Court Opinion

ID: 4697453
Source: CourtListenerOpinion
Date Created: 2021-06-22 14:09:04.598379+00
Date Added: 2024-06-11T08:05:46.368664
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                               APPROVAL OF THE APPELLATE DIVISION
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                                                        SUPERIOR COURT OF NEW JERSEY
                                                        APPELLATE DIVISION
                                                        DOCKET NO. A-3595-18

BARBARA ZILBERBERG,

          Petitioner-Appellant,

v.

BOARD OF TRUSTEES,
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).
PER CURIAM

      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

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are paid using revenues received from employee 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

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                                          5
            reaching a conclusion that could not reasonably have
            been made on a showing of the relevant factors.

            [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 fault 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 to the loan since separation from employment.

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

provisions of 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."

      TPAF 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 failure to follow pension plan rules

– in this case, repayment within five years:

             (1) 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).]

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

repayment to the retirement system:

                  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

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                                       8
            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 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

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                                        9
Board's decision comported with the IRS requirement that TPAF collect a sum

sufficient to repay the amount borrowed with interest thereon. IRS Rev. Proc.

2016-51, § 6.02(1). Zilberberg's unpaid loan installments militated adjustment

by statute. N.J.S.A. 18A:66-63. 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

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                                        10
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 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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