VINCENT BARONE, et al. v. BOARD OF TRUSTEES, TEACHERS' PENSION AND ANNUITY FUND.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1268-04T11268-04T1

VINCENT BARONE, JOHN FITZGERALD,

DOMINIC A. VENTURA, MARK T.

MENDENKO, and MARION MacREYNOLDS,

Petitioners-Appellants,

v.

BOARD OF TRUSTEES, TEACHERS'

PENSION AND ANNUITY FUND.

Respondent-Respondent.

_________________________________________________

 

Argued December 20, 2005 - Decided March 20, 2006

Before Judges Payne and Axelrad.

On appeal from a Final Administrative

Determination of the Teachers' Pension

and Annuity Fund, 2444-01.

Richard A. Friedman argued the cause for

appellants (Zazzali, Fagella, Nowak,

Kleinbaum, & Friedman, attorneys; Mr. Friedman on the brief).

David Dembe argued the cause for respondent

(Peter C. Harvey, Attorney General, attorney; Patrick DeAlmeida, Assistant Attorney General, of counsel, and Susanne Culliton, Deputy Attorney General, on the brief).

PER CURIAM

Petitioners Vincent Barone, John Fitzgerald, Mark Mendenko, Marion MacReynolds, and Dominic Ventura, spouse-beneficiaries of teachers who had enrolled in the Teachers' Pension & Annuity Fund (TPAF), appeal from a final decision of the TPAF's Board of Trustees denying petitioners' claims of entitlement both to pension and full group life insurance death benefits following their spouses' deaths prior to retirement but after submitting applications for that status. Full death benefits to members covered by contributory group insurance would have constituted three and one-half times final salary. The effect of the Board's decision was to reduce those benefits to seven-sixteenths of final salary.

On January 19, 2000, we held in New Jersey Ed. Ass'n v. Bd. of Trs., Pub. Employment Ret. Sys. (PERS), 327 N.J. Super. 405 (App. Div. 2000), certif. denied, 165 N.J. 135 (2000) that the statutory scheme governing payments to beneficiaries of PERS members who had applied for retirement but died while still on active status required an election of retirement or full life insurance death benefits and precluded receipt of both, and we rejected the NJEA's challenge to N.J.A.C. 17:2-3.13, in which it argued that the regulation conflicted with the statutory scheme, finding that the regulation properly interpreted the Legislature's intent that a choice of benefits occur. Petitioners do not challenge that decision or its applicability to most recipients of benefits from the TPAF. However, they argue that because of the unsettled nature of the law at the time of their spouses' retirement planning, the allegedly misleading nature of information regarding life insurance conversion rights supplied by the Division of Pensions and Benefits, and the failure by the Division to inform them or their spouses directly of its change in policy with respect to the treatment of requests for retirement and full life insurance death benefits, they are equitably entitled to full payment of both benefits. In essence, what petitioners claim is that during this limited time period they could consider their spouses, who died before their retirements became effective, as "retired" for purposes of collecting retirement benefits and "active" for purposes of collecting life insurance death benefits that would otherwise have been reduced by retirement.

The legal issues in this case are governed by N.J.S.A. 18A:66-47 (setting forth retirement benefit options when TPAF members file a retirement application but die before the effective date of retirement), N.J.S.A. 18A:66-79 (establishing life insurance conversion rights) and N.J.A.C. 17.3-3.13 (reconciling the two statutes). These statutes are identical to those governing the PERS that were at issue in NJEA v. Bd. of Trs., PERS, supra; N.J.S.A. 18A:66-47 is the equivalent of N.J.S.A. 43:15A-50, and N.J.S.A. 18:66-79 is the equivalent of N.J.S.A. 43:15A-93. Similarly, N.J.A.C. 17.3-3.13, applicable to TPAF, is the equivalent of N.J.A.C. 17.2-3.13, applicable to PERS, although some minor language differences exist. However, N.J.A.C. 17.2-3.13, applicable to PERS, was adopted on July 15, 1998, effective on April 2, 1998, whereas N.J.A.C. 17.3-3.13, applicable to TPAF, was not adopted until September 7, 2001, effective on October 15, 2001.

In our decision in NJEA v. Bd. of Trs. PERS, we set forth legislative history applicable to the PERS statutes that is also applicable to the TPAF statutes. 327 N.J. Super. at 408. Prior to 1984, a member or beneficiary's receipt of a retirement allowance was contingent upon the member's survival for thirty days after the effective date of retirement. At the end of the thirty-day survival period, the non-contributory life insurance death benefit would be reduced from one and one-half times the final salary to three sixteenths of the final salary unless the member converted the coverage to an individual policy. See, e.g., N.J.S.A. 43:15A-93. The time periods set forth in the two statutes insured that a member or beneficiary could receive only the higher death benefit and no retirement allowance (if the member died within the first thirty days after retirement) or the smaller death benefit together with a retirement allowance (if the member survived the thirty-one-day post-retirement period).

The law with respect to retirement allowances applicable to both PERS and TPAF was amended by L. 1 995 Ch. 221 1 (TPAF) and 2 (PERS). These amendments identically stated in relevant part:

[I]f a member dies within 30 days after the date of retirement or the date of board approval, whichever is later, his retirement allowance shall not become effective and he shall be considered an active member at the time of death. However, if the member dies after the date the application for retirement was filed with the system, the retirement will become effective if:

* * *

c. The deceased member had designated a beneficiary under an optional settlement provided by this section; and

d. The surviving beneficiary requests in writing that the board make such a selection. Upon formal action by the board approving that request, the request shall become irrevocable.

[N.J.S.A. 18A:66-47 (TPAF); N.J.S.A. 15A-50 (PERS).]

At this time, no amendments were offered to the life insurance conversion provisions of N.J.S.A. 18A:66-79 (TPAF) and N.J.S.A. 43:15A-93 (PERS). As a consequence, the TPAF statute continued to provide in relevant part:

Any such group policy or policies shall include, with respect to any insurance terminating or reducing because the member has ceased to be in service or has retired, the conversion privilege available upon termination of employment as prescribed by the law relating to group life insurance . . . . Any such group policy or policies shall also provide that if a member dies during the 31-day period during which he would be entitled to exercise the conversion privilege, the amount of insurance with respect to which he could have exercised the conversion privilege, shall be paid as a claim under the group policy.

In the case of PERS, the possibility that the beneficiary of a member dying before retirement or within thirty days of retirement could obtain both retirement and full life insurance death benefits was addressed and eliminated in N.J.A.C. 17:2-3.13(a), which provided:

For the purposes of [N.J.S.A. 43:15A-50], the person designated as the beneficiary of an optional settlement on the retirement application may request that a retirement become effective and that a selection of an optional settlement be made as authorized by the law. . . . . If a beneficiary requests that an optional settlement be made, the death benefits payable on behalf of the member shall be the death benefits payable on behalf of a member who dies after retirement as otherwise provided in the Public Employees' Retirement System Act, N.J.S.A. 43:15A-1 through 141 as amended and supplemented.

In NJEA v. Bd. of Trs., PERS, supra, we recognized that, "[r]ead literally, N.J.S.A. 43:15A-50 and N.J.S.A. 43:15A-93 seem to permit a beneficiary of a member who filed his or her application for retirement allowance, but dies during the thirty-one day period when the higher death benefit was payable, to receive both the retirement allowance and the active member's higher life insurance benefit." 327 N.J. Super. at 409. However, we held that the challenged regulation, which eliminated the statutory ambiguity and required an election between retirement and full death benefits, was consistent with the Legislature's intent when it amended the PERS retirement benefit statute in 1995. Id. at 410-14. We thus rejected the NJEA's challenge to the regulation as contrary to the law that it implemented and concluded that it was valid. Id. at 414.

I.

The TPAF members whose beneficiaries filed the claims at issue in this appeal died after filing for retirement but before that date had been reached. Rita Barone filed an application for retirement on August 26, 1998 with a stated retirement date of July 1, 1999, and she died on August 29, 1998; Nancy Fitzgerald submitted an amended retirement application dated April 14, 1998 seeking retirement on June 1, 1998, and she died on May 8 or 16, 1998; Robert MacReynolds submitted a retirement application on October 26, 1999 seeking retirement on February 1, 2000, and he died on November 10, 1999; Valerie Mendenko applied for a disability retirement on January 6, 1998 effective on July 1, 1998, and she died on May 5, 1998; and Barbara Ventura applied for a disability retirement on April 24, 1998, effective July 1, 1998, and she died on June 28, 1998. All of the TPAF members had sought to remain on sick leave as long as possible to maximize income prior to retirement. All died while still on sick leave and, thus, while still on "active" status.

Following the death of each TPAF member, the member's beneficiary sought either in an initial or amended application to obtain both full death benefits and retirement benefits. In the period between August 20, 1998 and February 7, 2000, each application was tabled pending the promulgation of a rule concerning benefits payable under L. 1995, Ch. 221. In decisions dated January 8 and 9, 2001, approximately one year after our decision in NJEA v. Bd. of Trs., PERS on January 19, 2000 and before the promulgation of N.J.A.C. 17:3-3.13, effective October 15, 2001, each of the beneficiaries' claims for dual recovery was denied.

The beneficiaries appealed, contending that full death benefits were payable because the insured had allegedly died within the thirty-one-day period for conversion to individual coverage, and that such conversion was unnecessary when death occurred during this period. They sought a hearing in the Office of Administrative Law, where the five claims were consolidated and heard as a contested case by an Administrative Law Judge (ALJ). Plenary hearings took place on three days in 2002 and 2003, at which each of the beneficiaries or their representatives testified, along with Janice A. Vasil, Manager of Operations, Division of Pensions and Benefits, and Jane R. Cahill, the representative of the NJEA who had dealt with the subject members and their spouses and who was then a pension and benefits field representative for the NJEA. Following closure of the record, on August 19, 2004 the ALJ deciding the matter rejected the petitioners' equitable claims for death as well as retirement benefits, finding that the members and their beneficiaries were not misled, confused, or given inadequate information regarding their conversion rights by the Division (emphasis in original), which "routinely counseled fund members that their conversion to individual life insurance benefits was an affirmative requirement, by application," and that any misinformation was supplied by the NJEA. On October 8, 2005, the Board of Trustees of TPAF adopted the ALJ's findings of fact, conclusions of law and recommendation that the claims be denied. This appeal followed.

II.

In the hearings before the ALJ and on appeal, petitioners claim that information supplied to them by the Division of Pension and Benefits and the practice of the Division to honor dual benefit claims led them and their spouses to believe that if the spouses died within thirty-one days of termination of active employment, they would be entitled to full death benefits regardless of whether the spouses had converted to individual coverage. In support of the position that they were misled, petitioners note that during the period at issue in this case, the Division offered information to members of the TPAF, including the petitioners' spouses, regarding the conversion of life insurance coverage at cessation of active employment and at retirement designated as Fact Sheet 13. That Fact Sheet stated:

If you terminate employment before retirement . . . you will continue to be covered for the next 31 days. During that 31-day period, you may convert your group life insurance, without medical examination, to any individual non-group policy customarily offered by Prudential except term insurance or a policy containing disability benefits. The premiums will be the same as you would pay if you were applying for a private policy at your current age. The individual policy will be effective at the end of the 31-day period. If you do not convert to an individual policy within the 31-day period, your coverage will end.

(Emphasis supplied.)

The Fact Sheet also provided information regarding conversion of coverage during the thirty-one-day period after retirement. The provision relating to retirement also stated that: "The individual policy will be effective at the end of the 31-day period [for conversion]." Estimates of retirement benefits provided by the Division to decedents Fitzgerald, MacReynolds and Mendenko also set forth an estimated death benefit and stated that life insurance could be converted "at retirement" within the thirty-one-day period following that retirement. Additionally, petitioners rely on the group policy issued by Prudential and received by some of the TPAF members that provided:

INSURANCE PROTECTION DURING CONVERSION PERIOD. - If an individual is entitled by the terms of the Group Policy to convert all or any part of his insurance under the Group Policy to an individual policy but dies within the thirty-day period following termination of insurance during which application for the individual policy may be made, the amount of insurance which might otherwise have been converted will be paid as a claim under the Group Policy whether or not application for conversion has been made.

Statutes governing group life insurance (incorporated by reference into N.J.S.A. 18A:66-79) provide similarly for a right of conversion on termination of employment, N.J.S.A. 17B:27-19, and payment of benefits regardless of conversion, when death occurs during the conversion period. N.J.S.A. 17B:27-21.

Additionally, petitioners note that in the period from January 30, 1997 to April 2, 1998, the Division followed the advice of the Office of the Attorney General that the operative statutes required that both benefits be paid to members of PERS and TPAF who died within the thirty-one-day period after retirement. Approximately thirty claims were paid on this basis.

It is significant, however, that on April 1, 1998, the Office of the Attorney General gave an opinion based on the legislative history of Chapter 221 that the Legislature intended that an election of benefits be made, that PERS and TPAF immediately cease processing claims for double benefits, and that PERS and TPAF be immediately advised of the change. A memorandum informing of the change was accordingly sent by the Division on April 2, 1998 to the Boards of Trustees of the TPAF and PERS. In that notification, after giving the substance of the new opinion, the Division stated:

Accordingly, effective immediately, the Division will offer the beneficiaries of members who meet the requirements of Chapter 221 the option of receiving retirement allowances under option selections and retired death benefits, or active death benefits and return of member contributions plus interest. If a member files the required application and pays the initial premium to convert the difference between the active and retired death benefits, the amount of the converted death benefits will be paid as a benefit under the retirement system.

All of the TPAF members whose benefits are at issue died after

April 2, 1998. It does not appear from the record that the change of policy was directly communicated to decedents by the TPAF or the Division.

III.

We find petitioners' focus in this appeal on conversion rights to be misplaced. While the members retained their status as active employees, their conversion rights did not ripen, since such rights arise only in the period after active employment ceases or retirement occurs. In these cases, active employment ceased upon death, and actual retirement never took place. No precedent of which we are aware preserves conversion rights after death. Thus the conversion period never commenced. Even if we regard the members as "retired" by virtue of their election of retirement benefits pursuant to N.J.S.A. 18A:66-47, a period for conversion still would not arise because of the members' deaths. Fact sheet #13 and the retirement benefit summaries provided by the Division do not state otherwise.

The crux of the members' problem lies in the fact that, in attempting to maximize income, they remained on sick leave for too long a period, given their medical conditions, thereby losing through death both the opportunity to retire and the conversion rights that would have been available to them if they had retired and then had converted coverage within the thirty-one-day conversion period or died in that period. Retirement under these conditions would have entitled the members to full death and retirement benefits if death had occurred prior to the Division's change in policy on April 2, 1998. None of the members died prior to this date.

The Division's change in policy was unequivocally communicated to the Board of Trustees of TPAF on April 2, 1998 in a memorandum that clearly stated that the change was immediately effective. The memorandum cannot reasonably be construed as excepting members whose retirement was scheduled to occur in the future. Only one of the decedents, Valerie Mendenko, had filed her application for retirement prior to the date that the change in policy was communicated to TPAF. Her death did not occur for more than one month after the policy change; the remaining members dies at later dates. Although as petitioners emphasize, promulgation by TPAF of a regulation implementing the policy change did not occur until the year 2001, notice to TPAF in April 1998 is undeniable. We know of no precedent that limits effective notice to that contained in a duly promulgated regulation.

In order for an estoppel to arise, petitioners must demonstrate "a knowing and intentional misrepresentation by the party sought to be estopped under circumstances in which the misrepresentation would probably induce reliance, and reliance by the party seeking estoppel to his or her detriment." O'Malley v. Department of Energy, 109 N.J. 309, 317 (1987). Equitable estoppel is rarely invoked against a governmental entity, although it may be applied to avoid a manifest injustice. Id. at 316; see also County of Morris v. Fauver, 153 N.J. 80, 104 (1998). Petitioners nonetheless claim its applicability here.

We are unable to find in this case a misrepresentation that would require an estoppel to be imposed. Although it is true that in a period ending at the beginning of April 1998, the Division had adopted a policy different from that applied to the beneficiaries in this case, its change in policy was clearly communicated to the TPAF's Board of Trustees. We find no basis to conclude that the Division should have communicated individually with TPAF's members in these circumstances; that was TPAF's responsibility. Nor do we perceive a manifest injustice to have occurred as the result of the denial of these claims. To honor them would give benefits to a limited class of beneficiaries that would exceed those available to other members of TPAF who died before their projected retirements took effect.

 
Affirmed.

Full non-contributory death benefits would be paid at the rate of one and one-half times final salary and would have been reduced to three-sixteenths following retirement.

The decisions were also deferred pending issuance of our opinion in NJEA v. Bd. of Trs., PERS.

A different ALJ who had conducted the hearings had subsequently retired.

Petitioners' challenge to the Division's interpretation of N.J.S.A. 18A:66-47 and -79 was withdrawn after our decision in NJEA v. Bd. of Trs., PERS.

The amount that could be converted consisted only of the difference between the face value of the group coverage and the reduced death benefit available upon retirement.

The record discloses that Prudential acted solely as an administrator and that the coverage was funded by the State. The record discloses no knowledge of this fact on the part of the petitioners or their decedents and no information as to how such knowledge would have affected their decisions.

Rita Barone died on August 29, 1998; Nancy Fitzgerald died on May 8 or 16, 1998; Robert MacReynolds died on November 10, 1999; Valerie Mendenko died on May 5, 1998; and Barbara Ventura died on June 28, 1998.

Presumably, without retirement, the members also could have sought full death benefits as active employees under the Division's former policy.

Decedent Nancy Fitzgerald had applied for retirement on March 1, 1998, but on April 14, 1998, her application was amended to set forth a later retirement date.

(continued)

(continued)

17

A-1268-04T1

March 20, 2006