Retirees Denied CalSTRS Administrative Appeal Rights May Proceed Directly to Court

07.26.2019

A California Court of Appeal has determined that where CalSTRS reduces a retiree’s pension without allowing the retiree to challenge the decision in an administrative hearing, the retiree may challenge the pension adjustment by filing a Petition for Writ of Mandate (hereinafter “Petition”) in Superior Court.  (Blaser v. State Teachers’ Retirement System (Cal. Ct. App., July 19, 2019, No. H045071) 2019 WL 3002865.)  The Blaser court also held that when such a Petition is filed, CalSTRS may assert counter-claims in the same action against the retiree for pension overpayments which accrued up to three years prior to the filing of the Petition.

In two cases decided in late 2017, California Courts of Appeal held that, when collecting CalSTRS pension overpayments from a retiree pursuant to Education Code section 22008: (1) a three-year statute of limitations period applies; (2) that period begins to run when CalSTRS has actual or inquiry notice of the overpayment; (3) the “continuous accrual doctrine” applies, meaning that a new statute of limitation begins running with every new pension payment; and (4) the limitations period stops running only when CalSTRS commences an “action” (i.e. when CalSTRS files a “Statement of Issues,” the charging document which begins the CalSTRS administrative hearing process).  (Baxter v. State Teachers’ Retirement System (2017) 18 Cal.App.5th 340; Yuba City Unified School Dist. v. California State Teachers’ Retirement System (2017) 18 Cal.App.5th 648.). (See AALRR Alert, Three-year Statute of Limitations Applies to CalSTRS Overpayment Recoupment).

The Blaser decision is a successor suit to the Baxter decision, as both cases arose in the same school district and involved the same pension issue (i.e. overpayments received due to working an extra (sixth) period assignment which was incorrectly reported to STRS by the school district employer).  However, while the retirees in Baxter were identified by name in the CalSTRS audit and were therefore allowed to challenge the decision using the CalSTRS administrative hearing process, the retirees in Blaser were not named in the audit and were not able to challenge the decision using the CalSTRS administrative hearing process.

The retirees in Blaser did not contest the legitimacy of the underlying CalSTRS audit determination, but instead argued that CalSTRS’s failure to give them notice of the draft or final audit, or provide them an opportunity to challenge the audit findings that resulted in the reduction of their retirement benefits, violated their due process rights.  (Blaser, supra, *7.)  The Blaser court rejected this claim, observing that the retirees could challenge the audit and pension reductions in a writ of mandate.  (Id. at *10).  Thus the Blaser decision established that employees/retirees who are impacted by a CalSTRS audit, and who are not allowed to use the CalSTRS administrative hearing process, have the right to challenge the audit determination and/or impact on their benefits by filing a Petition in Superior Court.

The retirees also claimed CalSTRS could not recoup prior overpayments or reduce their future monthly payments (to the correct levels) because the three-year statute of limitations had run.  The Blaser court rejected this argument, reasoning that the continuous accrual theory applies to pension overpayments, meaning that a new three-year statute of limitations begins with every pension overpayment.

Accordingly, CalSTRS was permitted to reduce the retirees’ pensions to the correct level, and to pursue any claim for overpayments as to any pension payments made not more than three years before CalSTRS commenced an “action” within the meaning of Education Code section 22008(a).  Because in this case CalSTRS did not file a claim for administrative hearing, the Blaser court was left to determine when and whether CalSTRS commenced an “action” within the meaning of section 22008(a).  The Court determined that the retirees’ filing of the Petition was the date CalSTRS commenced an “action” because once litigation was filed against CalSTRS, CalSTRS could present counter-claims (for overpayments) at that time.  Therefore, the Court of Appeal held that CalSTRS could assert claims against the retirees for pension overpayments made in the three years before the date on which the Petition was filed.  (Id. at * 15.)

The Blaser court additionally considered and rejected the retirees’ contention that the continuous accrual theory should not apply because the teachers were not responsible for the miscalculation and misreporting to CalSTRS.  The Blaser court explained that while “[t]eachers clearly hold vested rights to properly calculated retirement benefits, they have no such rights, vested or otherwise, to excess payments based upon incorrect calculations.”  (Id. at *13.)

Significance:

As a practical matter, retirees who experience a pension reduction in circumstances similar to Blaser may be able to avoid repayment obligations for overpayments received more than three years before a legal action was filed.  School employers who are being audited by CalSTRS are advised to consult with legal counsel regarding the impact of Blaser.

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