Opinion
DOCKET NO. A-1106-12T4
09-11-2014
DAVID KOCHEL, Appellant, v. PUBLIC EMPLOYEES' RETIREMENT SYSTEM, Respondent.
Charles J. Uliano argued the cause for appellant (Chamlin, Rosen, Uliano & Witherington, attorneys; Mr. Uliano, on the brief). Chris M. Tattory, Deputy Attorney General, argued the cause for respondent (John J. Hoffman, Attorney General, attorney; Lewis Scheindlin, Assistant Attorney General, of counsel; Mr. Tattory, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Grail, Waugh and Accurso. On appeal from the Board of Trustees of the Public Employees' Retirement System, Department of Treasury. Charles J. Uliano argued the cause for appellant (Chamlin, Rosen, Uliano & Witherington, attorneys; Mr. Uliano, on the brief). Chris M. Tattory, Deputy Attorney General, argued the cause for respondent (John J. Hoffman, Attorney General, attorney; Lewis Scheindlin, Assistant Attorney General, of counsel; Mr. Tattory, on the brief). PER CURIAM
David Kochel, formerly employed as the salaried Township Manager for the Township of Ocean (Township) and a member of the Township of Ocean Sewerage Authority (TOSA) for which he received a $2000 annual stipend, retired from those positions effective June 1, 2007. His retirement was with the prior approval of the Board of Trustees of the Public Employees' Retirement System (respectively the Board and PERS) in the Division of Pensions (Division). Prompted by a citizen's complaint about Kochel's continued employment as the Township's manager post-retirement in August 2007, the Division contacted the Township and conducted an audit. On April 18 and October 14, 2008, the Board issued separate directives requiring Kochel to repay pension allowance received and make contributions to PERS based on his post-retirement earnings — the April 18 directive, based on his service as the Township's manager, applied to retirement allowance for June, July and August 2007, and the October 28 directive, based on his service on the TOSA, applied to retirement allowance for months starting in September 2007 and ending with the expiration of his term on the TOSA, which would have been January 1, 2009, if Kochel had not resigned on August 31, 2008.
Kochel took administrative appeals from both directives, which the Board transferred to the Office of Administrative Law (OAL), and the Chief Administrative Law Judge (CALJ) decided. On May 12, 2012, the Board, adopting the CALJ's initial decision, affirmed its April 2008 directive on the ground that Kochel failed to discontinue his employment as the Township's manager until August 17, 2007 and must repay retirement allowance received and make contributions to PERS for June, July and August 2007, nearly $22,500. On September 28, 2012, the Board adopted the CALJ's recommendation to affirm its determination that Kochel continued service as a member of the TOSA from his retirement until August 31, 2008, but the Board rejected the CALJ's recommendation to impose a penalty other than repayment of his full retirement allowance, about $89,645. In the CALJ's view, it was inequitable to require Kochel to do more than repay what he had received for post-retirement service on the TOSA, $880 . She reasoned that his service in that position did not pose a risk of manipulating the pension system or damaging the fiscal integrity of PERS and that repayment of his retirement allowance was an arbitrary and excessive penalty inconsistent with the remedial purpose of the pension law.
Some of the testimony in the OAL was taken by another ALJ, who was recused and replaced by the CALJ.
In its letter opinion of January 3, 2008, the Board indicated that as of January 1, 2008, Kochel had received $52,293.29. As that January payment would have been the seventh payment of the retirement allowance, we infer that his monthly benefit was about $7470.47.
Apparently the result of a typographical error, the initial decision misstates the total of a $500 payment of a stipend and a $380 reimbursement for expenses Kochel incurred to attend a convention.
For the reasons that follow, we vacate the Board's order requiring repayment of the retirement allowance paid to him for the months starting on September 1, 2007 when his only employment was with TOSA. For that period, we remand and direct the Board to reinstate the penalty recommended by the CALJ.
I
The pertinent facts, developed during the proceedings in the OAL, are undisputed. Only the legal implications of those facts are at issue.
The Township hired Kochel as its manager in June 1987, a position for which he was qualified based on education and about seven years' experience as the manager of another town in New Jersey. Years later, Kochel was also appointed to fill the unexpired terms of two members of the TOSA. Kochel's first appointment to the TOSA was effective October 1, 2003, and his last appointment was to fill an uncompleted term expiring on December 31, 2008.
In December 2006, Kochel advised the Township Council of his intention to retire effective June 1, 2007. According to Kochel, he wanted to retire early in 2006 on his fifty-fifth birthday because he was concerned about the impact proposed amendments to regulations would have on his ability to collect compensation for unused sick time on his retirement. The mayor, however, convinced him to stay longer to help the Township locate, and have a smooth transition with, his replacement.
By that time, Kochel's annual salary for serving as manager was about $170,000. In comparison, his compensation for service on the TOSA was nominal, $2000 a year plus reimbursement for expenses related to the service.
By letter of May 16, 2007, the Board, acting without any information about the post-retirement agreement, approved Kochel's retirement effective June 1, 2007. The letter the Board sent to Kochel warned about consequences of reemployment following retirement:
You should be expected to be reenrolled in the PERS if you accept employment after retirement with the State or any of the local participating public employers in a PERS covered position and your total salary from all public employment exceeds $15,000 in a calendar year.
If you return to public employment following your retirement, you must notify our office of Client services at [phone number].
A fact sheet available to Kochel at the time of his retirement from PERS, "Fact Sheet #21," provided a more complete explanation:
When you return to PERS covered employment is critical in determining your PERS status. You should expect to continue enrollment in PERS if you start working in a PERS covered position before your pension has become due and payable. A pension benefit is due and payable 30 days after the date of Board approval, or the retirement date, whichever is later. You must have at least a 30-day break in service after your retirement date to be considered retired from the PERS. If you return to PERS covered employment within 30 days of your retirement date, your retirement is not valid, and you are considered as active employee.The iteration of "Fact Sheet #21" available by June 2009 includes a warning that a return to a PERS-covered position "on either a paid or voluntary basis" would make the retirement invalid.
[(Emphasis added).]
A copy of "Fact Sheet #21" that bears the date November 2007 was admitted into evidence in the OAL. A witness for the Division testified that the portion of Fact Sheet #21 quoted above is identical to the language that was included in the version available prior to Kochel's retirement.
Prior to Kochel's receipt of the foregoing letter and to his retirement date, Kochel left New Jersey for a vacation from May 15 through June 10, 2007. When he returned, he immediately commenced post-retirement service in his former positions as manager and, on July 1, recommenced his service as a member of the TOSA. Because Kochel's post-retirement service was addressed separately in the administrative proceedings, we discuss that service separately in parts B and C of this section.
A
Before turning to the facts, we discuss the statutory and regulatory restrictions on post-retirement service.
The Board's letter approving Kochel's retirement, without citation, refers to limitations on post-retirement employment that are codified in N.J.S.A. 43:15A-57.2 and regulations implementing that statute.
Subsection a. of N.J.S.A. 43:15A-57.2 provides for the cancellation of the PERS retirement allowance of a retiree who "becomes employed again in a position which makes him eligible to be a member of the retirement system." Subsection b. of the same statute, however, exempts employment in such a position or positions if "the aggregate compensation does not exceed $15,000 per year" from the cancellation requirement. Ibid.
Prior to its amendment effective June 28, 2011, L. 2011, c. 38, §§ 34, 83, N.J.S.A. 43:15A-57.2 provided:
a. Except as provided in subsections b. and c. of this section, if a former member of the State Employees' Retirement System or the retirement system, who has been granted a retirement allowance for any cause other than disability, becomes employed again in a position which makes him eligible to be a member of the retirement system, his retirement allowance and the right to any death benefit as a result of his former membership, shall be canceled until he again retires.
Such person shall be re-enrolled in the retirement system and shall contribute thereto at a rate based on his age at the time of re-enrollment. Such person shall be treated as an active member for determining disability or death benefits while in service and no benefits pursuant to an optional selection with respect to his former membership shall be paid if his death shall occur during the period of such re-enrollment.
Upon subsequent retirement of such member, his former retirement allowance shall be reinstated together with any optional selection, based on his former membership. In addition, he shall receive an additional retirement allowance based on his subsequent service as a member computed in accordance with applicable provisions of chapter 84 of the laws of 1954; provided, however, that his total retirement allowance upon such subsequent retirement shall not be a greater proportion of his final compensation than the proportion to which he would have been entitled had he remained in service during the period of his prior retirement. . . .
b. The cancellation, re-enrollment, and additional retirement allowance provisions of subsection a. of this section shall not apply to a former member of the retirement system who, after having been granted a retirement allowance, becomes employed again by: (1) an employer or employers in a position or positions for which the aggregate compensation does not exceed $15,000 per year . . . .
N.J.S.A. 43:15A-57.2 (as amended effective January 6, 2002 by L. 2001, c. 355, §§ 2-3).
N.J.A.C. 17:2-2.3 implements the statute by providing a system for the re-enrollment of retirees in PERS that triggers both cancellation of a retiree's retirement allowance and resumption of deductions for contributions to PERS from gross pay. In pertinent part, N.J.A.C. 17:2-2.3(a)7 now provides:
(a) The following classes of persons are ineligible for membership in [PERS]:This portion of (a)7 exempts those who return to work without exceeding the statutory limit on earnings from re-enrollment in PERS and cancellation of benefits.
. . . .
7. Any retired member who returns to a PERS covered position or positions for which the aggregate compensation is less than the aggregate calendar year compensation limit for exclusion from membership pursuant to N.J.S.A. 43:15A-57.2b.
Another portion of (a)7 explains how re-enrollment triggering cancellation of benefits and resumption of payroll deductions for contribution to PERS is accomplished. It provides:
If the contractual or regularly budgeted compensation for the position or positions exceeds the calendar year compensation limit, the retired member shall be reenrolled in the PERS as of the beginning of their employment. A retired member who is employed on an hourly basis shall be reenrolled in the PERS as soon as the compensation received exceeds the calendar year compensation limit.
Finally, and important here, a(7) of N.J.A.C. 17:2-2.3 includes a provision the Board deemed "necessary due to the enactment of P.L. 1997, c. 23, which makes retirees from the Public Employees' Retirement System (PERS) who, after being granted a retirement allowance, return to public employment in a position which earns less than [the statutorily designated amount], ineligible for re-enrollment into the Retirement System. This proposed amendment will attempt to clarify the period one must be retired to be covered by this rule." 30 N.J.R. 1025(a) (Mar. 16, 1998) (proposing an amendment to N.J.A.C. 17:2-2.3, implementing L. 1997, c. 23, § 2, which added subsection b. to N.J.S.A. 43:15A-57.2); see 30 N.J.R. 2513(c) (adopting the proposal and noting that no comments were received).
The 1997 statutory amendment to N.J.S.A. 43:15A-57.2 is significant. Prior to the adoption of subsection b., N.J.S.A. 43:15A-57.2 did not include an exception to the cancellation of retirement allowance based on post-retirement earnings in covered employment. In other words, formerly, cancellation of retirement allowance, other than an allowance based on disability, was required without regard to the amount a retiree earned in a PERS-covered position. L. 1971, c. 213, § 45 (providing for cancellation of retirement allowance upon reemployment without exception).
As adopted in 1997, subsection b. of N.J.S.A. 43:15A-57.2 permitted earnings of $10,000 or less. The statements accompanying the bills creating the exception provide no explanation of the Legislature's purpose beyond allowing post-retirement employment in a position covered by PERS other than a brief description of its impact — "Allows PERS retiree to resume employment covered by former retirement system without suspension of benefits if annual compensation does not exceed $10,000." Statement on Adoption of Senate Substitute for S. No. 1152 and A. No. 1604 (December 16, 1996); Senate State Management, Investment and Financial Institutions Committee, Statement to S. No. 1152 (October 7, 1996) (noting that the Pension and Health Benefits Review Commission recommended enactment of this bill and an identical bill, A-1604 (1R), "because it provides retirees an opportunity to undertake part-time employment while retaining their retirement benefits").
The ceiling on earnings in a PERS-covered position was raised from $10,000 to $15,000 in 2001. L. 2001, c. 278, § 1.
Other exceptions allowing retirees to work on a temporary or seasonal basis were provided in N.J.S.A. 43:15A-7, which designates positions in which service does not qualify for membership in PERS.
The only exception for post-retirement work in a potentially PERS-covered position prior to the 1997 amendment was one that is implicit in the statute providing a threshold of potential earnings before a position is to be covered by PERS. See N.J.S.A. 43:15A-7d(1) (now providing that "[b]efore or on November 1, 2008, no person in employment, office or position, for which the annual salary or remuneration is fixed at less than $1,500.00, shall be eligible to become a member of the retirement system"); cf. N.J.S.A. 43:15A-7d(3) (increasing the minimum to $7500 as of the effective date of L. 2010, c. 1, § 3 (May 21, 2010)). Thus, at the time pertinent here, a position paying less than $1500 was not covered by PERS.
Finally, a portion of N.J.A.C. 17:2-2.3a(7) requires a retiree to wait thirty days before working in a position exempt from cancellation of retirement allowance pursuant to subsection b. of N.J.S.A. 43:15A-57.2. That portion of (a)7 provides:
For the purposes of this paragraph, a "retired member" is a former member who has terminated all employment covered by the retirement system, who has not received compensation from employment covered by the retirement system for at least 30 consecutive calendar days, who is not receiving a disability retirement allowance and whose retirement benefit has become due and payable as provided in N.J.A.C. 17:2-6.2 . . . .Pursuant to N.J.A.C. 17:2-6.2, "a member's retirement allowance shall not become due and payable until 30 days after the date the Board approved the application for retirement or 30 days after the date of the retirement, whichever is later."
[(Emphasis added).]
The parties have not identified a statute expressly imposing a requirement of a thirty-day break without compensation. But the Legislature's agreement with the portion of a(7) codifying the thirty-day rule can be inferred from statutory amendments the Legislature enacted to override another provision of N.J.A.C. 17:2-6.2 adopted with the thirty-day rule. In 2001, when the Legislature raised the ceiling on retiree earnings from $10,000 to $15,000, the Legislature also amended N.J.S.A. 43:15A-57.2b to negate the Division's determination to treat income from multiple post-retirement PERS positions separately, in other words without aggregating the retiree's income from several PERS-covered positions, which the Division expressed in the initial iteration of N.J.A.C. 17:2-6.2. See L. 2001, c. 278, § 1; Assembly State Government Committee, Statement to Committee Amendments to S.B. No. 517 (Jan. 23, 2001) (explaining that the amendment in L. 2001, c. 278 rejects the Division's interpretation under which a retiree's earnings in multiple positions were not aggregated); 30 N.J.R. 1025(a) (stating the thirty-day rule and that income from several positions would not be aggregated). In this circumstance, it is reasonable to assume that the Legislature would have amended the statute to avoid the thirty-day rule along with the provision requiring separate consideration of income if it did not agree with the thirty-day rule. State v. Bigham, 119 N.J. 646, 655-56 (1990).
The purpose of the pension laws and the Board's role in enforcing them is also important to an assessment of the legal significance of the facts of this case. Pensions for public employees are "'compensation for services previously rendered' and 'an inducement to continued and faithful service.'" Francois v. Bd. of Trustees, 415 N.J. Super. 335, 349 (App. Div. 2010) (quoting Geller v. N.J. Pep't of Treasury, Div. of Pensions & Annuity Fund, 53 N.J. 591, 597, (1969)). Given those remedial purposes, the laws "'should be liberally construed and administered in favor of the persons intended to be benefited.'" Klumb v. Bd. of Educ. of Manalapan-Englishtown Reg'l High Sch. Dist., 199 N.J. 14, 34 (2009) (quoting Geller, supra, 53 N.J. at 597-98).
Nevertheless, the courts must interpret and the Board must apply the law consistent with the ordinary meaning of the statutes and in a manner that avoids manipulation of the system and protects the fiscal integrity of PERS. Francois, supra, 415 N.J. Super. at 349. After all, "[a]n inappropriate allowance of benefits tends 'to place a greater strain on the financial integrity of the fund in question and its future availability for those persons who are truly eligible for such benefits.'" Id. at 350 (quoting Smith v. State, Dep't of Treasury, Div. of Pensions & Benefits, 390 N.J. Super. 209, 215 (App. Div. 2007)).
Given the purposes of pensions, our courts have required equitable and fair administration of the pension laws and implementing regulations. Thus, in enforcing a penalty required by repayment of the retirement allowance, factors pertinent to the equities in the case must be considered. Those factors include whether the retiree reasonably relied on representations in selecting a course of action; the diligence of the agency action in uncovering improper payment of retirement allowances; evidence of manipulation by the retiree and his or employer; and the proportionality of an order requiring repayment where noncompliance is attributable to a mistake rather than manipulation of the pension system. See, e.g., Skulski v. Nolan, 68 N.J. 179, 196 (1975); Vliet v. Bd. of Trs., Pub. Employees' Ret. Sys., 156 N.J. Super. 83, 90 (App. Div. 1978); Indursky v. Bd. of Trustees, 137 N.J. Super. 335, 343 (App. Div. 1975).
With the relevant law in sight, we turn to the facts.
B
Kochel's post-retirement service in his role as the Township's manager was governed by an agreement approved by the Township Council on February 5, 2007. The agreement, noting Kochel's qualifications and meritorious service, expresses the parties' mutual desire to have "an orderly transition" from the date of the agreement through the date of Kochel's retirement, through the dates thereafter on which a new Township Manager would be named and take office, and for a "reasonable length of time after" the new manager assumed office.
Under the agreement's terms, Kochel would retain the title of Township Manager and exercise the powers and duty of that position after his last day in pay status, May 31, 2007 and until a transition to a new manager was accomplished. The Township agreed to continue Kochel's present salary and benefits until his retirement on May 31, 2007, and Kochel agreed to give, upon the Township's request, 140 hours of service without compensation after that date. According to Kochel, the number of free hours he would provide represented one seven-hour day for each of his twenty years of service to the Township. The number can also be understood as reflecting about a month's work — that is, four weeks of work each consisting of five seven-hour days.
During that 140-hour period, the Township agreed to cover specified expenses — a $25 monthly stipend for a cell phone, use of a car or a per mile rate for use of his own, and liability insurance and indemnification — that the Township covered during Kochel's employment. As Kochel explained, the Township's coverage of those expenses during his employment was not considered compensation for purpose of his pension prior to retirement and, for that reason, he did not expect it to be treated as compensation impacting receipt of his pension allowance after retirement.
The agreement between Kochel and the Township provided for a very different arrangement after the 140 hours of volunteered service. For any service beyond those 140 hours, the Township agreed to pay Kochel an hourly rate based on his final salary plus the insurance, indemnity and expenses for a cell phone and transportation. Importantly, the agreement made no mention of Kochel's membership on the TOSA.
On June 11, 2007, Kochel returned to his position as Township Manager in accordance with the February 5 agreement and provided services without compensation in conformity with the agreement for fifteen days, about 105 hours for a seven-hour day. On June 28, he was appointed as the Township's acting manager and commenced service in July.
Kochel received his first pension check on July 1, 2007, which was his retirement allowance for the month of June. Although his retirement was approved to commence on June 1, 2007, pursuant to N.J.A.C. 17:2-6.2 "a member's retirement allowance [does] not become due and payable until 30 days after the date the Board approved the application for retirement or 30 days after the date of the retirement, whichever is later." Thus, a monthly pension check covers the prior month's retirement allowance — the July 1 payment is for June retirement.
After July 1, 2007, the Township paid Kochel a total of $13,987.00 for services he billed to the Township between July 2 and August 17, 2007, nearly $7000 a month for those two months. Kochel resigned on August 17, 2007, and he did not bill for any services after August 17, 2007.
Kochel's resignation of this post-retirement employment coincided with an investigation of his post-retirement employment opened in August 2007. On August 14, 2007, a taxpayer wrote to the External Audit Unit of the Division, advising of the February 5, 2007 post-retirement agreement between Kochel and the Township. The taxpayer suggested that the Division investigate to determine, among other things, if the agreement allowing Kochel to receive a pension and wages for the same position at the same time, was in violation of a regulation adopted by the Board addressing post-retirement employment.
In apparent response to the citizen's letter, on August 17, 2007, the Division advised the Township that it was investigating information it received about Kochel's post-retirement employment in his former position and requested additional information. As requested, the Township filed its response on September 6, 2007.
On January 3, 2008, the supervisor of external audits for the Division advised Kochel that the Division had determined that the purpose of Kochel's post-retirement agreement was to allow him to continue as the Township's manager after retirement and during the transition of his replacement. In the Division's view, that arrangement continued Kochel's relationship with the Township in a manner that made his retirement invalid. Accordingly, the supervisor advised that Kochel would be required to repay retirement allowance received prior to his termination of that relationship.
The supervisor of audits did not advise Kochel that the Division was also concerned about his continued membership on the TOSA. There is no dispute, however, that the $2 000 annual stipend Kochel received was considered in calculating his retirement allowance.
On April 18, 2008, after considering statements and submissions from the Division, Kochel and the Township, the Board concluded that Kochel did not break his service as the Township's manager until August 17, 2007. Consequently, the Board determined that he was not entitled to and must repay the retirement allowance he received in July, August and September 2007.
The Board's reasons for that determination were set forth in a letter to Kochel dated April 18, 2008, and upon receipt of that letter, Kochel filed an administrative appeal that led to a hearing in the OAL.
C
During the investigation that commenced in August 2007, the Division did not advise Kochel that his service on the TOSA was problematic. More than a year later, by letter of October 14, 2008, the Division's supervisor of external audits advised Kochel that it had focused on his continuing relationship with the TOSA and had concluded that he did not have a bona fide retirement until that relationship was severed. The auditor determined that severance of Kochel's relationship with the TOSA would not occur until the term Kochel was serving expired on January 1, 2009.
Kochel then challenged that determination, and the Board referred it to the OAL, where Kochel's challenge to the ruling based on his post-retirement service as the Township's manager was still pending.
The record developed following the referral of Kochel's second challenge discloses the following about his service on the TOSA following his May 31, 2007 retirement.
Kochel took a thirty-day unpaid leave of absence for the month of June 2007 after being advised by the TOSA's attorney that such a leave would serve as a thirty-day break in his service on the TOSA. The TOSA's Board approved that unpaid leave of absence at its May 1, 2007 meeting. Accordingly, Kochel did not receive any compensation, attend any meetings or have any contact with the TOSA during June 2007.
On July 1, 2007, however, he returned to serve on the TOSA. He was paid $500 for the first quarter of 2007, $333.34 for the portion of the second quarter prior to his unpaid leave, nothing for the third quarter, and $1000 for the fourth quarter. In addition, he received a $150 per diem payment for attendance at a convention and $2 30 for his hotel room.
According to Kochel, he discovered that he been paid for a quarter including the month of September 2007 while he was preparing his tax returns. Kochel promptly repaid the $500, and on April 28, 2008, TOSA passed a resolution retroactively declaring that Kochel was on an unpaid leave of absence commencing September 1 and ending October 1, 2007. Kochel accepted no payment for service as a member of the TOSA in 2008, and he resigned from the TOSA on August 31, 2008, before the expiration of the term to which he had been appointed.
The CALJ found that Kochel had a continuous relationship with the TOSA until he resigned on August 31, 2008. She further found that the retroactive grant of a leave of absence from the TOSA was Kochel's attempt to "create a second break in service that would align" with the Board's April 18, 2008 decision to move his bona fide retirement date from the position of the Township's manager from June 1 to September 1, 2007. His resignation on August 17, 2007, was the first thing Kochel did to end his continuous years of service as the Township's manager. With the respect to the position of the Township's manager, the Board could not overlook what was an effort to circumvent the statutory restrictions on post-retirement employment in a PERS-covered position. The fact that Kochel billed for $13,987.00 for only 149 hours, the equivalent of about twenty-one days of work from July 2 through August 17, 2007 demonstrates that his earnings under the agreement would have gone well beyond the $15,000 limit imposed by N.J.S.A. 43:15A-57.2b, which was part of his consideration for providing 140 hours of service without compensation.
Kochel's continued service on the TOSA after August 17, 2007 is quite different. Accepting the Board's determination that Kochel had not complied with the thirty-day rule, the CALJ found that his prompt return of the $500 was a good faith effort to put his pay status for the month following his retirement as he intended it to be — at $0. In short, it was his effort to correct a mistake he made in good faith reliance on the advice of the TOSA's lawyer, that he would create the necessary break in service by taking an unpaid leave of absence.
Recognizing that the Legislature has given the Board significant authority to prevent manipulation of the pension system and preserve its fiscal integrity, the CALJ concluded that the post-retirement service Kochel provided the TOSA after September 1, 2007 posed no risk of manipulation of PERS or to its fiscal integrity. The CALJ further found that the Division's notice to Kochel of the problem with his continued service on the TOSA, which was not given until October 18, 2008, was given within in a reasonable time.
Considering the remedial nature of the pension laws designed to provide compensation for past service and inducement for continued faithful service, the CALJ concluded that the Board's decision to require Kochel's repayment of his entire pension allowance for the months of retirement starting on September 1, 2007 was too heavy a penalty for reliance on the erroneous advice of counsel.
The Board accepted all of the CALJ's findings of fact and her determination of the mixed question of law and fact that notice about the impropriety of Kochel's service on the TOSA was given within a reasonable time. The Board rejected the CALJ's recommendation as to the appropriate penalty for Kochel's continued service on the TOSA.
Noting that the CALJ had relied on an unpublished decision of this court that had no precedential value in reducing the penalty, the Board distinguished the case on its facts. The Board did not, however, make any effort to address the well-established principles on which the CALJ relied or to explain how the penalty for continued service could be reconciled with this court's decision in Vliet, supra, 156 N.J. Super. at 89; or to explain its failure to detect Kochel's continued service as a member of the TOSA in August 2007, given that his pension was based, albeit in very small part given the differential in compensation and years of service, on those earnings as well.
II
The scope of this court's review of an agency decision is limited. In the matter of Herrmann, 192 N.J. 19, 27 (2007). "An administrative agency's final quasi-judicial decision will be sustained unless there is a clear showing that it is arbitrary, capricious, or unreasonable, or that it lacks fair support in the record." Id. at 27-28. We are, however, "in no way bound by the agency's interpretation of a statute or its determination of a strictly legal issue." Mayflower Sec. Co. v. Bureau of Sec., 64 N.J. 85, 93 (1973).
There is no basis for us to disturb the Board's determination requiring Kochel to repay the retirement allowances he received prior to leaving his employment as the Township's manager on August 17, 2007. The agreement he and the Township reached prior to his retirement, by its terms, contemplated an employment relationship that would effectively maintain the status quo after his retirement while he was receiving a retirement allowance in consideration for 140 hours of volunteered service, designed to meet the thirty-day rule.
The agreement is an unmistakable effort to manipulate the pension system by allowing Kochel to receive his retirement allowance while continuing his work in his prior position and reaping the benefits of receiving compensation at his preretirement rate, plus coverage for work-related expenses and risks that is not considered compensation. In short, the contract proposed what is prohibited by N.J.S.A. 43:15A-57.2 - receipt of compensation in a PERS-covered position in excess of $15,000 plus receipt of a retirement allowance. That conclusion is warranted by the evidence that Kochel billed $13,987.00 for 149 hours, or approximately 21 seven-hour days of service. The prospect of continuing his prior employment after retirement was the benefit of the bargain he struck by agreeing to provide 140 hours of volunteered service in order to satisfy the thirty-day rule.
Considering the equities, the Division identified the problem with Kochel's continuation of employment within about two and one-half months of his June 1 retirement date. He was aware of the thirty-day rule, and Kochel promptly resigned to reduce his loss of retirement allowance. The resignation, however, did not change the fact that Kochel never left his position. He left his position for a vacation and returned to work pursuant to an agreement that provided for pay at the same rate to be billed hourly, rather by regular installments of salary. Even if Kochel's intent was different, the agreement was well crafted to achieve technical compliance while violating the clear intent of N.J.S.A. 43:15A-57.2. A liberal construction overlooking those realities would have the very risk to the integrity of the fund the Board should avoid and encourage clever manipulation of the system.
For all of the foregoing reason, we affirm the Board's determination to require Kochel to repay the retirement allowance he received in July, August and September for the months of June, July and August and to compel him to contribute based on his earnings in June, July and August in his position as the Township's manager.
In contrast, the Board's decision to compel Kochel to repay the retirement allowance he received after October 1, 2007 was arbitrary and so punitive as to be inconsistent with the remedial purposes of the pension law. Although we have reservations, for purposes of this decision we accept the Board's and the CALJ's determination that Kochel failed to leave his PERS-covered position on the TOSA until he resigned on August 31, 2008. Nevertheless, we conclude that the Board's second determination was arbitrary because the Board overlooked the equities.
The Board relied on N.J.A.C. 17:2-6.1 providing that retirement must be from all PERS-covered positions. But the Board, as previously noted, did not consider the equities.
First, the Board overlooked the Division's role in Kochel's failure to resign from the TOSA before August 31, 2008. Although the Division's external auditor promptly notified the Township about a potential problem with his continuing service as Township Manager or Acting Township Manager on August 17, 2007, the auditor apparently did not mention Kochel's continued service on the TOSA until October 14, 2008. That delay is difficult to square with reasonable diligence because Kochel's retirement allowance was partially, albeit not in significant part, attributable to his service on the TOSA.
In regard to the TOSA service, the Board also overlooked the lack of clarity in the information it provided to Kochel before his retirement. The $2000 annual salary payable to members of the TOSA was well within the $15,000 limit on work that a retiree may undertake in a PERS-covered position without loss of retirement allowance. That limit is stated in N.J.S.A. 43:15A-57.2b and mentioned in the letter the Board sent to Kochel approving his retirement. It is reasonable to assume that Kochel, who stood to gain more than $2 000 annually, would have promptly tendered his resignation from the TOSA had he understood that the Division would conclude that his failure to resign from statutorily permissible employment would result in a forfeiture of his retirement allowance of about $89,000.
The Board also overlooked the fact that there was no evidence indicating that Kochel's receipt of his retirement allowance for the months starting in September 2007 would threaten the integrity of the pension fund. As previously noted, that payment primarily represented compensation for his past work as the Township's manager to which, but for the mistaken impression that he could continue to serve on the TOSA, he was entitled.
The equities in this case are quite comparable to those that led this court to rescind a forfeiture of retirement allowance and direct the retiree instead to repay earnings received in violation of the pension law in Vliet, supra, 156 N.J. Super. at 90. In that case, a retiree incorrectly thought his post-retirement employment in a pensionable position was permissible work as a "temporary employee." Id. at 88. We recognized that the equities were not "all on Vliet's side," because "had he advised the Division of Pensions of his exact employment status he could have received more specific advice." Id. at 89. We further concluded that "[i]t does not seem reasonable for him to have relied on the fact that his employment was simply termed 'temporary employment,' although this is the literal reading of the Division of Pensions' letter to him dated January 22, 1971." Id. at 89-90. We noted, however, that the "letter went on to state, as did a previous letter, that his pension would be 'adversely affected' if he accepted any employment which requires reenrollment in PERS." Id. at 90. Noting that "Vliet should not benefit from noncompliance with the law," we nevertheless "conclude[d] that total reimbursement would be inequitable," because it was "unlikely that Vliet would have continued in part-time employment at $2,000 a year if he had known that he would have to give up a pension of approximately $5,300 a year." Ibid. "Knowing that he would have chosen his pension above part-time employment, we require[d] Vliet to pay to PERS all moneys earned by him" in the employment that did not qualify as temporary. Ibid.
We see no reason to reach a different conclusion here. The equities here are not all one sided either, but we know Kochel preferred to forego his stipend rather than jeopardize his retirement allowance because he did forego his pay. The Division's delay in uncovering the problem of his service on the TOSA, and his service in that position after September 1, 2007, had it been preceded by a break in service, would have been permissible under N.J.S.A. 43:15A-57.2b. Under all of these circumstances, imposition of a full forfeiture of Kochel's retirement for a year in response to a technical deviation that the Division identified late and after Kochel had resigned his employment as the Township's manager in reliance on his eligibility to receive that allowance for the months commencing with September 2007 and payable as of October 1, 2007, is arbitrary because it is inconsistent with the Board's mission and the remedial purpose of the pension law. Accordingly, we remand the Board's second determination for reinstatement of the remedy recommended by the CALJ. We note that if the Division had advised Kochel of its concern about his service on the TOSA earlier, our decision would not be the same.
Affirmed in part, reversed in part and remanded for reinstatement of the penalty recommended by the CALJ. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION