On certification to the Superior Court, Appellate Division.
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
In this appeal, the Court addresses the proper amount of pension benefits a retired policeman should receive under the Police and Firemen's Retirement System (PFRS).
Anthony F. Puglisi, Jr. (Puglisi) served as a police officer for the Police Department of the City of New Brunswick (City) from 1965 until his retirement in 1999. In 1990, Puglisi, a lieutenant, and several other police officers filed a civil rights lawsuit in federal court against various City Administrators and elected officials, alleging that those named individuals engaged in political discrimination in violation of two federal civil rights statutes and the New Jersey Constitution. In 1998, Puglisi reached a settlement with the City, resulting in his promotion to the rank of captain, his immediately commencement of a one-year terminal leave period at a captain's salary, and his agreement to retire at the end of the terminal leave period. Puglisi also received $30,000 in compensatory damages. The parties further agreed that the settlement did not constitute an admission of wrongdoing by the City.
Puglisi retired from the police department as a captain on an age and service pension under the PFRS. He received credit with the PFRS for the year of terminal leave at a captain's salary and thereafter collected retirement checks reflecting the higher salary. Several months after Puglisi's retirement, in a matter unrelated to the 1990 discrimination lawsuit, an arbitrator settled the terms of a new collective negotiations agreement between the City and the Policemen's Benevolent Association. That agreement included a retroactive increase in base salary for all supervisory police and covered the period that Puglisi was on terminal leave. Although Puglisi was no longer on active service, he was deemed entitled to the increase because the arbitrator found that the increase should not be limited to officers on active service.
The City would not make the retroactive payment to Puglisi, forcing him to seek relief in federal court. The City complied with a federal court order and informed the PFRS of the additional terminal leave pay that was owed Puglisi. During the compliance process, the PFRS realized that Puglisi's pension included an increase of pensionable base salary reflecting his promotion to captain when, according to the PFRS, his payments should have been based on his lieutenant's salary. That information was presented to the Committee on Creditable Salary, a committee appointed by the Board of Trustees of the PFRS (Board). After reviewing the matter, the Committee recommended to the Board that Puglisi could collect the additional salary as captain but that the additional salary earned is not creditable in the PFRS since he was on terminal leave from the day he was promoted as captain through the date of his retirement.
Puglisi appealed the Committee's recommendation to the Board, contending that he was entitled to a pension that included the increased captain's salary because he had settled his case against the City with the "expectation that his promotion would result in higher pension payments." In a letter decision, the Board characterized Puglisi's promotion as "severance pay" and informed him that, although he could retain the previous pension overpayments, the Board would reduce his creditable salary, thereby denying him pension benefits based on a captain's salary.
Puglisi appealed the Board's decision before the Office of Administrative Law. An Administrative Law Judge (ALJ) found that Puglisi's promotion was not in anticipation of retirement and ordered the Board to reinstate the higher pension payments. The Board rejected the ALJ's recommended decision, again finding Puglisi's promotion was in anticipation of retirement, and concluding that the promotion could not be considered in calculating his pension payments. Puglisi appealed that decision to the Appellate Division, which affirmed the Board's decision.
The Supreme Court granted certification.
HELD: Because Puglisi's promotion to captain was made primarily in anticipation of his retirement, it must be disregarded in determining the amount of his pension benefit; the appropriate amount of his pension should be calculated on the basis of a lieutenant's salary.
1. In determining an individual's pension amount under the PFRS, the Board is statutorily required to exclude certain types of compensation. One such type - individual salary adjustments that are granted primarily in anticipation of the member's retirement, pursuant to N.J.S.A. 43:16A-1(26). The New Jersey Administrative Code, N.J.A.C. 17:4-4.1(a), also precludes salary adjustments made in anticipation of retirement. (Pp. 4-6)
2. The Appellate Division correctly analyzed the issue when it noted that the purpose of N.J.S.A. 43:16A-1(26) and the implementing regulations is to protect the actuarial soundness of the pension fund by prohibiting the use of ad hoc salary increases intended to increase the retirement benefit without adequate compensation having been made to the pension fund. As such, any salary increase made primarily in anticipation of retirement should be disregarded in determining the amount of the retiree's pension, even if that increase also served other objectives. (P. 6)
3. According to the Appellate Division, Puglisi's promotion to captain and consequent salary increase was an individual salary adjustment made primarily in anticipation of his retirement within the meaning of the statute. Under Puglisi's settlement agreement with the City, he stopped working as a police officer and began receiving terminal leave payments at the same time he was promoted. Although his promotion may have served another objective -- settling his cause of action against the City - the promotion was nonetheless made in anticipation of Puglisi's retirement. The correct pension calculation should be based on a lieutenant's salary. (Pp. 6-7)
4. The Appellate panel's reasoning accords with the purposes and principles that undergird the pension system and the panel's conclusions are supported by the law and facts presented. Puglisi's remaining arguments are rejected ...