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Fraternal Order of Police v. Board of Trustees of the Police and Firemen's Retirement System

June 01, 2001


Before Judges Coburn, Lefelt and Axelrad.

The opinion of the court was delivered by: Coburn, J.A.D.


Argued May 16, 2001

This is an appeal from a final administrative determination by the Board of Trustees of the Police and Firemen's Retirement System. The appellants, Pennsauken police officers and their union, initiated these proceedings because the Board adopted a new regulation defining in greater detail the forms of compensation not subject to pension contributions and not creditable for retirement and death benefits. The appellants recognized that the regulation cast doubt on a prior ruling they had obtained from the Board. That ruling approved as creditable a negotiated salary increase for officers with twenty-two years of service that was given in exchange for the waiver of other compensation, not subject to pension contributions, received by the officers during their prior years of service. On this occasion, applying the new regulation, the Board ruled that the increase was extra compensation granted primarily in anticipation of retirement and therefore not creditable. Appellants appeal, and we affirm.

The relevant facts are not in dispute. In 1986, the Superior Officers Association ("SOA"), a subgroup of appellant Fraternal Order of Police, Garden State Lodge #3 ("FOP"), obtained the pay step in question for its members during negotiations with the Township of Pennsauken. In 1989, the FOP obtained the increment for Patrol Officers and Detectives. The increment, referred to as "senior status" has been incorporated in substantially similar form in all subsequent contracts negotiated by these parties.

The contracts list the base salaries for officers in a given title for each of the contract years covered by the agreement. The basic titles in the SOA agreements were Sergeant, Lieutenant, and Captain. Initially, the FOP agreements showed salaries for Detectives and for Patrolman positions with one, two, and three years of experience. Beginning in 1994, the FOP agreement included another position, Cadet, for officers still undergoing Police Academy training, and expanded the Patrolman pay schedule to eight steps, so that the upper level of pay (excluding "senior status") was not reached until the eighth year of employment instead of the third. That agreement also eliminated the earlier agreements' distinctions between Senior Patrolman and Senior Detective, creating instead a combined Senior Officer category, receiving the higher pay level that the Senior Detective title had carried. The current FOP agreement continued the scheme of eight steps of Patrolman salaries, plus higher salaries for Detectives and Senior Officer.

The agreements also provided that "all Police Officers, upon completion of twenty-two (22) years of service as a Police Officer, shall attain the position of" either "Senior Patrolman, or Senior Detective depending upon their assignment" and that superior officers would be called "Senior Sergeant, Senior Lieutenant, or Senior Captain, depending upon their rank."

In the SOA agreement, salaries for the contract years were shown for the Sergeant, Lieutenant, and Captain positions, and for the Senior Sergeant, Senior Lieutenant, and Senior Captain positions. The salary differences between the listed salaries for the "Senior" and "non-Senior" versions of each rank for the last year of the SOA 1998-2001 agreement are as follows: $11,893 difference between Senior Sergeant ($80,566) and Sergeant ($68,673); $12,884 difference between Senior Lieutenant ($88,022) and Lieutenant ($75,138); and $13,878 difference between Senior Captain ($93,161) and Captain ($79,283).

Similarly, in the most recent FOP agreement, salaries for 1997 through 2001 were shown for the Patrolman, Detective and Senior Officer positions. For 2001, the top rate, eighth step Patrolman salary was $56,626, and the Detective salary was $61,169. Compared to the $71,704 Senior Officer salary, these salaries were less by $15,078 and $10,535, respectively.

Under both SOA and FOP agreements, officers also received longevity pay, compensable at the following rates: 3% for years five through nine; 4% for years ten through fourteen; 5% for years fifteen through nineteen; 6% for years twenty through twenty-two. After twenty-two years of service, the police officer would no longer receive longevity pay.

Additionally, under both SOA and FOP agreements, officers received annual vacation leave, allocated at the following annual amounts: fifteen days for the first year; seventeen days for years two through four; twenty days for years five through nine; twenty- three days for years ten through fourteen; twenty-six days for years fifteen through nineteen; twenty-nine days for years twenty through twenty-two. After twenty-two years of service, the police officer would no longer receive any additional vacation days. Police officers were permitted to "sell back" unused vacation days for additional pay each year, subject to certain restrictions. Longevity pay and pay for selling back leave were distributed to officers in a separate check each year in early December. Neither was subject to pension contributions.

In his letter of July 25, 1997, addressed to the Board, the township administrator explained the background leading to the creation of the concept of "senior status," clearly indicating the link between it and the waiver of the non-pensionable forms of compensation paid during an officer's first twenty-two years of service:

The Township of Pennsauken and the Superior Officers Association during labor negotiations for the contract beginning July 1, 1986 reached an agreement providing for an additional pay step when an officer completes his 22nd year. The Township, in agreeing to this additional pay step back in 1986, negotiated a concession from the officers that at the time of this step increase they would no longer be eligible for or receive longevity pay or receive vacation days or compensation for non use of same. For lack of a better word, the Township and the S.O.A. agreed to calling this step increase Senior Officer status. As is off-times [sic] the case, when the F.O.P. began their labor negotiations with the Township of Pennsauken for a contract beginning July 1, 1989 also placed on the table was a request to receive Senior Officer status under identical terms and conditions as the Superior Officers had received in their contract. The Township of Pennsauken in consideration of other concessions and economic advantage to the Township agreed to this item as one of the negotiated positions that ultimately lead to ratification of the F.O.P. contract effective July 1, 1989. That language has existed in both the S.O.A. contracts and the F.O.P. contracts ever since. [Emphasis added.]

On September 17, 1997, in response to that letter, the Board indicated that it "is now satisfied that the Township of Pennsauken is in total compliance with the New Jersey Statutes and Administrative Code governing creditable salary."

In February 2000, the Board amended the applicable regulation, thereby precipitating the appellants' request for a ruling acknowledging the "senior status" increments as pensionable.*fn1 Reversing the position previously taken, the Board issued a final administrative determination, which, in relevant part, states the following:

Following its review, it was the Board's determination to deny Senior Officer pay as creditable for pension purposes. The Board considered the fact that in the 22nd year of service a member is unable to accumulate any additional vacation and also loses longevity pay, which until that point was paid in lump sum. The Board noted the contract calls for the creation a Senior Officer salary classification for those who have completed 22 years of service. The Board finds this step increase in salary in conjunction with the loss of benefits simultaneously occurring in the 22nd year in violation of N.J.A.C. 17:4- 4.1(a)2vi, which is cited below:

Sell-backs, trade-ins, waivers, or voluntary returns of accumulated sick leave, holiday pay, vacation, overtime, compensatory time, or any other payment or benefit in return for an increase in base salary;

However, the Board considered the fact that it had previously reviewed this matter in 1997, prior to the adoption of the revised rule on creditable compensation, and approved this Agreement. In light of that fact, the Board does not intend to act contrary to advice given in 1997 until the expiration of the "grandfather" period set forth in N.J.A.C. 17:4-4.1(i). Therefore, Pennsauken may consider the provisions of this contract valid until a new contract is negotiated or December 31, 2001, whichever occurs first.

The appellants contend that the Board's determination is contrary to the applicable statute, inconsistent with its own regulation, and arbitrary. Alternatively, they argue that the Board should be estopped from enforcing the regulation as to them because of its prior decision approving the "senior status" pay raise as pensionable. More specifically, they argue that "senior status" pay meets the requirements of the statute and regulation because it is part of an established policy for all employees in the same position and does not include an individual salary adjustment granted primarily in anticipation of a member's retirement. They also argue that the Board inappropriately presumed that there was a quid pro quo because the creation of "senior status" occurred in the same negotiation as changes in longevity pay and vacation pay. We reject these arguments as unsound.

Once an administrative agency has issued a final decision, our review is quite circumscribed. In re Taylor, 158 N.J. 644, 656 (1999) (citing Clowes v. Terminix Int'l, Inc., 109 N.J. 575, 587 (1988)). The scope of review is restricted to four inquiries:

(1) whether the agency's decision offends the State or Federal Constitution;

(2) whether the agency's action violates express or implied legislative policies;

(3) whether the record contains substantial evidence to support the findings on which the agency based its action; and

(4) whether in applying the legislative policies to the facts, the agency clearly erred in reaching a conclusion that could not reasonably have been made on a showing of the relevant factors. [Ibid. (quoting Brady v. Board of Review, 152 N.J. 197, 210-11 (1997)).]

Generally, pension statutes should be liberally construed in favor of the public employees intended to be benefitted thereby. Steinmann v. State, Dept. of Treasury, 116 N.J. 564, 572 (1989). Nevertheless, "such construction 'should not obscure or override considerations of . . . a potential adverse impact on the financial integrity of the [f]und.'" Kramer v. Board of Tr. of Pub. Employees' Ret. Sys., 291 N.J. Super. 46, 54 (App. Div. 1996), certif. denied, 148 N.J. 458 (1997) (quoting Chaleff v. Teachers' Pension & Annuity Fund, 188 N.J. Super. 194, 197 (App. Div.), certif. denied, 94 N.J. 573 (1983)). Moreover, the principle that "the actuarial integrity of a state pension plan is not subject to local tinkering" has been held applicable to public sector collective bargaining agreements. Fair Lawn Educ. Ass'n v. Fair Lawn Bd. of Educ., 79 N.J. 574, 582 (1979). Thus, the Fair Lawn Court struck down a provision in a collective bargaining agreement between a local school board and the teachers' union that would have granted bonuses to teachers who chose to retire early. Id. at ...

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