IN RE ADOPTION OF N.J.A.C. 17:2-3.8 AND 17:2-3.13.
January 7, 2019
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; Richard A. Friedman, of counsel
and on the brief; Kaitlyn E. Dunphy, on the briefs).
Chung, Deputy Attorney General, argued the cause for
respondent Board of Trustees, Public Employees'
Retirement System (Gurbir S. Grewal, Attorney General,
attorney; Melissa H. Raksa, Assistant Attorney General, of
counsel; Amy Chung, on the brief).
Judges Messano, Fasciale and Gooden Brown.
appeal focuses on two amended regulations (the two
regulations) promulgated by the Board of Trustees (the
Board), Public Employees' Retirement System (PERS):
N.J.A.C. 17:2-3.8(b) (implementing N.J.S.A. 43:15A-93 by
clarifying the effective date for converted individual
insurance policies); and N.J.A.C. 17:2-3.13 (implementing
N.J.S.A. 43:15A-50 by addressing benefits payable when a
member dies with a retirement application pending). The
category of PERS members primarily affected by this appeal
are those who exercised a "conversion privilege,"
died while their retirement applications were pending, and
whose beneficiaries chose "retired" benefits, not
"active" benefits. The New Jersey Education
Association (NJEA) argues that the two regulations conflict
with the enabling statutes they purport to implement, and
that the Board therefore exceeded its statutory authority and
regulations maintain the longstanding practice that
beneficiaries of PERS members may generally receive a
"retired" benefit (from the member's retirement
allowance) or an "active" benefit (from the
member's life insurance), but not both. For years, PERS
members have had the right to convert a group insurance
policy to an individual policy. This "conversion
privilege" allows members who terminate employment to
maintain adequate life insurance.
appeal requires us to decide two underlying issues. First,
may a beneficiary make a claim against the converted
individual insurance policy when the member merely applied
for that insurance protection and submitted a premium check
to protect the "conversion privilege," died while a
retirement application was pending, and whose beneficiary
opted for a statutory "retired" benefit? Second,
under the enabling statutes, is that beneficiary entitled to
receive both the member's life insurance and retirement
allowance simultaneously? The answers to these questions
inform our conclusion that the two regulations are valid.
the first question, the answer is no. If a PERS member whose
retirement application is pending and whose beneficiary has
chosen the "retired" benefit exercises the
"conversion privilege," and then dies during the
statutory thirty-one-day grace period applicable to the group
insurance policy, the beneficiary's life insurance claim
is against the member's group policy. That is so because
the converted individual insurance policy will not become
effective until after expiration of the grace period for the
group policy. By statute, "the amount of life insurance
which [a beneficiary] would have been entitled to . . . under
the individual policy shall be payable as a claim under the
group policy, whether or not application for the individual
policy or the payment of the first premium therefor had been
made" during the grace period. N.J.S.A. 17B:27-72(k).
answer to the second question is also no. Generally, a
beneficiary cannot receive the member's retirement
allowance in addition to the death benefit, which of course
has been the law for years. But payment on a life insurance
claim for a member on "active" status, in
accordance with longstanding precedent, entitles the
beneficiary to reimbursement of the member's pension
contributions plus interest on those contributions.
the presumption of validity and reasonableness ordinarily
accorded to administrative regulations, and giving the Board
wide latitude to achieve its legislatively assigned tasks, we
hold that the two regulations - both effective in January
2018 - comport with the overall framework, objectives, and
terms of the enabling statutes and established precedent. Any
other result would require that we re-write the legislative
framework of the enabling statutes and ignore precedent,
which we will not do. We therefore decline to invalidate the
two regulations, and affirm.
familiar standard of review guides our analysis.
"Administrative regulations are entitled to a
presumption of validity and reasonableness." In re
Adoption of N.J.A.C. 17:1-6.4, 454 N.J.Super. 386, 395
(App. Div. 2018). The burden of overcoming that presumption
is on the party challenging the agency action. Ibid.
Here, NJEA has the burden.
an administrative determination occurs only if it was
"arbitrary, capricious, unreasonable or violated express
or implied legislative policies." Ibid.
"Administrative agencies have wide discretion to decide
how best to approach legislatively assigned administrative
tasks." Ibid. We liberally construe "the
grant of authority to an administrative agency . . . to
enable the agency to accomplish its statutory
we "readily imply such incidental powers as are
necessary to effectuate fully the legislative intent."
Ibid. Administrative regulations must nevertheless
be "within the fair contemplation of the delegation of
the enabling statute." Ibid. The substantial
deference we ordinarily apply to an agency regulation is
available if it is "consistent with the governing
statutes' terms and objectives." Ibid.
determining whether an agency possessed the requisite
authority to issue a regulation, courts strive "to
determine the intent of the Legislature." Id.
at 396. To that end, we begin with the statutory language,
which is the best indicator of legislative intent.
DiProspero v. Penn, 183 N.J. 477, 492 (2005).
Although we will analyze the text of two enabling statutes
(N.J.S.A. 43:15A-93 and N.J.S.A. 43:15A-50), we perform that
analysis by considering the entire enabling legislation.
Ibid. That is, we look beyond the specific terms of
the enabling act to the statutory policy by examining the
entire legislation in light of its surroundings and
objectives. Ibid. We 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." Matturri v. Bd.
of Trs. of the Judicial Ret. Sys., 173 N.J. 368, 382
those standards in mind, we begin by summarizing the
pertinent legal principles. Our summary focuses on two
distinct benefits: (1) a lump sum payment to a beneficiary
upon death of a member; and (2) a retirement allowance to a
member or that member's beneficiary. Our summary bolsters
the conclusion that a converted life insurance policy becomes
effective when the group policy expires at the end of the
thirty-one-day grace period. And the summary applies
well-grounded precedent that beneficiaries of PERS members
may receive a "retired" benefit or an
"active" benefit, but not both, regardless of the
effective date for a converted individual insurance policy.
the first benefit, PERS members are entitled to life
insurance while actively employed. We commonly call this a
death benefit. Beneficiaries of PERS members generally
receive life insurance benefits under a member's group
life insurance policy (the group life policy) issued by the
Prudential Insurance Company (Prudential), which provides a
lump sum payment in the event of death. N.J.S.A.
43:15A-41(c); N.J.S.A. 43:15A-88. The group life policy
remains in effect for thirty-one days after a member's
employment ceases. Indeed, the group life policy must
"contain a provision that the policyholder is entitled
to a grace period of [thirty-one] days." N.J.S.A.
17B:27-72(b). Before retirement, the death benefit is
generally one-and-one-half times the final salary of the PERS
member. N.J.S.A. 43:15A-41(c). Thereafter, the amount of the
death benefit decreases.
that the amount of the death benefit will decrease, the
Legislature passed a law that allowed members to maintain
adequate life insurance. Under N.J.S.A. 43:15A-93, members
receive a "conversion privilege," which allows them
to convert their group life policy to an individual insurance
policy (the individual policy). If a member wishes to
exercise this conversion privilege, the member must do so
during the thirty-one day grace period.
exercising the conversion right allows for adequate life
insurance at the end of the grace period. N.J.S.A. 43:15A-93
provides in pertinent part:
Any such group policy or policies shall include, with respect
to any insurance terminating or reducing because the member
ceases to be eligible for participation under the [PERS] or
because the member has ceased to be in service or has
retired, the conversion privilege available upon termination
of employment as prescribed by the law relating to group life
insurance; and shall also include, with respect to insurance
terminating because of termination of the group policy
resulting from a termination of the death benefits for all
members established under . . . [N.J.S.A.] 43:15A-38,
43:15A-41, 43:15A-45, 43:15A-46, 43:15A-48, 43:15A-49,
43:15A-57, the conversion privilege available upon
termination of the group policy as prescribed by the law
relating to group life insurance. Any such group policy or
policies shall also provide that if a member dies during the
[thirty-one]-day period during which he would be entitled to
exercise the conversion privilege, the amount of insurance
with respect to which he could have exercised the conversion
privilege shall be paid as a claim under the group policy.
When benefits payable upon the death of a member following
retirement are determined as though the member had not
retired, the death ...