Michael Lenz v. Board of Trustees, Etc. ( 2024 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2480-22
MICHAEL LENZ,
Petitioner-Appellant,
v.
BOARD OF TRUSTEES,
PUBLIC EMPLOYEES'
RETIREMENT SYSTEM,
Respondent-Respondent.
__________________________
Argued May 20, 2024 – Decided July 11, 2024
Before Judges Marczyk and Vinci.
On appeal from the Board of Trustees of the Public
Employees' Retirement System, Department of the
Treasury, PERS No. xx6207.
David B. Rubin argued the cause for appellant (David
B. Rubin, PC, attorneys; David B. Rubin, on the briefs).
Jeffrey Padgett, Deputy Attorney General, argued the
cause for respondent (Matthew J. Platkin, Attorney
General, attorney; Sara M. Gregory, Assistant Attorney
General, of counsel; Jeffrey Padgett, on the brief).
PER CURIAM
Petitioner Michael Lenz appeals from the final administrative decision of
the Board of Trustees ("Board"), Public Employees' Retirement System
("PERS"), rejecting an administrative law judge's ("ALJ") decision that Lenz's
retroactive salary increase be included as creditable compensation for pension
calculation purposes. Based on our review of the record and the applicable legal
principles, we affirm.
I.
On February 1, 2008, Lenz was enrolled in PERS through his employment
with Hudson County Department of Roads and Property ("County"). Lenz was
promoted to the position of manager of public property in 2012. After receiving
the promotion, Lenz submitted a budget request for an annual salary of five
percent above the salary of his highest paid subordinate. This was based on the
County's purported unwritten policy "with respect to a five-percent differential
between the salaries of particular supervisors and their next ranking
subordinate." The County denied Lenz's request. Accordingly, in June 2015,
Lenz sued the County in the Law Division for violation of the policy. The
complaint was subsequently removed to federal court. He claimed he served in
a supervisory capacity "at all times," even prior to being promoted in 2012.
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At some point prior to Lenz filing the lawsuit, he developed Parkinson's
disease. Thereafter, he applied for ordinary disability retirement benefits. Lenz
was subsequently granted ordinary disability retirement benefits and retired
effective March 1, 2018.1
On March 29, 2018, Lenz settled his litigation against the County for
$100,000, a portion of which would include back pay for the additional gross
salary he would have received in the years 2014-2017. The settlement included
$78,163.47 in retroactive compensation that Lenz requested be considered
creditable compensation for his final average salary for retirement purposes.
The settlement provided:
1) $78,163.47 in "back pay" for the years 2014, 2015,
2016 and 2017 paid by Hudson County and
$21,836.53 for "personal injury" paid by the
Hudson County Insurance Fund Commission (the
"IFC"); or
2) if the Division of Pension and Benefits (the
"Division") does not accept the $78,163.47 amount
as "back pay," then a $100,000 lump sum amount
paid by the IFC.
Paragraph 2.1(a) of the settlement stated that Lenz would be paid:
1
Lenz testified he has been retired since February 1, 2016. He asserts in his
brief he retired sometime in 2017.
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3
[A] sum equivalent to the additional gross salary that
Lenz would have received in each of the years 2014,
2015, 2016 and 2017 as stipulated on the chart annexed
hereto, which shall be designated as back pay and
tendered to Lenz in a manner compliant with any Fact
Sheets or standards of [the Division] applicable to
payments of back pay in employment litigation
settlements, with such payroll and pension-related
deductions and contributions applicable to that
additional gross income, which will make up the
statutorily mandated employee contribution to the
funding of the pension plan.
Paragraph 2.3 provided the County would "file with the Division all . . .
certifications or statements necessary to effectuate the agreed-upon retroactive
salary increases," which the County provided in a May 7, 2018 letter.
The Division rejected the settlement amount as not creditable
compensation for pension purposes. The County subsequently wrote the
Division attempting to clarify portions of its original letter, but the Division
again rejected the County's explanation in September 2018.
Lenz then appealed to the Board. On February 4, 2019, the Board voted
to deny the appeal. It found "[t]he retroactive salary increase . . . is . . . extra
compensation that was made primarily in anticipation of retirement, contrary to
N.J.A.C. 17:2-4.1, that is not creditable for pension-calculation purposes." The
Board also granted Lenz's request to transmit the matter to Office of
Administrative Law for a hearing.
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Lenz moved for summary decision with the ALJ. On July 17, 2020, the
ALJ issued an order granting partial summary decision, but ruled that a hearing
was necessary as to whether Lenz's retroactive salary increase was "extra
compensation" under N.J.A.C. 17:2-4.1(a)(11) and (12).
A hearing took place on March 4, 2021. The only witness called by Lenz
was Michael Dermody, Esq., who represented Hudson County in the civil case.
Dermody testified that supervisory personnel were paid salaries at least five
percent more than their highest paid subordinate, and that increased amount was
included in their base salary. He testified regarding deposition testimony from
other individuals employed by the County who confirmed the five-percent
policy, along with the County's answers to interrogatories, which acknowledged
the existence of the policy. He further testified that Lenz received the same
retroactive adjustment "any other similarly situated employee would have
received had they brought it to the County's attention."
On January 27, 2023, the ALJ issued his initial decision reversing the
Board's determination after finding the salary increases in the settlement
agreement were credible compensation under N.J.A.C. 17:2-4.1(a)(11) and (12).
He noted Dermody was a credible witness. The ALJ found the raises satisfied
the criteria of N.J.A.C. 17:2-4.1(a)(11) because "the evidence presented at the
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hearing establishe[d] that the [five-percent] salary adjustment Hudson County
paid to Lenz was paid and included in the base salary of all employees deemed
supervisors, like Lenz, and which he was entitled to receive." The ALJ also
determined:
[T]he evidence presented herein also establishe[d] the
retroactive pay to Lenz satisfies N.J.A.C. 17:2-
4.1(a)(12) because the proofs show that the adjustment
made by Hudson County was not made 'at or near the
end of' Lenz's service, as he had left the County's
employ well before his civil case was settled.
Moreover, "the testimony of Dermody establishe[d] that even if Lenz or any
other similarly situated employee had brought the non-payment of the [five-
percent] rule to the County's attention, they would have been entitled to the same
retroactive adjustment 'across the board', based upon Hudson County's practice
of doing the same." He further noted that although Dermody could not point to
any across-the-board adjustments for any group of individuals relating to the
five-percent policy, the five-percent policy "was usually applied in the normal
course of business." And, "Dermody also acknowledged that there were no other
retroactive raises like that received by Lenz."
On April 20, 2023, the Board issued its final administrative determination
rejecting the ALJ's legal conclusion that Lenz's substantial salary increase was
creditable compensation. Specifically, the Board initially noted:
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The ALJ found that Lenz's salary 'adjustment'
was not increased 'at or near the end of Lenz's service'
because he had left employment prior to the parties
settling his lawsuit. This finding ignores the fact that
Lenz filed his lawsuit in June 2015, his retirement
became effective on March 1, 2018, and the parties
settled the lawsuit on or about March 29, 2018. . . . The
Board rejects this factual finding and notes that the
Agreement was contemporaneous with Lenz's
retirement. . . . The Board also notes that the ALJ failed
to make any factual findings as to whether it was proper
to apportion the retroactive back pay into only the final
three years of service, thus inflating Lenz's pension
benefit.
Next, the Board rejected the ALJ's recommendation that Lenz's salary
increase be included as creditable compensation for pension calculation
purposes under N.J.S.A. 43:15A-6(r). The Board found as follows:
Based solely on the fact that Lenz had retired a few
weeks prior to the execution of the Agreement, the ALJ
found that the significant increase in his final three
years of employment was not in anticipation of his
retirement. The Board . . . rejects the ALJ's flawed
legal analysis, and instead determine[s] that it is
undisputed the Agreement was intended to increase his
retirement benefit. The ALJ failed to conduct any
analysis of whether including the settlement monies in
the final three years was proper or simply used as a way
to settle his lawsuit in a way most favorable to Lenz and
the employer, with the PERS paying an inflated pension
benefit over Lenz's lifetime.
The Board concluded it was "undisputed" that Lenz's compensation was
not included in his base salary despite his efforts to include the five-percent
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rule in his salary. Thus, "[t]he negotiated retroactive salary increases simply
do not represent his base salary. Rather, these negotiated salaries represent an
individual salary adjustment that would allow Lenz to calculate his retirement
benefit using a salary greater than what he actually earned." The Board
determined "such an arrangement," whereby the parties settled "years of salary
disputes by incorporating all of the retroactive salaries agreed [upon] into the
final three years," violated "the stated purpose of N.J.S.A. 43:15[A]-6(r) and
the implementing regulations, as it would allow an increase in retirement
allowances without adequate compensation to the pension fund." Further, "the
[settlement] only applie[d] the [five-percent] policy increase to . . . 2014-2017,
despite Lenz's assertion that the [five-percent] policy should have been applied
starting in 2008." Thus, the Board found that "between 2008 and 2013, Lenz
did not earn the salary upon which he seeks to calculate his retirement benefit
and did not make contributions to the pension fund based on the higher salary ."
The Board further determined that "the Agreement was clearly structured
in contemplation of Lenz's retirement, as it applies the compensation award
only to the last three years of Lenz's employment, which conveniently coincides
with the years used to calculate his retirement benefit. See N.J.A.C. 17:2-
6.20(b)." The Board explained that "[w]hen the salary adjustment clearly
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contemplates the member's retirement," N.J.A.C. 17:2-4.1(a) bars the
"adjustment as extra compensation." The Board noted the "three years of
retroactive salary falls under the definition of extra compensation" under
N.J.A.C. 17:2-4.1(a)(11) because "it is not compensation included in the base
salary of all employees in the same position."
The Board also found that "Dermody's testimony calls into question
whether . . . other employees actually received the increase based upon the
unwritten policy." Dermody testified that two Hudson County employees "did
not receive the [five percent] . . . in their base salary and had to receive a
retroactive adjustment." The Board found that the compensation Lenz received
was not a "complete adjustment of his salary" intended to include the five-
percent policy during each year of his employment.
The Board concluded:
[T]here is nothing in the record to establish that all
employees in the same position as Lenz received a
similar adjustment . . . to only certain years. Rather,
. . . as Dermody testified, there was no across-the-board
adjustment relating to the [five-percent] policy. . . .
Lenz simply cannot establish that all similarly situated
employees received such a substantial increase. The
Board finds that the compensation Lenz received from
the Agreement is nothing more than an individual
salary adjustment made in contemplation of retirement
that is barred as extra compensation under [N.J.A.C.]
17:2-4.1(a)(12).
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II.
Lenz argues the Board's rejection of the ALJ's decision was erroneous and
should be reversed. He contends the Board erroneously rejected the ALJ's
finding that Lenz's retroactive salary adjustments were pensionable.
More particularly, Lenz argues "there can be no question but that the
retroactive salary adjustment agreed to in the settlement was intended to put
Lenz at least partially in the position he would have been in had the County
honored its longstanding '[five-percent] above' salary practice." He argues the
settlement "merely righted a wrong by adjusting his salary to what it should have
been . . . consistent with the County's established salary structure for similarly
situated employees." Lenz argues his settlement did not involve an individual
salary adjustment unconnected to the overall salary structure of the employing
agency. He contends "[a]ll the settlement did was adjust his salary to reflect the
compensation he would have received if the County had paid him in accordance
with the established salary structure applicable to all similarly situated
employees."
Lenz argues the timing of the settlement and why the retroactive salary
payments coincided with the last years of his employment "has nothing to do
with gaming the pension system to alter the actuarial assumptions upon which
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the system depends for its integrity." Rather, the case was settled after Lenz had
retired due to his medical issues, and because of a backlog in federal court, he
would have had to wait a significant period of time to try the case.
Lenz next argues the Board's determination that the settlement "was
contemporaneous with Lenz's retirement" was erroneous because "for all intents
and purposes, he retired in 2017," well before the settlement of this matter.
Further, Dermody's testimony confirmed Lenz retired in 2017, "well before the
case was settled, and that the settlement played no part in Lenz's retirement
decision."
Lenz notes the Board overturned the ALJ's decision, in part, because the
ALJ failed to make findings as to whether it was proper to include the retroactive
back pay into only the final three years of service. Specifically, Lenz asserts
that he agreed "to limit the salary adjustment to three years for reasons that
clearly made sense," such as his Parkinson's disease and the stress of the
litigation affecting his health.
Lenz asserts the Board improperly relied on the County disputing that he
served in a supervisory capacity based on the County's interrogatory answers in
the underlying suit. He notes that although the County initially disputed Lenz's
claim, the County's witnesses "undercut" the County's earlier denials, which led
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to the settlement. Moreover, he submitted an "unrebutted sworn certification"
in support of the County's longstanding practice of the five-percent policy and
that he served in a supervisory capacity during all relevant times. PERS did not
introduce any evidence to rebut Lenz's certification. He further cites to the letter
from the County to the Division in July 2018, confirming that "the amounts of
increase of these back pay awards [to Lenz] represent an amount based on a
County policy that has been shown to have been in effect for the member and
do not exceed his claim under the lawsuit."
Lenz next argues that "[n]othing in [the Board's] final decision was
sufficient to overcome the ALJ's finding that Dermody's testimony was credible
and truthful." He notes the Board found Dermody's testimony called into
question whether "other employees actually received the increase based on the
unwritten policy" and that Dermody failed to identify other employees who held
the same position as Lenz. Lenz disagrees because Dermody identified two
employees who received similar salary adjustments, and Dermody testified both
employees were similarly situated to Lenz. Lenz contends that like him, both
employees were promoted to supervisory positions, and their pay was increased
to comply with the five-percent policy. Regardless, he contends that "for
purposes of the [five-percent] rule it would not matter whether an employee
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performed precisely the same supervisory responsibilities as another. All that
mattered was whether the individual was a supervisor not making more than
[five-percent] above those they supervised."
III.
Our review of an administrative agency's final decision is limited. In re
Carter, 191 N.J. 474, 482 (2007). We afford "a 'strong presumption of
reasonableness' to an administrative agency's exercise of its statutorily delegated
responsibilities." Lavezzi v. State, 219 N.J. 163, 171 (2014) (quoting City of
Newark v. Nat. Res. Council, Dep't of Env't Prot., 82 N.J. 530, 539 (1980)).
Absent arbitrary, unreasonable, or capricious action, or a lack of support in the
record, the agency's final decision will be sustained. In re Herrmann, 192 N.J.
19, 27-28 (2007). In determining whether agency action is arbitrary, capricious,
or unreasonable, we must examine:
(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.
[In re Stallworth, 208 N.J. 182, 194 (2011) (quoting
Carter, 191 N.J. at 482-83).]
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We defer to the Board's interpretation of the statutes it is charged with
enforcing. Thompson v. Bd. of Trs., Tchrs.' Pension & Annuity Fund, 449 N.J.
Super. 478, 483 (App. Div. 2017) (quoting Richardson v. Bd. of Trs., Police &
Firemen's Ret. Sys., 192 N.J. 189, 196 (2007)). "'Such deference has been
specifically extended to state agencies that administer pension statutes,' because
'a state agency brings experience and specialized knowledge to its task of
administering and regulating a legislative enactment within its field of
expertise.'" Ibid. (quoting Piatt v. Bd. of Trs., Police & Firemen's Ret. Sys., 443
N.J. Super. 80, 99 (App. Div. 2015)).
However, an appellate court is "in no way bound by the agency's
interpretation of a statute or its determination of a strictly legal issue."
Richardson, 192 N.J. at 196 (quoting In re Taylor, 158 N.J. 644, 658 (1999)).
Also, "[a] reviewing court 'may not substitute its own judgment for the agency's,
even though the court might have reached a different result.'" Stallworth, 208
N.J. at 194 (quoting Carter, 191 N.J. at 483).
Turning to the present case, we begin by reviewing N.J.S.A. 43:15A-6(r),
which the Board relied upon in its analysis. N.J.S.A. 43:15A-6(r) provides:
"'Compensation' means the base or contractual salary, for services as an
employee, which is in accordance with established salary policies of the
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member's employer for all employees in the same position but shall not include
individual salary adjustments which are granted primarily in anticipation of the
member's retirement . . . ."
Accordingly, "the Board may only accept pension contributions and grant
pension benefits based on a member's 'compensation' as defined by N.J.S.A.
43:15A-6(r)." DiMaria v. Bd. of Trs., Pub. Emps.' Ret. Sys., 225 N.J. Super.
341, 350, (App. Div. 1988). The implementing regulation provides that a PERS
member's creditable compensation shall be limited to base salary and "shall not
include extra compensation." N.J.A.C. 17:2-4.1(a). Examples of extra
compensation include:
7. Individual retroactive salary adjustments where no
sufficient justification is provided that the adjustment
was granted primarily for a reason other than
retirement;
....
9. Compensation in the absence of services;
....
11. Any form of compensation that is not included in
the base salary of all employees in the same position or
covered by the same collective bargaining agreement
who are members of the PERS and who receive the
compensation;
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12. Retroactive increments or adjustments made at or
near the end of a member's service, unless the
adjustment was the result of an across-the-board
adjustment for all similarly situated personnel . . . .
[N.J.A.C. 17:2-4.1(a).]
We find the Board's reasoning persuasive. Notwithstanding Lenz's claim
he "for all intents and purposes" retired in 2017, it is undisputed his effective
retirement date was March 1, 2018—shortly before the settlement was reached.
Based on the record and timeline of Lenz's retirement, the Board could
reasonably conclude the retroactive salary increases were given primarily in
anticipation of his retirement. The Board reasonably concluded the retroactive
increases fell under the definition of extra compensation under N.J.A.C. 17:2-
4.1(a)(11) and (12). Specifically, the Board noted the compensation was not
included in the base salary of all employees in the same position, and there was
no indication the retroactive adjustment, at or near the end of Lenz's service,
was the result of an across-the-board adjustment for all similarly situated
personnel.
In In re Puglisi, a police officer filed a civil rights lawsuit against his
employer, the city, alleging that various city administrators and elected officials
engaged in political discrimination. 186 N.J. 529, 531 (2006). The officer
reached a settlement with the city, resulting in his promotion to the rank of
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captain, his immediate commencement of a one-year terminal leave period at a
captain's salary, and his agreement to retire at the end of the terminal leave
period. Ibid. The Court concluded the payments made pursuant to the
settlement were in anticipation of his retirement and affirmed the denial of
pension credit for the settlement proceeds. Id. at 534.
The Court explained the statutory definition of compensation that
excludes salary increases at the end of an employee's career "protect[s] the
actuarial soundness of the pension fund by prohibiting the use of 'ad hoc salary
increases intended to increase retirement allowances without adequate
compensation to the [pension] fund' in calculating pensions." Ibid.; see also Bd.
of Trs. of Tchrs.' Pension & Annuity Fund of N.J. v. La Tronica, 81 N.J. Super.
461, 470-71 (App. Div. 1963) (describing unusual salary increases or
arrangements in the final years of employment as "the local board['s] . . . grand
gesture of farewell at little expense" because the local board is not itself
responsible for the pension payments that must follow over many years ).
The concerns expressed in Puglisi and La Tronica were shared by the
Board here, which noted the settlement agreement "was clearly structured in
contemplation of Lenz's retirement, as it applies the compensation award only
to the last three years of Lenz's employment, which conveniently coincides with
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the years used to calculate his retirement benefit." See N.J.A.C. 17:2-6.20. The
Board further noted the County rejected Lenz's efforts to include the additional
five percent several times over the years, and "[t]he negotiated retroactive salary
increases simply do not represent his base salary. Rather, these negotiated
salaries represent an individual salary adjustment that would allow Lenz to
calculate his retirement benefit using a salary greater than what he actually
earned."
In re Snellbaker does not support Lenz's position. 414 N.J. Super. 26(App. Div. 2010). There, we concluded that a retroactive salary received by
means of a settlement can be creditable compensation when calculating the
employee's pension benefit. Id. at 41. Snellbaker was the police chief of
Atlantic City, and in that position he received no raises between 2002 and 2006,
while his subordinate deputy chiefs received annual raises. Id. at 29-30. He
filed a lawsuit against the city and sought, among other relief, retroactive salary
increases for 2002 through 2005 under N.J.S.A. 40A:14-179, which required the
police chief to be paid more than the amount paid to the highest-ranking
subordinate officer. Id. at 30. The lawsuit was settled, and the settlement
retroactively increased Snellbaker's salary from 2002 to 2005 to bring the city
into compliance with the statute. Id. at 31. The salary increases were identical
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to the raises Snellbaker's subordinates had received during the same period. Id.
at 32. Snellbaker, unlike Puglisi, did not involve an "individual salary
adjustment" unconnected to the overall salary structure of the employing
agency, but instead involved a settlement intended to comply with a statutory
mandate. Id. at 40-41.
Here, unlike the salary increases in Snellbaker, Lenz's retroactive salary
increases were not applied to all of the years for which he claimed he was
underpaid. Rather, the salary increases were allocated to the final three years of
his employment. This led the Board to conclude the increases, which
"coincidentally" coincided with the years used to calculate his retirement
benefit, were not compensation under N.J.S.A. 43:15A-6(r). The Board
observed these salary adjustments would improperly allow Lenz to base his
retirement on a salary he never earned. Moreover, it noted "such an
arrangement," whereby the parties settled "years of salary disputes by
incorporating all of the retroactive salaries agreed [upon] into the final three
years violates the stated purpose of N.J.S.A. 43:15[A]-6(r) and the implementing
regulations, as it would allow an increase in retirement allowances without
adequate compensation to the pension fund." Indeed, there was ample evidence
in the record to support the Board's decision.
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We conclude the Board did not act arbitrarily, capriciously, or
unreasonably in denying Lenz's application to include the salary increases from
the settlement in determining his pension benefits, and its decision was fairly
supported by the record. To the extent we have not specifically addressed any
of Lenz's remaining arguments, we conclude they lack sufficient merit to
warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).
Affirmed.
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