COMMUNICATIONS WORKERS Of AMERICA, AFL-CIO v. BOARD OF TRUSTEES, PUBLIC EMPLOYEES' RETIREMENT SYSTEM

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-3807-07T13807-07T1

COMMUNICATIONS WORKERS

Of AMERICA, AFL-CIO,

MICHELE GASPARIAN, JAMES

SCOTT, JOHN CARBONARA,

DANIEL MURRAY, SCOTT

NORTHRIDGE, JOSEPH MUSKETT,

COLIN BELL, and JACK LIPARI,

Appellants,

v.

BOARD OF TRUSTEES, PUBLIC

EMPLOYEES' RETIREMENT

SYSTEM,

Respondent.

_______________________________________

 

Argued October 13, 2009 - Decided

Before Judges Reisner and Yannotti.

On appeal from a Final Determination of the Board of Trustees of the Public Employees' Retirement System.

Jason L. Jones argued the cause for appellants (Weissman & Mintz, L.L.C., attorneys; Steven P. Weissman and Mr. Jones, on the briefs).

Eileen S. Den Bleyker, Deputy Attorney General, argued the cause for respondent (Anne Milgram, Attorney General, attorney; Lewis A. Scheindlin, Assistant Attorney General, of counsel; Kellie L. Pushko, Deputy Attorney General, on the brief).

PER CURIAM

Appellants challenge the March 19, 2008 determination of the Board of Trustees (Board) of the Public Employees' Retirement System (PERS) increasing the contribution rate of the members of the Prosecutors Part of the PERS from 7.5% to 8.5% of their compensation. For the reasons that follow, we remand the matter to the Board for further proceedings.

I.

The Prosecutors Part was established in the PERS by the enactment of L. 2001, c. 366, which is codified as N.J.S.A. 43:15B-155 to -161. Among other things, the legislation provides enhanced pension benefits to county prosecutors, first assistant prosecutors, assistant prosecutors, the Director of the Division of Criminal Justice in the Department of Law and Public Safety (DCJ), along with assistant directors, deputy directors, assistant attorneys general, deputy attorneys general and certain investigators assigned to the DCJ. See N.J.S.A. 43:15A-155; N.J.S.A. 43:15A-158; N.J.S.A. 43:15A-159. Members of the Prosecutors Part are required to "contribute at a rate established by the [B]oard, which contribution shall be deducted from the salary at the time or times it is paid, . . ." N.J.S.A. 43:15A-157(b).

After enactment of the legislation, the Board turned to its actuary, Buck Consultants (Buck), for advice concerning the contribution rate for members of the Prosecutors Part. Buck issued a letter dated December 10, 2002, to the Division of Pensions and Benefits (Division), in which it noted that the benefits available to members of the Prosecutors Part were comparable to those available to members of the Police and Fire Retirement System (PFRS).

Buck also noted that there is a significant difference in the retirement rates for members of the PERS and PFRS. Buck explained:

For PERS, the retirement rates are age related and relatively small prior to age 55 because of the early retirement reduction. For PFRS, the rates are based on service and are relatively large at the point where a member qualifies for the 65% of final pay benefit at 25 years of service (Special Retirement). Because of this, the actual accrued liability attributable to [the Prosecutors Part] would be much higher if the prosecutors' retirement pattern is more in line with PFRS than PERS. Unfortunately, this cannot be quantified until one, or possibly two, experience studies are completed.

Buck provided an analysis which indicated that there would be a roughly 32% increase in accrued liability and normal cost, as of June 30, 2002, if the PERS retirement experience is used. According to Buck, this would result in a 6.5% contribution rate for members of the Prosecutors Part. Using the PFRS retirement experience, the accrued liability and normal cost, as of June 30, 2002, would increase by 104%, resulting in an 8.5% contribution rate for the Prosecutors Part.

Buck recommended that the initial contribution rate for the Prosecutors Part be set at 7.5%, the average between the 6.5% rate determined using the PERS experience and the 8.5% rate determined using the PFRS experience. Buck "strongly suggest[ed]" that the contribution rate be re-examined once "sufficient plan experience has been gathered to determine if [the rate] accurately reflect[s] the true cost" of establishment of the Prosecutors Part. Buck commented that a study would be prepared as of June 30, 2005, and would reflect three years of experience with the Prosecutors Part. Buck stated that this study "should be sufficient to identify any retirement trend."

At its public meeting on December 18, 2002, the Board accepted Buck's recommendation and set the initial contribution rate for the Prosecutors Part at 7.5% of compensation. In May 2004, the Board adopted administrative regulations to implement the Prosecutors Part legislation, including N.J.A.C. 17:2-8.3, which provides that:

(a) The rate of contribution to the Prosecutors Part of the [PERS] shall be 7.5 percent as established by the Board of Trustees.

(b) The rate of contribution shall be reviewed by the System's actuaries periodically and adjusted by the Board as necessary.

In October 2005, Buck completed its PERS experience study for the three-year period ending June 30, 2005. Buck thereafter recommended and the Board adopted certain demographic assumptions regarding the Prosecutors Part. The assumptions were based on data indicating that members in the Prosecutors Part who have completed twenty five or more years of service retired at higher rates than other PERS members with similar service.

On March 6, 2008, Buck issued another letter to the Division in which it recommended that the contribution for the Prosecutors Part be increased. Buck explained that, in arriving at this recommendation, it had employed the same methodology that it described in its December 10, 2002 letter. Buck said that, based on its analysis, there was roughly a 60% increase in cost attributable to the creation of the Prosecutors Part. Buck also stated that, if this percentage is applied to the then-applicable PERS contribution rate of 5.5%, the result would be an 8.8% rate for Prosecutors Part members. Buck accordingly recommended that the contribution rate be increased from 7.5% to 8.5%.

The Board considered Buck's recommendation at its public meeting on March 19, 2008. The Board asserts that it posted the "preliminary pre-agenda" on its website before the meeting, but appellants dispute that assertion. The "preliminary pre-agenda" indicated that the Board would be considering the contribution rate for the Prosecutors Part at the meeting. The "pre-agenda" did not indicate that the Board was considering an increase in the rate. Moreover, Buck's letter of March 6, 2008, recommending an increase in the contribution rate was not provided to the public prior to the meeting. At the March 19, 2008 meeting, the Board accepted Buck's recommendation and adopted an 8.5% contribution rate for members of the Prosecutors Part, effective July 1, 2008. This appeal followed.

II.

We turn first to appellant's argument that the Board's action increasing the contribution rate for the members of the Prosecutors Part is invalid because the Board's action constitutes administrative rule-making undertaken without compliance with the formal rule-making process in the Administrative Procedure Act (APA), N.J.S.A. 52:14B-1 to -25. The APA requires that a State agency provide public notice and the opportunity for comment before adopting or amending an administrative rule. N.J.S.A. 52:14B-4. Appellants maintain that the standards employed by the Board in setting the contribution rate constitute an administrative rule. Appellants further maintain that the Board is required to adopt regulations establishing standards. We disagree.

In Metromedia, Inc. v. Dir., Div. of Taxation, 97 N.J. 313, 331-32 (1984), the Supreme Court stated that, in determining whether an agency's action should be deemed an administrative rule under the APA, the court should consider whether the agency's action

(1) is intended to have wide coverage encompassing a large segment of the regulated or general public, rather than an individual or a narrow select group; (2) is intended to be applied generally and uniformly to all similarly situated persons; (3) is designed to operate only in future cases, that is, prospectively; (4) prescribes a legal standard or directive that is not otherwise expressly provided by or clearly and obviously inferable from the enabling statutory authorization; (5) reflects an administrative policy that (i) was not previously expressed in any official and explicit agency determination, adjudication or rule, or (ii) constitutes a material and significant change from a clear, past agency position on the identical subject matter; and (6) reflects a decision on administrative regulatory policy in the nature of the interpretation of law or general policy.

[Id. at 331-32.]

The "agency determination must be considered an administrative rule when all or most of the relevant features of administrative rules are present and predominate in favor of the rule-making process." Id. at 331.

In our judgment, the Board was not required to follow the APA's rule-making procedures when setting the contribution rate for the Prosecutors Part. Although the Board's action has some of the features of an administrative rule, setting the rate does not constitute administrative rule-making because the standards employed by the Board in doing so are obviously inferable from the enabling legislation.

As stated previously, the legislation creating the Prosecutors Part delegates to the Board the power to establish the contribution rate. N.J.S.A. 43:15A-157(b). By contrast, the contribution rates for all other PERS members are set by statute. N.J.S.A. 43:15A-157(b). As of July 1, 2007, the contribution rate of PERS members was 5.5%. L. 2007, c. 103, 2. The legislation creating the Prosecutors Part provides enhanced pension benefits for PERS members in the Prosecutors Part.

The Legislature obviously intended that the Board would establish a contribution rate that reflects the increased cost to the PERS system of the enhanced benefits available to members of the Prosecutors Part. The methodology employed by the Board in setting the rate is entirely consistent with this statutory purpose. Here, the Board calculated a percentage that reflects the increased cost to the PERS system resulting from the enhanced pension benefits provided to Prosecutors Part members and applied that percentage to the contribution rate established by statute for other PERS members.

In our judgment, the Board's action does not represent the establishment of a legal standard or administrative policy that is not otherwise inferable from the enabling legislation. We therefore conclude that the Board was not required to engage in rule-making pursuant to the APA when it acted on March 16, 2008, to increase the contribution rate for the Prosecutors Part. The Board's existing regulation, N.J.A.C. 17:2-8.3(b), provides that the Board will consult an actuary prior to revising the contribution rate. A regulation further explicating the Board's methodology is not required.

III.

We next consider appellants' contention that they are entitled to a "contested case" hearing under the APA so that they may contest Buck's methodology and its reasons for recommending an increase in the contribution rate. Again, we disagree.

The APA defines the term "contested case" as follows:

a proceeding, including any licensing proceeding, in which the legal rights, duties, obligations, privileges, benefits or other legal relations of specific parties are required by constitutional right or by statute to be determined by an agency by decisions, determinations, or orders, addressed to them or disposing of their interests, after opportunity for an agency hearing, . . .

[N.J.S.A. 52:14B-2(b).]

The Prosecutors Part legislation does not grant members of the Prosecutors Part a statutory right to an evidentiary hearing to contest the Board's decision to increase the contribution rate. Moreover, members of the Prosecutors Part are not entitled to an evidentiary hearing under N.J.S.A. 52:14B-2(b) to challenge the Board's action because the matter is not a "contested case." It is not a determination that involves "the legal rights, duties, obligations, privileges, benefits or other legal relations of specific parties" for which a hearing is required as a matter of constitutional right. Ibid. (emphasis added).

Appellants argue, however, that an evidentiary hearing is required here because such hearings are required when rates are established for certain regulated entities. In support of this argument, appellants rely upon In re 1977 Rate Appeal of Monmouth Medical Center, 185 N.J. Super. 20, 24 (App. Div. 1982). There, four hospitals challenged administrative decisions setting the rates at which each hospital would be reimbursed for certain services. Ibid. We noted that, under the applicable administrative procedures, each hospital had the right to request an administrative hearing before the agency to contest the reasonableness of its rate. Id. at 25.

In our view, appellants' reliance upon Monmouth Medical Center is misplaced. In that case, the administrative process provided hospitals with a right to a hearing. In addition, the determination at issue there established hospital-specific rates. In this case, there is no statutory right to an administrative hearing. Moreover, this case involves a single rate that applies to numerous, similarly-situated individuals.

Appellants also rely upon Limongelli v. N.J. State Bd. of Dentistry, 137 N.J. 317, 328 (1993). In that case, a dentist consented to the revocation of his license as a result of certain criminal conduct and agreed that he could not apply for reinstatement of his license for a five year period. Id. at 321. When the dentist sought reinstatement, the Board of Dentistry found that the dentist had engaged in the practice of dentistry while his license was revoked. Ibid. The Board of Dentistry denied the dentist's application for re-licensure and barred him from reapplying for an additional ten years. Ibid.

In Limongelli, the Court held that the dentist did not have a constitutional or statutory right to an evidentiary hearing under the APA. Id. at 328. The Court concluded, however, that the agency was required to inform the dentist that it was considering an extension of the period in which he would be prohibited from re-licensure and provide the dentist with an opportunity to be heard on "any allegations of wrongdoing." Ibid. The Limongelli Court explained that the dentist had a right to be heard under the circumstances because "when an executive agency takes action against a person, procedural fairness will often require that the agency grant that person a hearing." Ibid.

Clearly, appellant's reliance upon Limongelli is misplaced. Limongelli involved an action that was directed against one individual, whereas this case involves the setting of a rate for numerous, similarly-situated persons. Therefore, appellants are not entitled to an evidentiary hearing to contest the Board's decision to increase the contribution rate.

IV.

Although we conclude that the Board is not required to engage in the APA's rule-making process when setting the contribution rate for members of the Prosecutors Part, and the appellants are not entitled to a "contested case" hearing under the APA to challenge the Board's rate-setting determination, we are nevertheless convinced that appellants should be afforded prior notice and an opportunity to comment on any proposed change in the rate.

As the Court observed in In re Request for Solid Waste Utility Customer Lists, 106 N.J. 508, 520 (1987), even "[i]n the absence of a statutory requirement, due process may still require some kind of hearing." The Court observed that

[g]enerally, the amount of process that is due will depend on the private interest affected, the burden on the government in providing a hearing, and the adequacy of the procedure to evaluate the effect of the governmental action on the private interest.

[Ibid.]

The Court held that in determining whether an agency's procedure satisfies the requirements of due process, the court should consider:

"[f]irst, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and finally, the Government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail."

[Ibid. (quoting Mathews v. Eldridge, 424 U.S. 319, 335, 96 S. Ct. 893, 903, 47 L. Ed. 2d 12, 33 (1976)).]

In this matter, the members of the Prosecutors Part have a monetary interest in the Board's action because the contribution is deducted from their salaries. Furthermore, there is a potential for an erroneous deprivation of that interest if the Board's decision rests upon a mathematical mistake or is inconsistent with sound actuarial principles. On the other hand, the Board has an interest in ensuring that any required increase in the contribution rate is established without undue delay.

Allowing Prosecutors Part members evidentiary hearings on challenges to a proposed change in the contribution rate could be unduly burdensome. The PERS would not be burdened, however, if members of the Prosecutors Part are afforded reasonable notice of any proposed change in the contribution rate and an opportunity to submit written comments on any such proposal. In Solid Waste Customer Lists, the Court observed that, in some cases, "nothing more is required than notice and the opportunity to present reasons, either orally or in writing, why the proposed action should not be taken." Id. at 521. We are convinced that is such a case.

Therefore, we conclude that, when the Board intends to consider a change in the contribution rate for members of the Prosecutors Part, it should provide notice of the proposed change and make its actuary's recommendation available at least sixty days before the Board considers the matter at an open public meeting. The Board may provide such notice by posting the information on the Division's website.

The members of the Prosecutors Part or their representatives should be afforded an opportunity to submit written comments on the proposed change. The comments may include a report from a qualified professional addressing the actuary's recommendation. The Board may, in its discretion, allow members or their representatives an opportunity to be heard at the public meeting at which the proposal is considered. Thereafter, the Board should render a final decision with appropriate findings of fact explaining the basis for its action.

Because appellants and other members of the Prosecutors Part were not afforded notice and the opportunity to comment before the Board's March 16, 2008 action increasing the contribution rate, we remand the matter to the Board for further proceedings consistent with this opinion. As that process goes forward, the Board may continue to impose the contribution rate established on March 16, 2008.

 
Remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.

Appellants assert that there are "fewer than" one thousand persons in the Prosecutors Part.

(continued)

(continued)

15

A-3807-07T1

November 9, 2009