KNOX v. PUBLIC EMPLOYEES' RETIREMENT SYSTEM No. A-1444-10T3.

HAROLD KNOX, Appellant, v. PUBLIC EMPLOYEES' RETIREMENT SYSTEM, Respondent.

Superior Court of New Jersey, Appellate Division.
Decided February 23, 2012.
Richard S. Lehrich argued the cause for appellant.
Jeffrey S. Ignatowitz, Deputy Attorney General, argued the cause for respondent (Jeffrey S. Chiesa, Attorney General, attorney; Lewis A. Scheindlin, Assistant Attorney General, of counsel; Mr. Ignatowitz, on the brief).
Before Judges Carchman, Fisher and Baxter.

NOT FOR PUBLICATION

PER CURIAM.

Harold Knox appeals from an October 25, 2010 final agency decision of the Department of the Treasury, Division of Pensions and Benefits (Treasury) that required Knox to reimburse the Public Employees' Retirement System (PERS) for all of the retirement benefits he received from PERS between July 1, 2003 and November 14, 2006, which totaled $258,191. Treasury concluded that because Knox waited fourteen days after retirement, rather than the required thirty days, before beginning employment covered by the PERS pension system, he was obliged to forfeit all of the pension benefits he received after he retired as an assistant prosecutor in the Union County Prosecutor's Office (UCPO).

In light of Treasury's conclusion that Knox acted in good faith and made an honest mistake by returning to public employment sixteen days too soon, Treasury's insistence that Knox refund $258,191 constitutes an arbitrary and capricious agency decision. This is especially so in light of the uncontroverted evidence in the record that before Knox accepted the work in the UCPO that ultimately led to the refund demand, Knox received assurances from the UCPO that the position in question would not affect his pension; and, in relying on the assurances of his employer, Knox followed the recommendation of PERS to request advice from his employer if in doubt about his pension status. We reverse the decision issued by Treasury, and remand for reinstatement of the decision rendered by the Administrative Law Judge (ALJ).

I.

Knox began his employment as an assistant prosecutor with the UCPO on September 10, 1973, at which time he enrolled in PERS. He remained employed with the UCPO for thirty-one years. On February 18, 2003, Knox filed a retirement application with PERS, in which he expressed his intention to retire effective July 1, 2003. PERS approved that application at its regular monthly meeting on May 21, 2003, and issued an approval letter notifying Knox that should he return to public employment after his retirement, he was obliged to "notify [the PERS] Office of Client Services immediately...."

On June 19, 2003, approximately two weeks before his effective retirement date, Knox negotiated a contract with the UCPO, calling for him to return to work as a "seasonal employee in the forfeiture unit" at a salary of $20,000 per year, based upon twenty hours of work per week, with no fringe benefits.

In accordance with that contract, Knox retired from the UCPO on June 30, 2003 and returned to employment with the UCPO on July 14, 2003 as a "seasonal employee." Prior to beginning work on July 14, 2003, Knox reviewed Fact Sheet #21 (Fact Sheet), a publication issued by the New Jersey Division of Pensions and Benefits. The Fact Sheet in effect at the time of Knox's retirement informed retirees of the limitations placed on retirees who choose to return to public employment. In relevant part, the Fact Sheet stated:

Working for private industry, the federal government, or a government agency in another State will not normally affect your PERS retirement benefits.... Returning to public employment in New Jersey after retirement, however, could affect your benefits as shown in the following information. [(Emphasis added).]

While the Fact Sheet did discuss issues such as the limitations on annual earnings ($15,000), waiting period before resuming employment (thirty days) and other factors relied on by respondent, the Fact Sheet qualified those limiting provisions by repeated references to non-PERS covered employment as well as advice to consult the prospective employer if in doubt about whether such a return to public employment would impact eligibility for PERS retirement benefits. The Fact Sheet stated:

Your prospective employer should be able to tell you whether the employment you are considering is covered under the PERS.

As we have noted, Knox began his employment as a "seasonal employee" with the UCPO on July 14, 2003. He continued this employment arrangement through 2006 in a series of yearly contracts at an annual salary of $20,000.1

On July 25, 2007, Michael R. Czyzyk, the supervisor of the external audit unit of the Division of Pensions and Benefits (Division), notified the County of Union by letter that the Division was in the process of conducting an audit to determine whether certain County of Union retirees had violated the "return to employment provisions" of N.J.S.A. 43:15A-57.2; and Czyzyk requested specified information concerning those six individuals, of whom Knox was one. The County's response of September 18, 2007 specified that Knox was a "Seasonal Asst/Legal Researcher" who had been hired in that capacity on July 14, 2003.

On October 24, 2007, Czyzyk notified Knox that his post-retirement employment violated the reenrollment provisions of the pension statute, N.J.S.A. 43:15A-57.2, because his employment did not qualify as "seasonal" under N.J.A.C. 17:2-2.3,2 and because he had not "observe[d] a 30-day post-retirement break in service prior to resuming employment in a PERS covered position[.]" For that reason, the Division "d[id] not consider [his] retirement valid." Czyzyk's October 24, 2007 letter notified Knox that the Division was seeking the return of $258,191, which was the total amount of pension benefits paid to Knox during the period from July 1, 2003, the effective date of his retirement, to November 14, 2006, the date that he left his part-time post-retirement position with the UCPO. Although Knox requested that Treasury rescind its refund demand, Treasury declined to do so.

When Knox continued to challenge Treasury's refund demand, Treasury transferred the matter to the Office of Administrative Law, where the matter was assigned to ALJ Barry E. Moscowitz, who heard testimony on October 30 and December 29, 2009. ALJ Moscowitz admitted in evidence the Fact Sheet along with Knox's employment records, correspondence between the parties, and pension-related publications issued by PERS and Union County.

The exhibits also included a certification from Henry Jaeger, the Executive Assistant Prosecutor in charge of personnel matters within the UCPO, who certified that he arranged to offer Knox a non-PERS position as a seasonal employee after Knox retired, and that it was he, Jaeger, who picked the starting date. He also certified that Knox had asked him whether his return to work as a seasonal employee would have any impact on his ability to receive his PERS pension. Jaeger certified that he had answered Knox's question in the negative:

Mr. Knox inquired as to the terms of his returning and was told that he would be working as a seasonal employee, a non-PERS position that would, therefore, not interfere with his pension. I then secured a starting date and told Mr. Knox when to begin. I did not believe he was subject to any prohibition in returning to a non-PERS, seasonal position and explained this to him. Accordingly, Mr. Knox was told to begin work on July 14, 2003.

Jaeger's testimony before the ALJ was consistent with his certification. Jaeger explained that before providing assurances to Knox that his work as a seasonal employee would not impact his pension, he, Jaeger, made inquiry of the Union County Personnel Department and was assured that the position being offered to Knox would have no effect on his PERS pension. Jaeger also testified that all of the Union County personnel records reflected Knox's post-retirement employment as seasonal and that when Knox was rehired, Jaeger was present when Prosecutor Romankow told Knox that Knox would be coming back as a seasonal employee and that the new position would have no effect on his pension.

Jaeger explained that some of the seasonal employees at the UCPO had been there in that capacity for as long as seven or eight years, following their membership in PERS, and their work when they returned was not any different from the work they did prior to retirement. He asserted that in all that time, even with seasonal employees who had been working at the UCPO for five to seven years, "We never had a complaint or an objection." All had retired and then returned to the UCPO "without a problem" from Treasury. According to Jaeger, Treasury had never asserted that any of these retirees were not properly classified as seasonal.

Knox testified that he would not have begun his employment as a seasonal employee on July 14, 2003 if he realized that by starting his new position on that date, he would forfeit his previously-earned PERS pension. Knox explained that he would not have come back to work with the UCPO after his retirement had he not been assured by both Jaeger and Union County Prosecutor Theodore Romankow that his pension would be unaffected because he would not be coming back "in a PERS position." Knox explained that he was "familiar for many years with the [UCPO's] utilization of the title `seasonal,'" as he had been dealing with seasonal employees within the office. For that reason, he was not concerned by the title, and had sought to assure himself about the effect it might have on his pension.

He also explained that he reviewed Fact Sheet #21, which he had received at a seminar presented by the Division. Reviewing the Fact Sheet, he noted that it contained a provision stating that PERS enrollment is not permitted if "you are a seasonal or intermittent employee." He then turned to the Union County Employee Pension Benefit Manual, which explained that seasonal employees are "exceptions to the State's mandated enrollment policy" for PERS. According to Knox, at this point he accepted the part-time seasonal position, satisfied from everything he had been told and everything he had seen that he fit the definition of a "seasonal" employee.

When Jaeger informed him that he was scheduled to return to work on July 14, 2003, Knox questioned Jaeger about the "thirty-day period." Jaeger told him he was not subject to the requirement of the thirty-day break in service because he was not returning to a PERS position. Based upon what Jaeger told him, Knox returned to work on July 14, 2003, believing his pension was safe.

In November 2006, Prosecutor Romankow advised Knox that there had been "some problem" concerning overpayments to him and other employees. The Prosecutor informed him that his income for the years 2004, 2005 and 2006 should not have exceeded $15,000. He required Knox to refund the additional income Knox received in excess of that amount for each of those three years. At that point, Knox refunded the difference, and quit his job at the UCPO effective November 14, 2006.

It was not until almost a year later, in October 2007, that Knox received a letter from Czyzyk advising him that because he had not completed a thirty-day break in service, he violated PERS regulations and would have to return $258,191.93 in benefits received.

Asked on cross-examination whether it ever crossed his mind to question whether he was or was not a seasonal employee, Knox replied:

No. It never occurred to me to question whether I was a seasonal employee for all of the reasons I've stated. The title was in use for years and years. I was given a job description of seasonality by Mr. Jaeger which I fit. The Prosecutor represented that I was a seasonal employee. I should also point out with the Prosecutor telling me I was a seasonal employee, the PERS regulations tell me that my employer, that is the Prosecutor, can be trusted to give me my title. So the Prosecutor tells me "You're a seasonal employee." Fact sheet 21 tells me "You can rely upon the Prosecutor's representation as to your title."

In further support of his testimony that he was comfortable relying upon the Prosecutor's representation as to his job title, Knox pointed to the relevant language from the Fact Sheet:

Your prospective employer should be able to tell you whether the employment you are considering is covered under the PERS.

Czyzyk also testified. He explained that if Knox's position had satisfied the definition of seasonal employment contained in N.J.A.C. 17:2-2.3, Knox would not have been required to observe a thirty-day break in service. However, because the part-time position Knox assumed after retirement did not satisfy the definition of "seasonal," and because Knox did not observe a thirty-day break in service, Knox had not achieved a "bona fide" retirement, which meant that all benefits Knox had received subsequent to his retirement, in the amount of $258,191, "were returnable to the [PERS] fund." Czyzyk explained that because Knox had not waited the required thirty days, he had essentially never retired. Czyzyk acknowledged that some employers were incorrectly interpreting the "seasonal" definition, but maintained that this situation was "out of the control of Division of Pensions and Benefits employees."

Czyzyk conceded before the ALJ that there was no question that Knox would have been entitled to receive the entire pension that was paid to him between 2003 and 2006, namely, $258,191, if he had only waited another fifteen days before resuming employment at the UCPO. When asked what effect or impact Knox's non-bona fide status had on the Division of Pensions or the Department of Treasury, when compared to a bona fide retirement, Czyzyk was unable to provide an answer.

Finally, Czyzyk conceded that Fact Sheet #21 had been revised since 2003, by which time Knox had already retired, to clarify the adverse consequences of a retiree's return to employment within thirty days.

ALJ Moscowitz issued his Initial Decision on August 26, 2010. He agreed with Treasury's conclusion that Knox had not effectively retired on July 1, 2003, despite his belief to the contrary, because Knox had not terminated all PERS-covered employment for thirty days. Despite that conclusion, the ALJ also found that it would be inequitable to compel Knox to return the entire pension he received over the period of approximately three and one-half years, and that a more appropriate remedy would be to instead compel him to return the salary he received from his part-time employment during that period.

Specifically, although the ALJ concluded that Knox's part-time post-retirement employment did not satisfy the legal standard for "seasonal employment," and that Knox "had not done his due diligence and had not substantially complied with the rules and regulations of the PERS," the ALJ also found that Knox had acted in good faith throughout. He specifically found that Knox was "honest and sincere" when he testified that he was always concerned about maintaining his pension "throughout his employment and [when he described] all the efforts he undertook to comply with the PERS [requirements]." ALJ Moscowitz concluded that Knox's concern about whether his new position would affect his pension was "genuine," as Knox "ultimately relied on the advice Jaeger gave him."

The ALJ specifically rejected Treasury's contention that Knox was trying to manipulate or "game" the system in order to simultaneously benefit from retirement and public employment. The ALJ stated:

Knox was neither playing heads-I-win-tails-you-lose with the Division of Pensions nor seeking sanctuary in the designation seasonal employee. He was also not seeking to manipulate the system or attempting to abuse it either. Instead, he was mistaken. Much to his heart-felt regret, Knox made an honest mistake in returning to public employment before his pension was due and payable. And he was not alone.

In concluding that Knox should be required only to refund the income he received between 2003 and 2006, and should not be required to refund the pension benefits he received, the ALJ reasoned:

As I had found, Knox would not have accepted the position of legal researcher had he known it was not a seasonal one. Given this fact, the return of the pension Knox received from July 14, 2003 to November 14, 2006 is too severe a remedy and reveals the harshness of a remedy when rules are slavishly followed without regard to their consequences. In dollars and cents, the return of $258,191.93 (the retirement benefits Knox received) instead of $54,160 (the aggregate compensation he received) shocks the conscience and compels the return of the $54,160 instead. This way, the parties will simply be returned to the positions they were in before Knox mistakenly continued his employment with Union County. And this way, the only ones who would have received a windfall would be the people of Union County who would have had the services of an assistant prosecutor with over thirty-years experience working for them free from July 14, 2003 to November 14, 2006.

In reaching that conclusion, ALJ Moscowitz observed that Knox was not playing the "heads-I-win-tails-you-lose game" decried in Vliet v. Board of Trustees, 156 N.J.Super. 83, 90 (App. Div. 1978). He so concluded because Knox "was not even... aware of [the regulations] applicable to seasonal employment." More significantly, according to the ALJ, "Knox would not have continued in part-time employment if he had known that he would have to give up his pension."

In its October 25, 2010 decision, the PERS Board accepted the ALJ's findings of fact and conclusions of law, with two exceptions.3 The Final Decision acknowledged that the definition of "seasonal" employment appeared only in the New Jersey Administrative Code, and not in Fact Sheet #21 or the PERS Member Handbook at the time Knox retired. The Final Decision also acknowledged that Knox would not be required to return the $258,191 of pension benefits had he waited an additional sixteen days before beginning his new employment with the UCPO. Nonetheless, the agency concluded that various portions of the Fact Sheet and the PERS Member Handbook should have placed Knox on notice as to the requirements of a bona fide retirement and the consequences of a failure to satisfy those requirements. Because Knox's post-retirement employment did not qualify as seasonal under N.J.A.C. 17:2-2.3(a)(5), and because Knox had not observed a thirty-day break in service after his retirement, Treasury concluded that he was not a bona fide employee and was required to return all pension benefits he had received between 2003 and 2006. In reaching that conclusion, Treasury found that Knox's intentions were "irrelevant" and the only issue for the ALJ and the Board was whether the applicable rules were violated.

On appeal, Knox maintains that Treasury erred in rejecting the ALJ's Initial Decision and requiring him, "in the unusual circumstances presented, to suffer the incredibly harsh and disproportionate consequence of a full return of all pension benefits received over a period of several years based on his good faith error in accepting new public employment only shortly before the time he was eligible to do so[.]"

II.

We start by acknowledging the longstanding and well-accepted principles of judicial review of administrative agency actions. "The scope of that review is limited." In re Herrmann, 192 N.J. 19, 27 (2007). As the Court observed in Herrmann, "[a]n 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. On appeal, our role is limited to the evaluation of three factors:

(1) whether the agency's action violates express or implied legislative policies, that is, did the agency follow the law; (2) whether the record contains substantial evidence to support the findings on which the agency based its action; and (3) whether in applying the legislative policies to the facts, the agency clearly erred in reaching a conclusion that could not reasonably have been made on a showing of the relevant factors. [Id. at 28 (quoting Mazza v. Bd. of Trs., 143 N.J. 22, 25 (1995)).]

When the agency's decision satisfies those criteria, we are obliged to afford substantial deference to the agency's expertise and superior knowledge of a particular field. Ibid. We are obliged to afford such deference even if we would have reached a different result from that reached by the agency. In re Taylor, 158 N.J. 644, 657 (1999).

As Knox correctly argues, this court and our Supreme Court have repeatedly recognized that as a matter of sound public policy, statutes creating pensions should be liberally construed in favor of those they are intended to benefit. As long ago as 1969, the Court held that:

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. Dep't of the Treasury, 53 N.J. 591, 597-98 (1969) (internal citation omitted).]

The Supreme Court reiterated that principle in Klumb v. Board of Education, 199 N.J. 14, 34 (2009), as did we in Bueno v. Board of Trustees, 422 N.J.Super. 227, 241-42 (App. Div. 2011), and Francois v. Board of Trustees, 415 N.J.Super. 335, 349 (App. Div. 2010).

Moreover, the Court has held that considerations of equity and fairness must temper the application of deadlines in the administration of the pension fund. In Ruvoldt v. Nolan, 63 N.J. 171 (1973), the Court was presented with the issue of whether, eight years after an assistant prosecutor retired on a disability pension, the court-designated Receiver for the Hudson County Employees Pension Commission was entitled to vacate and set aside the disability pension granted by that body to the retiree Harold J. Ruvoldt. Id. at 173-74. Despite evidence in the record suggesting that the Receiver's decision was correct, and that Ruvoldt was medically able to continue his work as an assistant prosecutor, the Court declined to reach the merits of the controversy, instead concluding that principles of equity and fairness rendered it "clearly unjust" to apply "a substantive rule of disentitlement of pension against Ruvoldt" eight years after the fact. Id. at 183.

The Court emphasized that the retiree's reliance on the pension board decision, and the absence of "fraud or illegality" should play a role in determining whether the refund of pension benefits should be required, and that any review of pension eligibility "must be made with reasonable diligence." Ibid. The Court observed that even if the decision to approve the pension had been clearly improper, "the question of overall fairness and justice in the attendant circumstances cannot be overlooked" even in the face of "diversion of public funds for statutorily unwarranted pensions." Id. at 184-85. The Court held:

Eight years after the original administrative action the course of events cannot be rerun. Had the pension been denied Ruvoldt at the time as legally unwarranted, he could have tried to obtain employment in non-trial legal work from the county, and, if successful, achieved a right to pension after seven additional years of service.... Or he might possibly have been able to muster medical proof that he was unfit to do full-time legal work at all, whether trial or non-trial. We are not assuming he would necessarily have been successful in either of these endeavors. The point is that he lost the chance when the pension was allowed.... It would be essentially unjust to undo the pension grant so many years later after such circumstances of reliance and irremediable change of position as here manifested. [Id. at 185.]

See also Vliet, supra, 156 N.J. Super. at 90 (holding that although the retiree was not a temporary employee within the meaning of the applicable law, and was consequently not entitled to the pension payments he had received during the three-year period, requiring the retiree to make a "total reimbursement would be inequitable" as it was "unlikely" that the retiree "would have continued in part-time employment at $2000 a year if he had known that he would have to give up a pension of approximately $5300 a year").

Having thoroughly reviewed the record presented, we are satisfied that the agency's October 25, 2010 Final Decision cannot be sustained. Knox never sought to abuse or manipulate the pension system. He did as Fact Sheet #21 recommended by seeking his employer's advice regarding the potential effect of his new position upon his right to receive his pension. In response, he was assured not only by Jaeger, who was the Executive Assistant Prosecutor in charge of personnel decisions within the UCPO, but also by Prosecutor Romankow himself, that he was a seasonal employee, and was entitled to work in the forfeiture unit of the UCPO without waiting for thirty days until beginning his new position; and that starting the new position on July 14, 2003 would have no impact on his pension. We are also satisfied that had Knox known the ramifications, he would have waited an additional sixteen days before returning to employment.

Knox served honorably through thirty years of public service, and his honest mistake in starting a new position sixteen days too soon should not result in the catastrophic result that Treasury demands of him. This is especially so in light of Treasury's concession that had Knox waited an additional sixteen days, and thereby accomplished the required thirty-day break in service, he would have been entitled to the $258,191 in pension benefits, and Treasury would not be demanding its repayment. We also conclude that Treasury's decision to wait four years and four months before telling Knox that his retirement was not bona fide exceeded the standards of reasonableness we expect of a public agency. In light of the absence of bad faith, and Knox's legitimate reliance on the advice of the UCPO, the unwitting violation that occurred should not deprive a career public servant of his earned pension benefits. Treasury's decision to the contrary was arbitrary and capricious.

Reversed and remanded for the reinstatement of the decision of the ALJ.

FootNotes


1. Upon being notified by PERS that his $20,000 salary exceeded the $15,000 limitation, Knox voluntarily returned $10,060 to his employer to bring his post-retirement earnings under the $15,000 threshold.
2. specifies that employment is not "seasonal" if the "work period[] extend[s] beyond six consecutive months... [or] if any breaks in service" are less than "30 consecutive days."
3. In particular, the PERS Board rejected the ALJ's conclusion concerning the significance of the changes in the PERS documents after 2003; and likewise rejected ALJ Moscowitz's reliance on "confusion" over the requirement of a thirty-day break in service.

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