Does withdrawing contributions from Utah retirement systems forfeit all service credit? Ostler v. Retirement Board Explained

The Utah Court of Appeals addressed an important question about retirement system forfeiture in Ostler v. Retirement Board, clarifying the scope of service credit loss when members withdraw their contributions from contributory retirement plans.

Background and Facts

Neal Ostler worked for various public employers from 1972 to 1988, participating in the Public Safety Contributory Retirement System where both he and his employers made contributions. During this period, he accrued 15.167 years of service credit. In 1990, after leaving public employment, Ostler elected to withdraw his member contributions totaling approximately $27,000. He later worked for other public entities and applied for retirement benefits in 2013, but was denied because he had insufficient service credit to qualify.

Key Legal Issues

The central issue was whether withdrawing member contributions from a contributory retirement system forfeits only the service credit attributable to those member contributions, or whether it results in complete forfeiture of all service credit earned during that employment period. Ostler argued he should retain service credit corresponding to the employer contributions that remained in the system.

Court’s Analysis and Holding

The court examined Utah Code Section 49-11-501(5), which provides that a member who receives a refund of member contributions “forfeits the service credit based on those contributions.” The court concluded that all service credit is “based on” member contributions because the statutory framework requires both employer and member contributions to earn any service credit. Under Section 49-11-401(3)(a), service credit accrues only when “all required contributions are paid.” The court found no mechanism in the Act for dividing service credit into separate member-contribution-based and employer-contribution-based portions.

Practice Implications

This decision has significant implications for public employees considering withdrawal of retirement contributions. The ruling clarifies that taking a refund of member contributions results in complete forfeiture of service credit for that employment period, regardless of employer contributions remaining in the system. Practitioners should counsel clients that the only way to restore forfeited service credit is through redeposit of the withdrawn contributions plus applicable interest, as permitted under Section 49-11-502.