On appeal from the Board of Trustees of the Public Employees' Retirement System, Department of Treasury, 2-10-193543.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Skillman, Lisa and Holston, Jr.
This appeal involves the privilege of a State employee enrolled in the Public Employees' Retirement System (PERS) to convert a group life insurance policy, pursuant to N.J.S.A. 43:15A-93, to an individual policy upon retirement, and the consequences of the failure to exercise the privilege during the employee's lifetime allegedly based upon misinformation provided by representatives of the employing agency and the Division of Pensions and Benefits (Division). The PERS Board of Trustees issued a final decision denying the application of appellant, Margaret Mullen, the daughter of the deceased employee, Patrick J. Mullen, for payment of the full life insurance proceeds that would have been due had Patrick exercised his conversion privilege. The Board further determined that no material facts were in dispute and accordingly denied Margaret's alternative application for referral to the Office of Administrative Law (OAL) for a hearing.
When Patrick filed his retirement application, he was terminally ill. Family members made inquiries of his employing agency and the Division regarding benefits due. Appellant contends that misinformation was provided to the effect that no conversion was necessary and that Patrick's retirement beneficiary, his wife, Judith Mullen, would receive for the remainder of her life the applicable monthly pension benefit, and that Patrick's life insurance beneficiary, Margaret, his daughter by a prior marriage, would receive the full amount due under the group life insurance plan. The Board determined that under the applicable statutes, regulations and case law, the failure of Patrick to convert the policy prior to his death precluded recovery of both benefits. As a result, Margaret received a reduced death benefit of $14,561.81, instead of the full death benefit of $232,920.40.
Margaret argues on appeal that (1) pursuant to the plain language of N.J.S.A. 43:15A-93, the life insurance coverage was subject to automatic conversion, (2) the case law relied upon by PERS does not apply because it failed to consider a circumstance in which separate individuals are designated as beneficiaries, and (3) because of the alleged misinformation, good cause exists for reopening the disposition of Patrick's benefits. We reject the first two arguments, but agree with the third. The record contains disputed issues of material fact which require resolution at an evidentiary hearing, and we remand for reference to the OAL for that purpose.
Patrick began working for the New Jersey Department of Agriculture in 1972, and was enrolled in PERS. On March 27, 2003, Patrick went out on medical leave because he was diagnosed with terminal bile duct cancer. His final annual salary for pension calculation purposes was about $77,000.
On April 25, 2003, Patrick filed with the Division a new designation of beneficiary form, superseding others he had filed from time to time during his years of State employment. He designated Margaret as the primary beneficiary of his group life insurance and for return of accumulated deductions, naming Judith as the contingent beneficiary.
On July 29, 2003, Patrick applied for early retirement, effective October 1, 2003. On the application filed with PERS, he chose Option 2, by which his named beneficiary, upon his death, would receive a lifetime monthly allowance equal to 100% of his monthly allowance. He designated Judith as his retirement option beneficiary. He designated Margaret as his primary life insurance beneficiary, with Judith named as the contingent life insurance beneficiary.
On July 30, 2003, Patrick executed a will, in which he left his home to Margaret, but reserved to Judith a life estate. He directed Margaret to "pay off the mortgages on the property with the proceeds of [his] life insurance policy from work." According to Margaret, the mortgage balances approximated $200,000.
On July 31, 2003, Patrick died.
On August 4, 2003, the Division notified Margaret, acknowledging her father's death and advising that upon receipt of his employment records from the Department of Agriculture it would notify her of the benefits to which she was entitled. This letter was written without knowledge of Patrick's recent retirement application, but, instead, in reliance on the April 25, 2003 designation of beneficiary form, in which Margaret was designated as the primary beneficiary in all respects. On August 11, 2003, under the same misconception, the Division notified Margaret that she was entitled to her father's group life insurance proceeds totaling $232,920.40, and a return of employee contributions totaling $97,325.01. These were the benefits due assuming Patrick died in active status.
On August 14, 2003, the Division notified Judith, as the beneficiary of Patrick's pension benefits, that because her husband's death occurred after he "filed for retirement, but before the retirement became effective, [she could] choose to receive [her] benefits payment based on either the Active Status Option or the Retired Status Option." The letter advised that "[t]he two Options differ in the amount of the benefits, the manner of payment, and the potential taxes that you may have to pay." Choosing active status entitled her to a lump sum payment of $97,325.01, with a potential withholding of $18,030.00 for federal income taxes. The retired status option allowed Judith to receive a monthly pension of $3,200.40 for the rest of her life, effective October 1, 2003. No mention was made of life insurance benefits.
On August 19, 2003, the Division notified Margaret "that an error occurred in the processing of Mr. Mullen's claim" because the Division was unaware that an Application for Retirement Allowance Form had been filed at the time the claim was being processed. The Division informed her that "the Retirement Application, which supercedes all other designation of beneficiary forms, . . . designated his wife, Judith, as his beneficiary to receive the pension portion, and he chose you as his beneficiary to receive the group life insurance benefit." As a result, the Division advised that the "claim [was] now being processed in accordance with Chapter 221, which allows the beneficiary of the pension portion to choose an Active Status Benefit or Retired Status Benefit."*fn1 Therefore, Margaret was to "only receive the insurance portion of the death benefit[,] [t]he dollar value of which [was to] be determined when [Judith made] her decision."
On September 7, 2003, Judith elected to receive pension benefits under her husband's retired status. On October 28, 2003, the Division notified Margaret, by way of a "REVISED" letter, that as the beneficiary of the group life insurance policy, she was entitled to $14,561.81.
On January 21, 2004, Judith wrote to the Division seeking to convert the group life insurance alleging that representatives of the Department of Agriculture and the Division had provided misinformation in that regard. Specifically, Judith recounted that when it became apparent that Patrick's death was rapidly approaching, efforts were made to get his affairs in order, including the development of an estate plan and preparation of a will. She and her son by a previous relationship, Tom King, made inquiries about Patrick's benefits. She set forth in detail the following sequence of events:
We were told to contact Joanne Martin [a Division employee] at (609) 633-7906 to apply for a retirement date so that I, Judith N. Mullen, would receive spousal survivorship pension benefits under title 221. I drove to the department and obtained the forms that we needed to submit. One of the forms was to convert Mr. Mullen's group term life insurance over to an individual plan. We contacted Joanne Martin and she had us call Mr. Rick Pagan, the Prudential Group life insurance agent at (877) 889-2070. He suggested that we convert Patrick's group term life insurance to a non-medical policy that would have cost about $800 per month. He also stated that if we converted the life insurance, the family could receive the benefits of both the group and the newly converted life insurance policy. That statement caused some concerns so my son, Tom, contacted Joanne Martin and Marianne Kandrac [a Department of Agriculture employee]. They both stated that there was not a need to convert the group life insurance to the individual as the full group life insurance benefits of three times his salary or approximately $255,000 would be paid out plus the full pension benefits of $3,200 per month would be paid out to me. That information was very important as the life insurance benefits were going to be used to pay-off the mortgage with the remainder going to his legal children and I was to receive the survivor pension. We used that information from Joanne Martin and Marianne Kandrac to prepare and establish the will of Patrick and his lawyer acted on that information to finalize Patrick's estate.
Mr. Mullen submitted the forms requesting a future retirement date by fax to Joanne Martin at (609) 984-5990, on Tuesday, 29 July, 2003 and sent them to the benefits department that same day.
A week or so after Patrick passed away, I applied for the survivor benefits. I went into the benefits office and met ...