Opinion
DOCKET NO. A-3970-13T4
02-09-2016
KYLE CLARK, NEXT OF KIN OF WAYNE WILLIAMS, DECEASED, Petitioner-Appellant, v. BOARD OF TRUSTEES, PUBLIC EMPLOYEES' RETIREMENT SYSTEM, Respondent-Respondent.
Stuart Ball argued the cause for appellant. Robert E. Kelly, Deputy Attorney General, argued the cause for respondent (John J. Hoffman, Acting Attorney General, attorney; Melissa Raksa, Assistant Attorney General, of counsel; Mr. Kelly and Melissa A. Haas, Deputy Attorney General, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Hoffman and Whipple. On appeal from the Board of Trustees, Public Employees' Retirement System, Docket No. 2-10-265164. Stuart Ball argued the cause for appellant. Robert E. Kelly, Deputy Attorney General, argued the cause for respondent (John J. Hoffman, Acting Attorney General, attorney; Melissa Raksa, Assistant Attorney General, of counsel; Mr. Kelly and Melissa A. Haas, Deputy Attorney General, on the brief). PER CURIAM
In this appeal, we review the April 10, 2015 final agency decision of the Board of Trustees (Board) of the Public Employees' Retirement System (PERS), denying Wayne Williams pension credits for retroactive salary increases he received as part of a settlement of a lawsuit he filed against his employer, the County of Essex (the County). We affirm.
I.
Williams began employment with the County in 1979. During his tenure, he held several positions and served as a Supervising Administrative Analyst (Supervising Analyst) from January 3, 2000, until his layoff on March 15, 2004. The Supervising Analyst position paid a salary of $68,062 at the time of his termination. Williams was immediately offered another County job as an Ombudsman, at a salary of $44,895; however, he was terminated from that position on May 21, 2004. On June 7, 2004, the County offered Williams a position as an Assistant Administrative Analyst (Assistant Analyst) at a salary of $22,938. On July 2, 2004, the County wrote to Williams to confirm that he would not accept the Assistant Analyst job, and to explain that he would instead receive a $30,862 salary if he did accept that position. On August 9, 2004, Williams responded that he had "never refused to return to work with the County of Essex. I remain ready, willing and able to work and await your advice as to when I may return to work to exercise my demotional rights to the position of [Assistant Analyst] in the Department of Public Safety." Williams clarified, "[a]lthough I never refused to accept said position, I did and continue to raise questions about the process used in my several demotions and the salary offered to me."
Williams thereafter filed a complaint in the Law Division, challenging the County's adverse employment decisions, although the record does not indicate the exact nature of the action or when he filed it. On September 25, 2010, Williams and the County settled the case, and entered into a Settlement Agreement. "[F]or the purposes of determining legal and contractual status, seniority, title, and salary," Williams would be "reinstated to his employment with the County effective at the date that he was separated from employment, namely May 21, 2004." The County agreed to pay plaintiff $346,672 as an "award of back pay," and $78,328 as an "award of damages for pain, suffering and humiliation."
The Settlement Agreement provided that Williams would be retroactively reinstated as an Assistant Analyst at an imputed salary of $22,938 on May 21, 2004, which was increased to $25,997 on January 1, 2005; to $26,517 on July 1, 2005; and to $30,228 on January 1, 2006. Then on January 1, 2007, Williams would receive a retroactive promotion to Supervising Analyst at an imputed salary of $82,675, which was in accordance with the rates paid to others in the same position and with the same seniority as Williams. This salary was then retroactively increased to $82,937 on January 1, 2008, which would continue until Williams' "retirement effective May 1, 2010."
In exchange for the back pay and damages, Williams executed a general release and waiver of all his claims related to the litigation, and agreed to "retire from employment by the County effective May 1, 2010, upon reaching twenty-five years of continual employment by the County because of his ongoing employment with New Jersey Transit and his desire to explore business opportunities in accord with his long held interests and talents." The Settlement Agreement provided that the County would make deductions to the back-pay award for "contributions to [PERS] such that [Williams] will be given credit by PERS for [full-time] employment at the salaries specified." On June 8, 2010, Williams' attorney sent a copy of the proposed settlement to PERS. A representative of PERS initially responded that the agreement appeared to be acceptable; however, he also indicated that he was referring the matter to the Audit Section for review. On June 18, the Audit Section responded that "based on the agreement [the PERS Board] would provide service credit from the date of reinstatement through April, 2010; however, the significant salary increase between 2006 and 2007 may be subject to review by the PERS Board."
On October 27, 2010, Williams applied for retirement, and the County sent a $21,535.97 check to PERS representing Williams' pension contributions for the back-pay period. The Board ultimately granted in part and denied in part Williams' claim for pension benefits. In a September 23, 2011 letter, the Board found that the settlement was "sufficient to entitle [Williams] to service credit in the PERS for the period of May 21, 2004 through April 30, 2010." However, the Board found that the Settlement Agreement was structured "to arbitrarily place [Williams] back into the title of [Supervising Analyst], at $82,675.00 on January 1, 2007," which constituted a violation of N.J.A.C. 17:1-2.18. As a result, the Board concluded that Williams' pension would be "based on the salary he earned during his [three] highest fiscal years of PERS-covered employment[,]" without taking the salary increases included in the Settlement Agreement into consideration. Williams appealed this decision and the matter was referred to the Office of Administrative Law for a hearing before an Administrative Law Judge (ALJ).
On March 27, 2013, the ALJ held a hearing at which Williams testified that he felt his 2004 layoff had "an element of racial discrimination," as did his subsequent termination from the Ombudsman position and his issues with the Assistant Analyst position. Williams explained that he accepted the Settlement Agreement because "it was a lot to lose if [he] went to trial and lost." Alan Ruddy, an attorney for Essex County, also testified. He stated that by settling the matter, the County did not intend to admit it had engaged in any discrimination nor that Williams had any legal right to the Supervising Analyst position. Rather, Ruddy explained that the prime motivation of the County to enter into the Settlement Agreement was financial, and that the salary levels granted to Williams were based on the salaries for the Assistant Analyst and Supervising Analyst positions during the relevant time periods. Ruddy also testified that Williams' retirement was a primary concern for the County, because the County did not want Williams returning to work.
On November 26, 2013, the ALJ issued an initial decision recommending reversal of the Board's decision denying Williams creditable compensation for the increased salary amounts provided in the Settlement Agreement. The decision explained that if Williams had prevailed at trial, any associated award of back pay at the Supervising Analyst level would have been the County's "legal obligation," rather than a discretionary decision by the County to grant Williams extra compensation, and consequently, a better pension. Ultimately, the ALJ concluded that because Williams had never abandoned his argument that he was laid off from the Supervising Analyst position for discriminatory reasons, "Essex County's motivation in restoring Williams to his former title as part of the settlement was not in anticipation of retirement." The ALJ further noted that the salary set forth in the Settlement Agreement was not an "individual salary adjustment," which cannot constitute creditable compensation under N.J.A.C. 17:2-4.1(7); rather the salary figures used in the Settlement Agreement were within the salary ranges for County Assistant Analysts and Supervising Analysts during the relevant timeframes.
On April 10, 2015, the Board issued a final agency decision adopting the ALJ's findings of fact with modification, but rejecting his conclusions of law. The Board concluded that while the Settlement Agreement as a whole may have been motivated by financial concerns, the salary increase set forth therein "was carefully designed with the primary objective of maximizing [Williams'] pension by multiplying his salary by a factor of almost three in the last three years, [four] months of his tenure." The Board noted that "[t]he obvious, and primary, purpose of the increase was to obtain for [Williams] a more lucrative immediate retirement than he had in fact earned[.]" Accordingly, the Board concluded, "[T]he enormous retroactive increase in back pay that was negotiated exclusively for the final three years, four months of [Williams'] putative 'reinstatement' was an increase granted primarily in anticipation of his retirement and, therefore, may not be included in the calculation of his retirement benefit." This appeal followed.
II.
Our scope of review of an administrative agency's final determination is limited. In re Carter, 191 N.J. 474, 482 (2007). We will not disturb an agency decision "unless there is a clear showing that it is arbitrary, capricious, or unreasonable, or that it lacks fair support in the record." Hemsey v. Bd. of Trs., Police & Fireman's Ret. Sys., 198 N.J. 215, 223-24 (2009) (quoting In re Herrman, 192 N.J. 19, 27-28 (2007)).
We accept the factual findings of an administrative agency as long as they are supported by sufficient credible evidence, and we may not substitute our judgment for that of the agency. Greenwood v. State Police Training Ctr., 127 N.J. 500, 513 (1992). Though we are not bound by an agency's determination of a purely legal question, we will give "substantial deference" to an agency's reasonable interpretation of statutes that the agency enforced. Richardson v. Bd. of Trs., Police & Fireman's Ret. Sys., 192 N.J. 189, 196 (2007).
In this appeal, we find persuasive the reasoning and legal discussion contained in the Board's detailed April 10, 2014 letter-decision. Under the statute that governs the PERS, salary adjustments that are given in anticipation of retirement are not included as part of a member's "compensation" when calculating his or her pension:
"Compensation" means 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 . . . .Accordingly, "the Board may only accept pension contributions and grant pension benefits based on a member's 'compensation' as defined by N.J.S.A. 43:15A-6(r)." DiMaria v. Bd. of Trs. of Pub. Emps.' Ret. Sys., 225 N.J. Super. 341, 350 (App. Div.), certif. denied, 113 N.J. 638 (1988).
[N.J.S.A. 43:15A-6(r) (emphasis added).]
The implementing regulation provides that a PERS member's creditable compensation "shall be limited to base salary and shall not include extra compensation." N.J.A.C. 17:2-4.1. Pursuant to N.J.A.C. 17:1-2.18(a), a PERS member who disputes the termination of his or her employment and who "by award or settlement, becomes entitled to full pay for all or a portion of that employment for the period of such . . . termination shall receive service credit for the period covered by the award or settlement [and] provided a full normal pension." However, N.J.A.C. 17:1-2.18(c) adds that:
If the award or settlement is structured in such a way as to provide the member with a substantial increase of creditable salary at or near the end of the member's service, or a substantial increase in retirement benefits, or provides service credit that entitles a member to file for retirement benefits to which they would not otherwise have qualified, the award or settlement shall be reviewed by the Division. If the Division determines that the pension benefit was part of the negotiations for the award or settlement, or if the award or settlement includes extra compensation as defined by the various retirement systems, the Division shall determine the compensation and/or service credit to be used to calculate the retirement allowance, and the member shall have the pension contributions for the salaries based on the award refunded without interest.
[(Emphasis added).]
Williams argues that the retroactive salary increases were not "extra compensation" paid in anticipation of his retirement; rather, the Settlement Agreement was implemented primarily to avoid the risks of litigation and the back-pay award was carefully structured to accurately reflect the pay that Williams would have received had he been successful in his litigation. We are not persuaded by this argument.
The Board had sufficient reason to reject the adjusted salary increases as creditable compensation in calculating Williams' pension payments. The Board could reasonably determine that the retroactive increases were granted primarily in anticipation of Williams' retirement.
Williams does not provide sufficient evidence to establish that the retroactive increases were not made primarily in anticipation of his retirement. Notably, there is no explanation as to why Williams was given a retroactive promotion to Supervising Analyst on January 1, 2007, other than the resulting substantial increases in his pension. Although Williams' settlement may have had the objective of minimizing risks to the County, the included increase of salary — by a factor of almost three in the last three years, four months of his tenure — cannot be explained by any reason other than providing Williams with a more lucrative immediate retirement pension. If Williams was truly being compensated for his alleged unlawful termination, then he should have received a Supervising Analyst salary on May 21, 2004, rather than beginning as an Assistant Analyst and being "promoted" to a Supervising Analyst on January 1, 2007.
The Board also properly applied the relevant case law. The Board looked to our Supreme Court's decision in In re Puglisi, 186 N.J. 529 (2006), as controlling this case. In Puglisi, a police officer filed a civil rights lawsuit against his employer, the city, alleging that various city administrators and elected officials engaged in political discrimination. Id. at 531. The officer reached a settlement with the city, resulting in his promotion to the rank of captain, his immediate commencement of a one-year terminal leave period at a captain's salary, and his agreement to retire at the end of the terminal leave period. Ibid. The Court concluded that the payments made pursuant to the settlement were in anticipation of his retirement and affirmed the denial of pension credit for the settlement proceeds. Id. at 534.
The Court in Puglisi explained that the statutory definition of compensation that excludes salary increases at the end of an employee's career "protect[s] the actuarial soundness of the pension fund by prohibiting the use of 'ad hoc salary increases intended to increase retirement allowances without adequate compensation to the [pension] fund' in calculating pensions." Ibid. (citation omitted); see also Bd. of Trs. of Teachers' Pension & Annuity Fund of N.J. v. La Tronica, 81 N.J. Super. 461, 471-71 (App. Div. 1963) (describing unusual salary arrangements in the final years of employment as "the local board['s] . . . grand gesture of farewell at little expense" because the local board is not itself responsible for the pension payments that must follow over many years), certif. denied, 41 N.J. 587 (1964).
The concerns expressed in Puglisi are equally applicable to the Settlement Agreement under review. By allocating a substantial portion of the settlement proceeds to Williams' final three years and four months' salary, Williams' pension benefits would increase significantly, giving the County and Williams a more favorable settlement at the expense of the PERS. An employer and employee cannot accomplish such a result simply by agreeing to designate a part of a settlement as retroactive salary adjustments in order to financially exploit the pension fund. Rather, as the Board correctly summarizes: "If a local employer could substantially increase an employee's pension by merely allocating a portion of a settlement to salary, employers would be able to negotiate more favorable settlements by essentially shifting some of the settlement cost to the pension system."
Williams attempts to distinguish Puglisi and argues that this case is governed instead by our decision in In re Snellbaker, 414 N.J. Super. 26 (App. Div. 2010). In Snellbaker, we concluded that retroactive salary received by means of settlement was creditable compensation when calculating the employee's pension benefit. Id. at 41. There, the police chief of Atlantic City (the City) received no raises between 2002 and 2006 while his subordinate deputy chiefs received annual raises. Id. at 29-30. He filed suit against the City and sought retroactive salary increases for 2002 through 2005 under N.J.S.A. 40A:14-179, which provides that the salary of a police chief must be higher than that of the next highest ranking police officer below him or her. Id. at 30. The lawsuit was settled, and the City acknowledged that the police chief was awarded retroactive salary increases as part of a settlement of all claims because the salary increases had been wrongfully withheld. Id. at 31.
Our decision in Snellbaker, unlike Puglisi, did not involve an "individual salary adjustment" unconnected to the overall salary structure of the employing agency. Id. at 40. Rather, it involved a settlement intended to comply with a statutory mandate. Id. at 40-41; N.J.S.A. 40A:14-179. The case under review does not involve a similar statutory mandate.
The allocation of the retroactive salary increases to Williams' final three years and four months of employment, combined with the fact that his pension benefits will be calculated using the average salary of those three years, leads us to conclude that the increases were not proper compensation as defined by N.J.S.A. 43:15A-6(r). Rather, the increases were paid primarily in anticipation of retirement. We therefore conclude that the Board did not act arbitrarily, capriciously, or unreasonably in denying Williams' application to include these salary increases in determining his pension benefits. The Board's decision is fairly supported by the record.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION