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Demarco v. Board of Trustees of the Public Employees Retirement System

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


June 16, 2008

A. PETER DEMARCO, JR., PETITIONER-APPELLANT,
v.
BOARD OF TRUSTEES OF THE PUBLIC EMPLOYEES RETIREMENT SYSTEM, RESPONDENT-RESPONDENT.

On appeal from Board of Trustees of the Public Employees Retirement System, Department of Treasury.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Submitted May 20, 2008

Before Judges Skillman and Yannotti.

Appellant is presently employed as an assistant prosecutor in the Somerset County Prosecutor's office. Appellant was previously employed as an assistant prosecutor in the EsseX County Prosecutor's office and enrolled in the Public Employees' Retirement System (PERS) in May 1980. Appellant continued in that employment until April 1983, when he resigned. At that time, appellant applied to withdraw his pension contributions and received a check for $2,040.95.

Appellant was temporarily employed as an assistant prosecutor in Somerset County beginning in January 1984 and became permanently employed in that position and re-enrolled in PERS in September 1984. Appellant elected at that time not to purchase service credit for his prior period of service as an assistant prosecutor in Essex County.

Effective January 7, 2002, a statute was enacted creating the Prosecutors Part of PERS, L. 2001, c. 366, N.J.S.A. 43:15A-155 to -161, which provides more generous pension benefits than the regular PERS pension system. Shortly thereafter, appellant applied to the Division of Pensions to purchase service credit for his prior period of service as an assistant prosecutor in Essex County as well as his eight-month period of temporary service in the Somerset County Prosecutor's office. The Division quoted a price for the purchase of this prior service credit, which appellant paid in May 2002.

By letter dated May 22, 2003, the Division of Pensions advised appellant that he had been identified as a Prosecutors Part member, and that as of December 31, 2003, he had eighteen years and four months of service credit in the Prosecutors Part. By letter to the Division, appellant claimed that his Prosecutors Part service credit identified in the May 2003 letter was incorrect because it did not include the forty-eight months of service credit he had purchased in June 2002.

By letter dated June 12, 2003, the Division advised appellant that the Prosecutors Part statute did "not provide for the purchase of additional service credit." Therefore, the service credit he purchased in June 2002 had been applied to his regular PERS account.

Appellant appealed this ruling to the PERS Board. The PERS Board rejected appellant's appeal, concluding that appellant was not entitled to service credit in the Prosecutors Part for service purchased after the effective date of the statute creating that Part.

Appellant requested a hearing regarding his right to credit in the Prosecutors Part for his prior service as an assistant prosecutor and the PERS Board referred the matter to the Office of Administrative Law. The hearing before an Administrative Law Judge (ALJ) consisted of brief testimony by appellant and stipulated facts. The ALJ issued an initial decision, which concluded that the Board had correctly applied appellant's purchased service credit to his regular PERS account rather than to his account under the Prosecutors Part. The PERS Board accepted the ALJ's recommended decision and affirmed its original determination that appellant's purchased service credit did not qualify for inclusion in his Prosecutors Part account.

On appeal, appellant argues that the PERS Board erred in its interpretation of the statutory provision governing the purchase of service credit in the Prosecutors Part. Appellant also argues that if the PERS Board's interpretation is correct, this statutory provision violates his due process, equal protection, and contract rights under the United States and New Jersey Constitutions. We reject these arguments and affirm the PERS Board's final decision.

The statutory provision governing the purchase of service credit in the Prosecutors Part is N.J.S.A. 43:15A-156(a), which provides in pertinent part:

Any service credit which has been established in the Public Employees' Retirement System by a prosecutor prior to the effective date of this act shall be established in the Prosecutors part without further assessment of cost to the prosecutor[.]

Based on an interpretation of this statutory provision by the Attorney General's office, the PERS Board adopted an administrative regulation, which states in pertinent part:

(a) Any active member of the Prosecutors Part may make an optional purchase of service as authorized by N.J.A.C. 17:2-5.5[.]

(b) Any purchase requested after January 7, 2002 shall be credited as regular PERS service in the calculation of benefits[.]

[N.J.A.C. 17:2-8.6.]

The ALJ and PERS Board relied upon this regulation in denying appellant's claim for service credit in the Prosecutors Part for the credit he purchased after the January 7, 2002 effective date of the statute creating that Part.

Our courts will defer to the interpretation of a statute by the agency charged with the responsibility for its administration unless the agency's interpretation is "plainly unreasonable." Matturri v. Bd. of Trs. of the Judicial Ret. Sys., 173 N.J. 368, 382 (2002) (quoting In re Pub. Serv. & Gas Co.'s Rate Unbundling, 167 N.J. 377, 384 (2001)).

The PERS Board concluded that service credit in the PERS system was not "established" prior to the January 7, 2002 effective date of chapter 366 within the intent of N.J.S.A. 43:15A-156(a) unless it was purchased prior to that date. Although there is no definition of "established" in chapter 366 or any other section of the statute governing the PERS, we are satisfied that this interpretation of the statute is not "plainly unreasonable." An employee has no right to service credit for a prior period of public employment unless and until he or she purchases that credit. Before it is purchased, the employee's right to pension credit for prior service is an inchoate right that may never be acquired. Consequently, service credit is not "established" until it is purchased.

Appellant did not purchase his prior service credit for the period of time he was an Assistant Essex County Prosecutor and his eight-month period of temporary service in the Somerset County Prosecutor's Office until after the effective date of chapter 366. Therefore, under N.J.S.A. 43:15A-156(a) and N.J.A.C. 17:2-8.6(b), he was not entitled to have that service credited as Prosecutors Part service.

Appellant's constitutional arguments are clearly without merit and do not warrant extended discussion. R. 2:11-3(e)(1)(E). Appellant's right to apply to the Prosecutors Part only service credit established before the effective date of chapter 366 did not result in an impairment of the obligation of contracts, in violation of Article I, Section 10, Clause 1 of the United States Constitution or Article IV, Section VII, Paragraph 3 of the New Jersey Constitution. A public employee pension, including the right to purchase prior service credit, is purely a matter of legislative policy and does not create any contractual obligation on the part of the employer. See Spina v. Consol. Police & Fireman's Pension Fund Comm'n, 41 N.J. 391, 398-405 (1964). In any event, chapter 366 did not terminate appellant's right to purchase prior service credit. It only provided that prior service purchased after the effective date of chapter 366 would be credited to a prosecutor's regular PERS account rather than to his Prosecutors Part account. Moreover, chapter 366 did not result in any diminution in appellant's entitlement to pension benefits. Under this statute, appellant was guaranteed at least the amount of benefits he would have been entitled to receive if he had remained a member of the regular PERS pension system and also afforded the opportunity to qualify for the enhanced new benefits provided to members of the Prosecutors Part.

"Equal protection does not preclude the use of classifications, but requires only that those classifications not be arbitrary." Doe v. Poritz, 142 N.J. 1, 91 (1995). Appellant has not been deprived of equal protection because N.J.S.A. 43:15A-156 and N.J.A.C. 17:2-8.6 apply to any other similarly situated assistant prosecutor in the same way as to appellant. Specifically, after January 7, 2002 any prosecutor purchasing service credit for employment prior to January 7, 2002 would have the credit applied to a regular PERS pension rather than to a Prosecutors Part pension. Moreover, the State's interest in containing the additional costs resulting from creation of the Prosecutors Part and maintaining the fiscal integrity of the PERS fund provides a rational basis for excluding service credit purchased after the effective date of chapter 366 from the calculation of the enhanced pension benefits provided to members of the Prosecutors Part.

Finally, we note that appellant derives a current benefit from the purchase of service credit in his regular PERS account and that he may be eligible to withdraw the money in that account if he retires on a pension as a member of the Prosecutors Part. As the Attorney General explains in the State's brief:

[T]he purchase and credit to regular PERS benefits [appellant]. He is entitled to use the time credited to his regular PERS account to qualify for medical or other retirement benefits. See N.J.A.C. 17:2-8.8. The time credited to his "regular" PERS account may be used in the calculation of his years of service for purposes of health benefits with the County's health benefit program. N.J.S.A. 40A:10-23. For example, by combining his "regular" PERS time with his PERS Prosecutor's Part time, [appellant] already has in excess of 25 years of service, thus qualifying him for payment of health benefits. However, without the time purchased in the "regular" PERS account [appellant] would not presently have the requisite number of years to qualify for health benefit payments. If [appellant] is able to work until he attains 25 years of service in his Prosecutor's Part account alone, he is eligible to withdraw the money from the "regular" account upon retirement. Thus, the purchase is not useless, as alleged by [appellant], but is surely a present protection and benefit to him.

Affirmed.

20080616

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