Could Connecticut use state employee retirement fund assets to pay audit staff overtime and clear a pension backlog?

Plain-English summary

Connecticut's state auditors asked whether the State Employees Retirement Commission could pay overtime from retirement fund assets to address a backlog of final pension audits. More than 6,500 members' benefits had not been finalized as of August 2008, and any shortfall owed to a retiree accrued five percent interest under Conn. Gen. Stat. § 5-156e.

Attorney General Richard Blumenthal concluded that the proposed overtime payments were permissible under state law in the circumstances described. Conn. Gen. Stat. § 5-155a placed administration of the retirement system with the Commission and required its trustees to act prudently, follow strict fiduciary standards, and comply with governing law and collective bargaining agreements.

The SEBAC Pension Award also directed Commission members to act solely for participants and beneficiaries, including by providing benefits and paying reasonable plan-administration expenses. The opinion treated overtime for the audit unit as a reasonable administrative expense because it would reduce the backlog, finalize benefits, and support correct and timely payments.

Currency note

This opinion was issued in 2009. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Who this opinion addressed in 2009

Retirement Commission trustees

The opinion concluded that paying audit staff overtime from plan assets fit the Commission's supervisory role and its fiduciary responsibilities in the stated circumstances. The expense served plan administration and the interests of members whose final benefits remained unresolved.

Retirement system administrators and audit staff

The opinion treated work to clear final pension audits as part of administering the plan. It tied the expense to reducing delayed benefit calculations rather than to a general state purpose unrelated to the retirement system.

State auditors and pension counsel

The conclusion depended on the Commission's statutory duties and the SEBAC Pension Award's fiduciary standards. It did not announce that every personnel cost could be charged to retirement assets.

Common questions

Q: Could Connecticut pension assets pay overtime for retirement audit staff?
A: Yes, under the circumstances described in the opinion. The AG concluded that the overtime was a reasonable expense of administering the retirement plan and helped provide benefits to participants and beneficiaries.

Q: Why did the Commission want staff to work overtime?
A: A backlog had left more than 6,500 members' pension benefits unfinalized as of August 2008. The overtime was intended to bring final audits current.

Q: What fiduciary purpose did the expense serve?
A: The opinion said it supported correct and timely payments, reduced the benefit backlog, and furthered the plan's purpose of providing benefits to members and beneficiaries.

Q: Did the opinion approve any use of retirement assets for employee compensation?
A: No. Its conclusion was limited to audit-unit overtime used to reduce the described backlog and was based on the governing statutory and pension-award duties.

Background and statutory framework

Conn. Gen. Stat. § 5-155a(a) vested general administration of the state employee retirement system in the State Employees Retirement Commission. Conn. Gen. Stat. § 5-155a(c) gave the Commission general supervision over the system and imposed prudence, fiduciary, statutory, and collective-bargaining duties.

Section 7 of the SEBAC Pension Award required Commission members to act solely in the interest of participants and beneficiaries, including for the exclusive purposes of providing benefits and paying reasonable administrative expenses. The opinion also cited the Restatement Third of Trusts for a trustee's duties of prudence, good faith, and fidelity to the trust's purposes and beneficiaries.

Citations and references

Statutes:

• Conn. Gen. Stat. § 5-156e
• Conn. Gen. Stat. § 5-155a(a)
• Conn. Gen. Stat. § 5-155a(c)
• General Statutes § 5-278(1)

Other authority:

• SEBAC 1988-94 Pension Award, Section 7
• Restatement Third, Trusts §§ 70 and 77 (2007)

Source

• Landing page: https://portal.ct.gov/AG/Opinions
• Opinion page: https://portal.ct.gov/ag/opinions/2009-formal-opinions/honorable-kevin-p-johnston-honorable-robert-g-jaekle-auditors-of-public-accounts-formal-opinion-2009

Original opinion text

Honorable Kevin P. Johnston, Honorable Robert G. Jaekle, Auditors of Public Accounts, Formal Opinion 2009-002, Attorney General State of Connecticut

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,

RICHARD BLUMENTHAL

ATTORNEY GENERAL

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.