MIDDLETOWN TOWNSHIP BOARD OF EDUCATION 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NOT FOR PUBLICATION WITHOUT THE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-0

MIDDLETOWN TOWNSHIP BOARD

OF EDUCATION,

Petitioner-Appellant,

v.

BOARD OF TRUSTEES, TEACHERS'

PENSION AND ANNUITY FUND,

Respondent-Respondent.

________________________________

December 22, 2016

Argued August 16, 2016 Decided

Before Judges Nugent and Accurso.

On appeal from the Board of Trustees of the Teachers' Pension and Annuity Fund, Department of the Treasury, Docket No. TPAF 00344.

Christopher B. Parton argued the cause for appellant (Kenney, Gross, Kovats & Parton, attorneys; Mr. Parton, of counsel and on the briefs).

 
Jeff S. Ignatowitz, Deputy Attorney General,

argued the cause for respondent (Christopher S. Porrino, Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel, Mr. Ignatowitz, on the brief).

PER CURIAM

The Middletown Township Board of Education (BOE) appeals from the March 13, 2015 final agency decision of the Board of Trustees of the Teachers' Pension and Annuity Fund (the Board of Trustees), finding that the BOE offered its employees an unauthorized Early Retirement Incentive (ERI) and assessing the BOE the Fund's consequent increased pension liability. We affirm.

During its October 22, 2007 meeting, the BOE approved a "Sidebar Agreement" with the Middletown Township Education Association (MTEA). The Sidebar Agreement, which modified the BOE and MTEA's collective bargaining agreement, provided

1. Article 13.2 of the 2005-2008 Contract is hereby supplemented to provide that any MTEA member who has achieved tenure or will achieve tenure on or before June 30, 2008, and who submits a letter of resignation or retirement on or before January 31, 2008, which resignation or retirement shall be effective July 1, 2008, shall be compensated for accrued and unused sick days as follows. However, those tenured members who submitted letters of retirement or resignation after July 1, 2007 and on or before October 22, 2007, for an effective date on or before July 1, 2008,

shall also be eligible

a. Professional teaching staff members shall be paid at the rate of two hundred twenty-five dollars ($225.00) per sick day to a maximum of forty thousand dollars ($40,000.00);

b. Non-certified members shall be paid at the rate of one hundred twenty-five dollars ($125.00) per sick day to a maximum of twenty thousand dollars ($20,000.00);

2. Payments made pursuant to this Sidebar Agreement shall be made in three (3) equal installments on July 15, 2008, July 1, 2009 and July 1, 2010.

The next day, October 23, 2007, the Division of Pensions and Benefits' (the Division) External Audit Supervisor wrote to the BOE's Certifying Officer stating the Division had "received information that voluntary separation programs are being offered by the [BOE] to its employees." The Division Supervisor explained such arrangements were generally permissible provided "the terms and conditions of these programs and the specific impact upon the offering employer's workforce are reviewed by the Division." The Division Supervisor requested specific enumerated information from the BOE.

The BOE's School Business Administrator responded and provided the information in a letter dated November 5, 2007. By then, six employees, including five teachers and a secretary, all with more than twenty-five years in their respective pension systems, had taken advantage of the Sidebar Agreement. On August 1, 2008, one month after the triggering retirement date of July 1, 2008 specified in the Sidebar Agreement, the Division informed the BOE it considered the Sidebar Agreement an impermissible ERI. The Division's letter stated

The Division has become aware of an early retirement incentive (ERI) that you have recently made available to your employees.

This ERI was not reviewed by this office and you should be aware of the fact that ERI's are not permitted when not provided through enabling legislation. I am attaching a copy of our fact sheet which details the law regarding same. We ask that you provide a final list of all individuals that retired under your ERI (or separation agreement as you may have named it) so we may forward this letter to our actuary. At that point, the actuary will develop the acceleration cost of this incentive which will in turn be billed to you.

Please provide this information to this office within ten days of the receipt of this letter. Thank you for your cooperation.

The BOE provided the information requested by the Division three days later, on August 11, 2008. The Division did not communicate with the BOE again until February 6, 2014.

On February 6, 2014, the Division's Acting Director wrote to the BOE's Certifying Officer concerning its determination that the BOE's severance package was an unauthorized ERI. According to the letter

Unauthorized early retirement incentive (ERI) programs are retirement incentive programs not expressly authorized by law. However, even if the ERI program was expressly authorized by law, employers who offer such a program are always responsible for the additional pension liabilities created as a result of the program. Consequently, [the BOE] must be held financially liable for the additional pension costs resulting from the unauthorized program.

In its letter, the Division calculated, at present value, an additional $5,429,900 in pension liabilities associated with the unauthorized ERI. The Division's Acting Director enclosed "a bill due to the Teacher's Pension and Annuity Fund reflecting [this] amount[.]"

In a March 11, 2014 letter, the BOE disagreed that the Sidebar Agreement constituted an unauthorized ERI. The BOE also disputed the Division's assessment of the additional pension liability. On April 29, 2014, the Division responded in a letter and rejected the BOE's arguments. According to the letter, the Division advised the Board of Trustees to schedule the BOE's appeal.

On May 29, 2014, the BOE attempted to have the Division reconsider its position concerning one BOE employee. The Division ultimately adjusted the unfunded liability for the employee in question.

During its December 4, 2014 meeting, the Board of Trustees affirmed the Division's administrative finding that the terms of the Sidebar Agreement constituted an illegal ERI and that the BOE was required to reimburse the Teacher's Pension and Annuity Fund the unfunded liability. The Board of Trustees reduced the original amount billed to the BOE to $3,815,600 based on information concerning three BOE employees. Additionally, recognizing the delay in the Division's billing of the BOE, the Board of Trustees requested the Division establish a five-year payment plan with no interest.

The BOE filed an administrative appeal. The Board of Trustees denied the BOE's request to have the matter referred to the Office of Administrative Law for a hearing. On March 13, 2015, the Board of Trustees issued its final administrative determination.

In its March 13, 2015 written decision, the Board of Trustees noted the Division informed the BOE the day after the approval of the Sidebar Agreement that it had "received information an ERI was being offered by the [BOE]." The Board of Trustees further noted the BOE "proceeded with the ERI before it contacted the Division to determine the status of the Division's review." The Board of Trustees reiterated it had denied the BOE's request for an administrative hearing in part because of the lack of relevant factual issues to be adduced at such a hearing. Moreover, the Board of Trustees emphasized the issue before the Board presented a purely legal question.

Addressing the BOE's argument that the Sidebar Agreement did not constitute an ERI, the Board of Trustees disagreed based on the following

(1) The Sidebar agreement which supplemented the 2005-2008, Collective Negotiations Agreement offered to all employees in the Middletown Twp. BOE enrolled in the TPAF, who had 15 years of service with the district at the time of retirement, an enhanced payout in exchange for submitting an irrevocable letter of resignation or retirement. The record indicates that 41 employees received the enhanced sick leave payout and all 41 employees did in fact retire from the TPAF;

(2) It is the Board and the Division's responsibility to administer regulations established to safeguard the integrity of the various retirement systems administered by the State. Arrangements that are offered to employees as an incentive to retire are generally impermissible unless they are provided through permissive legislation. The law on this subject is clearly set forth in Fair Lawn Ed. Assn. v. Fair Lawn Board of Education, 79 N.J. 574 (1979), in which the Supreme Court of New Jersey held invalid an early retirement plan because it posed a potential for financial harm to the State-administered retirement system and was not authorized by State law; and

(3) Even though the ERI did not increase a member's retirement benefit, it provided a financial incentive to induce those who were eligible to retire earlier than they would have. This factor is significant in that the funding of the TPAF is predicated upon the experience ratings of the total membership.

The Board of Trustees next explained that the subject of public employee pensions had been preempted by the Legislature. The decision continued

Per N.J.S.A. 18A:66-58, the actuary for the TPAF establishes probabilities of retirement based upon experience of the entire group and uses that as a basis to develop employer contribution requirements. When employers offer employees incentives to retire sooner than when actually anticipated, as in this instant matter, it alters the retirement pattern of the Fund and impacts the ability of the retirement system to establish reasonably accurate experience assumptions, on which funding is based.

In short, the Board of Trustees determined that BOE's "Sidebar Agreement provided a meaningful inducement for those eligible to retire."

The Board of Trustees next addressed the BOE's argument that disputed issues of material fact required a hearing. The Board of Trustees identified the issues raised by the BOE as whether: the Sidebar Agreement is an ERI; the delay in the billing from the Division caused additional costs; the charges made by the Division reflect any interest for the years between 2008 and 2014; and, the sufficiency of documentary support for the assessment underlying the Division's bill to the BOE. The decision addressed each issue. The decision explained the Sidebar Agreement's early retirement incentives were clear and unambiguous. In addition, in recognition of its delay in billing, the Board of Trustees established a five-year payment schedule with no additional interest, and agreed there should be no interest imposed for the years between 2008 and 2014. Finally, the Board of Trustees found the assessment was calculated by the Fund's actuaries in accordance with N.J.S.A. 18A:66-55. The Board believed the accelerated cost represented the unfunded liability, which the BOE was required to pay. The Board further noted the BOE had not provided any actuarial evidence to contradict the charges.

On appeal, the BOE disputes the Sidebar Agreement is an ERI. It also contends the Division's delay in asserting its alleged claim against the BOE estops the Division from collecting the assessment. Lastly, the BOE argues it was deprived of the opportunity to challenge the Division's determination and assessment at a hearing.

The scope of appellate review of a final administrative agency decision is limited. In re Taylor, 158 N.J. 644, 656 (1999). Generally, courts "defer to the specialized or technical expertise of the agency charged with administration of a regulatory system." In re Application of Virtua-West Jersey Hosp. for a Certificate of Need, 194 N.J. 413, 422 (2008). For those reasons, "an appellate court ordinarily should not disturb an administrative agency's determinations or findings unless there is a clear showing that (1) the agency did not follow the law; (2) the decision was arbitrary, capricious, or unreasonable; or (3) the decision was not supported by substantial evidence." Ibid. "Where . . . the determination is founded upon sufficient credible evidence seen from the totality of the record and on that record findings have been made and conclusions reached involving agency expertise, the agency decision should be sustained." Gerba v. Bd. of Trs. of the Pub. Emps. Ret. Sys., 83 N.J. 174, 189 (1980) (citing Close v. Kordulak Bros., 44 N.J. 589, 599 (1965)).

Applying those principles, we affirm, substantially for the reasons given by the Board of Trustees in its final written determination. The Board of Trustees' determination was supported by sufficient credible evidence seen from the totality of the record, and the Board of Trustees reached its conclusion based on its agency expertise.

The BOE's assertions that the Board of Trustees is estopped from taking agency action, and the BOE's claim that it was denied a hearing on disputed issues, are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(D) and (E). We add only these comments. The BOE did not justifiably rely upon any action taken by the Division. To the contrary, the BOE approved the Sidebar Agreement without consulting the Division or obtaining approval and then implemented the Sidebar Agreement after receiving a letter from the Division stating approval was required before such a plan could be implemented.

The BOE's argument that it was not provided a fair opportunity to challenge the Division's assessment is belied by the record. The Division and Board of Trustees reduced the assessment based on challenges presented by the BOE. As to the actual actuarial computations, we agree with the Board of Trustees the BOE has provided no actuarial evidence to contradict the charges.

Affirmed.