Coverage, insuring himself and his wife, Evelyn Greene, who was not a State employee. See Petitioner Exhibit 1. Family I Coverage was provided by the State as indicated by issuance of an insurance card. Although the Greenes never had occasion to make a claim against the insurance, the insurance was in effect from the date of acceptance into the program through the date of this hearing. The State erroneously failed to deduct the correct amount for insurance premiums from Greene's salary. From November 1983 through July 1984 the State should have deducted $48.46 per month. However, the State deducted only $13.28 per month. From August through April 1986, when the error was caught and corrected, the State should have deducted $55.64/month. However, only $15.18 per month was deducted by the State. From November 1953 through July 1984 the State failed to deduct $316.62 ($48.46 - $13.28 X 9 = $316.62). From August 1984 through April 1956 the State failed to deduct $849.66 over 21 months ($55.64 - $15.18 X 21 $849.66) Over the entire term of coverage (30 months) there is a computed total due of $1,166.28 based upon Respondent's Exhibit 2.
Recommendation The State should recover $1,166.28 from Jackson Greene for underpayment of insurance premiums in 60 equal installments and any unpaid portion be deducted from moneys owed Petitioner for unused sick and annual leave if Petitioner leaves State employment. DONE and ORDERED this 9th day of January, 1987, in Tallahassee, Florida. STEPHEN F. DEAN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 9th day of January, 1987. APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-3788 The Respondent's Findings of Facts were adopted. The Petitioner's Findings of Facts are not specifically identified; however, both parties agree to the basic facts. The Petitioner's contention is that the state is barred from recovering the unpaid premiums on equitable principles. This legal argument is rejected because Petitioner has suffered no detriment except having to pay higher premiums due to repayment. This detriment is diminished by the extend repayment period recommended. COPIES FURNISHED: Jackson Greene 1303 Ocala Road, Apt. 7 Tallahassee, Florida 32304 Augustus D. Aikens, Jr., Esquire General Counsel Department of Administration 435 Carlton Building Tallahassee, Florida 32399-1550 Gilda Lambert, Secretary Department of Administration 435 Carlton Building Tallahassee, Florida 32399-1550
