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In re Puglisi

SUPREME COURT OF NEW JERSEY


May 17, 2006

IN THE MATTER OF ANTHONY F. PUGLISI, JR.

On certification to the Superior Court, Appellate Division.

SYLLABUS BY THE COURT

(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 for the reasons expressed by the Appellate Division. (P. 7)

Judgment of the Appellate Division is AFFIRMED.

CHIEF JUSTICE PORITZ and JUSTICES LONG, LaVECCHIA, ZAZZALI, ALBIN, WALLACE and RIVERA-SOTO join in this PER CURIAM opinion.

Per curiam.

Argued April 4, 2006

Petitioner Anthony F. Puglisi, Jr. served as a police officer for the Police Department of the City of New Brunswick from 1965 until his retirement in 1999. In 1990, Puglisi, who was a lieutenant at the time, and several other police officers filed a civil rights lawsuit in federal court against various City administrators and elected officials alleging that those individuals engaged in political discrimination in violation of two federal civil rights statutes and the New Jersey Constitution. In 1998, Puglisi and his co-plaintiffs reached a settlement with the City as a result of which Puglisi was promoted to the rank of captain and immediately began a one-year terminal leave period at a captain's salary. Puglisi also agreed to retire at the end of the terminal leave period. Finally, Puglisi received $30,000 in compensatory damages. The parties agree 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 Police and Firemen's Retirement System (PFRS), N.J.S.A. 43:16A-1 to -68. 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 his retirement, in a matter unrelated to Puglisi's discrimination lawsuit, an arbitrator settled the terms of a new collective negotiations agreement between the City and the New Brunswick Policemen's Benevolent Association. That agreement included a retroactive increase in base pay 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, however, refused to make the retroactive payment to Puglisi, thereby forcing him to seek relief in federal court to obtain the retroactive pay. The City complied with a federal court order and informed the PFRS of the additional terminal leave pay that was due to 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 only 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 review of the matter, the Committee recommended to the Board that Puglisi "can collect the additional salary as captain, but the additional salary earned . . . is not creditable in the PFRS as he was on terminal leave from the day he was promoted as captain to the date of his retirement."

Puglisi appealed the Committee's recommendation to the Board, arguing 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.*fn1

Puglisi appealed the Board's decision, and the case was transmitted to 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 found that Puglisi's promotion was in anticipation of retirement, and concluded that the promotion could not be considered in calculating his pension payments. Puglisi appealed, and the Appellate Division affirmed the Board's decision. We granted Puglisi's petition for certification, 185 N.J. 391 (2005), and now affirm.

I.

Employees that meet the statutory definition of a police officer, firefighter, and other specific personnel receive pensions and other benefits under the PFRS. N.J.S.A. 43:16A-1 to -68. In determining an individual's pension level, the Board is required by N.J.S.A. 43:16A-1(26) to exclude certain types of compensation:

"Compensation" shall mean the base salary, for services as a member as defined in this act, which is in accordance with established salary policies of the member's employer for all employees in the same position but shall not include individual salary adjustments which are granted primarily in anticipation of the member's retirement or additional remuneration for performing temporary duties beyond the regular workday.

[Emphasis added.]

N.J.A.C. 17:4-4.1(a) also precludes salary adjustments made in anticipation of retirement:

(a) The compensation of a member subject to pension contributions and creditable for retirement and death benefits in the system shall be limited to base salary, and shall not include extra compensation.

1. "Base salary" means the annual compensation of a member, in accordance with established salary policies of the member's employer for all employees in the same position, or all employees covered by the same collective bargaining agreement, which is paid in regular, periodic installments in accordance with the payroll cycle of the employer.

2. "Extra compensation" means individual salary adjustments which are granted primarily in anticipation of a member's retirement or as additional remuneration for performing temporary duties beyond the regular workday. . . .

[Emphasis added.]

Puglisi argues that the Board improperly excluded his promotion to captain and resultant salary increase on the basis that they were "primarily in anticipation of [his] retirement." N.J.S.A. 43:16A-1(26); N.J.A.C. 17:4-4.1(a).*fn2 We find that the Appellate Division correctly analyzed the issue when it stated:

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 retirement allowances without adequate compensation to the [pension] fund" in calculating pensions. Therefore, any salary increase made primarily in anticipation of retirement must be disregarded in determining the amount of a retiree's pension, even if the increase was also designed to achieve other objectives, such as increasing the overall amount of the employee's compensation.

Appellant's promotion to the position of captain and consequent salary increase was an "individual salary adjustment" made "primarily in anticipation" of his retirement within the intent of N.J.S.A. 43:16A-1(26). In fact, pursuant to appellant's settlement agreement with New Brunswick, he stopped working as a police officer and started receiving terminal leave payments at the same time he was promoted. Consequently, appellant's retirement from active duty was not simply anticipated when he began receiving a captain's salary but had actually occurred. Although appellant's promotion also may have served other objectives, such as settling his claims against New Brunswick, conferring him with the status of a captain and granting him higher terminal leave payments, the promotion was nonetheless made in anticipation of appellant retiring and beginning to receive a pension after receiving the one-year terminal leave provided under the settlement agreement. Therefore, the Board correctly concluded that appellant's pension should be recalculated on the basis of a lieutenant's salary.

[Citations omitted.]

We find that the panel's reasoning accords with the purposes and principles undergirding the pension system, and that its conclusion is supported by the law and facts in this matter. We reject Puglisi's remaining arguments for the reasons expressed by the Appellate Division. The judgment of the Appellate Division is therefore affirmed.

CHIEF JUSTICE PORITZ and JUSTICES LONG, LaVECCHIA, ZAZZALI, ALBIN, WALLACE, and RIVERA-SOTO join in this opinion.

Chief Justice Poritz PRESIDING


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