On certification to the Superior Court, Appellate Division, whose opinion is reported at 161 N.J. Super. 67 (1978).
For affirmance -- Chief Justice Hughes and Justices Mountain, Sullivan, Pashman, Clifford, Schreiber and Handler. For reversal -- None. The opinion of the court was delivered by Pashman, J. Schreiber, J., concurring. Schreiber, J., concurring in the result.
[79 NJ Page 576] In this case we are called upon to assess the validity of an Early Retirement Remuneration Plan (ERR) agreed to by the Fair Lawn Board of Education (Board) and the Fair Lawn Education Association (Association) -- the majority representative of the Board's teaching employees. For the reasons to be given below, we conclude that the particular plan here at issue: (1) lacks statutory authorization; (2) contravenes this Court's holdings in Jacobs v. New Jersey Highway Auth., 54 N.J. 393 (1969), and State v. State Supervisory Employees Ass'n, 78 N.J. 54
(1978); and (3) is preempted by the comprehensive statutory scheme relating to the operation of retirement benefits. Consequently, that plan cannot be implemented.
On July 1, 1976, the Association and the Board entered into a collective agreement covering the 1976-1977 and 1977-1978 school years. Article VI of that agreement set forth the provisions of the ERR plan whose legality is here in dispute. Under the terms of the contract, teachers between the ages of 55 and 64 who retired prior to September 1, 1977 would receive an additional payment in the amount of $6,000 upon leaving the Board's employ.*fn1 Instructors retiring after the start of the 1977-1978 school year were also entitled to remuneration over and above their normal pension.*fn2 The value of their benefit, however, was dependent upon age, with those relinquishing their positions at an earlier age receiving a larger bonus. The sums to be paid ranged from $500 for a 64-year-old teacher to $6,000 for retiring instructors aged 55 to 57. Four payment options -- including lump sum and various installment alternatives -- were provided. The goals underlying the adoption of this plan were twofold: (1) to "reward loyalty and long years of service," and (2) to encourage early retirements in order that tenured teachers could be replaced by younger, less experienced instructors whose salary levels would be much lower.
Pursuant to terms of the ERR plan, twelve members of the Association notified the Board of their intention to retire early. Prior to accepting their resignations, however, the Board informed them that the payments called for by the plan might be unlawful. This conclusion stemmed from the
Board's perusal of an informal opinion rendered by the Attorney General relating to the validity of a somewhat similar plan which had been adopted by the Rumson Board of Education. According to the Attorney General, the Rumson program constituted an impermissible "modification of the comprehensive, uniform scheme established by the Legislature for the pensioning of members of the Teachers' Pension Annuity Fund." The teachers were therefore given the opportunity to rescind their resignations. Several of them did so.
On June 24, 1977, the Association filed suit in the Chancery Division seeking both a declaration that the ERR plan was valid and specific performance of its terms. The Board -- named as sole defendant -- joined the Teachers' Pension and Annuity Fund (TPAF) as third-party defendant. The pleadings and arguments below demonstrate that of these parties, the Board and the Association are in fact aligned in interest, and that TPAF is the only opponent of the plan.
A plenary hearing was held on July 19, 1977. Two witnesses testified on behalf of TPAF -- Donald M. Overholser, a consulting actuary employed by the firm which had helped set up TPAF, and William J. Joseph, the Director of the Division of Pensions (part of the Department of the Treasury).
Overholser testified that if ERR plans were widely adopted and teachers induced to retire earlier than otherwise would have been the case, TPAF costs would be significantly increased. His firm estimated that a one-year reduction in the average age of retirement would necessitate an $11,865,000 increase in the State's annual contributions to the Fund.*fn3 He admitted that it was impossible to determine prospectively the precise effect this plan would have upon TPAF costs,
instead noting that only in the long run would the actuarial consequences become fully evident.
Director Joseph agreed with Overholser that a wide-spread trend toward early retirement would increase pension costs. He further opined that the ERR plan would likely have the effect of inducing early retirement, for otherwise it would not have been negotiated.
The trial judge held the plan to be valid. He concluded that the Board possessed the statutory authority to negotiate teachers' salaries and pay them in the form of deferred compensation. Moreover, he concluded that even if the ERR plan would adversely affect the funding of TPAF, the plan was permissible because the decreased costs to the school board resulting from the hiring of lower paid teachers would create a net savings in public expenditures.
The Appellate Division reversed. Fair Lawn Ed. Ass'n v. Fair Lawn Bd. of Ed., 161 N.J. Super. 67 (App. DIv. 1978). That court, speaking through Judge Michels, held that "the Legislature has not vested [local school boards with] the power to establish supplemental retirement benefits plans or programs for its teachers." Id. at 73. Rather, the court noted, the Legislature had preempted the field by providing a comprehensive plan of retirement benefits "meticulous in detail." Id. Moreover, the Appellate Division concluded that the plan here at issue would impair the actuarial integrity of TPAF contrary to the mandate of Jacobs v. New Jersey Highway Auth., 54 N.J. 393 (1969). We granted the Association's petition for certification. We now affirm.
Local boards of education are creations of the State and, as such, may exercise only those powers granted to them by the Legislature -- either expressly or by necessary or fair implication. See, e.g., Wagner v. Mayor & Municipal Council of Newark, 24 N.J. 467, 474 (1957); Botkin v.
Borough of Westwood, 52 N.J. Super. 416, 427 (App. Div.), app. dism., 28 N.J. 218 (1958); Belvidere Bd. of Ed. v. Bosco, 138 N.J. Super. 368, 376 (Law Div. 1975). We must therefore determine whether local boards have been delegated the authority to make payments to employees which are unrelated to services rendered for the sole purpose of inducing early retirement.
The trial court held that authorization for the plan could be found in two statutory provisions: N.J.S.A. 18A:27-4 (a local board may set the "terms and tenure of employment, * * * salaries and time and mode of payment thereof * * *") and N.J.S.A. 34:13A-5.3 (public employers and their employees ...