NJ Superior Court Appellate Division Judge Jose Fuentes

New Jersey Law Journal - The head of the New Jersey Division of Pensions and Benefits had no legal authority to overrule a decision by the board that oversees pensions for police officers and firefighters, a state appeals court held April 15.

Thus, the refusal by Florence Sheppard, the division’s acting director, to comply with a board determination that allowed pension credit for certain longevity increases in pay, was ultra vires, the court held, ruling in nine consolidated appeals brought by five municipalities and their police and fire unions.

The precedential ruling marks the third time in four months that the administration of Gov. Chris Christie has lost in court on a pension issue.

On Dec. 31, the Appellate Division held the administration violated pension and benefit reform legislation when it unilaterally acted to increase prescription co-payments for thousands of retired public employees.

Then, on Feb. 23, Mercer County Assignment Judge Mary Jacobson determined the administration violated the contractual rights of hundreds of thousands of current and retired public-sector workers when it line-item vetoed $1.57 billion in the 2015 budget that the Legislature had allocated for state pension funds. The state Supreme Court has agreed to take a direct appeal of the ruling.

The latest ruling involved appeals brought by the city of Linden, the town of Harrison, the borough of Ramsey and the townships of Vernon and Woodbridge, along with various locals of the Fraternal Order of Police, the Patrolmen’s Benevolent Association and the Firemen’s Benevolent Association.

They were challenging Sheppard’s rejection of decisions by the board of trustees of the Police and Firemen’s Retirement System that approved longevity schedules in their collective bargaining agreements that bumped up the pay of police and firefighters based on years of service.

For example, since 1999, Harrison’s contract with police has included a schedule that increased weekly salaries by 2 percent after three years of service, by 4 percent after five years, by 6 percent after 10 years, and so on up to 24 years, according to the opinion by Appellate Division Judge Jose Fuentes, who was joined by Judges Victor Ashrafi and Amy O’Connor.

The schedule was repeated in successive contracts without opposition from the state until 2011, when the division made an administrative determination that the longevity pay could not be counted in calculating pension payments, Fuentes said.

The police union appealed to the pension board, which approved the longevity schedule and rejected the administrative determination in May 2011. A few months later, Sheppard informed lawyers for both sides that she was reinstating the administrative determination and would not implement the board’s decision to give pension credit for the longevity increases, according to Fuentes.

Longevity schedules for Harrison’s firefighters and similar schedules for police and fire employees in the other towns were also approved by the board but rejected by Sheppard.

The Appellate Division said it would not decide the merits of whether the longevity pay increases should factor into pension payments, only whether Sheppard has the legal authority to refuse to implement a final decision of the PFRS board of trustees because she has independently concluded that the board’s decision is legally incorrect.

Based on a review of the statutory scheme and regulations adopted by the pension board, the answer was “unequivocally no,” Fuentes said.

Fuentes discussed the history and composition of the 11-member board, noting that the Legislature vested it with “the general responsibility for the proper operation of the retirement system.”

The division, like the board, has power to investigate certain increases in compensation for which pension credit is sought and if it suspects a violation, to report it to the board, according to Fuentes. Once the board reaches a final decision, it can be appealed to the Appellate Division.

Fuentes pointed out that the division “has not cited any authority to support taking the unprecedented action of conducting a de novo review” of the board’s final determinations here and refusing to implement those determinations and that the court’s own independent research had failed to find any.

Fuentes said Sheppard’s refusal to implement the board’s decision was “untethered to any statutory or regulatory authority” and constituted an “unprecedented ad hoc approach” that “undermines the complementary role the division is obligated to play by providing the staffing support necessary to enable the PFRS board of trustees to carry out its role as the final administrative arbiter of what constitutes creditable compensation for purposes of pension benefits.”

He also questioned the role played by the Attorney General’s Office in representing the division on the appeals in light of the fact that it also acted as adviser to the board and said it should have followed its position in a 1979 case,Gladden v. Board of Trustees of the Public Employees’ Retirement System.

There, it refused to represent the board for the Public Employees’ Retirement System when the board was sued after defying its legal opinion concerning an enrollee.

Here, in contrast, the attorney general “decided to represent and defend the legally untenable actions of the acting director to unilaterally refuse to implement the final decisions of the PFRS board of trustees,” an approach “both legally unsupportable and completely unnecessary because it promotes ultra vires, self-help actions by the acting director and overlooks the lawful path the attorney general could have followed under Gladden,” Fuentes said.

A concurring opinion by Ashrafi agreed on the outcome but expressed concern that when board decisions are unfavorable to pension recipients, they can appeal, but when they come out the other way, there is no interested adverse party with a right to appeal, Ashrafi said.

The municipal employer negotiates the increases and pays them out of its own coffers for only a limited number of years until the police officer or firefighter retires, when the burden falls on the pension system to pay the increased benefits for all the years of retirement, he said.

Ashrafi also said the five board members who are required to be active or retired police or firefighters “may be adjudicating a dispute about salary provisions that are the same as ones from which they themselves benefit financially,” in contrast to other adjudicative bodies, such as juries, where such a conflict of interest would likely be excused for cause.

Paul Kleinbaum of Zazzali, Fagella, Nowak, Kleinbaum & Friedman in Newark, who represents Harrison, Woodbridge and Ramsey and various unions involved in four of the appeals, said, “Our key argument ... was that the acting director did not have the authority to overrule or refuse to enforce the board of trustees’ decisions.”

Rahway solo Craig Gumpel, lawyer for one of the firefighters’ locals in the case, said Sheppard inserted herself into the decision-making process of the pension board and that the Attorney General’s Office, as an adviser to the board, appeared to have a conflict in defending her actions.

Another union lawyer in the case, James Mets of Iselin’s Mets Schiro & McGovern, said the director’s action put him in the unusual position of having to appeal a case he had won.

The Attorney General’s Office did not respond to a request for comment.

This article appeared on njlawjournal.com authored by Mary Pay Gallagher.
http://www.njlawjournal.com/home/id=1202723637681/Court-Says-NJ-Pension-Head-Overstepped-Authority?mcode=1202617074826&curindex=5