King v. Merit Systems Protection Bd., 96-3012

• Decision Date: 24 January 1997
• Docket Number: No. 96-3012,96-3012
• Citation: 105 F.3d 635
• Parties: James B. KING, Director, Office of Personnel Management, Petitioner, v. MERIT SYSTEMS PROTECTION BOARD, Respondent.
• Court: U.S. Court of Appeals — Federal Circuit

Page 635

105 F.3d 635

James B. KING, Director, Office of Personnel Management, Petitioner, v. MERIT SYSTEMS PROTECTION BOARD, Respondent.

No. 96-3012.

United States Court of Appeals Federal Circuit.

Jan. 24, 1997.

Andrea I. Kelly, Commercial Litigation Branch, Civil Division, Department of Justice, Washington, D.C., argued, for petitioner. With her on the brief were Frank W Eric D. Flores, Office of the General Counsel, Merit Systems Protection Board, Washington, D.C., argued, for respondent. With him on the brief were Mary L. Jennings, General Counsel, and Martha B. Schneider, Assistant General Counsel.

Hunger, Assistant Attorney General, and David M. Cohen, Director. Of counsel on the brief were Lorraine Lewis, General Counsel, and Earl Sanders, Office of General Counsel, Office of Personnel Management, Washington, D.C.

Before ARCHER, Chief Judge, PLAGER, and SCHALL, Circuit Judges.

SCHALL, Circuit Judge.

Pursuant to 5 U.S.C. § 7703(d) (1988), ¹ James B. King, the Director of the Office of Personnel Management (OPM), petitions for review of the final decision of the Merit Systems Protection Board (Board) in Lary v. Office of Personnel Management, 68 M.S.P.R. 206 (1995). In its decision, the Board held that OPM was required to ensure compliance with the procedures governing administrative offsets set forth in the Debt Collection Act of 1982, Pub.L. No. 97-365, 96 Stat. 1749 (1982) (codified at scattered sections of 5 U.S.C., 26 U.S.C., and 31 U.S.C.) (DCA), before a certain sum was deducted from Jacqulyn Lary's refund of her retirement contributions and remitted to the Social Security Administration (SSA) in payment of Old Age, Survivors, and Disability Insurance (OASDI) taxes. The sum in question previously had been erroneously designated as retirement contributions by Ms. Lary's employing agency and therefore had been credited to the Civil Service Retirement and Disability Fund (Fund) instead of being remitted to SSA. We reverse.

BACKGROUND

I.

The facts are not in dispute. Ms. Lary ² was hired by the Department of the Navy (Navy) for a one-year, temporary appointment, starting on October 5, 1981. In December of 1983, she was given another temporary appointment. Subsequently, on February 16, 1984, the Navy changed her employment status to a career-conditional appointment. ³ Upon this appointment, Ms. Lary became qualified for retirement benefits. In that regard, the Navy designated her as being covered by the Civil Service Retirement System (CSRS). She worked under that designation until she resigned from federal employment on August 16, 1993.

Ms. Lary's classification as a CSRS employee for the entire term of her employment was erroneous, however. On June 6, 1986, Congress enacted the Federal Employees' Retirement System Act of 1986, Pub.L. No. 99-335, 1986 U.S.C.C.A.N. (100 Stat.) 514 (FERSA) (codified as amended at 5 U.S.C. §§ 8401-8479 (1988)). In so doing, it created the Federal Employees' Retirement System (FERS) as an alternative to the retirement benefits program existing under CSRS. Killip v. Office of Personnel Management, 991 F.2d 1564, 1565 (Fed.Cir.1993). Under FERSA, a federal employee is covered by FERS unless a specific statutory exclusion from FERS applies. See 5 U.S.C. § 8331, note (1988). Since none of the exclusions applied to Ms. Lary, after FERSA was enacted, she should have been classified under a CSRS interim system as an interim employee and then automatically converted to FERS coverage when FERS became effective on January 1, 1987. ⁴

The Navy's incorrect designation of Ms. Lary's employment status after FERSA was enacted led to a corresponding error in the handling of withholdings from her pay. Under CSRS, each pay period the employing agency deducts 7% of the employee's pay, ⁵ and the entire amount deducted is credited to the Fund as a retirement contribution. 5 U.S.C. § 8334(a) (Supp. V 1993). By contrast, under FERS, while the same 7% is deducted from the employee's pay, about 5.7 to 6.2% of the amount withheld is remitted to SSA in payment of OASDI taxes. 26 U.S.C. §§ 3101(a), 3102(a) (1988). The remaining 0.8 to 1.3% represents a FERS retirement contribution that is deposited into the Fund. 5 U.S.C. § 8422(a)(2) (1988). With differences not relevant for this appeal, see 5 U.S.C. § 8331, note, CSRS interim employees were treated essentially the same as FERS employees for withholding purposes.

Both CSRS and FERS are administered by OPM. 5 U.S.C. §§ 8347(a), 8461(b) (1988). At the time of Ms. Lary's resignation, the Navy submitted to OPM a form titled "Individual Retirement Record" indicating that retirement deductions withheld from her pay under CSRS and credited to the Fund totaled $14,113.98. ⁶ On August 25, 1993, Ms. Lary applied to OPM for a lump-sum refund of her Fund contributions. ⁷ Upon review of the pertinent records, however, OPM discovered Ms. Lary's erroneous classification as a CSRS employee and directed the Navy to correct her records to reflect her correct classification and the required withholdings under FERS.

The Navy made the necessary corrections and submitted to OPM a "Notice of Correction of Individual Retirement Record" to correct Ms. Lary's record regarding service and retirement deductions. The Navy also submitted another form, titled "Individual Retirement Record," certifying that the proper retirement deductions withheld under FERS and credited to the Fund totaled $1,966.74.

By letters dated October 26 and December 3, 1993, OPM informed Ms. Lary that the Navy had erred in designating her employment status and that OASDI deductions should have been made to SSA. OPM further informed Ms. Lary that she should fill out the appropriate FERS form to receive her FERS lump-sum refund of $1,966.74. Ms. Lary responded by requesting that OPM issue a reconsideration decision in connection with her request for a refund of retirement contributions under CSRS so that she could file an appeal with the Board. OPM declined to issue such a decision, however, informing Ms. Lary that because the Navy already had sent OPM forms correcting her account, any further questions should be referred to the Navy.

In due course, the Navy sent Ms. Lary a letter in which it explained her erroneous classification as a CSRS employee and the Navy's process for correcting her records to reflect the correct withholdings under FERS. The Navy also enclosed an application for refund of her FERS retirement contributions. Thereafter, Ms. Lary filed an appeal with the Board challenging OPM's action denying her $12,147.24 in retirement contributions. This sum represented the difference between the $14,113.98 erroneously credited to the Fund under CSRS and the lump-sum refund of $1,966.74 to which OPM determined she was entitled under FERS.

II.

On June 1, 1994, an administrative judge of the Board concluded that the reallocation OPM filed a petition for review pursuant to 5 C.F.R. §§ 1201.114-.115 (1993). Although the Board denied the petition, it reopened the case sua sponte pursuant to 5 C.F.R. §§ 1201.116-.117 (1993). Lary v. Office of Personnel Management, 65 M.S.P.R. 291, 294 (1994). In its decision, the Board held that the portion of the erroneous CSRS contribution that was equal to the Fund contribution component of FERS ($1,966.74) was properly credited to the Fund even though it had been incorrectly treated as a CSRS rather than a FERS contribution. Therefore, the re-designation of the money to the proper retirement account was not the collection of a debt, but rather was merely an accounting adjustment not subject to administrative offset procedures.

                of Ms. Lary's payroll deductions from CSRS to FERS and the reduction of her lump-sum refund to reflect the payment of OASDI taxes constituted the collection of a debt by administrative offset.  Accordingly, he determined, regulations implementing the DCA, including the Federal Claims Collection Standards (Standards), 4 C.F.R. §§ 101-105 (1993), and OPM's applicable regulations, 5 C.F.R. §§ 831.1801-.1808 (1993) for CSRS and 5 C.F.R. §§ 845.401-.408 (1993) for FERS, should have been followed.  The AJ found that, contrary to 4 C.F.R. §§ 101.1, 101.2, 102.4 and 5 C.F.R. § 831.1804(b), OPM failed to ensure that the Navy afforded Ms. Lary what he termed "due process" prior to effecting the administrative offset. 8  The AJ ordered OPM to cancel the offsetting of OASDI taxes against Ms. Lary's lump-sum refund and to ensure that DCA procedures were followed before any offset took place.
                

The Board also held, however, that the portion of the erroneous CSRS contribution that should have been sent to SSA to pay OASDI taxes under FERS (i.e. $12,147.24) was due and payable to Ms. Lary from the Fund. Consequently, the Board reasoned, DCA procedures should have been followed before OPM denied Ms. Lary's request for a lump-sum payment of what she contended were retirement contributions. The Board directed OPM to recredit Ms. Lary's retirement account with the money that OPM argued was due on account of OASDI taxes.

OPM then sought reconsideration from the Board pursuant to 5 U.S.C. § 7703(d) (1988). In response, the Board issued its final decision on July 13, 1995, in which it denied OPM's motion for reconsideration, re-opened the case sua sponte to consider new arguments by OPM, and affirmed its earlier decision. The Board again held that Ms. Lary was entitled to the money credited to the Fund that should have been sent to SSA to satisfy OASDI taxes under FERS, unless the Navy complied with the DCA's administrative offset procedures. This appeal by OPM followed.

DISCUSSION

We must set aside a decision of the Board if it is found to be (1) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; (2) obtained without procedures required by law, rule or regulation having been followed; or (3) unsupported by substantial evidence. 5 U.S.C. § 7703(c) (1988). On questions of statutory interpretation, the...