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Arkansas Public Employees Retirement System paid benefits to system member for more than 7 years after death

by Michael R. Wickline | June 4, 2023 at 7:38 a.m.
FILE — The state Capitol is shown in this undated file photo.

The Arkansas Public Employees Retirement System continued to pay retirement benefits to a system member for more than seven years after the member's death, resulting in ineligible payments of about $133,500, a deputy legislative auditor says.

The system has agreed to a payment plan with an individual associated with the deceased member and the terms allowed for an initial payment of $5,000 and monthly payments of $250 at 0% interest, said Deputy Legislative Auditor Tom Bullington. That will require almost 43 years for the outstanding amount to be repaid.

The system has no recourse if the payments ceased as it has no judgment from a court of law and possesses no collateral, Arkansas Legislative Audit said in a written report of its audit of the system.

The public employees retirement system is state government's second-largest retirement system with more than $10 billion in investments and more 75,000 working and retired members. The Arkansas Teacher Retirement system is state government's largest retirement system with more than $20 billion in investments and more than 100,000 working and retired members.

In accordance with state law, the public employees retirement system reported to Arkansas Legislative Audit overpayments to retirees and beneficiaries of the system totaling $471,157 for the period from July 1, 2021 through Oct. 20, 2022, Bullington said.

Overpayments of retirement benefits for one to two months by the system routinely occur as the system pays benefits at the beginning of the month, for that month, he said.

Bullington said auditors found two large and unusual overpayments of retirement benefits in their audit of the system.

In the case in which the system paid benefits to a member for more than seven years after the member's death, the member passed away Feb. 9, 2014, based on the obituary on file with the system, according to Arkansas Legislative Audit. The system was made aware of the event on July 20, 2017, and monthly payments did not cease until after Aug. 1, 2022.

In response to a question from Sen. Jimmy Hickey, R-Texarkana, system Executive Director Amy Fecher said the retirement payments were deposited "in a joint account with the member's daughter, who was receiving it."

In its written response to the audit, the system said it continues to find ways to improve its processes.

The response went on to explain the circumstances around the extended overpayment, stating that a member died out of state in 2014 and the system was not immediately notified of the member's death.

Only one of the system's death audit services reported the death to the system, but not until 2017. At that time, the agency process was for one system employee to review the death audit reports and enter the retiree's death date into the system.

"For unknown reasons, the staff member (who is no longer with APERS) assigned this duty did not enter this retiree's death date into the system," the system said in its written response to the audit.

The system now requires multiple employees to verify the information on the reports and check that the death date is correctly entered into the system.

In July of 2017, the system missed a second opportunity to identify the death when an employee received returned mail from this retiree's last known address, the system said. That employee submitted the obituary "for scanning into our system, but again, the retiree's death date was not entered in the system."

As a result of this case, the system is improving the procedure for death notification. "Rather than a manual process as it has been, APERS' new procedure will generate a notification in our system that will be processed and checked by staff when a proof of death is submitted. This will help ensure that the payment gets stopped in the system."

To recover this overpayment, the system's staff contacted the retiree's adult child and secured a repayment agreement in writing and has received timely payments to date, the system said. She also has agreed to add the system as a beneficiary in her will and on a life insurance policy.

Hickey questioned Fecher whether it's a possible to get a judgment on that.

Fecher said "we did look at that and you could say there is a case for some impropriety there, but there really wasn't enough evidence that we felt like we could come forward with a prosecution.

"We can do a civil suit, but we can't prosecute criminally," she said.

Hickey said that "with that amount [of the overpayment] I just think we probably need to consider actually seeing if there was a way we could get a judgment attached because in the end it was not supposed to happen."

Sen. Joshua Bryant, R-Rogers, asked whether state law needs to be tightened up to handle a case such as this one. Fecher said she doesn't believe so.

"This particular situation was very unique," she said.

"The member died out of state and being able to find out about out-of-state deaths ... there is no one system that we get all the complete deaths from," she said. "Now if it's in state, we work with the Department of Health and get those."

Fecher said the deceased member's daughter indicated her mother told her she would get a benefit for 10 years and "we can't prove or disprove that."

Sen. Terry Rice, R-Waldron, questioned how difficult it would be for the system to get proof that retired members are alive each year.

Fecher said "we have implemented several different procedures to try to catch anything like this in the future" with auditors getting verification.

"We started out with everyone age 80 or over [out of state] and just sending out something so they do have to say, 'Yes, we are still alive and this is our address,'" Fecher said. "People move and they don't change their address with APERS and that makes it more difficult as well."

Afterward, she said, "we will continue the verification process for in-state retirees 80 and older in [fiscal year 2024]."

Hickey suggested the system research how other states have addressed this issue.

"With the amount of money that is involved, maybe somebody out there has already thought of something we haven't," Hickey said.

In the other large overpayment of retirement benefits, Bullington said the system overpaid a member about $72,500 by not appropriately changing the benefit option in accordance with the member's application.

The member was receiving benefits from the public employees retirement system under the straight-life option, which provides a monthly annuity for the member's lifetime with no survivor benefits, Bullington said.

After retirement, the member married and, in accordance with state law, changed the retirement option to one that provides a reduced annuity to the member but allows the spouse to continue receiving benefits as a survivor beneficiary, he said.

The application for this change was received and approved by the system with an effective date of Feb. 1, 2018, according to Arkansas Legislative Audit.

But the system continued to pay monthly benefits at the increased straight-life option through July 1, 2022, which resulted in the overpayment amount.

As the member continued to receive a monthly annuity, the system will reduce the amount by $1,350 through January 2027, at which time the amount will be repaid, Bullington said.

More than three years ago, Bullington told state lawmakers the Arkansas Teacher Retirement System discovered that retirement benefits of two deceased members outside the state had not been discontinued at the time of their deaths, resulting in overpayments of more than $300,000 in one case and more than $17,000 in the other.

One death was not reported to the teacher retirement system by the member's survivors, while the notation of the other death was not correctly entered by the agency, Bullington said in February 2020, and the the teacher retirement system identified these overpayments through the implementation of new procedures.

At that time, then-teacher retirement system Executive Director Clint Rhoden said the system had contacted the FBI to investigate the case involving the overpayment of $306,686 over about 20 years.

Asked Thursday whether the teacher retirement system has ever collected that overpayment of more than $300,000, system Interim Executive Director Rod Graves said in a written statement that "Despite ATRS best efforts to collect the overpayment using civil and criminal processes, ATRS has not received a payment towards the overpayment."

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