An appeals court today affirmed a ruling requiring the Middletown Board of Education (Monmouth County) to reimburse its pension fund $3,815,600 for offering Board employees an “illegal” early retirement incentive.

According to the Appellate Division’s December 22, 2016 opinion, the Middletown school board approved a “sidebar agreement” with the local teachers union on October 22, 2007 that offered tenured teachers who retired or resigned prior to June 30, 2008 $225 for each unused sick day up to a maximum of $40,000.  The agreement similarly offered non-certified union members $125 per sick day up to a maximum of $20,000. 

The next day, an Audit Supervisor with the Division of Pensions and Benefits, who had heard about the offering, said that the offering needed to be reviewed by the Division and asked the Board for specific information which the Board provided on November 5, 2007.  By then, five teachers and a secretary had exercised their rights under the sidebar agreement. 

On August 1, 2008, the Division informed the Board that the early retirement benefit was “impermissible” and directed the Board to “provide a final list of all individuals” that had taken advantage of it so that a Division actuary could “develop the acceleration cost of this incentive which in turn will be billed to [the Board].”  Although the Board responded to the Division on August 11, 2008, the Division did not get back to the Board until February 6, 2014.  On that date, the Division informed the Board that it was “responsible for the additional pension liabilities created” by its unauthorized early retirement incentive.  The Division calculated the present value of those pension liabilities at $5,429,900 and invoiced the Board for that amount.

The Board appealed the Division’s decision and invoice to Teachers’ Pension and Annuity Fund (TPFA) Board of Trustees.  On December 14, 2014, the TPFA affirmed the Division’s ruling that the early retirement incentive was illegal but reduced the assessment to $3,815,600 and allowed the Board to pay that amount over a five year period at no interest.

The Board filed another appeal which was resolved by the TPFA’s March 13, 2015 written decision.  That decision held that 41 employees ultimately took advantage of the sidebar agreement’s early retirement incentive and that those early retirements burdened the pension fund. 

The Appellate Division rejected the Board’s appeal of the TPFA’s ruling.  The court found that the Board “approved the Sidebar Agreement without consulting the Division or obtaining approval and then implemented the Sidebar Agreement after receiving a letter from the Division stating approval was required before such a plan could be implemented.”  The court also noted that the Board failed to provide any actuarial evidence to contest the findings of the Division’s actuary.

Chairman of the New Jersey Libertarian Party's Open Government Advocacy Project. Please send all comments to [email protected]