March 8, 2010
GAIL M. COOKSON, PETITIONER-APPELLANT,
BOARD OF TRUSTEES, PUBLIC EMPLOYEES' RETIREMENT SYSTEM, RESPONDENT-RESPONDENT.
On appeal from the Board of Trustees of the Public Employees' Retirement System, Department of Treasury, Docket No. 809892.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued February 1, 2010
Before Judges Lisa and Coburn.
Petitioner Gail Cookson appeals from a final agency decision of the Board of Trustees (Board) of the Public Employees' Retirement System (PERS), rejecting her request to re-enroll in PERS. Cookson initially enrolled in PERS on September 10, 1988, the day she commenced employment as a deputy attorney general, serving in the New Jersey Division of Law. She voluntarily resigned from the Division of Law in 1999, and made a final contribution to her PERS account on September 30, 1999. By the time of her resignation, Cookson had accumulated ten years and nine months of service credit in her PERS account. She has never withdrawn her PERS contributions and therefore has a vested entitlement to a deferred retirement allowance when she reaches the age of sixty. N.J.S.A. 43:15A-38. On May 9, 2007, the New Jersey Legislature enacted Public Law 2007, Chapter 92 (hereinafter "Chapter 92"), which introduced dramatic changes to the system of public pensions in New Jersey. L. 2007, c. 92. Chapter 92 created the Defined Contributions Retirement Program ("DCRP") as an alternative to PERS. L. 2007, c. 92, § 1. Chapter 92 became effective on July 1, 2007. L. 2007, c. 92, § 49.
On January 7, 2008, Cookson was appointed as an administrative law judge by Governor Corzine with the advice and consent of the Senate. The appointment was her first government service since her resignation from the Division of Law in 1999. Due to an error on the part of the Division of Pensions and Benefits (the "Division"), she was initially re-enrolled in PERS. Accordingly, the Division deducted PERS contributions from her first two paychecks. When the Division determined that she was required by statute to participate in DCRP and not PERS, it returned the two PERS deductions and notified her that she was required to enroll in and contribute to DCRP.
Cookson requested reconsideration of the Division's determination, and the Division denied her request. Cookson then filed a timely appeal of the Division's denial with the Board. The Board denied Cookson's request to re-enroll in PERS. Cookson filed a notice of appeal challenging the Board's decision and the matter was referred to the Office of Administrative Law as a contested case before an administrative law judge (the ALJ).
The parties filed cross-motions for summary decision pursuant to N.J.A.C. 1:1-12.5 and submitted a joint stipulation of facts. The ALJ filed a comprehensive written initial decision affirming the Board's determination, and the Board eventually adopted the ALJ's recommendation and this appeal ensued.
Before addressing Cookson's arguments, it will be helpful to discuss the history of the pension schemes implicated in this appeal. PERS, which was established by statute in 1954, L. 1954, c. 84, is one of five state-administered defined benefits retirement systems in New Jersey. Both the employee and her employer are required to make contributions to the employee's personal retirement account. A government employee enrolled in PERS, known as a PERS "member," accrues service credits while working. A PERS member's right to a retirement allowance funded by both her own contributions as well as her employer's vests upon accrual of ten years of service credits. N.J.S.A. 43:15A-38.
At some point it was recognized that the state pension systems, including PERS, were struggling with $18 billion in unfunded liabilities. In response, a Joint Legislative Committee on Public Employee Benefits Reform ("Joint Committee") was formed to make recommendations for new legislation designed to control pension costs and eliminate abuses. The Joint Committee's Final Report was released on December 1, 2006.
On July 1, 2007, the New Jersey Legislature enacted Chapter 92 with the express purpose of "implementing various recommendations of the Joint . . . Committee[.]" L. 2007, c. 92. On the advice of the Joint Committee, Chapter 92 created the DCRP and mandated that certain new government employees enroll in DCRP rather than PERS. DCRP is a "defined contribution plan," which, like a 401(k), does not provide a guaranteed retirement allowance. Instead, the benefit is based on contributions by the employee and employer, the employee's wage history, and investment earnings. Chapter 92 mandates that government officials appointed by the Governor with the advice and consent of the Senate enroll in the DCRP, with certain limited exceptions. N.J.S.A. 43:15C-2(a)(2).
In Point I, Cookson argues that she falls under one of these limited exceptions -- a "grandfather" provision set forth in N.J.S.A. 43:15A-7(b) -- due to her status as a vested PERS beneficiary. In Point II, Cookson argues that if the grandfather provision does not operate to allow her to re-enroll in PERS, then Chapter 92 is void as a violation of her constitutionally- and statutorily-protected vested right to re-enroll. In Point III, Cookson argues that the Board's actions with regard to her attempted re-enrollment in PERS violated the Administrative Procedure Act ("APA"), N.J.S.A. 52:14B-1 to -25.
We first address whether Cookson is entitled to re-enroll in PERS pursuant to the "grandfather" provision set forth in N.J.S.A. 43:15A-7(b).
In Point I, Cookson argues that she is entitled to re-enroll in PERS by virtue of the grandfather provision, which reopens active PERS membership to certain government employees who were "members" of PERS prior to the enactment of Chapter 92 and "continuously thereafter." N.J.S.A. 43:15A-7(b). In support of this proposition, Cookson contends that she remained a member of PERS continuously through her appointment as an administrative law judge. She relies primarily on N.J.S.A. 43:15A-8(a), a statutory provision that reinstates PERS membership where a government employee resumes service within ten years of its discontinuation.
The Board contends that Cookson does not fall within the exception granted by the grandfather provision of N.J.S.A. 43:15A-7(b) because she was no longer a member of PERS when she was appointed an ALJ. According to the Board, her membership in PERS terminated after two years pursuant to the plain language of N.J.S.A. 43:15A-7(e), which provides that "[m]embership of any person in the retirement system shall cease if he shall discontinue his service for more than two consecutive years." The ALJ dismissed Cookson's appeal based upon this same reasoning in his initial decision in favor of the Board.
Following the enactment of Chapter 92, N.J.S.A. 43:15C-2 and N.J.S.A. 43:15A-7 govern eligibility for participation in DCRP and PERS, respectively. N.J.S.A. 43:15C-2 provides, in relevant part:
(a) The following persons shall be eligible and shall participate in the Defined Contribution Retirement Program:
(2) A person who commences service on or after the effective date [July 1, 2007] of this section in an employment, office or position of the State . . . pursuant to an appointment by the Governor that requires the advice and consent of the Senate . . . . [(Emphasis added) (alteration in original)].
The statute thereafter specifically excludes certain individuals from participating in DCRP:
(b) No person shall be eligible to participate in the [DCRP] retirement program with respect to any public employment, office, or position if:
(2) the person is, on the basis of service in that employment, office, or position, eligible for membership or enrolled as a member of . . . [a] retirement system established under the laws of this State . . . . [N.J.S.A. 43:15C-2.]
Chapter 92 also amended the statute governing enrollment in PERS to create a "grandfather provision" that allows certain government employees to remain enrolled in PERS if they were PERS members at the time of the enactment of Chapter 92 and remained members "continuously thereafter." N.J.S.A. 43:15A-7. In pertinent part, that section now reads:
The membership of the [PERS] retirement system shall include:
(b) Any person becoming an employee of the State or other employer after January 2, 1955 . . . . The membership of the retirement system shall not include those persons appointed to serve as described in paragraphs (2) and (3) of subsection a. of section 2 of P.L.2007, c.92 (C.43:15C-2)
[i.e., officials appointed by the Governor with the advice and consent of the Senate], except a person who was a member of the retirement system prior to . . . [July 1, 2007] . . . and continuously thereafter; [N.J.S.A. 43:15A-7 (emphasis added).]
Thus, an official appointed by the Governor with the advice and consent of the Senate and called into service after July 1, 2007, a class to which Cookson admittedly belongs, is only "grandfathered" into PERS if the official was a "member" of the retirement system on July 1, 2007 and "continuously thereafter." Ibid. Otherwise, the appointed official would clearly be required to participate in the DCRP by N.J.S.A. 43:15C-2(a)(2).
The term "member" is not defined by the PERS statute or in PERS regulations. However, within the same section as the grandfather provision is a subsection terminating PERS membership following two years of discontinuance of government service. N.J.S.A. 43:15A-7(e). It reads: "Membership of any person in the retirement system shall cease if he shall discontinue his service for more than two consecutive years." N.J.S.A. 43:15A-7(e) (emphasis added). This subsection was in place before the enactment of the DCRP legislation.
In analyzing the above statutes, we recognize that "the public pension systems are bound up in the public interest and provide public employees significant rights which are deserving of conscientious protection." Zigmont v. Bd. of Trs., 91 N.J. 580, 583 (1983). "[P]ension statutes are 'remedial in character' and 'should be liberally construed and administered in favor of the persons intended to be benefited thereby.'" Klumb v. Bd. of Educ., 199 N.J. 14, 34 (2009) (quoting Geller v. Dep't of Treasury, Div. of Pensions & Annuity Fund, 53 N.J. 591, 597-98 (1969)). Pension statutes must also be liberally construed in favor of public employees because they represent deferred compensation for a government employee's service. Widdis v. Pub. Employee Ret. Sys., 238 N.J. Super. 70, 78 (App. Div. 1990). And, of course, a pension board must deal fairly with its members. See Fiola v. N.J. Dep't of the Treasury, Div. of Pensions, Police & Firemen's Ret. Sys., 193 N.J. Super. 340, 351 (App. Div. 1984).
Statutes are to be given their plain meaning, "unless inconsistent with the manifest intent of the legislature or unless another or different meaning is expressly indicated[.]" N.J.S.A. 1:1-1; Klumb, supra, 199 N.J. at 23-24. "If the plain language leads to a clear and unambiguous result, then [the] interpretive process is over." Richardson v. Bd. of Trs., Police & Firemen's Ret. Sys., 192 N.J. 189, 195 (2007).
An appellate court must give due deference to an agency's findings of fact and law and will not reverse an agency determination unless it is arbitrary, capricious or unreasonable, or it violates expressed or implied legislative policies as set forth in the agency's enabling legislation. Campbell v. Dep't of Civil Serv., 39 N.J. 556, 562 (1963); see also Prado v. State, 186 N.J. 413, 427 (2006). Furthermore, administrative agencies are accorded a high level of deference in interpreting the statutes they are empowered to enforce, Klumb, supra, 199 N.J. at 24 and their interpretations are entitled to "great weight," Nelson v. Bd. of Educ. of Old Bridge, 148 N.J. 358, 364 (1997). However, the interpretation of legislation is ultimately a judicial responsibility and courts are not bound by the agency's interpretation if it is plainly incorrect. Mayflower Sec. Co. v. Bureau of Sec., 64 N.J. 85, 93 (1973).
In the present case, the Board concluded that pursuant to the plain language of N.J.S.A. 43:15A-7(e), Cookson's membership in PERS lapsed after two years following her voluntary resignation from the Division of Law in 1999. Because her PERS membership terminated in 2001, Cookson cannot claim to have been a member before the enactment of Chapter 92 and "continuously thereafter," as required by the grandfather provision of N.J.S.A. 43:15A-7(b). She therefore failed to qualify for the grandfather provision and was required to enroll in DCRP.
Cookson uses several arguments in attempting to escape the conclusion that N.J.S.A. 43:15A-7(e) operated to terminate her PERS membership in 2001. Central to these arguments is N.J.S.A. 43:15A-8(a), a section of the PERS statute that reinstates membership where a government employee returns to service within ten years of discontinuance. That section, which was in place before Chapter 92 and was unchanged by its enactment, provides:
If a member of the retirement system has been discontinued from service without personal fault or through leave of absence granted by an employer or permitted by any law of this State and has not withdrawn the accumulated member's contributions from the retirement system, the membership of that member may continue, notwithstanding any provisions of this act if the member returns to service within a period of 10 years from the date of discontinuance from service.
No credit for pension purposes shall be allowed to the member covering the period of the discontinuance, unless leave of absence shall have been granted by the employer and the board, as provided in section 39 of this act. [N.J.S.A. 43:15A-8(a) (emphasis added).]
Cookson contends that because N.J.S.A. 43:15A-8(a) specifies that the membership of an employee returning to government service within ten years "may continue," she remained a member of PERS from the time of her resignation from the Division of Law and "continuously thereafter" for the purposes of the grandfather provision, notwithstanding the two-year cutoff of N.J.S.A. 43:15A-7(e).
We disagree. Cookson's argument is unavailing. As recognized in the ALJ's decision, which the Board adopted, a plain reading of the above statutory provisions, including N.J.S.A. 43:15A-8(a), leads to an unambiguous result requiring enrollment in DCRP. Under the Board's view, N.J.S.A. 43:15A-8(a) merely provides the right to a resumption or reinstatment of membership; nothing in the language of the statute suggests continuous membership through the entire ten-year period during which a member is entitled to reinstatment. As expressed by the ALJ:
[A]fter two years' separation from government service, petitioner's membership in PERS ended. No PERS service credit accrued thereafter. Irrespective of whether this section is jurisdictional, N.J.S.A. 43:15A-7(e) could not be more unequivocal in its intent to cut off member standing after two years.
The Division was . . . obliged to be prepared for resumption of her membership if she returned to service within ten years of discontinuance of service. N.J.S.A. 43:15A-8a. Apropos of this, it is essential to recognize that the right to "continue" membership, as the latter section expresses the status of returned personnel, would have begun only after return to service in a PERS covered position. This did not occur.
Because of [Chapter 92], petitioner has returned to what is now a DCRP title.
The Board properly concluded that the statutory language of N.J.S.A. 43:15A-8(a) relied upon by Cookson does not establish that she was a member of PERS before the enactment of PERS and continuously thereafter until her appointment as an ALJ.
In further support of its position, the Board argues that N.J.S.A. 43:15A-8(a) is a limited exception that applies only where an employee has been involuntarily terminated from service due to a layoff or workforce reduction initiated by the employer. Indeed, in Lally v. Pub. Employees' Ret. Sys., we affirmed a decision of the Board explicitly recognizing that N.J.S.A. 43:15A-8(a) was limited to circumstances in which a "member . . . is on an approved leave of absence without pay, or his employment terminates through no fault of his own (layoff, abolishment of position)[.]" 246 N.J. Super. 270, 272 (App. Div.) (emphasis added) cert. denied, 126 N.J. 332 (1991); see also Del Pomo v. Bd. Of Trs., Pub. Employees Ret. Sys., 252 N.J. Super. 430, 433 (App. Div. 1991) (recognizing N.J.S.A. 43:15A-8(a) as a "discrete and limited exception").
Although the Board's narrow interpretation of N.J.S.A. 43:15A-8(a) was not a stated basis of the decision adopted by the Board, it is a reasonable reading of the statutory language; that language grants the benefit of reinstatement in PERS within ten years only to PERS members who "ha[ve] been discontinued from service without personal fault or through leave of absence granted by an employer . . . ." N.J.S.A. 43:15A-8(a). It is uncontested that Cookson resigned of her own volition and was not on an approved leave of absence. Because a narrow interpretation of N.J.S.A. 43:15A-8(a) is faithful to the statutory language and is supported by case law, it provides an alternative basis for affirmance.
Cookson cites cases, regulations, and informal administrative materials in support of her contention that she remained an "inactive member" of PERS continuously through the time of her appointment and therefore fell within the ambit of the grandfather clause of N.J.S.A. 43:15A-7(b). Cookson further claims that the Board's current position is contrary to positions it assumed in prior adjudications and therefore violates the doctrine of judicial estoppel. But the cases, regulations, and informal administrative materials cited do not justify rejecting the Board's reasonable interpretation of the plain language of the relevant statutory provisions governing membership in PERS and DCRP, and these arguments are without sufficient merit to warrant extensive discussion. R. 2:11-3(e)(1)(E).
Also without merit is Cookson's argument raised in Point II of her brief that she was deprived of a constitutionally-protected vested right to re-enroll in PERS. Cookson argues that if she does not fall within the grandfather provision of N.J.S.A. 43:15A-7(b), then Chapter 92 operates to unlawfully deprive her of a constitutionally- and statutorily-protected vested right to re-enroll in PERS. First, Cookson contends that to deprive her of the right to re-enroll would violate the Contract Clause of the United States Constitution, U.S. Const. art. § 10, cl. 1, and the parallel prohibition on the impairment of contracts found in the New Jersey Constitution, N.J. Const. art. IV, § 7, ¶ 3. Second, Cookson asserts that her right to re-enroll is further protected by N.J.S.A. 43:3C-9.5, a statutory provision recognizing that individuals vested in PERS obtain a legally-enforceable right to pension benefits.
As the Board argues, Cookson's only constitutionally protected right under PERS is her vested right to deferred retirement benefits pursuant to the benefits payment scheme specified in N.J.S.A. 43:15A-38. According to the Board, Cookson's asserted right to re-enroll in PERS can be found nowhere in the text of the statute.
It is uncontested that Cookson, because she was once a vested member of PERS with ten years of service credit, has a "non-forfeitable right to receive benefits as provided under the law governing the retirement system," pursuant to N.J.S.A. 43:3C-9.5(b), which means that her "benefits program . . . cannot be reduced," N.J.S.A. 43:3C-9.5(a). The pertinent question is whether the Legislature, in guaranteeing vested PERS beneficiaries with five years of service credit the "nonforfeitable right" specified above, intended that such right would encompass the ability to re-enroll in PERS, and not merely protect the right to receive PERS benefits in the amount and form prescribed by N.J.S.A. 43:15A-38.
"To be an unconstitutional impairment of contracts, legislation (1) must substantially impair a contractual relationship; (2) must lack a significant and legitimate public purpose; and (3) must be based upon unreasonable conditions and be unrelated to appropriate governmental objectives." State Farm Mut. Auto. Ins. Co. v. State, 124 N.J. 32, 64 (1991). Generally, "absent some clear indication that the legislature intends to bind itself contractually, the presumption is that 'a law is not intended to create private contractual or vested rights but merely declares a policy to be pursued until the legislature shall ordain otherwise.'" Nat'l R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry. Co., 470 U.S. 451, 465-66, 105 S.Ct. 1441, 1451, 84 L.Ed. 2d 432, 466 (1985) (quoting Dodge v. Bd. of Educ., 302 U.S. 74, 79, 58 S.Ct. 98, 100, 82 L.Ed. 2d 57, 62 (1937)).
We find no "clear indication" in the language of N.J.S.A. 43:3C-9.5 evincing a legislative intent to confer a contractual right to re-enroll in PERS. Nat'l R.R. Passenger Corp., supra, 470 U.S. at 465-66, 105 S.Ct. at 1451, 84 L.Ed. 2d at 446.
Finally, we address Point III, which alleges that the Board's actions violated the Administrative Procedure Act. First, Cookson generally asserts that the Board violated the APA by failing to promulgate any rules implementing Chapter 92. Second, she argues that the Board violated the principles set forth in Metromedia Inc. v. Dir., Div. of Taxation, 97 N.J. 313, 331-32 (1984), by revising "Fact Sheet #80" without following proper rulemaking procedures.
An agency is not required to promulgate rules clarifying every potential ambiguity in the statute it is charged with enforcing. Rather, administrative agencies have "wide latitude in improvising appropriate procedures to effectuate their regulatory jurisdiction." Metromedia, supra, 97 N.J. at 333. Moreover, "[a]n agency has discretion to choose between rulemaking, adjudication, or an informal disposition in discharging its statutory duty, provided that it complies with due process requirements and the Administrative Procedure Act." Nw. Covenant Med. Ctr. v. Fishman, 167 N.J. 123, 137 (2001). We perceive no basis for saying that the Board could have decided the case without adoption of a rule.
Cookson's second argument appears to be premised on a misunderstanding of Metromedia. The Metromedia test is meant to "determine in a given case whether the essential agency action must be rendered through rule-making or adjudication." Supra., 97 N.J. at 332. In the case at bar, the only "action" taken by the Board was its determination, in a contested case pursuant to the adjudicatory procedures set forth in N.J.S.A. 52:14B-9,*fn1 that Cookson does not fall within the grandfather provision of N.J.S.A. 43:15A-7(b). The fact sheets had no role in the action taken by the Board. As stated by the Board without challenge by Cookson, the Board did not rely upon any of the fact sheets that address her status under the relevant statutes, but rather undertook to interpret the statutes. The Board was entitled to ignore any provisions in the fact sheets and handbook that conflicted with its interpretation of the statute because those provisions were not administrative rules promulgated in accordance with the APA's procedural requirements. Nor was the Board required by the APA to adopt formal revisions to its informal materials. It is therefore inappropriate to address the Board's issuance of the fact sheets within the Metromedia framework.
Instead, the question is whether the Board's action - its determination within a contested case that Cookson is ineligible for re-enrollment in PERS - constituted de-facto rulemaking under the Metromedia test, thereby requiring formal rulemaking procedures. It is clear that the Board's determination that Cookson does not fall within the grandfather provision of N.J.S.A. 43:15A-7(b) did not constitute the de-facto promulgation of a rule under Metromedia. The Board's action was an adjudication of a contested case and not an announcement of a rule. The action was not "intended to have wide coverage encompassing a large segment of the regulated or general public"; it was not "designed to operate only in future cases"; and it did not "prescribe a legal standard or directive that is not otherwise expressly provided by . . . the enabling statutory authorization." Metromedia, supra, 97 N.J. at 331 (emphasis added). An agency is not required to engage in the rule-making process every time it construes a statute during a contested case. It need not do so here.