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AGO Opinion 97018

State Employees Retirement System; Eligibility for Membership and Vesting Requirements
Opinion 97018




DATE: March 11, 1997




SUBJECT: State Employees Retirement System; Eligibility for Membership and Vesting Requirements




REQUESTED BY: James S. Cashin, Director

Public Employees Retirement Systems




WRITTEN BY: Don Stenberg, Attorney General

Fredrick F. Neid, Assistant Attorney General




This is in response to the question (issues) you have raised

regarding eligibility for membership and vesting requirements of

participants in the State Employees Retirement System. You have

related general facts describing membership in the Retirement

System and further set out certain issues arising from the facts.

Apparently, the questions you present are the "issues" you have set

forth in your request.




The FIRST issue set out is:




[W]hether this individual has a legal right to the

employer account despite the fact he has erroneously

enrolled in the system while a temporary employee and

excluding his time in the system while a temporary would

result in this person having less than five years of

participation in the system as required for vesting?




For the most part, this issue is addressed by the provisions

of the State Employees Retirement Act, Neb. Rev. Stat. §§ 84-1301

to 84-1333 (1994, Supp. 1995 and Cum. Supp. 1996). Members of the

Retirement System who terminate their employment prior to

retirement are entitled to certain termination benefits. Neb. Rev.

Stat. § 84-1321 (Cum. Supp. 1996) provides:




(1) Except as provided in section 42-1107, any

member of the retirement system who ceases to be an

employee before becoming eligible for retirement under

section 84-1317 may, upon application to the board,

receive:




(a) If not vested, a termination benefit not to

exceed the amount in his or her employee account payable

in a lump sum or an annuity with the lump-sum or first

annuity payment made at any time after termination but no

later than the sixtieth day after the end of the year in

which the member attains the age of seventy and one-half

years; or




(b) If vested, a termination benefit not to exceed

(i) the amount in his or her employee account payable in

a lump sum or an annuity with the lump-sum or first

annuity payment made at any time after termination but no

later than the sixtieth day after the end of the year in

which the member attains the age of seventy and one-half

years plus (ii) the amount of his or her employer account

payable in a lump sum or an annuity with the lump-sum or

first annuity payment made at any time after the member's

fifty-fifth birthday but no later than the sixtieth day

after the end of the year in which the member attains the

age of seventy and one-half years.




Benefits of a terminating member shall be deferred

until the application is received.




(2) At the option of the terminating member, any

lump sum of the vested portion of the employer account or

any annuity provided under subsection (1) of this section

shall commence as of the first of the month at any time

after such member attains the age of fifty-five or may be

deferred, except that no benefit shall be deferred later

than the sixtieth day after the end of the year in which

the employee has both attained at least seventy and one-

half years of age and has terminated his or her

employment with the state. Such election by the

terminating member shall be made at any time prior to the

commencement of the lump-sum or annuity payments.






(3) The vesting percentage shall be one hundred

after a total of five years of (a) participation in the

retirement system plus (b) eligibility and vesting

credit. The vesting percentage shall equal one hundred

for any disability retirement under section 84-1317.




(4) In the event that the terminating member is not

credited with one hundred percent of his or her employer

account, the remainder shall be credited to the State

Employees Retirement Fund and shall be applied to

reduction of the liability for prior service benefits

until such time as such liability is completely funded,

and thereafter the remainder shall first be used to meet

the expense charges incurred by the Public Employees

Retirement Board in connection with administering the

system and the remainder shall then be used to reduce the

state contribution which would otherwise be required to

fund future service retirement benefits.




(5) If a member ceases to be an employee due to the

termination of his or her employment by the state and a

grievance or other appeal of the termination is filed,

transactions involving forfeiture of his or her employer

account shall be suspended pending the final outcome of

the grievance or other appeal.




(Emphasis added).




Whether or not the former employee has a "legal right to the

employer account" is a determination necessarily made by the Public

Employees Retirement Board. Initially, it is necessary that the

Retirement Board make a determination based on described facts

whether contributions should be adjusted. You appear to indicate

that the terminating member is not vested in the employer account

since it is stated that, "he was erroneously enrolled in the

system. . . ." We previously pointed out in Op. Att'y Gen. No.

I97-003 (January 31, 1997) that the Retirement Board is expressly

empowered to take corrective action in situations where the

Retirement System received contributions contrary to statutory

provisions. See Neb. Rev. Stat. § 84-1305.02 (Cum. Supp. 1996).




It is doubtful that a singular administrative error in and of

itself gives rise to vested contract rights particularly in the

absence of any showing that the employee relied on the erroneous

information furnished to him. However, it is important that the

Retirement Board review its past practice and policy relating to

enrollment of employees previously employed as temporary employees.

We have previously pointed out that it is important that the Board

consider its past administrative practices in determining the legal

rights of employees to participation in a public retirement system.

The subject of contractual rights and expectations which may arise

as a consequence of prior administrative practices was addressed in

Op. Att'y Gen. No. 95065 (August 21, 1995). We refer you to the

discussion and Nebraska case authority set out in that opinion. We

believe the Retirement Board must necessarily consider its past

administrative practices relating to enrollment of employees who

were previously employed as temporary employees to determine

whether expectations protected by the law of contracts may have

been created.




The SECOND question (issues) raised is:




[Whether the members who were enrolled in the

retirement system by counting their temporary employment

towards the minimum service required to join were

enrolled prematurely? If so, should the Public Employees

Retirement Board adjust their retirement accounts and

return the contributions that were made before the

members would have been eligible to join by counting only

their permanent employment towards the minimum service

required for membership?




The issues or questions you pose necessarily require a

determination by the Retirement Board based on all facts and

circumstances of employment whether the members are participating

contrary to statutory provisions. See Neb. Rev. Stat. §§ 84-1307

and 84-1305.02 (Cum. Supp. 1996) and our response to the FIRST

question above. The second part of this issue, whether retirement

accounts should be adjusted, is an administrative determination

necessarily made by the Retirement Board. The corrective action

may be considered only upon the Board determining that contribution

amounts were received "not in accordance with statutory

provisions."




It seems to us that corrective action including adjustment of

retirement accounts is appropriately taken only after the

Retirement Board has made an administrative determination that the

retirement system previously received contribution amounts "which

for any reason are not in accordance with the statutory provisions

of the State Employees Retirement Act." In this respect, we point

out that section 84-1305.02(2) requires that the Board adopt rules

and regulations implementing the procedures for adjusting

contributions or benefit amounts. The procedures are to include

notice provided to all affected persons and the notices are

required to describe the process for disputing an adjustment of

contributions or benefits.




Sincerely yours,




DON STENBERG

Attorney General








Fredrick F. Neid

Assistant Attorney General




Approved by:








_________________________

Attorney General




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