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). 

NOT FOR PUBLICATION WITHOUT THE 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.
2 A-2480-22

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. 
3 A-2480-22

 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. 
4 A-2480-22

[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. 
5 A-2480-22

 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 
6 A-2480-22

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 [fivepercent] 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: 
7 A-2480-22

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 
8 A-2480-22

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 
9 A-2480-22

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 fivepercent 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). 
10 A-2480-22

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 
11 A-2480-22

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 
12 A-2480-22

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 
13 A-2480-22

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).] 
14 A-2480-22

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 
15 A-2480-22

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; 
16 A-2480-22

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 
17 A-2480-22

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 
18 A-2480-22

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 
19 A-2480-22

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. 
20 A-2480-22

 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.