Opinion
DOCKET NO. A-0505-12T1
02-05-2015
JAMES E. McGUIRE, Appellant, v. BOARD OF TRUSTEES, PUBLIC EMPLOYEES' RETIREMENT SYSTEM, Respondent.
James E. McGuire, appellant pro se. John J. Hoffman, Acting Attorney General, attorney for respondent Board of Trustees of the Public Employees' Retirement System (Melissa H. Raksa, Assistant Attorney General, of counsel; Jeff S. Ignatowitz, Deputy Attorney General, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Nugent and Accurso. On appeal from Board of Trustees of the Public Employees' Retirement System, Division of Pensions and Benefits, Department of the Treasury, PERS No. 2-10-256998. James E. McGuire, appellant pro se. John J. Hoffman, Acting Attorney General, attorney for respondent Board of Trustees of the Public Employees' Retirement System (Melissa H. Raksa, Assistant Attorney General, of counsel; Jeff S. Ignatowitz, Deputy Attorney General, on the brief). The opinion of the court was delivered by NUGENT, J.A.D.
This appeal involves a dispute about interest on loans appellant James E. McGuire borrowed from the Public Employees' Retirement System (PERS). During the thirty-six years that passed between appellant's enrollment in PERS and his retirement, he twice separated from and then returned to public service. Each time he separated from service he had an outstanding loan balance which accumulated additional interest. Each time he returned to service, payroll deductions were made to pay down the loan balances, but due to administrative oversights, the interest that had accumulated during his separation was not included in the payroll deductions and not noted on appellant's paychecks. Consequently, when appellant retired, instead of owing no money on his loans, he owed the accumulated interest, which resulted in deductions being made from his retirement checks. Appellant requested that the PERS Board of Trustees waive or adjust the interest. The Board denied his request. He appealed from the Board's final administrative determination. For the reasons that follow, we affirm.
The facts are undisputed. Appellant enrolled in PERS in February 1975 after becoming a state employee. Once eligible to borrow from PERS, appellant applied for and received loans for which he owed a balance of $14,875.74 when he separated from state service for the first time in August 1994. During his break in service, he made no payments and interest accrued on his outstanding balance.
The statute that authorizes PERS members to borrow money, N.J.S.A. 43:15A-34, provides, in part:
Any member who has at least 3 years of service to his credit for which he has contributed as a member may borrow from the retirement system, an amount equal to not more than 50% of the amount of his accumulated deductions, but not less than $50.00; provided, that the amount so borrowed, together with interest thereon, can be repaid by additional deductions from compensation, not in excess of 25% of the member's compensation, made at the same time compensation is paid to the member.
When appellant returned to state service more than ten years later, in January 2005, deductions were made from his compensation to pay down the loan balance. The balance should have included the interest that had accumulated during appellant's separation from service but did not. According to the Board's final administrative decision,
N.J.S.A. 43:15A-34 provides in part, as to loan repayments:
The amount so borrowed, together with interest on any unpaid balance thereof, shall be repaid to the retirement system in equal installments by deduction from the compensation of the member at the time the compensation is paid or in such lump sum amount to repay the balance of the loan but such installments shall be at least equal to the member's rate of contribution to the retirement system and at least sufficient to repay the amount borrowed with interest thereon.
When an enrolled State employee returns from a break to active status, Centralized Payroll is required to notify the Division [of Pensions and Benefits] if a recertification is required on scheduled periodic deductions, such as loan and arrears repayments. Such notification results in the recertification of such periodic deductions to account for additional interest that has accrued and to recalculate the amount and duration of periodic payments.That did not happen here due to "administrative oversight."
Appellant separated from service a second time in February 2006. His loan balance was $11,310.48. When he returned sixteen months later, in June 2007, payroll deductions commenced but again the loan "was not recertified to include additional interest accrued during both breaks in service." The balance against which payroll deductions were made was the same balance as when he had separated in February 2006.
Deductions were taken from appellant's paychecks from June 27, 2007 through January 7, 2011, when the loan balance less the additional accrued interest was paid off. Paystubs from the second pay period of 2011 through appellant's retirement no longer listed "Pension Loan Payment & BAL" as a payroll deduction, as had previous paychecks.
In 2008, appellant applied for retirement under an early retirement incentive program. The Division sent him a "Quotation of Retirement Benefits" (the 2008 Quotation), dated July 17, 2008, for an August 1, 2008 retirement date. A section on the third page of the 2008 Quotation, entitled "Additional Important Information," contained the following:
According to our records, you will have an outstanding loan balance at the time of retirement. Chapter 132, P.L. 1999 [N.J.S.A. 43:15A-34.1] permits you to continue your monthly loan deduction into retirement. A loan deduction in the amount of $267.39 will be taken from your retirement checks until the loan balance, plus interest, is paid in full. If you wish to pay off the loan balance at this time, please make you check payable to Public Employees' Retirement System in the amount of $16,112.14 and mail it, along with this page, to the address above.
If you do not pay off the loan, the principal balance of $16,112.14 will be carried into retirement and interest will be charged from date of retirement to date loan paid in full. The prevailing rate of interest per annum will be charged on the declining balance of the loan.
Appellant chose not to retire and asked in July 2008 that the Division cancel his retirement request. He applied for retirement again in April 2011. The Division sent him a second "Quotation of Retirement Benefits" (the 2011 Quotation) dated April 14, 2011, for a retirement date of May 1, 2011. The 2011 Quotation contained "Additional Important Information" which tracked the language of the 2008 Quotation, except the outstanding loan balance in the 2011 Quotation was $9,758.01. The 2011 Quotation further informed appellant that if he failed to pay his loan balance in full, $267.39 would be deducted from each of his retirement checks. Appellant retired from state service and a $267.39 "Loan Payment" was taken from his first retirement check in June 2011. The deduction triggered the dispute that culminated in this appeal.
After appellant received his first pension check, he emailed a Treasury Department employee and asked why loan payments were being deducted. He attached three payroll statements that verified his loan had been repaid as of January 7, 2011. When informed that additional interest had accrued during the periods in which he was separated from state service, appellant requested "that the alleged accrued interest charges be reversed and that Pension cease withholding 'Loan Payments' from my PERS check and refund all payments withheld to date for the alleged accrued interest."
During an exchange of emails and letters, appellant recounted a conversation that he had seventeen years earlier with an individual that he did not identify. Appellant wrote in the email: "When I separated from State service in 1994, I called to check regarding the loan and was told that [the] balance would remain and upon my return loan payments would resume, there was no mention of additional interest." In addition, appellant explained that had he been notified that interest was accruing on the loan during his separation from service, he would have taken appropriate action to avoid paying the interest. He explained that when he left state service in 1994, in addition to his loan balance, he had an outstanding balance for service credit he had purchased. In 2000, the Division notified him that due to changes in the New Jersey Administrative Code, inactive PERS members who previously purchased service credit would have interest added to outstanding purchase balances. Appellant paid his outstanding balance, $1,213.14, in full.
During the same exchange of written communications, a Division employee sent appellant a letter detailing the history of appellant's loan and loan payments. The employee explained how interest was calculated. The letter advised appellant that he had a right to appeal the interest charge to the PERS Board.
Unable to resolve his dispute with the Division, appellant appealed to the PERS Board and requested that the Board waive the additional interest on his loan. The Board declined to do so. Appellant filed exceptions to the initial determination and the PERS Board subsequently issued a final administrative determination.
In its final determination, after recounting the lengthy factual history relevant to appellant's loan, the Board acknowledged "the administrative oversights that led to a failure to recertify [appellant's] loan to include interest accrued after [his] lengthy breaks from state service." The Board explained:
In the course of your appeals to the Division, you stated repeatedly that you were unaware that your loan should have included accrued interest until your retirement was effective and loan deductions were imposed on your monthly benefit. You argue, in essence, that because the Division did not make you aware of interest that had accrued to your loan during your breaks in service in a timely fashion, you should not be obligated to pay it. The Board notes, however, that in addition to the obvious fact that interest would accrue on any unpaid loan, you were also issued a Quotation of Retirement Allowance, dated July 17, 2008, at the time you applied for an August 1, 2008 retirement under the State Early Retirement Incentive of 2008; this letter provided the information that if you retired at that time you would be carrying a loan balance totaling $16,112.14 into retirement, which was your projected loan balance plus interest.
Concluding that there was no dispute that interest had accrued on appellant's outstanding pension loans during his separation from service, the Board denied his request to waive additional loan interest. Again acknowledging that administrative oversights prevented the correct certification of appellant's loan upon his return to state service, the Board noted that the accrued interest nevertheless remained outstanding. Citing its statutory obligation to correct errors and its further statutory obligation to collect outstanding loan balances when a member retires, the Board denied appellant's request. Appellant filed this appeal.
N.J.S.A. 43:15A-54 provides in pertinent part:
If any change or error results in an employee or beneficiary receiving from the retirement system more or less than he would have been entitled to receive, then on discovery of the error, the retirement system shall correct it and, so far as practicable, adjust the payments in such a manner that the actuarial equivalent of the benefit to which he was correctly entitled shall be paid.
N.J.S.A. 43:15A-34.1 provides in pertinent part:
In the case of any member who retires without repaying the full amount so borrowed, the [Division] shall deduct from the retirement benefit payments the same monthly amount which was deducted from the compensation of the member immediately preceding retirement until the balance of the amount borrowed together with the interest is repaid.
Appellant presents the following points for our consideration:
I. IT IS NOT EQUITABLE FOR APPELLANT TO BEAR THE BURDEN OF PERS'S LACK OF DILIGENCE IN CORRECTING ITS OWN REPEATED ERRORS.In his reply brief, appellant raises the following point:
II. THE COURT SHOULD REVERSE THE FINAL DETERMINATION BY PERS BECAUSE IT WAS ARBITRARY, CAPRICIOUS, UNREASONABLE AND UNSUPPORTED BY THE RECORD.
THE BOARD'S DECISION, AFFIRMING THE IMPOSITION OF NEARLY $10,000 IN RETROACTIVE INTEREST, SHOULD BE REVERSED ON GROUNDS OF EQUITABLE ESTOPPEL WHERE APPELLANT REASONABLY RELIED, TO HIS DETRIMENT, ON REPEATED REPRESENTATIONS BY PENSIONS THAT NO ADDITIONAL INTEREST ACCRUED AND SUFFERED HARM AS A RESULT.
Our review of agency determinations is limited. In re Stallworth, 208 N.J. 182, 194 (2011). We generally "defer to the specialized or technical expertise of the agency charged with administration of a regulatory system." In re Virtua-W. Jersey Hosp. Voorhees for a Certificate of Need, 194 N.J. 413, 422 (2008). For that reason, we ordinarily will "not disturb an administrative agency's determinations or findings unless there is a clear showing that (1) the agency did not follow the law; (2) the decision was arbitrary, capricious, or unreasonable; or (3) the decision was not supported by substantial evidence." Ibid. "The burden of demonstrating that the agency's action was arbitrary, capricious or unreasonable rests upon the [party] challenging the administrative action." In re Arenas, 385 N.J. Super. 440, 443-44 (App. Div.), certif. denied, 188 N.J. 219 (2006).
Applying that standard of review to the undisputed facts in this case, we conclude that appellant has failed to demonstrate that the PERS Board's decision was arbitrary, capricious, or unreasonable.
We begin our analysis with the Board's conclusion "that there is no dispute of the fact that interest accrued to [appellant's] outstanding pension loans during [his] separations from State service." The record fully supports that conclusion. The statute which authorizes members to borrow from the retirement system specifically provides "that the amount so borrowed, together with interest thereon, can be paid by additional deductions from compensation, . . . made at the same time compensation is paid to the member." N.J.S.A. 43:15A-34. In August 1994, when appellant first separated from service, the statute also provided that "[t]he amount so borrowed, together with interest at the rate of 4% per annum on any unpaid balance thereof, shall be repaid to the retirement system in equal installments by deduction from the compensation of the member at the time the compensation is paid or in such lump sum amount to repay the balance of the loan . . . ."
In addition to the statutorily mandated interest, N.J.A.C. 17:2-4.4 provides:
Interest will be calculated on a periodic basis on the unpaid loan balance. If scheduled payments are not paid timely, interest will be accrued and added to the remaining outstanding loan balance. If, at the end of the loan schedule, there is
balance of less than $50.00, it will be written off. If the balance is equal to or greater than $50.00, the member will be assessed.
The regulation was amended by R. 2005 d.75, effective February 22, 2005, to substitute "$50.00" for "$10.00".
--------
Defendant cites no statutory, regulatory, or common law authority for the proposition that interest would cease to accrue on his loan upon his separation from service. In view of the statutory and regulatory provisions requiring interest to be paid on loans from the retirement system, and in the absence of any competent, credible evidence to the contrary, the proposition that interest did not accrue on appellant's loan during his ten-year absence from government service is contrary to both law and common sense.
Appellant has offered no credible evidence that interest did not accrue on his outstanding loan during his first separation from service from August 1994 through December 2005. Appellant cites an email that he sent to a Division employee on January 15, 2011 — nearly seventeen years after the conversation to which the email refers occurred — stating: "When I separated from State service in 1994, I called to check regarding the loan and was told that [the] balance would remain and upon my return loan payments would resume, there was no mention of additional interest." Appellant does not assert that he was told that no interest would accrue during his separation from service. The vagueness of the statement itself — appellant does not say who he called, and he asserts that he called to "check" regarding the loan, not the interest — renders incredible any inference that the unnamed employee was suggesting that no interest would accrue on the loan. Appellant does not claim that he was explicitly told that no interest would accrue; rather, he states that there was no mention of additional interest. It does not appear that interest was a topic of discussion.
For all of the foregoing reasons, there is no reason to disturb the Board's conclusion that interest accrued on appellant's loan during his first ten-year separation from service.
Nor does appellant appear to dispute that upon return to service after his first ten-year separation, the Division's failure to recertify the loan with interest was anything other than an administrative error. That error was obviously repeated in each of appellant's paychecks until he separated a second time, and again thereafter. The error was also repeated in periodic statements issued to appellant concerning his retirement account. The question then, is whether PERS, having failed for so many years to discover and correct its error, is now barred from collecting the accrued interest. We conclude that it is not.
Appellant argues that we should reverse the Board's decision for two reasons: it is not equitable for him to bear the burden of PERS's lack of diligence in correcting its repeated errors, and the Board's decision should be reversed on grounds of equitable estoppel. In each argument, appellant stresses that he received more than one hundred paychecks that did not include the interest that had accrued during his separations from service, he received periodic statements that did not include the interest, and he relied upon the Division concerning his loan balances. He claims that had he known interest would accrue, he would have made arrangements to pay off the loan and avoid the interest, as he had done with the outstanding balance owed on the service credit he had purchased.
In considering appellant's argument that it is inequitable for him to pay the accrued interest on his loans, we bear in mind our Supreme Court's characterization of pensions:
Pensions for public employees serve a public purpose. A primary objective in establishing them is to induce able persons to enter and remain in public employment, and to render faithful and efficient service while so employed. They are in the nature of compensation for services previously rendered and act as an inducement to continued and faithful service. Being remedial in character, statutes creating
pensions should be liberally construed and administered in favor of the persons intended to be benefited thereby.
[Geller v. Dept. of the Treasury of N.J., 53 N.J. 591, 597-98 (1969) (citations omitted).]
The "persons intended to be benefited" by PERS are its members. This should be born in mind, especially in view of concerns that have been expressed in recent years about pension funds. See, e.g., Berg v. Christie, 436 N.J. Super. 220, 236, 238 (App. Div. 2014) (explaining the historical events that have resulted in underfunding of the State's pension systems and noting the extent of unfunded liabilities); Teamsters Local 97 v. State, 434 N.J. Super. 393, 405 (App. Div. 2014). Although the "administrative oversights" that occurred here certainly did not contribute to the underfunding of pension liability — and we do not intend to imply that they did — the funding problem underscores the need to interpret pension statutes liberally in favor of all of the members intended to be benefited by those statutes, not merely a single member. That is particularly so when one member seeks a result that is contrary to the interest of other members. Such is the case here.
Stated another way,
[i]n spite of liberal construction, an employee has only such rights and benefits as are based upon and within the scope of the provisions of the statute. A potential
adverse impact on the fiscal integrity of the pension fund and the ordinary meaning of the words of a statute may counsel against too broad an application of a pension statute in favor of a petitioner.
[Francois v. Bd. of Tr., 415 N.J. Super. 335, 349 (App. Div. 2010) (internal quotation marks and citations omitted).]
Appellant relies primarily on two cases to support the proposition that it is inequitable to make him pay the accrued interest: Vliet v. Bd. of Trs., 156 N.J. Super. 83 (App. Div. 1978) and Indursky v. Bd. of Trs., 137 N.J. Super. 335 (App. Div. 1975). Both are distinguishable from this case.
In Vliet, a Township employee, through his employer, inquired of PERS whether his pension would be affected if he worked only part-time. PERS replied that the employee could accept temporary employment without adversely affecting his pension, but if the job required re-enrollment in PERS, his retirement allowance would be reduced while he was reemployed. Vliet, supra, 156 N.J. Super. at 85. After receiving pension benefits for several years while holding his "temporary" job, PERS discovered that the employee was classified not as a temporary employee, but as a "regularly budgeted employee." Ibid. The PERS Board rescinded his benefits and demanded reimbursement of nearly $20,000 in benefits it had paid. The employee appealed that decision.
Although cautioning that the employee should not benefit from "non-compliance with the law," we concluded that full reimbursement "would be inequitable." Id. at 90. That was because the record was clear that the employee would have chosen his pension above part-time employment. For that reason, we required that the employee repay "monies earned by him while employed by" the municipal employer after his retirement. That restored the employee "to full pension status as of that date, without earnings from . . . the [t]ownship which would otherwise have interrupted his retirement benefits." Ibid. Significantly, we stated explicitly, "[t]his remedy may not be applied in a future case. We do not intend to encourage employees to play heads-I-win-tails-you-lose with the Division of Pensions." Ibid.
We adhere to that principle and decline to apply that remedy here. If there is a recurrence of the limited factual situation before us — a payroll department, the Division, or PERS fails to certify interest that has accrued during a state employee's separation from service — it would be virtually impossible to determine whether the employee knew that a mistake had been made or was unaware of it. But in view of the mandatory statutory and regulatory law requiring that interest be paid on loans from the retirement system, all PERS members have constructive notice that interest accrues on outstanding balances. That imputed notice best serves all members of PERS, not merely one member who may or may not attempt to take advantage of an administrative error.
We also find Indursky distinguishable from the facts of this case. There, a PERS member had applied for and received disability retirement after a PERS physician determined that he was totally and permanently incapacitated. Indursky, supra, 137 N.J. Super. at 338. Several years later, after an examining physician and the PERS Board's medical panel determined that the member was still permanently incapacitated, and after PERS had sought and obtained from the employee a gross earnings report, PERS presented the report to the Board of Trustees for their consideration. The Board requested a legal opinion, which the Board received and acted on six years later. Id. at 341. In the meantime, the member had provided PERS with his yearly earnings and during one year a PERS medical panel had determined that the member was "totally incapacitated" and that "further annual examination would not appear to be necessary." Ibid. When the Board finally received the legal opinion, it sought to have the member repay the benefits that it had received during the intervening six years.
We denied that relief, "deem[ing] to have been the obligation of [PERS] to have inquired into [the member's] liability for reduced benefits when alerted to his 'outside' earnings, and this with reasonable diligence." Id. at 344. Here, unlike Indursky, the Board made an error to which it was not "alerted" by appellant. And even assuming that both parties were unaware of the error, appellant was, as we have said, on constructive notice that interest continued to accrue on his outstanding balance.
Appellant's argument that he relied on PERS' and the Division's mistake is unpersuasive. Appellant had the use of the money he had borrowed until it was repaid. And though he claims he would have made arrangements to pay off the balance to avoid interest during the period the loan remained unpaid, appellant had the use of the source of funds that he could have used to repay the PERS loan.
For the same reason, we reject appellant's argument that the Board is barred from collecting the accrued interest based on equitable estoppel. To successfully invoke that doctrine, appellant must demonstrate that the Division made 1) "'a knowing and intentional misrepresentation,'" 2) made such a material misrepresentation "'under circumstances in which the misrepresentation would probably induce reliance,'" and 3) that his reliance on the misrepresentation was to his detriment. In re Johnson, 215 N.J. 366, 379 (quoting O'Malley v. Dept. of Energy, 109 N.J. 309, 317 (1987)). Alternatively, if the misrepresentations were not knowing or intentional, they must have been made under circumstances that induced reliance. See Knorr v. Smeal, 178 N.J. 169, 178 (2003). "[T]he burden of proving a claim of equitable estoppel is on" the party seeking it. Bonaventure Intern., Inc. v. Borough of Spring Lake, 35 0 N.J. Super. 420, 436 (App. Div. 2002).
There is no evidence in this case that either the Division or PERS made a knowing and intentional misrepresentation. And we do not find under the limited circumstances in this case that the administrative oversight reasonably induced reliance by appellant. As we have previously noted, appellant had constructive notice that interest accrued on his loans during his separations from service, and he had no reasonable basis for believing otherwise before he returned after his first ten-year absence and began receiving his paychecks. Upon receipt of his first paycheck, however, when he saw that his loan balance was exactly the same as when he had left ten years earlier, he should have known that accrued interest had not been factored into the current reported balance. A simple inquiry on his part would have rectified the error.
For the foregoing reasons, we conclude that the Board did not act arbitrarily, capriciously, or unreasonably when it denied appellant's request to waive accrued interest and complied with its statutory obligations. We have considered appellant's remaining arguments and find them to be without sufficient merit further discussion in a written opinion. R. 2:11-3(e)(1)(E).
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION