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In re Adoption of N.J.A.C.

Superior Court of New Jersey, Appellate Division

May 7, 2018

IN RE ADOPTION OF N.J.A.C. 17:1-6.4, 17:1-7.5 and 17:1-7.10.

          Argued April 23, 2018

          On appeal from the New Jersey Department of the Treasury, Division of Pensions and Benefits.

          Richard A. Friedman argued the cause for appellant New Jersey Education Association (Zazzali, Fagella, Nowak, Kleinbaum & Friedman, attorneys; Jason E. Sokolowski and Richard A. Friedman, of counsel and on the brief; Kaitlyn E. Dunphy, on the briefs).

          Amy Chung, Deputy Attorney General, argued the cause for respondent New Jersey Department of the Treasury, Division of Pensions and Benefits (Gurbir S. Grewal, Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel; Amy Chung, on the brief).

          Before Judges Fasciale, Sumners and Moynihan.


          FASCIALE, J.A.D.

         This appeal focuses on the 2016 re-adoption of N.J.A.C. 17:1, with amendments (the Re-adoption), promulgated by the Department of the Treasury, Division of Pension and Benefits (Division). The Re-adoption governs the disability retirement application process for various State public retirement systems. In challenging amended N.J.A.C. 17:1-6.4, N.J.A.C. 17:1-7.5, and N.J.A.C. 17:1-7.10, the New Jersey Education Association (NJEA) argues the Division exceeded its statutory authority and acted arbitrarily. The NJEA urges us to invalidate the challenged regulations.

         Understanding that administrative regulations are entitled to a presumption of validity and reasonableness, and giving the Division wide latitude to achieve its legislatively assigned tasks, we hold that most of the challenged regulations comport with the terms and objectives of the governing statutes. That is, the Division mainly acted consistently with the enabling statutes, which it reasonably interpreted. Yet, there are a few instances where that is not the case.

         So we uphold N.J.A.C. 17:1-6.4 (the separation from service rule);[1] N.J.A.C. 17:1-7.10(a)(1) (part of the documentation amendment); N.J.A.C. 17:1-7.10(e) (the certification amendment); N.J.A.C. 17:1-7.10(f) (the one retirement application amendment); N.J.A.C. 17:1-7.10(j) (the notification amendment); and N.J.A.C. 17:1-7.5(c) and (c)(1) (part of the subsequent independent medical examination (IME) amendment). But we invalidate N.J.A.C. 17:1-7.5(c)(2) through (c)(4) - which require applicants to pay for subsequent IMEs - and N.J.A.C. 17:1-7.10(a)(2) - which requires applicants to pay for addenda to IMEs.

         In general, the primary practical effect of our holding - as to the separation of service rule - maintains the longstanding principle that eligibility for disability retirement benefits requires members to make a prima facie showing that they cannot work due to a disability. To that end, voluntary or involuntary termination of employment, for non-disability reasons, generally deems a member ineligible for disability benefits. Such a holding comports with the existing overall framework of the enabling, eligibility, and rehabilitation statutes, and policies applicable to the various State public retirement systems. To hold otherwise would require us to re-write the text of multiple statutes, which has never been the role of the judiciary.


         A familiar standard of review guides our holding and analysis. "Administrative regulations are entitled to a presumption of validity and reasonableness." In re Adoption of N.J.A.C. 11:3-29, 410 N.J.Super. 6, 24 (App. Div. 2009). "The party challenging the agency action bears the burden of overcoming" this presumption. Id. at 25.

         Courts will "overturn an administrative determination only if it was arbitrary, capricious, unreasonable or violated express or implied legislative policies." Id. at 24-25. Administrative agencies have wide discretion to decide "how best to approach legislatively assigned administrative tasks." In re Failure by the Dep't of Banking & Ins., 336 N.J.Super. 253, 262 (App. Div. 2001). It has been a longstanding principle that "the grant of authority to an administrative agency is to be liberally construed ... to enable the agency to accomplish its statutory responsibilities." N.J. Guild of Hearing Aid Dispensers v. Long, 75 N.J. 544, 562 (1978). As a result, "courts should readily imply such incidental powers as are necessary to effectuate fully the legislative intent." Ibid.

         Nonetheless, "[a]n administrative regulation 'must be within the fair contemplation of the delegation of the enabling statute.'" Id. at 561-62 (quoting S. Jersey Airways, Inc. v. Nat'l Bank of Secaucus, 108 N.J.Super. 369, 383 (App. Div. 1970)). We usually apply substantial deference to a regulation promulgated by an agency. But the application of "substantial deference" afforded to regulations is only available if they are "consistent with the governing statutes' terms and objectives." In re Adoption of Amendments to N.J.A.C. 6:28-2.10, 3.6 & 4.3, 305 N.J.Super. 389, 401 (App. Div. 1997).

         To determine if an agency had the requisite authority to issue a regulation, courts strive "to determine the intent of the Legislature." Med. Soc'y of N.J. v. N.J. Dep't of Law & Pub. Safety, 120 N.J. 18, 26 (1990). We begin with the statutory language, the best indicator of legislative intent. DiProspero v. Penn, 183 N.J. 477, 492 (2005). Here, the text is not contained in only one statute, but appears in multiple statutes related to several State public retirement systems.

         Our analysis, however, of whether the Legislature authorized the challenged regulations is not limited to a plain reading of one provision in a large statutory scheme. "[A] reviewing court 'may consider the entire enabling legislation .... to ascertain if there is in fact sufficient underlying authority [for a regulation].'" In re N.J.A.C. 7:1B-1.1, 431 N.J.Super. 100, 119 (App. Div. 2013) (quoting Long, 75 N.J. at 561). In a similar vein - like we have done here - courts "may look beyond the specific terms of the enabling act to the statutory policy sought to be achieved by examining the entire statute in light of its surroundings and objectives." Long, 75 N.J. at 562; accord N.J. Ass'n of Sch. Adm'rs v. Schundler, 211 N.J. 535, 549 (2012). Courts defer to the interpretation of legislation by the administrative agency to whom its enforcement is entrusted, but only if that interpretation "is not plainly unreasonable." Merin v. Maglaki, 126 N.J. 430, 436-37 (1992); accord Matturri v. Bd. of Trs. of the Judicial Ret. Sys., 173 N.J. 368, 382 (2002).


         The Division administers the Police and Firemen's Retirement System (PFRS); the Public Employees' Retirement System (PERS); the Teachers' Pension and Annuity Fund (TPAF); the State Police Retirement System (SPRS); the Consolidated Police and Firemen's Pension Fund (CPFPF); the Judicial Retirement System (JRS); and the Prison Officers' Pension Fund (POPF). See Burgos v. State, 222 N.J. 175, 184 (2015). The Re-adoption deals with the Division's administration of these State retirement systems, and the challenged regulations generally address disability retirement eligibility and related applications.

         Disability retirement applicants generally apply for ordinary or accidental disability retirement benefits. There are multiple statutes that permit these benefits. For example, N.J.S.A. 43:16A-6 to -7 (PFRS); N.J.S.A. 43:15A-42 to -46 (PERS); N.J.S.A. 18A:66-39 to -42 (TPAF); N.J.S.A. 53:5A-9 to -10 (SPRS); N.J.S.A. 43:16-2 (CPFPF); N.J.S.A. 43:6A-12 (JRS); and N.J.S.A. 43:7-12 (POPF). The question is whether the challenged regulations - N.J.A.C. 17:1-6.4, N.J.A.C. 17:1-7.5, and N.J.A.C. 17:1-7.10 - are inconsistent with the legislative intent expressed in the various enabling statutes.

         The enabling statutes, in their entirety, are N.J.S.A. 43:16A-1 to -68 (PFRS); N.J.S.A. 43:15A-1 to -161 (PERS); N.J.S.A. 18A:66-1 to -93 (TPAF); N.J.S.A. 53:5A-1 to -47 (SPRS); N.J.S.A. 43:16-1 to -21 (CPFPF); N.J.S.A. 43:6A-1 to -47 (JRS); and N.J.S.A. 43:7-7 to -27 (POPF) - all of which we have considered in great depth. For purposes of our plain text analysis, the pertinent language of each statute is nearly identical or substantially similar: "Upon retirement for [ordinary, accidental, or special] disability, a member shall receive" the applicable retirement allowance. See, e.g., N.J.S.A. 43:16A-6(2), -6.1(2), -7(2) (PFRS) (emphasis added); N.J.S.A. 18A:66-41, -42 (TPAF) (emphasis added); N.J.S.A. 53:5A-9(b) (SPRS) (emphasis added).


         We begin by addressing whether N.J.A.C. 17:1-6.4 - the separation from service rule - is consistent with the legislative intent expressed in the statutes governing the State retirement systems. This new rule generally requires disability retirement applicants to prove that their asserted disability is "the reason the member left employment." N.J.A.C. 17:1-6.4(a). The rule also bars members from applying for a disability retirement if they voluntarily or involuntarily terminate service for any of the following reasons:

1. Removal for cause or total forfeiture of public service;
2. Settlement agreements reached due to pending administrative or criminal charges, unless the underlying charges relate to the disability;
3. Loss of licensure or certification required for the performance of the member's specific job duties;
4. Voluntary separation from service for reasons other than a disability; and
5. Job abolishment or reduction in force.

[N.J.A.C. 17:1-6.4(b).]

         During its rulemaking, the Division stated that "[d]isability retirement benefits are intended for members who become disabled while in active service and can no longer work, not for members who have voluntarily or involuntarily terminated service for some other reason." 48 N.J.R. 1306(a) (June 20, 2016). It noted that, "[i]f their service ends on the basis of other grounds, some members decide to apply for a disability retirement, in order to try to receive the highest retirement benefits available under their former membership." Ibid.

         According to the Division, the separation from service rule "is intended to prevent members from applying for a disability retirement benefit when their service has voluntarily or involuntarily terminated for reasons unrelated to a disability." Ibid. It explained that such former members

do not qualify for disability retirement benefits, as they were not totally and permanently disabled from performing their job duties when their service ended; their public service ended for a reason completely unrelated to a physical or mental disability ...

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