Attorney General's Opinion
Attorney General, Richard Blumenthal
May 26, 2009
Honorable Kevin P. Johnston
Honorable Robert G. Jaekle
Auditors of Public Accounts
210 Capitol Avenue, Rooms 114-116
Hartford, CT 06106-1628
Dear Messrs. Johnston and Jaekle:
You have asked for our opinion whether the State Employees Retirement Commission may use retirement fund assets for the purpose of paying overtime to employees in the Office of the State Comptroller Retirement and Benefit Services Division to address a backlog of final audits for retired state employees.1 We conclude that the payment of overtime to Retirement Division audit unit staff from retirement fund assets in the circumstances described is permissible under state law.
When a state employee retires, a portion of the finalized amount of a member's pension is withheld pending a final audit. Any shortfall in the amount due a retiree is subject to a five percent interest rate. Conn. Gen. Stat. § 5-156e. However, as of August 2008, the pension benefits of more than 6,500 members of the retirement system had not been finalized. Approximately 1,500 of the unfinalized benefits related to the early retirement incentive program of 2003.
Our analysis begins with the provisions of the State Employees Retirement Act. Conn. Gen. Stat. § 5-155a(a) states that "[t]he general administration and responsibility for the proper operation of the state employees retirement system is vested in a single board of trustees to be known as the Connecticut State Employees
Retirement Commission." Conn. Gen. Stat. § 5-155a(c) further provides that:
[t]he Retirement Commission shall have general supervision of the operation of the retirement system, shall conduct the business and activities of the system, in accordance with this chapter and applicable law and each trustee shall be a fiduciary with respect to the retirement system and its members. In conducting the business of the system, including its oversight functions, the Retirement Commission shall act: (I) With the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; (2) in accordance with strict fiduciary standards and responsibilities; and (3) in accordance with the provisions of the general statutes and applicable collective bargaining agreements.
The fiduciary responsibilities of Commission members are addressed in Section 7, "Fiduciary Standards and Responsibilities," of the State Employees Bargaining Agent Coalition (SEBAC) 1988-94 Pension Award (“SEBAC Pension Award”). 2 According to the SEBAC Pension Award, State Employees Retirement Commission members are directed to "[d]ischarge their duties with respect to the plan solely in the interest of the participants and beneficiaries and (A) for the exclusive purpose of: (i) providing benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of administering the plan."
The expenditure of the retirement fund assets to pay overtime to reduce the backlog of unfinalized benefits appears to comply with the duty of the Retirement Commission set forth in the General Statutes and SEBAC Pension Award. The payment of overtime to clear the backlog of unfinalized pension benefits falls within the Commission’s “general supervision of the operation of the retirement system” (Section 5-155a(c)) and is for the purpose of “providing benefits to participants and their beneficiaries.” SEBAC Pension Award, Section 7. Such payments also appear to constitute “reasonable expenses of administering the plan.” SEBAC Pension Award, Section 7.
Additionally, the payment of overtime from the fund to make the final retirement audits current appears to constitute a good faith effort by the Commission to make correct and timely payments to retired state employees. The Retirement Commission, therefore, appears to be fulfilling its fiduciary responsibilities to benefit retirement plan members. "The trustee has a duty to administer the trust as a prudent person would, in light of the purposes, terms, and other circumstances of the trust." Restatement Third, Trusts (Duty of Prudence) Vol. 3, § 77 (2007). The fiduciary duties of a trustee "require the trustee to act in good faith and in a manner consistent with the purposes of the trust and the interests of the beneficiaries." Id., (Powers and Duties of Trustees) § 70 Com. d.
Based on the circumstances described, it is our opinion that the payment of overtime to Retirement Division audit unit staff from retirement fund assets to reduce the backlog in the finalization of member benefits is appropriate and permissible under state law.
Very truly yours,
1 A September 18, 2008 memo from Retirement Commission Division Counsel Helen Kemp approved the expenditure of $80,000 from the retirement fund for the payment of overtime for both 2007 and 2008.
2 SEBAC is the bargaining agent authorized by General Statutes § 5-278(1) to bargain with the state about pension and health care on behalf of state employees. SEBAC agreements also govern retirement benefits under the State Employees Retirement Act. The provisions of SEBAC I, including Section 7, were approved by the General Assembly on October 12, 1989. These provisions have not been codified.