DR. ELIZABETH A. NASTUS VS. BOARD OF TRUSTEES (TEACHERS' PENSION AND ANNUITY FUND)

NOT FOR PUBLICATION WITHOUT THE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-4501-17T2
DR. ELIZABETH A. NASTUS,
Petitioner-Appellant,
v.
BOARD OF TRUSTEES, TEACHERS'
PENSION AND ANNUITY FUND,
Respondent-Respondent.
_______________________________
Argued July 8, 2019 – Decided July 12, 2019
Before Judges Yannotti and Haas.
On appeal from the Board of Trustees of the Teachers'
Pension and Annuity Fund, Agency Docket No. 1-10-
150545.
Beth Lynn Finkelstein argued the cause for appellant.
Jeffrey D. Padgett, Deputy Attorney General, argued
the cause for respondent (Gurbir S. Grewal, Attorney
General, attorney; Melissa H. Raksa, Assistant
Attorney General, of counsel; Jeffrey D. Padgett, on the
brief).
PER CURIAM
Petitioner Dr. Elizabeth Nastus appeals from the final administrative
decision of the Board of Trustees of the Teachers' Pension and Annuity Fund
(Board) determining that she was not entitled to pension credit for all of the
annual salary and cumulative, merit-based salary increases she earned during
the years she was employed by her district as a superintendent under a sharing-
agreement with neighboring districts. We reverse.
The material facts are not in dispute. In 2002, the Clinton Township
Board of Education (Clinton) appointed petitioner as its superintendent . At
some point during her tenure, Clinton entered into a superintendent-sharing
arrangement with the Lebanon Borough Board of Education (Lebanon). Under
this arrangement, Clinton agreed to have petitioner provide superintendent
services to Lebanon as part of a series of "government consolidation and shared
services" initiatives developed by the New Jersey Legislature. See N.J. Ass'n
of Sch. Bus. Officials v. Davy, 409 N.J. Super. 467, 472-73 (App. Div. 2009);
see also N.J.S.A. 18A:17-24.1 (permitting the boards of education of two or
more school districts to share the same superintendent). In June 2007, Clinton
and petitioner entered into an amended employment contract that stated she
would be paid an additional $17,236 in annual salary for performing these shared
duties during the 2007-2008 school year.
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In July 2008, petitioner left Clinton and became the superintendent for the
Delaware Regional High School District (Delaware Valley). In 2010, Delaware
Valley agreed to provide shared-superintendent services to the nearby
Frenchtown School District (Frenchtown). Pursuant to an amended employment
contract, Delaware Valley agreed to pay petitioner $10,000 each year for
performing these shared duties as part of her annual salary.
Petitioner's Delaware Valley contract also provided that she would earn a
3% automatic salary increase, plus a possible 2% merit-based salary increase
each year. Delaware Valley granted the merit-based salary increase to petitioner
for the years at issue in this appeal. The annual merit-based increases were
added onto petitioner's annual salary, including her salary for performing
shared-superintendent services, and all her other raises. In other words, the
merit-based salary increases were "cumulative and permanent increase[s] in
salary [and were] unlike a one-time bonus payment."
Petitioner retired in July 2013 after twenty-eight years of combined
service as a teacher and superintendent. The Board initially gave petitioner
pension credit for all of the compensation she earned while employed by Clinton
and Delaware Valley, including the salary she was paid for performing shared-
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superintendent services, and the merit-based salary increases she received from
Delaware Valley.
The Board's determination was based upon the governing statute on
creditable pension compensation, N.J.S.A. 18A:66-2(d)(1). In pertinent part,
that statute defines "compensation" as
the contractual salary, for services as a teacher [1] as
defined in this article, which is in accordance with
established salary policies of the 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 or
additional remuneration for performing temporary or
extracurricular duties beyond the regular school day or
the regular school year.
Based upon N.J.S.A. 18A:66-2(d)(1), the Board determined that petitioner was
entitled to a monthly pension benefit of $6935.53, which was calculated on the
basis of her three highest salary years: $190,815.96 in 2007-2008; $203,104.95
in 2010-2011; and $206,062.90 in 2011-2012.
About a year later, however, the Board changed its mind and ruled that
the compensation petitioner "received as a result of both the Clinton . . . and the
Delaware Valley . . . Shared Services agreements [was] a form of 'Extra
1
A superintendent like petitioner is included within the definition of "teacher."
N.J.S.A. 18A:66-2(p).
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Compensation' [that was] not eligible as creditable compensation for pension
. . . purposes." In altering its position, the Board relied on a regulation it had
promulgated, N.J.A.C. 17:3-4.1, which narrowed the statutory definition of
"compensation" used in N.J.S.A. 18A:66-2(d)(1) to exclude what the Board
deemed to be "extra compensation." As used in the Board's regulation, the term
"extra compensation" included "[p]ay for extra work, duty or service beyond the
normal work day, work year for the position, or normal duty assignment[,]"
N.J.A.C. 17:3-4.1(a)(1)(ii); "bonuses[,]" N.J.A.C. 17:3-4.1(a)(1)(iii); and
"[c]ompensation paid for additional services performed during a normal duty
assignment, which are not included in base salary." N.J.A.C. 17:3-
4.1(a)(1)(xix).
The Board ruled that the annual salary Clinton and Delaware Valley paid
petitioner for performing shared-superintendent duties for Lebanon and
Frenchtown, respectively, was not creditable compensation because the Board
deemed these contractual services to be "extra work" not included in her "base
salary." The Board also found that the 2% cumulative, merit-based salary
increases petitioner annually earned at Delaware Valley were actually "bonuses"
that also could not be included in the compensation used to calculate her
pension. Thus, the Board also excluded these "bonuses," together with the
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excess portion of the automatic 3% increases attributable to the share -services
portion of her salary at Delaware Valley, from the pension calculation.
As a result of these exclusions, the Board recalculated petitioner's three
highest salary years to be $180,250 for 2007-2008; $185,657.50 for 2010-2011;
and $191,227.23 for 2011-2012. The Board also reduced petitioner's monthly
pension benefit to $6440.23, which was $495.30 less than the Board originally
granted her.
Petitioner appealed the Board's determination and the matter was
transmitted to the Office of Administrative Law as a contested case. Petitioner
moved for summary disposition. On February 2, 2018, the Administrative Law
Judge (ALJ) issued her initial decision. After stating her factual findings and
discussing the law, the ALJ recommended that petitioner receive pension credit
for all of the compensation she earned for Clinton and Delaware Valley,
including her salary for performing shared-superintendent services in both
districts, and the merit-based salary increases she earned while working for
Delaware Valley.
The Board filed exceptions to the initial decision and, on May 3, 2018, it
rendered a final decision rejecting the ALJ's conclusions of law. Relying on the
more narrow definition of "compensation" set forth in its regulation, N.J.A.C.
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17:3-4.1, the Board determined that petitioner was not entitled to the pension
credit for the salary she earned performing shared-superintendent duties or for
her merit-based salary increases. This appeal followed.
On appeal, petitioner argues that the Board misapplied N.J.S.A. 18A:66-
2(d)(1), the statute that governs the issue of whether additional compensation is
subject to pension credit. In response, the Board contends that we should defer
to its administrative expertise, and maintains that it correctly applied its
implementing regulation, N.J.A.C. 17:3-4.1.
Our role in reviewing an administrative agency's final decision is limited.
In re Stallworth, 208 N.J. 182, 194 (2011). Thus, we will only reverse the
agency's action if it was "arbitrary, capricious, or unreasonable, or [] not
supported by substantial credible evidence in the record as a whole." Ibid.(alteration in original) (quoting Henry v. Rahway State Prison, 81 N.J. 571, 579-
80 (1980)).
Here, the agency resolved the matter by summary decision pursuant to
N.J.A.C. 1:1-12.5. "Because an agency's determination on summary decision is
a legal determination, our review is de novo." L.A. v. Bd. of Educ. of City of
Trenton, 221 N.J. 192, 204 (2015). In conducting this de novo review, we are
"not bound by [the] agency's interpretation of a statute or its determination of a
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strictly legal issue[.]" Ardan v. Bd. of Review, 444 N.J. Super. 576, 584 (App.
Div. 2016) (second alteration in original) (quoting Lavezzi v. State, 219 N.J.
163, 172 (2014)). In addition, while we give deference to an agency's
interpretation of its governing statutory scheme, ibid., we are mindful of the
well-settled rule that "[a]dministrative regulations cannot alter the terms of a
legislative enactment nor can they frustrate the policy embodied in [a] statute."
N.J. Ass'n of Realtors v. N.J. Dep't of Envtl. Prot., 367 N.J. Super. 154, 159-60
(App. Div. 2004) (alterations in original) (quoting In re Freshwater Wetlands
Prot. Act Rules, N.J.A.C. 7:7A-1.1 et seq., 238 N.J. Super. 516, 526 (App. Div.
1989)).
Applying these principles, we are constrained to reverse the Board's
determination that petitioner was not entitled to pension credit for the
compensation she earned for her shared-superintendent duties and for her merit-
based salary increases.
The starting point for our analysis is N.J.S.A. 18A:66-2(d)(1). As
discussed above, that statute plainly provides that compensation is creditable for
pension purposes if it is "contractual salary" paid by the employer "in
accordance with [its] established salary policies." N.J.S.A. 18A:66-2(d)(1).
However, creditable compensation does "not include individual salary
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adjustments which are granted primarily in anticipation of the member's
retirement or additional remuneration for performing temporary or
extracurricular duties beyond the regular school day or the regular school year."
Ibid.Applying that statutory definition, it is clear that all of the compensation
Clinton and Delaware Valley paid petitioner during the three years in question,
including the monies she earned performing shared-superintendent duties and
her merit-based annual salary increases, was creditable for pension purposes.
Petitioner's contracts with Clinton and Delaware Valley specified the sums she
would earn for performing these duties and, because these two districts'
obligations to make these payments were specifically set forth in the contracts,
the payments each district made to her were plainly made "in accordance with
[the] established salary policies" of her employers. Ibid.None of petitioner's shared-superintendent services were "temporary" or
"extracurricular" in nature; indeed, they continued throughout the school years
in question. Ibid. In addition, nothing in this record indicates that any of the
payments, including the salary increases that petitioner earned based on merit
under her Delaware Valley contract, were "granted primarily in anticipation of
[her] retirement[.]" Ibid. Under these circumstances, all of this compensation
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should have been included in the Board's calculation of petitioner's monthly
pension benefit.
The Board based its contrary decision on N.J.A.C. 17:3-4.1(a), which
purports to limit a member's compensation to his or her "base salary," which the
Board determined only included the compensation petitioner earned for the
superintendent duties she performed for Clinton and Delaware Valley, and not
for the shared services these two employers required her to perform for Lebanon
and Frenchtown. The Board also found that any additional monies petitioner
received for discharging her responsibilities to the latter two districts was "extra
pay for extra work" and, thus, outside the definition of creditable compensation
under N.J.A.C. 17:3-4.1(a)(ii). Finally, the Board pointed to N.J.A.C. 17:3-
4(a)(iii) to exclude the merit-based salary increases petitioner received from
Delaware Valley from her pension benefit calculation.
The flaw in the Board's reasoning on this legal issue is obvious. Unlike
N.J.A.C. 17:3-4.1(a), N.J.S.A. 18A:66-2(d)(1) does not limit the term
"contractual salary" to a member's "base salary," and does not exclude "bonuses"
from the pension calculation. Instead, all contractual payments set forth in a
member's employment agreement including, as here, a member's work under a
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shared-services arrangement and salary increases earned through merit,
constitute creditable compensation.
In Siri v. Board of Trustees of the Teachers' Pension & Annuity Fund, 262
N.J. Super. 147 (App. Div. 1993), we interpreted the same statute and a similar
provision of the same regulation. We held:
The statute prevails over the regulation. "[I]n the
execution of its rule-making power a state agency may
not go beyond declared statutory policy." In re Increase
in Fees by N.J. St. Bd. of Dentistry, 166 N.J. Super.
219, 233 (App. Div. 1979) [rev’d on other grounds, 84
N.J. 582 (1980)]. "Administrative regulations, of
course, cannot alter the terms of a legislative enactment
or frustrate the policy embodied in the statute." N.J.
State Chamb. Commerce v. N.J. Elec. Law Enforce.
Comm., 82 N.J. 57, 82 (1980).
[Id. at 152 (first alteration in original).]
We again follow our decision in Siri here and conclude, as a matter of law, that
the salary Clinton and Delaware Valley paid petitioner under her contracts for
shared-superintendent services, including the merit-based salary increases she
earned while working for Delaware Valley, were creditable for pension purposes
under N.J.S.A. 18A:66-2(d)(1), irrespective of the Board's more limited
regulatory definition of "compensation" under its regulation.
Moreover, we are also satisfied that even if the Board's regulation could
be considered, petitioner would still be entitled to have her pension calculated
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on the basis of these payments. Clinton and Delaware Valley required petitioner
to provide the shared-superintendent duties to Lebanon and Frenchtown,
respectively. This was not "extra work" or "additional services performed
during a normal duty assignment." Rather, petitioner's obligations were part and
parcel of the normal contractual duties the two districts assigned her during her
regular work day and work year. Thus, neither N.J.A.C. 17:3-4.1(a)(1)(ii) nor
(xix) is applicable to petitioner's circumstances.
In addition, the annual 2% merit-based salary increases petitioner earned
from Delaware Valley each year cannot reasonably be characterized as
"bonuses" and excluded from her creditable compensation under N.J.A.C. 17:3-
4.1(a)(1)(iii). It is undisputed that these salary increases were cumulative with
petitioner's salary and with her previous automatic and merit-based salary
increases under her contract. Thus, these were not one-time "bonus" payments
made in addition to, but not included in, petitioner's regular salary as mandated
by her employment contracts with the districts. Therefore, even considering the
Board's regulation, we are satisfied that these payments should have been
included in the calculation of petitioner's pension benefit.
In so ruling, we reject the Board's contention that "[t]his matter is
essentially controlled by" our decision in Francois v. Board of Trustees, 415 N.J.
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Super. 335 (App. Div. 2010), because that case is readily distinguishable from
the matter at hand. In Francois, the petitioner was an employee of the New
Jersey Economic Development Authority (NJEDA), and served on a "mobility
assignment" for a two-year period as director of the real estate department of the
Port Authority of New York and New Jersey (Port Authority). Id. at 338. The
petitioner earned approximately $30,000 more working almost exclusively for
the Port Authority during this period than he had at the NJEDA, and the Port
Authority funded his entire salary. Id. at 341. At the end of the two years, the
petitioner retired from the NJEDA, and continued to work at the Port Authority.
Id. at 343-44.
Under these circumstances, we held that the $30,000 the petitioner
received over and above his regular NJEDA salary was not creditable for
pension purposes. Id. at 356-58. We reasoned that the Port Authority position
was not covered by a New Jersey pension program, and we determined that "it
[was] clear that limitations must be imposed upon practices which might
artificially boost pension benefits or be inconsistent with the employer's
payment of 'compensation.'" Id. at 357. Nevertheless, we ruled that based upon
the equity of the situation, where the two employers told the petitioner his time
at the Port Authority would count toward his pension, the lesser salary he would
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have received had he remained at the NJEDA for these two years was creditable.
Id. at 356-58.
The factual circumstances in Francois are in no way similar to those
presented here. In the present case, petitioner was employed first by Clinton,
and later by Delaware Valley. It was these two employers who contracted with
Lebanon and Frenchtown, respectively, to provide shared-superintendent
services. Thus, petitioner never changed employers; she remained under the
control and supervision of Clinton and Delaware Valley. Petitioner remained in
the same pension system when providing shared services to the other districts,
and was paid the salary she and her employers agreed upon in her employment
contracts. As already noted, there is no indication that either petitioner or her
employers entered into the shared services agreements with the neighboring
districts to artificially boost petitioner's salary for pension purposes. Therefore,
the Francois decision is simply inapplicable to the case at hand.
In sum, petitioner's entire salaries, including the contractual payments she
received while assigned by her employers to perform shared-superintendent
duties, and her merit-based cumulative salary increases while working for
Delaware Valley, were creditable for pension purposes under the clear terms of
N.J.S.A. 18A:66-2(d)(1). Accordingly, we reverse the Board's contrary
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determination and remand so that the Board may reinstate petitioner's pension
at the original amount, retroactive to the date it was incorrectly reduced.
Reversed and remanded. We do not retain jurisdiction.
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