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In re Watts


November 23, 2010


On appeal from the Board of Trustees of the Public Employees' Retirement System, Department of Treasury, PERS# 2-10-214029.

Per curiam.


Submitted October 26, 2010

Before Judges Graves and Waugh.

Appellant Frank Watts appeals the final administrative action of respondent Board of Trustees (Board) of the Public Employees' Retirement System (PERS) suspending payment of his retirement benefits pending the disposition of criminal charges arising out of his government service. We affirm.


We discern the following facts and procedural history from the record.

Prior to his retirement, Watts was employed as the assistant director and then director of the physical plant for the University of Medicine and Dentistry of New Jersey (UMDNJ). On July 17, 2006, the Division of Pensions and Benefits (Division) approved his application for early retirement with a service credit of twenty-eight years and ten months, effective July 1, 2006. Watts retired and began receiving his monthly pension benefits.

On March 31, 2009, a State Grand Jury indicted Watts, along with Daniel Cesario and Cesario Construction Company, Inc. (Cesario Construction), on one count of second-degree bribery of a public official, contrary to N.J.S.A. 2C:27.2(c) and (d), and three counts of second-degree official misconduct, contrary to N.J.S.A. 2C:30-2. The indictment alleged that, while Watts was employed by UMDNJ, Cesario constructed a deck and a furnished addition to his home and also provided him with a 1996 Cadillac Deville and a cell phone, all in exchange for providing work for Cesario Construction at UMDNJ.

On May 1, 2009, the Board notified Watts that, at its June 2009 meeting, it would consider whether his retirement benefits should be suspended pursuant to N.J.A.C. 17:1-1.13(a)(4) and N.J.S.A. 43:1-3. Watts retained counsel and made submissions to the Board in opposition to the proposed suspension.

In a June 18, 2009 letter, the Division notified Watts's attorney that the Board had suspended his retirement benefits "based on the nature of the accusation against him and the fact that he has been receiving retirement benefits for more than 3 years." The Division's letter stated that the Board had considered the attorney's statements, his letter of May 20, 2009, and a letter from Watts's psychologist. The psychologist had advised the Board that he had been treating Watts since October 2008 for schizoaffective disorder, major depression, a generalized anxiety disorder, a somatoform disorder and post-traumatic stress disorder.

Watts filed an administrative appeal of the Board's decision, and requested that the matter be transferred to the Office of Administrative Law (OAL) as a contested case. He also requested the Board to stay its decision pending the OAL hearing. On July 30, 2009, Watts's wife, Lillian Watts, wrote to the Board and requested that she be permitted to collect her husband's retirement benefits as a dependent.

On August 21, 2009, the Board notified Watts's attorney that his request for an administrative hearing had been denied, citing the reasons set forth in the Division's June 18, 2009 letter. The Board further advised the attorney that Lillian Watts's request was also denied. Finally the Board stated that it would issue a more formal opinion in the near future.

On September 17, 2009, the Board issued its final determination. The Board denied the request for an OAL hearing because there were no issues of fact, and the case presented "a purely legal question."

The Board denied Lillian Watts's application because it could only pay dependant benefits when a retiree was incarcerated, but not when the retiree's benefits had been suspended. It cited N.J.S.A. 43:1-2.

In its decision with respect to Watts, the Board relied on N.J.A.C. 17:1-6.2 and N.J.A.C. 17:1-13. The latter provides in part: "If a retirant is receiving a retirement benefit, the Boards may suspend retirement benefits pending the outcome of charges including, but not limited to, the following . . . i. An indictment[.]" N.J.A.C. 17:1-13(a)(4). In addition, N.J.A.C. 17:1-6.1(a) provides: "The receipt of a public pension or retirement benefit is expressly conditioned upon the rendering of honorable service by a public officer or employee."

The Board found that the "serious criminal charges" contained in the indictment raised "the possibility" that some of Watts's membership service "may be found dishonorable" under N.J.S.A. 43:1-3. That statute conditions the receipt of public pension or retirement benefits on the rendering of honorable service, and sets forth an eleven-part balancing test for forfeiture of all or part of pension benefits. In addition, the Board explained that "[a] significant basis" for its determination was the fact that $215,800 had already been paid in benefits to Watts. That amount "significantly exceed[ed]" Watts's $58,298 contribution to the system.*fn1

This appeal followed.


"The judicial capacity to review administrative agency decisions is limited." Brady v. Bd. of Review, 152 N.J. 197, 210 (1997). Generally speaking, we will "intervene only in those rare circumstances in which an agency action is clearly inconsistent with its statutory mission or with other State policy." George Harms Constr. Co. v. N.J. Tpk. Auth., 137 N.J. 8, 27 (1994). Only if the agency's action was arbitrary, capricious, or unreasonable should it be disturbed. Brady, supra, 152 N.J. at 210.

"It is well-settled that '[a]dministrative regulations cannot alter the terms of a legislative enactment nor can they frustrate the policy embodied in [a] statute.'" N.J. Ass'n of Realtors v. N.J. Dep't of Envtl. Prot., 367 N.J. Super. 154, 159-60 (App. Div. 2004) (quoting In re Freshwater Wetlands Prot. Act Rules, N.J.A.C. 7:7A-1.1 et seq., 238 N.J. Super. 516, 526, (App. Div. 1989) (citation omitted)). However, when an appellate court reviews an "agency's interpretation of statutes within its scope of authority and its adoption of rules implementing its enabling statutes, [it] afford[s] the agency great deference." N.J. Soc'y for the Prevention of Cruelty to Animals v. N.J. Dep't of Agric., 196 N.J. 366, 385 (2008); In re Agric., Aquacultural & Horticultural Water Usage Certification Rules, N.J.A.C. 7:20A-1.1 et seq. 410 N.J. Super. 209, 222 (App. Div. 2009); see also TAC Assocs. v. N.J. Dep't of Envtl. Prot., 202 N.J. 533, 541 (2010) ("[I]nterpretations of the statute and cognate enactments by agencies empowered to enforce them are given substantial deference in the context of statutory interpretation.").

The Supreme Court has found that "[s]uch deference is appropriate because it recognizes that agencies have the specialized expertise necessary to enact regulations dealing with technical matters and are particularly well equipped to read . . . and to evaluate the factual and technical issues that . . . rulemaking would invite." In re Freshwater Wetlands Prot. Act Rules, 180 N.J. 478, 489 (2004) (citations and internal quotation marks omitted).


Watts argues on appeal that the Board's decision should be reversed because his pension was "summarily suspended without even the hint of due process and in utter contravention of the statutes relating to the forfeiture of public employee pensions." He asserts that the Board's decision was arbitrary and capricious because it acted without express statutory authority and because the regulation upon which it relied, N.J.A.C. 17:1-1.13(a)(4), "must be set aside." Finally, Watts argues that the regulation provides no standards or guidelines for the exercise of the Board's suspension authority and "is inconsistent with the statutes it purports to implement."

The issues presented in this case are similar to those we addressed in Mount v. Trustees of the Public Employees' Retirement System, 133 N.J. Super. 72 (App. Div. 1975). We framed the issues in Mount as follows:

One issue is whether, in the case of a public employee who retired and is receiving a pension under a retirement system, and is thereafter indicted for offenses allegedly committed during his employment, the trustees of the retirement system may, upon notice and after a hearing, suspend further pension payments pending a determination of the indictment. The other, assuming the existence of the power to suspend, is what must be shown at the hearing to warrant such suspension. [Id. at 77.]

We concluded that a pension board has the inherent authority to suspend payment of pension benefits pending the disposition of the criminal matter and the subsequent determination of the effect of any conviction on the retirant's right to receive some or all of the pension benefit in the future. Id. at 85-87.

We reasoned that a public employee's right to receive a pension is conditioned upon having rendered honorable service. Id. at 80-81; see also Corvelli v. Bd. of Trs., Police & Firemen's Ret. Sys., 130 N.J. 539, 550 (1992). That condition exists separately from any statutory requirement. Mount, supra, 133 N.J. Super. at 81. In addition, an administrative agency has "the inherent power to reopen, modify or rehear orders" that it has entered, including a pension award. Id. at 82.

The Board has a fiduciary obligation to protect the pension fund and the interests of all beneficiaries. Id. at 86. If compelled to continue payments pending resolution of criminal proceedings, the Board would be in the problematic position of having to recoup improperly paid benefits if the retirant is found guilty, whereas payments withheld from an exonerated retirant can be paid later. Ibid. After balancing "the statutory policy of safeguarding pension funds against the temporary economic hardship suffered by a pensioner under indictment who is later acquitted, we [were] convinced that the latter must give way to the former." Ibid.

We rejected Mount's reliance on the presumption of innocence that attaches in a criminal context, as well as his contention that the indictment did not constitute prima facie evidence of dishonorable service. Id. at 84. The indictment of a public employee for matters related to misconduct in office casts an immediate and "substantial shadow over the employee's right to a pension." Id. at 83. An indictment is more than a mere allegation. Id. at 85. It is sufficient to permit an individual's arrest or retention without bail. Ibid. We held in Mount that an indictment constitutes a "prima facie basis for a belief that the pensioner's service may have been dishonorable." Ibid.

Watts mischaracterizes the suspension of his pension payments as a "forfeiture" of his pension to support his argument that N.J.S.A. 43:1-3 "constitutes the only legal basis for the forfeiture" of his pension. The Board has not effectuated a forfeiture of Watts's retirement benefits, nor has Watts been deprived of the protection of the eleven-part test set forth in N.J.S.A. 43:1-3(c). As we observed in Mount, the issue is whether the Board can temporarily suspend payments on the basis of an indictment, not whether the indictment alone would support the actual forfeiture of the benefits. Id. at 84. The State's power to suspend its employees or officers pending the outcome of an indictment "has long been recognized." Id. at 85-86. We held in Mount that there was "no reasonable or practical ground why" similar authority to suspend pension benefits should not be available to the Board under circumstances such as those present here. Id. at 85.

Prior to the suspension, Watts had the right to "come forward and explain or contradict the charges," or to "show . . . that it would not disserve the public interest to continue the pension payments notwithstanding the indictment." Id. at 87. Instead of doing so, his submissions sought continuation of the pension payments, to himself or his wife, on the basis of hardship.

We are satisfied that the Board had the authority to adopt the regulation at issue, N.J.A.C. 17:1-1.13, which merely codifies the power to take the action we held in Mount was inherent in the Board's duty to protect the assets of the pension fund. Given the serious charges against Watts, alleging the improper exercise of his official authority, the Board's action was not an abuse of discretion.

The Board's determination that its fiduciary duty to the integrity of the pension system outweighed Watts's need for continued receipt of his pension benefits was not arbitrary, capricious, or unreasonable. We affirm the Board's decision to suspend payment of Watts's pension benefits pending disposition of the criminal charges and any forfeiture issues that arise out of that disposition.


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