N.J. Court Finds Public Employee Need not Return Pension Overpayment

An appellate court in New Jersey found a public worker did not intend to mislead the state and does not need to repay $258,191 in pension benefits mistakenly received.

The Superior Court of New Jersey, Appellate Division, noted that Harold Knox did what a fact sheet told him to do when he was rehired as a seasonal employee 14 days after retiring from public service—seek his employer’s advice about the potential effect of his current position on his right to receive his pension. Knox was told by the executive assistant prosecutor in charge of personnel decisions within the Union County Prosecutor’s Office UCPO, and by the prosecutor himself, that he was a seasonal employee and was entitled to work in the forfeiture unit of the UCPO without waiting for 30 days, as required by the Public Employees Retirement System (PERS), until beginning his new position. 

The appellate court said it was satisfied that had Knox known the ramifications, he would have waited an additional 16 days before returning to employment.  

“Knox served honorably through 30 years of public service, and his honest mistake in starting a new position 16 days too soon should not result in the catastrophic result that treasury demands of him,” the court opinion said. “This is especially so in light of treasury’s concession that had Knox waited an additional 16 days, and thereby accomplished the required 30-day break in service, he would have been entitled to the $258,191 in pension benefits, and treasury would not be demanding its repayment.”   

The court also concluded that the state treasury’s decision to wait four years and four months before telling Knox that his retirement was not bona fide exceeded the standards of reasonableness expected of a public agency. “In light of the absence of bad faith, and Knox’s legitimate reliance on the advice of the UCPO, the unwitting violation that occurred should not deprive a career public servant of his earned pension benefits,” the court said. “Treasury’s decision to the contrary was arbitrary and capricious.”  

The court looked to a previous case in which a court found it "clearly unjust" to apply "a substantive rule of disentitlement of pension against [a retiree]" eight years after the fact, and emphasized that the retiree's reliance on the pension board decision, and the absence of "fraud or illegality" should play a role in determining whether the refund of pension benefits should be required. 

An administrative law judge (ALJ) had previously concluded that Knox should be required only to refund the income he received between 2003 and 2006, and should not be required to refund the pension benefits he received. However, the state treasury concluded Knox was not a bona fide employee because Knox's post-retirement employment did not qualify as seasonal under the New Jersey Administrative Code, and he was required to return all pension benefits he had received between 2003 and 2006. In reaching that conclusion, the state treasury found that Knox's intentions were "irrelevant" and the only issue for the ALJ and the PERS Board was whether the applicable rules were violated.  

The appellate court reversed that decision and remanded for the reinstatement of the decision of the ALJ.  

The opinion is available at http://www.judiciary.state.nj.us/opinions/a1444-10.pdf.