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Estate of Wilson v. State Employees' Retirement Board

Commonwealth Court of Pennsylvania

December 20, 2017

Estate of Lynn D. Wilson by Donna Killinger, Executrix, Petitioner
State Employees' Retirement Board, Respondent

          Argued: November 15, 2017



          ANNE E. COVEY, JUDGE.

         Estate of Lynn D. Wilson (Wilson) by Donna Killinger (Claimant), Executrix (Estate) petitions this Court for review of the Pennsylvania State Employees' Retirement Board's (Board) June 28, 2016 order affirming the Pennsylvania State Employees' Retirement System's (SERS) denial of the Estate's request to effectuate Wilson's option change and pay his death benefit. The Estate presents two issues for this Court's review: (1) whether the Board erred, abused its discretion or capriciously and arbitrarily determined that Wilson's beneficiary designation was not accepted because SERS did not receive Wilson's beneficiary change until after Wilson's death; and (2) whether Wilson's retirement should vest in the Estate if the Board does not accept Wilson's beneficiary change. After review, we reverse.

         The facts as found by the Board are undisputed. Wilson became a SERS member on September 21, 1977, by virtue of his employment with the Department of Public Welfare. Wilson retired effective March 1, 1997, after electing to receive an Option 2 annuity and naming Christene Wilson, his wife, as his survivor annuitant. Electing an Option 2 annuity meant that if Wilson predeceased his designated survivor annuitant, she would receive the same monthly benefit Wilson received while he was alive. In addition, because an Option 2 annuity was elected, if Wilson's designated survivor annuitant predeceased him, Wilson's retirement benefit would cease upon his death, unless he changed his survivor annuitant designation.

         A SERS member whose designated survivor annuitant predeceases him may change his survivor benefits by filing an Application for Option Change form (SERS Application) with SERS. Wilson's wife and designated survivor annuitant, Christene Wilson, predeceased Wilson on November 27, 2011. By letter dated May 22, 2012, to Wilson, SERS explained that, because his designated survivor annuitant had died, Wilson could re-elect his retirement option and select one of several other options, including an option that would allow him to designate a different survivor annuitant. SERS' May 22, 2012 letter stated that any option change would be effective on the date SERS receives the completed SERS Application and required attachments.

         Wilson completed a SERS Application, which he signed and dated June 1, 2012. Wilson also completed a Retired Member Beneficiary Nomination form (Beneficiary Nomination), naming Diana L. Johns (Johns), his oldest daughter, as 100% principal beneficiary, and Claimant, his youngest daughter, as 100% contingent beneficiary. Wilson checked the "yes" box next to the statement that he understood that his option change election would be effective on the date SERS received his SERS Application. Wilson died on June 9, 2012. SERS received Wilson's completed SERS Application, together with the completed Beneficiary Nomination, on June 13, 2012.

         When SERS received Wilson's completed SERS Application and Beneficiary Nomination it had not yet received notice of Wilson's death, and took the necessary administrative steps to change Wilson's option in accordance with the documents. On June 26, 2012, SERS sent Wilson a letter stating that his retirement account had been recalculated in order to change his retirement option from Option 2 to Option 1 as requested. On July 10, 2012, SERS received notification of Wilson's June 9, 2012 death from Johns. By November 29, 2012 and January 18, 2013 letters to the Estate, SERS advised that it would not honor Wilson's option change because SERS received Wilson's SERS Application and Beneficiary Nomination after the date of his death and therefore determined that Wilson's death benefit was based on his original option selection, which meant that, since Wilson's designated survivor annuitant, his wife, had predeceased him, there were no monies remaining to be paid, and SERS stopped the annuity.

         By May 13, 2013 letter, the Estate's Counsel asked SERS to reconsider its decision and allow the Estate to file an appeal. By November 6, 2013 letter, SERS' Benefit Determination Division Director Debra G. Murphy responded that SERS had reviewed Wilson's file again, concluded that SERS' prior determination was correct, and explained the Estate's appeal rights. On November 23, 2013, the Estate appealed from SERS' determination. SERS' Appeals Committee (Appeals Committee) denied the Estate's request to change Wilson's retirement option in accordance with Wilson's SERS Application and Beneficiary Nomination. Claimant appealed from the Appeals Committee's determination and a hearing was held on February 25, 2015 before a Hearing Officer. On August 13, 2015, the Hearing Officer issued an Opinion and Recommendation that Claimant's request be denied. Claimant filed timely exceptions with the Board. On June 28, 2016, the Board accepted and adopted the Hearing Officer's Opinion and Recommendation, as modified[1] and denied Claimant's appeal. Claimant appealed to this Court.[2]

         Essentially, Claimant argues that because Wilson's SERS Application and Beneficiary Nomination were executed and mailed before Wilson's death, his retirement should have been changed from Option 2 to Option 1 and Johns should be designated his 100% principal beneficiary and Claimant, his 100% contingent beneficiary. We agree.

         At the outset, as the Board acknowledged, the Hearing Officer began her discussion by referring to Wilson's wife as a beneficiary, [3] rather than a survivor annuitant. The State Employees' Retirement Code (Retirement Code) defines a "survivor annuitant" as "[t]he person or persons last designated by a member under a joint and survivor annuity option to receive an annuity upon the death of such member." 71 Pa.C.S. § 5102. The Hearing Officer expounded:

A duly[-]executed retirement beneficiary nomination form cannot be superseded even by a signed nomination of beneficiaries form if that latter form has not been filed with the Board. Hess v. [] Pub. Sch. [Emps.'] Ret[.] Bd., 460 A.2d 1231, 1232 (Pa. Cmwlth. 1983). Therefore, Claimant has not sustained her burden of proof in this matter.

Hearing Officer Op. and Rec. at 10-11. Importantly, the Hearing Officer's reliance upon Hess is misplaced as that case is clearly distinguishable from the instant matter. In Hess, the decedent made oral representations that he desired to change his "beneficiary, " but in fact never completed a Beneficiary Nomination, much less filed one with the Public School Employes' Retirement Board. Here, Wilson completed and executed his SERS Application and Beneficiary Nomination, and SERS received both.

         Notwithstanding, the Board insists that it is not bound by Wilson's SERS Application and Beneficiary Nomination because SERS did not receive them before Wilson's death. The Board relies upon Section 31.11 of the General Rules of Administrative Practice and Procedure (GRAPP), [4] and Harasty v. Public School ...

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