July 12, 2007
IN THE MATTER OF PATRICIA FRANK
On appeal from Board of Trustees of the Public Employees Retirement System, Docket No. PERS 2-10-155806.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 1, 2007
Before Judges Skillman and Grall.
Patricia Frank appeals from a final order of the Board of Trustees of the Public Employees' Retirement System (the Board) requiring her to repay disability retirement benefits for years 2000 through 2004 in the amount of $15,954.93. The Board rejected the factual findings and legal conclusions of an Administrative Law Judge (ALJ), who determined that fairness required repayment in a reduced amount, $6411.76. We conclude that the Board improperly rejected the ALJ's credibility findings, N.J.S.A. 52:14B-10(c), and failed to give adequate weight to Frank's reliance on misinformation provided by an employee of the Division of Pensions and Benefits (Division) that was substantially consistent with information disseminated by the Division. Accordingly, we reverse.
There is no dispute that Frank received a disability retirement allowance to which she was not entitled during the relevant years. Her disqualification is based on her acceptance of new employment in a position that made her eligible to participate in the Public Employees' Retirement System (PERS). The disqualification is statutory. In pertinent part N.J.S.A. 43:15A-44 provides:
b. If a disability beneficiary becomes employed again in a position which makes him eligible to be a member of the retirement system, his retirement allowance and the right to any death benefit as a result of his former membership, shall be canceled until he again retires.
Pursuant to N.J.S.A. 43:15A-7d an employee working in a position included in PERS is ineligible for enrollment if his or her "annual salary or remuneration is fixed at less than $1,500.00." After retiring on ordinary disability, Frank accepted a new job with her former employer that made her eligible to participate in PERS and received annual remuneration in excess of the $1500 limit. On that basis she was not entitled to her retirement allowance while so employed. Frank does not dispute that point. She contends that because an employee of the Division misinformed her and her employer about the criteria for loss of her retirement allowance and because the Division delayed in bringing the disqualification to her attention, that it is not equitable for the Board to require her to repay her earnings from her part-time work, which will be a severe hardship.
Frank was born on July 24, 1935, and enrolled in PERS on January 1, 1985, after accepting employment as a custodian at the Gloucester County Vocational-Technical School. She worked in that position until she retired. On August 1, 1998, the Board determined that Frank was totally and permanently disabled so as to preclude her performance of the duties of a custodian and awarded her an ordinary disability retirement.
On September 24, 1998, Frank accepted a part-time position at the Gloucester County Vocational-Technical School as a cashier in the school's cafeteria. Prior to taking the job, Frank and her employer's payroll coordinator, Kelly Rider, contacted the Division. Frank explained that she had retired on disability and was returning to work for the same employer. She was told that she could return to work in a different position so long as her annual earnings did not exceed $9300. Rider also called the Division to inquire about Frank's ability to return to work as a part-time cashier. She too explained that Frank was a disability retiree. She was told that Frank could return to a new job if her annual earnings did not exceed $10,000, which Rider described as applicable to ordinary retirees. Rider was also told not to take pension reductions from Frank's pay. Frank's annual earnings from her part-time employment never exceeded $10,000.
A pamphlet entitled "Public Employees' Retirement System Member Handbook: July 1997" includes information relevant to reemployment of retirees. Rider gave that pamphlet to Frank. It includes the following information:
RETURNING TO A POSITION UNDER PERS -- If you accept regular full or part-time employment in a position covered by PERS and expect to receive a base salary over $10,000, you must reenroll in PERS as a condition of your employment. Your retirement allowance will be cancelled for the duration of your employment. . . .
If you return to employment under PERS and are eligible for membership and you fail to enroll, you would be required to reimburse the retirement system in the amount of all retirement benefits you received since the date you should have enrolled. . . . . . . .
DISABILITY RETIREES RESTORED TO ACTIVE SERVICE -- When you return to employment in a position covered by PERS, you enroll again in the retirement system. Deductions for pension are resumed and you are treated as active in all respects. Upon subsequent retirement, you will receive a benefit based on total service.
DISABILITY RETIREES -- Your annual retirement allowance may be adjusted if you have earnings from employment after retirement.
The law states that the pension of such a retiree shall be reduced to an amount which, when added to the amount being earned by the retiree, does not exceed the amount of salary currently attributable to the former position of the retiree.
Frank's earnings in her part-time position were as follows: 2000, $2876.73; 2001, $3062.15; 2002, $3604.29; 2003, $3239.01; 2004, $3172.75, a total of $15,954.93. Her retirement allowance during the same period amounted to a total of $49,209.76.
Frank did not learn that the Division viewed her part-time employment as problematic until December 2004. She was sixty-nine years of age at that time. In 2004 employees of the Division's auditing section gained access to records of earnings kept by the Department of Labor. The records permitted them to identify disability retirees whose earnings or employment in the public sector disqualified them from receiving their retirement allowance. Frank was one.
By letter dated December 22, 2004, the Division informed Frank that it had reviewed her "post-retirement earnings history through the Department of Labor and determined" that her employment in a position that made her "eligible for enrollment in the PERS" required termination of her retirement allowance and repayment of benefits she had received since her reemployment. She was given a date by which she must resign in order to avoid termination of her retirement allowance. She was also informed that the Division would notify her of the amount she owed for benefits previously paid. Frank resigned from her part-time position before the deadline. She was required to repay $49,209.76, an amount equivalent to the retirement benefits she received during the period between January 1, 1999 and December 31, 2004.
Frank filed a challenge to the Division's determination with the Board. She asserted that the Division advised her that she could work for her former employer as a part-time cashier without jeopardizing her pension benefits, the Division delayed in correcting that misinformation and repayment of $49,209.76 would be a severe hardship because that amount exceeded her total earnings during the relevant period.
The Board reduced Frank's obligation and required her to repay an amount equivalent to her earnings. Frank requested an administrative hearing, and the Board referred the matter to the Office of Administrative Law for a hearing.
The ALJ heard testimony from Frank, Rider and an employee of the Division's auditing section and considered documentary evidence including the PERS handbook, portions of which are quoted above. The ALJ found that Frank and Rider gave credible testimony and that an employee of the Division had misinformed them. Despite that factual finding, the ALJ concluded that Frank was required to know the law and that the misinformation did not rise to the level of grounds for "equitable estoppel." Recognizing that the Board had weighed the equities in determining to forego full payment of the retirement allowance, the ALJ concluded that the Board gave too little weight to the Division's delay and the misinformation Frank and her employer received in response to their efforts to comply with the law. On that basis, the ALJ recommended that the Board fix Frank's obligation at $6411.76 to reflect better the shared responsibility for Frank's misunderstanding of the law.
The Board rejected the ALJ's findings and recommendation. Noting that Frank and Rider could not identify the Division employee to whom they spoke or provide a writing to confirm that they asked the proper questions, "the Board concluded that it did not have a fair opportunity to refute the testimony." The Board concluded that the ALJ's findings as to credibility were unreasonable and not supported by sufficient credible evidence in the record. The Board also found that the ALJ's decision to reduce the repayment amount was inconsistent with the ALJ's determination that Frank failed to establish grounds for application of the doctrine of equitable estoppel. On that basis, the Board affirmed its prior order requiring repayment in the amount of $15,954.93.
Frank raises two issues on appeal:
I. THE COURT SHOULD OVERRULE THE DECISION OF THE [BOARD] BECAUSE IT WAS ARBITRARY, CAPRICIOUS, UNREASONABLE AND NOT SUPPORTED BY THE EVIDENCE IN THE RECORD.
II. THE [BOARD] IMPROPERLY APPLIED THE DOCTRINE OF EQUITABLE ESTOPPEL AND REJECTED THE INITIAL DECISION OF [THE ALJ].
The Board did not have an adequate basis for rejecting the credibility findings made by the ALJ. No agency head may "reject or modify any findings of fact as to issues of credibility of lay witness testimony unless it is first determined from a review of the record that the findings are arbitrary, capricious or unreasonable or are not supported by sufficient, competent, and credible evidence in the record."
N.J.S.A. 52:14B-10(c). The Board relied only on its inability to refute the witnesses' testimony about information given by a Division employee that they could not identify and the witnesses' inability to produce a writing to establish that they had asked the Division employee the right questions. We fail to see the relevance of either ground under the statutory standard for rejection of an ALJ's credibility findings.
Frank and Rider, an employee responsible for payroll who had no apparent personal interest in the outcome of Frank's case, gave substantially consistent testimony describing their inquiry and the response they received from the Division. That testimony was consistent with the description of limitations on earnings included in the official pamphlet for retirees quoted above. The pamphlet states a $10,000 limit on earnings and does not state a different dollar limit in discussing earnings of disability retirees. It describes a limitation on earnings of disability retirees only in terms of enrollment in PERS and a differential between retirement allowance plus earnings and current salary earned by workers in the retiree's former position. The employer was told not to enroll Frank in PERS.
Measured against the standard codified in N.J.S.A. 52:14B-10(c), the ALJ's credibility findings were neither arbitrary, capricious nor unsupported by the record. The Board was not free to reject them. Accordingly, the Board and this court must accept the ALJ's finding that Frank and Rider were credible when they testified that the Division advised both that Frank could work in her part-time position at the pay she received without jeopardizing her disability retirement allowance.
Frank's diligent effort to conform with the law and reasonable reliance on misinformation received from an employee of the Division is relevant to the equities implicated by a repayment of her meager earnings over the four-year period. "Equitable estoppel is rarely invoked against a governmental entity." Middletown Twp. Policemen's Benevolent Ass'n Local No. 124 v. Twp. of Middletown, 162 N.J. 361, 367 (2000) (internal quotations omitted). Nonetheless, "[e]quitable considerations are relevant in assessing governmental conduct and impose a duty on the court to invoke estoppel when the occasion arises."
Ibid. (internal quotations omitted); see Hemsey v. Bd. of Trs. of Police & Firemen's Ret. Sys., ___ N.J. Super. ___ (App. Div. 2007) (slip op. at 12-13) (quoting O'Malley v. Dep't of Energy, 109 N.J. 309, 315 (1987)). Where pension benefits have been paid to one not entitled to receive them, the Supreme Court has recognized that the equities under the facts and circumstances of the case may "justify the conclusion that the merits [of the pensioner's entitlement] should not be reexamined." Skulski v. Nolan, 68 N.J. 179, 200 (1975). This court has determined that the equities of a particular case may require the Board to forego the collection of benefits paid in error. See Hemsey, supra, ___ N.J. Super. at ___ (slip op. at 13-14); Indursky v. Bd. of Trs. of Pub. Employees' Ret. Sys., 137 N.J. Super. 335, 343 (App. Div. 1975).
Factors relevant to the balance of equities in this context include the Board's obligation to protect public pension funds, the pensioner's good faith belief in entitlement, change of position in reasonable reliance on governmental conduct, including conduct involving the giving of erroneous advice, opportunities the pensioner has lost and whether the administrative agency acted with reasonable diligence. See Skulski, supra, 68 N.J. at 200; Hemsey, supra, ___ N.J. Super. at ___ (slip op. at 13-14); Indursky, supra, 137 N.J. Super. at 343; Tubridy v. Consol. Police and Firemen's Pension Fund Comm'n, 84 N.J. Super. 257, 264 (App. Div. 1964). The pensioner has the burden of proof. Skulski, supra, 68 N.J. at 200. The measure is "manifest injustice" considering the prejudice to government functions and "interests of justice, morality and common fairness." See Aqua Beach Condo. Ass'n v. Dep't of Cmty. Affairs, 186 N.J. 5, 20 (2006); Middletown, supra, 162 N.J. at 372.
The Board's demand for repayment was unreasonable and inequitable under the rather unique circumstances of this case. After Frank retired due to her inability to perform the duties of a custodian, her former employer offered her part-time work of a different type. Confronted with printed materials that were less than clear in explaining restrictions on Frank's future earnings and employment, she and her employer undertook to determine whether she could accept the new work without jeopardizing her disability retirement allowance. They reasonably contacted the agency responsible for administering the retirement system and were misinformed. As a consequence of the misinformation provided by a Division employee, Frank accepted the job. She never earned half the amount that the Division employee told them she could earn. The inherent unfairness of a demand for repayment in these circumstances is apparent. In effect, Frank and her employer were given permission to do what they did. Frank's annual post-retirement earnings with her former employer, when compared with the $1499 amount she was permitted to earn in a PERS job pursuant to N.J.S.A. 43:15A-7d, were not so great as to interfere with government operation or policies.
We recognize and have considered the importance of the Board's responsibility to preserve the pension fund in the public interest, which we must weigh against Frank's reliance on the misinformation provided by the Division. Tubridy, supra, 84 N.J. Super. at 264. We conclude that the equities weigh heavily in favor of Frank.
This court's decisions in Hemsey and Indursky are instructive with respect to the balance of public and private interests at stake. In both cases the disability retiree inquired of the Division about the impact of reemployment on disability retirement benefits. Hemsey, supra, ___ N.J. Super. at ___ (slip op. at 7-8); Indursky, supra, 137 N.J. Super. at 338. Indursky did not receive a response for more that six years, at which point the Board demanded repayment of a portion of the benefits that were paid in error. 137 N.J. Super. at 339-42. Keenan, one of two retirees whose claims are addressed in Hemsey, received misinformation. ___ N.J. Super. at ___ (slip op. at 8). In Indursky we found that the "the retiree . . . plainly relied on the payments he thought his due." 137 N.J. Super. at 344. Concluding that "[e]very equity in th[e] record predominate[d] in appellant's favor," we held that the Board, which did not respond to the retiree's inquiry with reasonable diligence, could not demand a repayment of benefits. Id. at 344. In Hemsey, we held that Keenan's exercise of "due diligence" and "reasonable reliance" on misinformation provided by a Division employee precluded imposition of a "financially ruinous" obligation to repay pension benefits in the amount of $450,000. ___ N.J. Super. at ___ (slip op. at 14).
We recognize that there are differences between the facts of this case and Indursky and Hemsey, but the balance of equities compels the same result here. The Board took action to recover erroneous payments long after Frank made diligent efforts to comply with the law and avoid loss of benefits and reasonably relied on advice that she could proceed. When she first received notice of her obligation to repay benefits she was nearly seventy years of age. The amount she was required to repay, while far less than the amount at issue in Hemsey, is quite significant when considered in light of the fact that the income she received from her post-retirement work never exceeded the permissible amount by more than $1739. Under these circumstances equity warrants estoppel.
The decision of the Board is reversed, and the order requiring repayment is vacated.
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