NOT FOR PUBLICATION
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).
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:
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:
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.
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
On October 24, 2007, Czyzyk notified Knox that his post-retirement employment violated the reenrollment provisions of the pension statute,
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:
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:
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:
Czyzyk also testified. He explained that if Knox's position had satisfied the definition of seasonal employment contained in
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:
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:
In reaching that conclusion, ALJ Moscowitz observed that Knox was not playing the "heads-I-win-tails-you-lose game" decried in
In its October 25, 2010 decision, the PERS Board accepted the ALJ's findings of fact and conclusions of law, with two exceptions.
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[.]"
We start by acknowledging the longstanding and well-accepted principles of judicial review of administrative agency actions. "The scope of that review is limited."
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.
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:
The Supreme Court reiterated that principle in
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
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."
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.