OPM flub threatens fed's refund

The Office of Personnel Management recently tried to penalize a federal employee for a mistake that the agency itself had made in collecting contributions to a retirement account. The employee took the case to the U.S. Court of Appeals, which had an entirely different interpretation of the events than OPM did.

The employee was covered by the Civil Service Retirement System (CSRS), which allows subscribers to increase their retirement benefits through voluntary contributions to the Civil Service Retirement Fund. Those contributions earn interest and are kept in an individual voluntary contribution account (VCA) that can be used to purchase an annuity in addition to the retirement annuity that a federal employee gets when he retires. If the employee decides to forgo receiving an additional annuity, he is entitled to withdraw the proceeds of the VCA by filing an application with OPM before the regular retirement payments begin.

OPM's implementing regulations state that voluntary contributions may be made only by employees currently in the CSRS. The regulations also say that "voluntary contributions may not be accepted from an employee who previously left government employment and withdrew Civil Service Retirement Fund contributions unless the full withdrawal was redeposited."

In January 1990, Dante Marrazzo, an Internal Revenue Service employee, filed an application with OPM to make voluntary contributions. Later that month, OPM informed Marrazzo that it had approved his application and established an account for him. OPM then discovered that Marrazzo was not eligible for a VCA because he had previously withdrawn contributions after leaving government without redepositing the full amount withdrawn. According to OPM, Marrazzo did not make the required deposits covering four months of service with the U.S. Postal Service in 1966.

On Jan. 24, 1990, OPM notified Marrazzo that he could not make any voluntary contributions, but he could reapply for a VCA if he redeposited the required funds for the four months of service with USPS.

Marrazzo did not respond to this notice but continued making contributions for a substantial period. OPM accepted the contributions without comment and sent Marrazzo annual statements showing his total deposits and accrued interest.

In March 1997, Marrazzo filed an application for a refund of his voluntary contributions and accrued interest. OPM told Marrazzo that it should not have accepted his contributions and would not pay him any interest. OPM agreed only to refund his contributions.

Because OPM had Marrazzo's money, that money undoubtedly earned interest, so why shouldn't Marrazzo get it? From a bureaucratic perspective, I can see OPM's rejection of Marrazzo's application for an account. According to the rules, he was not eligible. But OPM kept taking his money and issuing statements. If Marrazzo wasn't entitled to the interest, who was? Certainly not OPM. That would represent a reward to the agency for screwing up, and such an interpretation could set a dangerous precedent.

When Marrazzo appealed to a higher level within OPM, the original decision was affirmed. He then appealed to the Merit Systems Protection Board, where he argued that OPM misled him by accepting his contributions and sending him statements of accrued interest. He said OPM should be bound by these statements, even though OPM had made a mistake. He also said these statements represented an implied obligation by OPM to pay the interest.

The MSPB rejected Marrazzo's argument and affirmed OPM's decision, primarily on legal grounds. The board said the law governing voluntary contributions authorized OPM to issue regulations concerning the circumstances under which a federal employee may make voluntary contributions to the CSRS. Because OPM's regulations say the agency will not accept voluntary contributions from an employee who has not deposited amounts covering all of his creditable service, the account was "illegal," and therefore no obligation existed to pay interest.

When Marrazzo went to an appeals court, the court said the MSPB had overlooked or ignored the provisions of the statute and regulations governing the withdrawal of contributions (U.S. Court of Appeals for the Federal Circuit, No. 99-3079, Dante Marrazzo v. Office of Personnel Management). The statute defines a VCA, which is to be paid to the contributor on request, as "the sum of unrefunded contributions plus interest."

The court ruled that the regulations therefore permit a contributing employee to withdraw the balance in his account, defining "balance" as "the amount of voluntary contributions deposited and not previously withdrawn, plus earned interest on those voluntary contributions."

Based on the law, the court ruled that Marrazzo was entitled to withdraw not only the voluntary contributions he made but also the earned interest.

According to the court, if the MSPB believed the account to be illegal, then Marrazzo should not get anything back. In other words, a refund of his voluntary contributions would seem to include the interest accrued on those contributions. The court said that if the MSPB believed that OPM's obligation to pay interest existed only when an employee was entitled to a VCA, then the MSPB should explain how the statute and regulations justified different treatment for contributions and earned interest.

The case was sent back to the MSPB for reconsideration. I hope the board will realize the error of its ways and give Marrazzo his money.

--Bureaucratus is a retired federal employee who contributes regularly to Federal Computer Week.

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