On appeal from the Board of Trustees of the Public Employees Retirement System.
Matthews, Morton I. Greenberg and Loftus.
William A. Fasolo appeals from a decision of the Board of Trustees of the Public Employees Retirement System (PERS). The issues raised on this appeal relate to the definition of "compensation" as used in N.J.S.A. 43:15A-6 r. Specifically, we are concerned with whether certain payments made to Fasolo, an attorney at law of New Jersey, by public employers should be considered compensation for purposes of this section.
The procedural background of the matter is somewhat involved. Fasolo was employed by the Boroughs of Demarest and New Milford as borough attorney. Additionally, he was employed on August 20, 1969 by Demarest as "sewer attorney," a position recognized by municipal ordinance.*fn1 Although the New Milford employment lasted from January 1, 1951 until January 1, 1963 and the Demarest employment as borough attorney started January 1, 1953 and lasted until January 1, 1972, Fasolo first applied for membership in PERS by application dated April 1, 1964.*fn2 Fasolo's employment as Demarest sewer attorney lasted until 1975. Fasolo was enrolled in PERS in April 1965 by reason of his employment in New Milford. However, he was not originally admitted into the system with respect to his employment
in Demarest. This employment was rejected because the municipality did not deduct Social Security taxes from any portion of the moneys paid him. In 1971, however, his employment in Demarest as borough attorney was accepted for membership in the fund to the extent of retainer fees paid him.
Fasolo's employment as sewer attorney in Demarest was pursuant to a written contract entered into August 20, 1969. The contract provided that he was to perform legal services for matters arising from the construction of a sewer project in the municipality. The fee to be paid was the lesser of 2 1/4% of the construction costs or $60,000. Subsequently a series of ordinances were passed by the borough establishing the salary for the position. On October 18, 1971 the borough adopted an ordinance establishing the sewer attorney's salary as $5,000 for 1971, from August 1, until the end of the year. The salary was to be paid monthly and was to be inclusive of all legal services except "litigation, arbitration, and condemnations." The exclusion was called for by the agreement of August 20, 1969. The excluded items were to be paid "upon the presentation of bills properly and duly sworn as required by law." The 1972 general salary ordinance provided for a salary to the sewer attorney of $12,000, payable $1,000 monthly. Again it was stipulated that litigation, arbitration and condemnation services would be separately billed. The 1973 salary ordinance was identical with 1972 except that the salary of the sewer attorney was increased to $18,000, payable $1,500 monthly. The 1974 ordinance increased the salary to $25,000 and, as in the case of the previous ordinances, excluded litigation, arbitration and condemnation expenses. A dispute arose, however, within the municipality as to the propriety of this final $25,000 salary. Ultimately the municipality obtained legal advice from an attorney specially hired to determine whether to pay the fee and, as a result, the balance of the $25,000 due Fasolo was paid him. This payment was in addition to a payment to Fasolo in 1974 of $4,917.24 by voucher which apparently was for services related to litigation, arbitration or condemnations.
The record reflects that for some years prior to 1975 there were numerous discussions between PERS and Fasolo with respect to his potential pension. The issues discussed involved his salary as sewer attorney and whether his vouchered fees as borough attorney in Demarest and New Milford would be treated as compensation within N.J.S.A. 43:15A-6 r. As borough attorney Fasolo was paid a retainer fee in each municipality. He also was paid for certain work on the basis of the value for the specific services performed. The fees for such work were billed by Fasolo to the municipality. There seems to be no question but that the vouchered fees were paid to Fasolo with no deductions for pension contributions.
These discussions culminated when after some investigation PERS advised Fasolo by letter of December 17, 1974 that he owed $8,276.09 for contributions on previously unreported income from Demarest, $836.35 for group insurance attributable to his Demarest earnings and $3,861.51 for contributions by reason of his New Milford earnings. PERS also stated that it was billing the municipalities for their payments as well. On January 6, 1975 Fasolo made the requested payments. The consequence was that payments were made on vouchered fees over and above the regular retainers. It also appears that he made contributions as sewer attorney as well.
Notwithstanding Fasolo's payment of the requested sums, PERS was still uncertain as to the items paid him that were compensation for purposes of N.J.S.A. 43:15A-6 r. Accordingly, PERS sought an opinion from the Attorney General as to Fasolo's status. In May 1975 Fasolo reached retirement age. He submitted his retirement application on June 12, 1975. On January 9, 1976 Fasolo's retirement was approved by PERS retroactively to August 1, 1975. The basis was calculated "using the three highest years of reported base salary for the positions of Borough Attorney and Sewer Attorney (including Magistrate's salary and excluding any and all fees)." However this retirement was subject to recalculation when the Attorney General rendered his formal opinion. On October 25, 1976 the
Attorney General by formal opinion advised PERS that the $60,000 salary as sewer attorney and the other vouchered fees should not be considered for pension ...