September 4, 2013
ROBERT A. NORA, Plaintiff-Appellant,
BOARD OF TRUSTEES OF THE PUBLIC EMPLOYEES' RETIREMENT SYSTEM, Defendant-Respondent.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued telephonically Date: April 23, 2013
On appeal from the Board of Trustees of the Public Employees' Retirement System, Department of Treasury, PERS No. 10-169018.
Samuel J. Halpern argued the cause for appellant.
Eileen S. Den Bleyker, Senior Deputy Attorney General, argued the cause for respondent (Jeffrey S. Chiesa, Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel; Ms. Den Bleyker, on the brief).
Before Judges Lihotz and Ostrer.
Plaintiff appeals from the January 23, 2012, final decision by the Board of Trustees (Board) of the Public Employees' Retirement System (PERS) that his pensionable annual salary from the City of Elizabeth (City) was $20, 800, which was his contracted salary as a part-time employee (at 16 hours per week, $25 per hour), and the amount on which pension contributions were made. Plaintiff contends that his pensionable salary should be based upon his actual earnings from the City, which exceeded his contracted rate. We affirm.
In August 1985, plaintiff was hired by the City as a building sub-code official. The request for personnel action form, signed by plaintiff, reflects that he would be paid $25 per hour for 16 hours of work per week. Plaintiff was later enrolled in PERS based upon his employment with the City, as well as North Brunswick, Highland Park, and Milltown.
Plaintiff worked for the City between August 1985 and January 1991. The record reflects that he generally worked more than the contracted number of hours, and earned more than the contracted salary. His paystubs reflect the following:
Date of Paystub
Earnings to Date
December 26, 1985
December 24, 1986
December 31, 1987
December 29, 1988
December 28, 1989
December 27, 1990
In March 2000, plaintiff, who had continued service within the pension system, applied for retirement and requested a service retirement under the maximum option, to be effective August 1, 2000. The Division of Pension and Benefits (Division) received his application on April 7, 2000.
After submitting his application, plaintiff learned that the City had been reporting his pensionable earnings as $20, 800 per year, as opposed to his actual earnings. Plaintiff first complained to the City. On April 26, 2000, Suzanne Veitengruber, the Director of Finance for the Township of North Brunswick, wrote to Elizabeth Mayor Christian Bollwage, on plaintiff's behalf, inquiring about the discrepancy between the earnings reported on plaintiff's W-2s and the salary the City reported for pension purposes.
Philip Connelly, the City's Business Administrator, replied to Veitengruber that when plaintiff was employed "his pension base was based on his annual salary which at that time was projected to be $20, 800 per year." Connelly stated that plaintiff's overtime earnings, which were not pensionable, caused a discrepancy between his annual earnings and his pension base.
According to the Board, in June 2000, the Division issued a Quotation of Retirement Benefits to plaintiff. It stated his monthly benefit amount was based upon his sixteen years of service and a final average salary ("FAS") of $70, 531.33. The FAS was calculated using his three highest fiscal years' salary from his employing locations, which were 1988-1989, 1989-1990, and 1990-1991. At its meeting of June 21, 2000, the PERS Board approved plaintiff's service retirement effective August 1, 2000.
Plaintiff then complained to the Division. In an undated letter, Veitengruber wrote to John Megariotis, Assistant Director of Finance in the Division, advising that the City "had grossly underreported" plaintiff's pensionable salary.
In a response to plaintiff on July 7, 2000, Megariotis stated that records showed he was enrolled in PERS through his employment with the City on August 1, 1985, at an annual contractual salary of $20, 880, and his salary remained the same through the last reported contributions from the City. Megariotis explained that during the relevant period, the Division's policy for reporting base salary of part-time hourly employees required the employer to estimate an annual base salary and to deduct pension contributions on that estimated salary. The base salary was to be changed only if there were a permanent and appreciable change in the hours worked by mutual agreement between the employer and the employee, or if there were a change in the hourly rate of pay.
Megariotis further stated that the City was responsible for establishing a salary policy for its part-time hourly employees. Pension contributions were credited to plaintiff's account based upon information provided by the City, as attested to by the certifying officer. Megariotis suggested that plaintiff contact the City if he believed it erred in crediting the salary to his account.
Upon his effective retirement date of August 1, 2000, plaintiff began drawing a pension, with the monthly retirement allowance confirmed by letter dated October 23, 2000.
Five years passed. Our record does not reflect any further action by the plaintiff until November 2005, when plaintiff's counsel wrote to the City's Business Administrator, asking that the City correct its alleged underreporting of plaintiff's pensionable salary and provide the Division with the proper pension contributions for plaintiff. A month later, Anthony Zengaro, the City's Chief Financial Officer, responded that plaintiff's contractual base salary was $20, 800 (a weekly base of $25 for 16 hours), as evidenced by an August 20, 1985, request for personnel action form, signed by plaintiff. Zengaro asserted that any earnings over the $20, 800 were "due to overtime, " and "[p]ension regulations prohibit the inclusion of overtime earnings as part of an annual contractual base salary."
In response, plaintiff's counsel contended that hours worked over sixteen per week were not considered overtime, providing copies of plaintiff's paystubs that reflected no overtime earnings. Zengaro was unpersuaded. In an April 17, 2006 answer, Zengaro maintained that plaintiff's pensionable salary was $20, 800. He relied on the August 20, 1985 request for personnel action form, plaintiff's paystubs, and his annual personal benefits statements. Zengaro explained generally, an employee whose hours exceed forty per week is eligible for overtime compensation, but a workweek of less than forty hours would be reported on paystubs as regular time. Nevertheless, because plaintiff was a contract employee, all hours in excess of the contracted rate were considered overtime hours, which were excluded from the pensionable annual contractual base salary.
Almost four years passed. Then, on March 17, 2010, plaintiff's counsel asked the Division to determine plaintiff's actual pensionable salary from the City, and adjust his pension accordingly. By letter dated May 13, 2010, Michael Czyzyk, Supervisor of the Division's External Audit Unit, responded that the Division must defer to the City's representations as to plaintiff's annual salary.
Plaintiff appealed the Division's determination to the Board by letter dated July 28, 2011. The Board considered the matter at its September 21, 2011 meeting, and advised plaintiff it had considered all relevant facts and the governing law and had denied plaintiff's request to accept a pensionable salary other than that certified by the City.
Plaintiff appealed the Board's decision the next month and requested a hearing before the Office of Administrative Law (OAL). On December 8, 2011, the Board advised plaintiff that at its meeting on December 7, it had denied plaintiff's request "essentially for the reasons set forth in the Board's denial letter dated September 22, 2011." In its September 22 letter, the Board explained that in cases involving solely questions of law, "the Board may retain the matter and issue a final determination" without submitting the matter to the Office of Administrative Law. On January 23, 2012, the Board issued its final administrative decision, denying plaintiff's request to change the salary creditable for pension purposes during his employment with the City, providing a detailed factual and legal explanation for its decision. In essence, the Board ruled that $20, 800 was plaintiff's pensionable salary because that was the amount certified by the City.
Plaintiff appeals, contending that the Board erred in determining that his pensionable salary from the City was $20, 800. He also argues that he was entitled to a hearing before the OAL.
The issue presented here is primarily a legal one involving the interpretation of pension statutes and regulations, specifically how the pension law defines "compensation, " and how employers report pensionable compensation to PERS, particularly for part-time employees. We generally "afford substantial deference to an agency's interpretation of a statute that the agency is charged with enforcing." Richardson v. Bd. of Trs., Police & Firemen's Ret. Sys., 192 N.J. 189, 196 (2007) (citation omitted). We also give some deference to an agency's interpretation of its own regulations that fall within its delegated authority. Utley v. Bd. of Review, 194 N.J. 534, 551 (2008). We do so because an agency that drafted and promulgated a regulation should know its meaning. Essex Cnty. Bd. of Taxation v. Twp. of Caldwell, 21 N.J.Tax. 188, 197 (App. Div.) (citation omitted), certif. denied, 176 N.J. 426 (2003). Nevertheless, "we are 'in no way bound by an agency's interpretation of a statute or its determination of a strictly legal issue[.]'" Russo v. Bd. of Trs., Police & Firemen's Ret. Sys., 206 N.J. 14, 27 (2011) (quoting Mayflower Sec. Co. v. Bureau of Sec., 64 N.J. 85, 93 (1973)).
We begin with the governing statute. N.J.S.A. 43:15A-6(r)(1) defines "compensation, " upon which pension benefits are based, as:
the base or contractual salary, for services as an employee, which is in accordance with established salary policies of the member's employer for all employees in the same position but shall not include individual salary adjustments which are granted primarily in anticipation of the member's retirement or additional remuneration for performing temporary or extracurricular duties beyond the regular workday or the regular work year.
The Division's regulations further provide that "[t]he compensation of a member subject to pension and group life insurance contributions and creditable for retirement and death benefits in the system shall be limited to base salary and shall not include extra compensation" such as for overtime or bonuses. N.J.A.C. 17:2-4.1.
The statute assigns recordkeeping responsibility to the employer. "Each State department and branch of the state service not included in a department shall keep such records and, from time to time, furnish such information as the retirement system may require." N.J.S.A. 43:15A-31. Employers also bear the burden of reporting employees' salaries to the Division. See N.J.S.A. 43:15A-67; N.J.S.A. 43:15A-80; N.J.A.C. 17:2-1.5; see also N.J.S.A. 43:15A-15.
The Division's regulations specifically address treatment of part-time hourly employees. As we will discuss, the regulation was amended in 1999. However, during plaintiff's employment with the City, the Division's regulation stated that pension contributions would be based not on actual earnings, but on an "average monthly or biweekly salary" as "certified" by the employer. N.J.A.C. 17:2-4.7 provided:
Deductions from the salary of a member who is paid on an hourly or per diem basis shall be calculated on an average monthly or biweekly salary, which shall be certified to the system. This salary will continue for deduction purposes but will be subject to annual revision.
As the Division explained to plaintiff in its July 2000 response, for part-time employees, the Division had a policy of requiring employers "to estimate an annual salary and to deduct pension contributions on that estimated salary. The base salary was to be changed only if there was a permanent and appreciable change in the hours to be worked by mutual agreement between the employer and employee, or if there were a change in the hourly rate of pay."
The City certified plaintiff's annual contractual base salary during his period of employment as $20, 800, and pension contributions were paid based upon that annual salary. The $20, 800 annual salary figure is consistent with the documentation from plaintiff's hiring, as well as the paystubs submitted, which cover the years 1985 through 1990.
Under the former N.J.A.C. 17:2-4.7, plaintiff's base salary was "subject to annual revision." And, as the Division explained, the base salary could be altered based upon a permanent and appreciable change in hours worked, by mutual agreement between employer and employee. Thus, the City could have revised plaintiff's estimated annual salary for pension purposes, but never did so, notwithstanding substantial increases in the hours plaintiff worked. Instead, the City appears to have deemed any hours worked over the contracted sixteen per week as "overtime, " and excludable from creditable salary under N.J.A.C. 17:2-4.1(a).
Even if, as plaintiff contends, the City erred in failing to amend plaintiff's base salary, such an error was regularly made known to plaintiff through his paystubs, which reflected an annual salary of $20, 800. Salary disputes between the employer and employee are not a matter for the Board. Under the governing law during plaintiff's period of employment, the Board did not err in ruling that $20, 800 was plaintiff's pensionable salary from the City, because that was the amount certified by the City.
As we noted, N.J.A.C. 17:2-4.7 was amended, effective December 20, 1999, to require employers to use the actual creditable salary earned by part-time hourly, on-call, or per diem employees, and not an estimated salary. 31 N.J.R. 4292(a) (Dec. 20, 1999).
The rule change was intended to address situations like plaintiff's, where an employer's salary estimate did not closely match actual earnings. The Division stated in support of its proposed rule:
At this time, the base salaries of part-time hourly, on-call and per diem employees are estimates of what the employees are expected to earn and are not intended to reflect actual salary earned. It is the responsibility of the employer to estimate the annual base salary on the basis of rate of pay and the normal work year. This estimate is often not reflective of actual salary earned, as part-time employees may change the hours that they work.
This proposed amendment would require employers to use the actual creditable salary earned by employees and not estimated salary for part-time hourly, on-call and per diem employees, thus eliminating much of the guesswork that has been, but should not be, involved in the reporting of salaries.
[31 N.J.R. 2297(a) (Aug. 16, 1999).]
N.J.A.C. 17:2-4.7 currently provides:
(a) Deductions from the salary of a member who is paid on a part-time hourly, on-call or per diem basis and who does not have an annual contractual base salary shall be calculated using actual creditable salary earned. If a member's actual creditable salary should drop below one-twelfth of the minimum threshold salary required for enrollment into the PERS for 12-month employees or one-tenth of the minimum threshold salary required for enrollment into the PERS for 10-month employees, pension contributions shall not be deducted from that member's creditable salary, and pension credit shall not be earned, for that month.
(b) A member's creditable salary shall be reviewed by the employer at the end of each calendar year. If the minimum threshold salary has not been met for the previous year, and is not expected to be met in the commencing year, the member's status shall become that of an inactive member.
However, the amended regulation does not apply to plaintiff. In general, statutes and regulations should be applied only prospectively. Oberhand v. Dir., Div. of Taxation, 193 N.J. 558, 570 (2008) (addressing prospective effect of statutes); In re Failure by the Dep't of Banking & Ins. to Transmit a Proposed Dental Fee Schedule to OAL, 336 N.J.Super. 253, 267 (App. Div.) (addressing prospective effect of regulations), certif. denied, 168 N.J. 292 (2001). Regulations may be applied retroactively if that is the Legislature's explicit or implicit intent; retroactive application satisfies the reasonable expectations of those affects; or the regulation is ameliorative or curative. In re Failure by the Dep't of Banking & Ins., supra, 336 N.J.Super. at 267. However, "a regulation may only be applied retroactively if such application will not result in manifest injustice to a party adversely affected." Ibid. (internal quotation marks and citations omitted).
Here, the amended regulation was not declared retroactive. To the contrary, the regulation was given an effective date of December 20, 1999, 31 N.J.R. 4292(a) (Dec. 20, 1999), and the Division's description of the new regulation suggests that it was meant to apply only prospectively. 31 N.J.R. 2297(a) (Aug. 16, 1999) (stating the proposed amendment "only clarifies the amounts to be withheld from part-time hourly, on-call and per diem employees"). Furthermore, applying the regulation retroactively cannot be reasonably expected given the nature of pension obligations and the need to protect the fiscal integrity of the pension fund. Retroactive application would require recalculation of existing pensions and supplemental pension contributions which employers could not have anticipated.
In sum, plaintiff is bound by the regulations in effect when the City employed him. We discern no error in the Division's application of that regulation, and its decision declining to alter the calculation of his pension benefits based on his City employment.
We also find no merit to plaintiff's argument that the Board erred in denying his request for a hearing. Evidentiary hearings may be ordered in contested cases. N.J.S.A. 52:14B-9 and -10. However, referral for a hearing is discretionary with the agency head. In re Xanadu Project at Meadowlands Complex, 415 N.J.Super. 179, 187-88 (App. Div.) (citing In re Application of Cnty. of Bergen, 268 N.J.Super. 403, 413 (App. Div. 1993)), certif. denied, 205 N.J. 96 (2010). Such hearings are required only where there are disputed issues of material fact. Ibid; Sloan v. Klagholtz, 342 N.J.Super. 385, 395 (App. Div. 2001); Contini v. Bd. of Educ. of Newark, 286 N.J.Super. 106, 120 (App. Div. 1995), certif. denied, 145 N.J. 372 (1996).
Here, there were no disputed issues of material fact. Therefore, the Board did not err in refusing plaintiff's request for a hearing.