Court Opinion

ID: 4700838
Source: CourtListenerOpinion
Date Created: 2021-07-02 14:10:49.456593+00
Date Added: 2024-06-11T08:06:12.688703
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
              APPROVAL OF THE APPELLATE DIVISION

                                  SUPERIOR COURT OF NEW JERSEY
                                  APPELLATE DIVISION
                                  DOCKET NO. A-3595-18

BARBARA ZILBERBERG,

     Petitioner-Appellant,
                                    APPROVED FOR PUBLICATION
v.
                                             July 2, 2021

BOARD OF TRUSTEES,                      APPELLATE DIVISION
TEACHERS' PENSION AND
ANNUITY FUND,

     Respondent-Respondent.
__________________________

           Argued May 5, 2021 – Decided June 22, 2021

           Before Judges Fuentes, Whipple and Firko.

           On appeal from the Board of Trustees of the Teachers'
           Pension and Annuity Fund, Department of Treasury.

           Stephen B. Hunter argued the cause for appellant
           (Detzky Hunter & DeFillippo, LLC, attorneys;
           Stephen B. Hunter, of counsel and on the brief).

           Amy Chung, Deputy Attorney General, argued the
           cause for respondent (Gurbir S. Grewal, Attorney
           General, attorney; Melissa H. Raksa, Assistant
           Attorney General, of counsel; Juliana C. DeAngelis,
           on the brief).

     The opinion of the court was delivered by

WHIPPLE, J.A.D.
      Barbara Zilberberg appeals from a March 11, 2019 final administrative

determination of the Board of Trustees (Board) of the Teachers' Pension and

Annuity Fund (TPAF), rejecting her request to waive a portion of interest

payment owed on her pension loan. We affirm.

      In 2004, Zilberberg, a former school psychologist, applied for a pension

loan from TPAF and received $26,860 on March 31, 2004. TPAF is a tax -

qualified governmental plan under the Internal Revenue Code (IRC), which

regulates how members may borrow and repay money from TPAF. Pension

loans through TPAF are repaid by active employees through payroll

deductions, or by retirees through pension check deductions; IRC and statutory

requirements for repayment maintain TPAF's tax-qualified status. Zilberberg's

loan repayment schedule planned for forty-nine deduction payments of

$607.22 each, totaling $29,753.78, which included the calculated interest rate

of 4% per year.

      The Division of Pensions and Benefits (Division) administers the public

pension system, Burgos v. State, 222 N.J. 175, 184 (2015), which includes

TPAF, N.J.S.A. 18A:66-1 to -93.        Ibid.   The pension plans guarantee

participants certain benefits paid upon retirement and are based on the

participant's salary and time spent contributing to the pension system. Id. at

184-85.   "The benefits are paid using revenues received from employee

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contributions, public employer ([such as] State) contributions, and investment

returns." Id. at 185.

      Zilberberg retired July 1, 2004, three months after she received her

initial loan payout. As of her retirement date, Zilberberg had made two of the

forty-nine loan payments via payroll deduction; the outstanding principal

balance after the two payments was then $25,973.83. Due to a mistake in

billing, Zilberberg's retirement payments were not deducted from her pension

checks past June 30, 2004.     In other words, the Division did not deduct

Zilberberg's loan payments once she had retired. Zilberberg did not inquire

about her loan repayment status between 2004 and 2017.

      In September 2017, the Division sent a letter to Zilberberg, notifying her

that an audit of pension loans had revealed the balance due. As a result of not

making loan payments or having them deducted from her pension checks,

Zilberberg still owed the outstanding balance of $25,973.83.          However,

Zilberberg owed additional accrued interest of $21,227, for a total of

$47,200.83 when combined with the loan principal. The Division informed

Zilberberg in the September 2017 letter that it would begin deducting loan

payments from her monthly retirement allowance to cover the repayment of

principal and interest.

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      Zilberberg contacted the Division after receiving the letter.       She

contended the Division was not entitled to the additional accrued interest

because of its failure to recover the balance from her due to its improper

billing. Later, she offered to repay the remaining balance and five years of

interest, at 4%, in a lump sum payment if the Board would waive the interest

accrued after the original five-year term. The Board rejected her offer on

November 1, 2018.

      On January 14, 2019, Zilberberg appealed the Board's decision and

requested that the matter be transferred to the Office of Administrative Law.

In February, the Board determined that there were no material facts in dispute

and directed the Board Secretary to prepare and issue a final administrative

determination. On March 11, 2020, the Board issued its decision denying

Zilberberg's request to waive the accrued interest assessed on her outstanding

loan obligation. The decision noted that the State had entered into a closing

agreement with the Internal Revenue Service (IRS) under which outstanding

pension loans, plus interest, would be repaid to State-administered retirement

systems, including TPAF, to protect their tax-qualified status. 1

1
  On March 2, 2018, the State and the Commissioner of the IRS entered into a
closing agreement that required TPAF to repay outstanding pension loans,
including interest, to comply with statutory requirements and to maintain the
pension plans' tax-qualified status.

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                                        4
      This appeal followed.

                                             I.

      We "have 'a limited role' in the review of [administrative agency]

decisions."    In re Stallworth, 208 N.J. 182, 194 (2011) (quoting Henry v.

Rahway State Prison, 81 N.J. 571, 579 (1980)). "[A] 'strong presumption of

reasonableness attaches to the actions of the administrative agencies.'" In re

Carroll, 339 N.J. Super. 429, 437 (App. Div. 2001) (quoting In re Vey, 272

N.J. Super. 199, 205 (App. Div. 1993)). "In order to reverse an agency's

judgment, an appellate court must find the agency's decision to be 'arbitrary,

capricious, or unreasonable, or [] not supported by substantial credible

evidence in the record as a whole.'" Stallworth, 208 N.J. at 194 (alteration in

original) (quoting Henry, 81 N.J. at 579).

      To evaluate whether the Board's decision to deny Zilberberg's request

for a waiver of accrued interest – which Zilberberg states was based on the

Board's own inaction – was arbitrary, capricious, and unreasonable, we first

examine the decision in line with Stallworth, 208 N.J. at 194. Initially, we

assess whether the agency followed the law, or rather:

              [W]hether the record contains substantial evidence to
              support the findings on which the agency based its
              action; and . . . 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.

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            [Ibid. (quoting In re Carter, 191 N.J. 474, 482-83
            (2007)).]

      Here, the Division informed Zilberberg that the loan disbursement would

need to be repaid with interest for the duration of the loan. The I.R.C., §

72(p), N.J.S.A. 18A:66-35, N.J.S.A. 18A:66-35.1, and N.J.S.A. 18A:66-63

controlled the interest obligation, even though it was the Division's fau lt the

payments were not deducted from Zilberberg's pension checks.

      Under the IRC when a pension loan is not repaid within five years of its

distribution, the loan funds are essentially converted to taxable income as a

"deemed distribution." I.R.C. § 72(p)(2)(B) sets forth an exception from a

taxable deemed distribution for a loan from a qualified employer plan,

provided the loan is repaid within five years. I.R.C. § 72(p)(1) ("If during any

taxable year a participant or beneficiary receives, directly or indirectly, any

amount as a loan from a qualified employer plan, such amount shall be treated

as having been received by such individual as a distribution under such plan.").

In its closing agreement with TPAF, the IRS repeats the requirements of I.R.C.

§ 72(p)(1). The agreement references that there were loan participants who

did not make any repayments since separation from employment. Although

Zilberberg did not provide her loan agreement for our review, the provisions of

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I.R.C. § 72(p)(1) were in effect before Zilberberg's loan disbursement, and

TPAF has a statutory duty to collect interest on distributions.

      Repayment of interest to TPAF is crucial to maintain the pension plan's

tax-qualified status. If Zilberberg were to fail to pay the interest associated

with the loan, the pension system and its members could face challenges to

their status.   In its November 13, 2018 letter to Zilberberg, the Board

explained that "all loans are subject to . . . I.R.C. [§] 72(p)." The letter also

states that "[f]ailure of the TPAF to comply with [I.R.C. §] 72(p) could result

in plan disqualification, meaning the TPAF could lose its tax-qualified status."

      The Board further explains that Zilberberg must repay the loan

obligation with applicable interest, citing IRS Revenue Procedure 2016-51, §

6.02(1). This provision sets out the process for correcting a failure to follow

pension plan rules – in this case, repayment within five years:

            Restoration of benefits. The correction method should
            restore the plan to the position it would have been in
            had the failure not occurred, including restoration of
            current and former participants and beneficiaries to
            the benefits and rights they would have had if the
            failure had not occurred.

            [IRS Rev. Proc. 2016-51, § 6.02(1).]

      N.J.S.A. 18A:66-35 details the statutory requirement for members'

repayment to the retirement system:

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       Any member who has at least [three] years of
service to his credit for which he has contributed as a
member may borrow from the retirement system, an
amount equal to not more than 50% of the amount of
his accumulated deductions, but not less than $50;
provided, that the amount so borrowed, together with
interest thereon, can be repaid by additional
deductions from compensation, not in excess of 25%
of the member's compensation, made at the same time
compensation is paid to the member. The amount so
borrowed, together with interest on any unpaid
balance thereof, shall be repaid to the retirement
system in equal installments by deduction from the
compensation of the member at the time the
compensation is paid or in such lump sum amount to
repay the balance of the loan but such installment
shall be at least equal to the member's rate of
contribution to the retirement system and at least
sufficient to repay the amount borrowed with interest
thereon. Not more than two loans may be granted to
any member in any calendar year. Notwithstanding
any other law affecting the salary or compensation of
any person or persons to whom this article applies or
shall apply, the additional deductions required to
repay the loan shall be made.

       The rate of interest for a loan requested by a
member . . . shall be 4% per annum on any unpaid
balance thereof. For a loan requested after the
effective date of that act, the rate of interest per
annum shall be a commercially reasonable rate as
required by the [IRC] to be determined by the State
Treasurer on that effective date, and on January 1 of
each calendar year thereafter. An administrative fee
in an amount set by the State Treasurer for each
calendar year may be charged for any loan requested
after the effective date . . . . Loans shall be made to a
member from his accumulated deductions.              The
interest earned on such loans shall be treated in the

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                           8
            same manner as interest earned from investments of
            the retirement system.

            [N.J.S.A. 18A:66-35 (emphasis added).]

N.J.S.A. 18A:66-35.1 states, in pertinent part, that:

                  In the case of any member who retires without
            paying the full amount so borrowed, the Division shall
            deduct from the retirement benefit payments the same
            monthly amount which was deducted from the
            compensation of the member immediately preceding
            retirement until the balance of the amount borrowed
            together with the interest is repaid.

Notably, N.J.S.A. 18A:66-63 is especially applicable here:

                   If any change or error in records results in a
            member or beneficiary receiving from the retirement
            system more or less than he would have been entitled
            to receive had the records been correct, then on
            discovery of the error, the board of trustees shall
            correct it and, so far as practicable, adjust the
            payments in such a manner that the actuarial
            equivalent of the benefit to which he was correctly
            entitled shall be paid.

            [N.J.S.A. 18A:66-63 (emphasis added).]

      Zilberberg seeks relief under the "so far as practicable" clause in

N.J.S.A. 18A:66-63, arguing it is not practicable to adjust her payments

upward.    However, compliance with IRC and IRS requirements is most

practicable here, and the Board's decision was not arbitrary, capricious, or

unreasonable. The Board's decision comported with the IRS requirement that

TPAF collect a sum sufficient to repay the amount borrowed with interest

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                                        9
thereon. IRS Rev. Proc. 2016-51, § 6.02(1). Zilberberg received more from

the retirement system than she was entitled to receive, and she is not permitted

to benefit from the Board's billing mistake. The statutes are clear that the

Board must correct its error and adjust Zilberberg's deductions to include the

interest that will maintain TPAF's tax-qualified status.

                                         II.

      Zilberberg's remaining arguments lack merit. Zilberberg argues that the

Board's deduction of the principal and balance from her pension payments is

barred by N.J.S.A. 2A:14-1, which addresses the statute of limitations for

actions in breach of contract. However, since the Board has not taken an

action at law against Zilberberg, no statute of limitations is implicated here.

Zilberberg further argues that the doctrine of laches applies to this case,

foreclosing the Board from collecting the loan amount plus interest because

the Board sat "on its rights for thirteen years."

      The doctrine of laches applies when there is neglect for an unreasonable

and unexplained length of time, under circumstances permitting diligence, to

do what in law should have been done. More specifically, it is inexcusable

delay in asserting a right. Lavin v. Bd. of Educ. of the City of Hackensack, 90

N.J. 145, 151 (1982) (quoting Hall v. Otterson, 52 N.J. Eq. 522, 535 (Ch.

1894)). We see no reason to apply the doctrine of laches here. The Board

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fulfilled its statutory duty to adjust Zilberberg's pension payments so it would

be able to recoup the loan payments plus interest. See N.J.S.A. 18A:66-35;

IRS Rev. Proc. 2016-51, § 6.02(1). There was no civil collections action

against Zilberberg, so no equitable claim can be asserted against the Board to

bar such an action.

      Last, Zilberberg refers us to Sellers v. Board of Trustees of the Police

and Firemen's Retirement System, 399 N.J. Super. 51 (App. Div. 2008), to

support her argument that an equitable remedy is warranted. In Sellers, we

recognized that the Board has "the authority to apply equitable principals to

provide a remedy when justice so demands, provided the power is used rarely

and sparingly, and does no harm to the overall pension scheme." Id. at 62

(emphasis added).     Zilberberg's circumstances do not reach that standard.

Rather, she has benefited from an interest-free loan for thirteen years, and the

Board must take steps to ensure that her failure to pay interest does not harm

the pension scheme.

      Affirmed.

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