Fair Lawn Ed. Ass'n v. Fair Lawn Bd. of Ed.

• Decision Date: 16 May 1979
• Citation: 401 A.2d 681,79 N.J. 574
• Parties: , 102 L.R.R.M. (BNA) 2205 FAIR LAWN EDUCATION ASSOCIATION, Plaintiff-Appellant, v. FAIR LAWN BOARD OF EDUCATION, Defendant and Third-Party Plaintiff-Respondent, v. TEACHERS' PENSION AND ANNUITY FUND, DIVISION OF PENSIONS, DEPARTMENT OF TREASURY, State of New Jersey, Third-Party Defendant-Respondent.
• Court: New Jersey Supreme Court

Page 574

79 N.J. 574

401 A.2d 681, 102 L.R.R.M. (BNA) 2205

FAIR LAWN EDUCATION ASSOCIATION, Plaintiff-Appellant, v. FAIR LAWN BOARD OF EDUCATION, Defendant and Third-Party Plaintiff-Respondent, v. TEACHERS' PENSION AND ANNUITY FUND, DIVISION OF PENSIONS,

DEPARTMENT OF TREASURY, State of New Jersey,

Third-Party Defendant-Respondent.

Supreme Court of New Jersey.

Argued Feb. 5, 1979.

Decided May 16, 1979.

William S. Greenberg, Trenton, for plaintiff-appellant (Greenberg & Mellk, Trenton, attorneys; David Arrajj, Trenton, on the brief).

Reginald F. Hopkinson, Paterson, for respondent, Fair Lawn Bd. of Ed. (Jeffer, Walter, Tierney, De Korte, Hopkinson & Vogel, Paterson, attorneys).

Stacy L. Moore, Jr., Deputy Atty. Gen., for respondent, Teachers' Pension and Annuity Fund (John J. Degnan, Atty. Gen., attorney; Stephen Skillman, Asst. Atty. Gen., of counsel).

The opinion of the Court was delivered by

PASHMAN, J.

In this case we are called upon to assess the validity of an Early Retirement Remuneration Plan (ERR) agreed to by the Fair Lawn Board of Education (Board) and the Fair Lawn Education Association (Association) the majority representative of the Board's teaching employees. For the reasons to be given below, we conclude that the particular plan here at issue: (1) lacks statutory authorization; (2) contravenes this Court's holdings in Jacobs v. New Jersey Highway Auth., 54 N.J. 393, 255 A.2d 266 (1969), and State v. State Supervisory Employees Ass'n, 78 N.J 54, 393 A.2d 233 (1978); and (3) is preempted by the comprehensive statutory scheme relating to the operation of retirement benefits. Consequently, that plan cannot be implemented.

On July 1, 1976, the Association and the Board entered into a collective agreement covering the 1976-1977 and 1977-1978 school years. Article VI of that agreement set forth the provisions of the ERR plan whose legality is here in dispute. Under the terms of the contract, teachers between the ages of 55 and 64 who retired prior to September 1, 1977 would receive an additional payment in the amount of $6,000 upon leaving the Board's employ. ¹ Instructors retiring after the start of the 1977-1978 school year were also entitled to remuneration over and above their normal pension. ² The value of their benefit, however, was dependent upon age, with those relinquishing their positions at an earlier age receiving a larger bonus. The sums to be paid ranged from $500 for a 64-year-old teacher to $6,000 for retiring instructors aged 55 to 57. Four payment options including lump sum and various installment alternatives were provided. The goals underlying the adoption of this plan were twofold: (1) to "reward loyalty and long years of service," and (2) to encourage early retirements in order that tenured teachers could be replaced by younger, less experienced instructors whose salary levels would be much lower.

Pursuant to terms of the ERR plan, twelve members of the Association notified the Board of their intention to retire early. Prior to accepting their resignations, however, the Board informed them that the payments called for by the plan might be unlawful. This conclusion stemmed from the Board's perusal of an informal opinion rendered by the Attorney General relating to the validity of a somewhat similar plan which had been adopted by the Rumson Board of Education. According to the Attorney General, the Rumson program constituted an impermissible "modification of the comprehensive, uniform scheme established by the Legislature for the pensioning of members of the Teachers' Pension Annuity Fund." The teachers were therefore given the opportunity to rescind their resignations. Several of them did so.

On June 24, 1977, the Association filed suit in the Chancery Division seeking both a declaration that the ERR plan was valid and specific performance of its terms. The Board named as sole defendant joined the Teachers' Pension and Annuity Fund (TPAF) as third-party defendant. The pleadings and arguments below demonstrate that of these parties, the Board and the Association are in fact aligned in interest, and that TPAF is the only opponent of the plan.

A plenary hearing was held on July 19, 1977. Two witnesses testified on behalf of TPAF Donald M. Overholser, a consulting actuary employed by the firm which had helped set up TPAF, and William J. Joseph, the Director of the Division of Pensions (part of the Department of the Treasury).

Overholser testified that if ERR plans were widely adopted and teachers induced to retire earlier than otherwise would have been the case, TPAF costs would be significantly increased. His firm estimated that a one-year reduction in the average age of retirement would necessitate an $11,865,000 increase in the State's annual contributions to the Fund. ³ He admitted that it was impossible to determine prospectively the precise effect this plan would have upon TPAF costs instead noting that only in the long run would the actuarial consequences become fully evident.

Director Joseph agreed with Overholser that a widespread trend toward early retirement would increase pension costs. He further opined that the ERR plan would likely have the effect of inducing early retirement, for otherwise it would not have been negotiated.

The trial judge held the plan to be valid. He concluded that the Board possessed the statutory authority to negotiate teachers' salaries and pay them in the form of deferred compensation. Moreover, he concluded that even if the ERR plan would adversely affect the funding of TPAF, the plan was permissible because the decreased costs to the school board resulting from the hiring of lower paid teachers would create a net savings in public expenditures.

The Appellate Division reversed. Fair Lawn Ed. Ass'n v. Fair Lawn Bd. of Ed., 161 N.J.Super. 67, 390 A.2d 1194 (App.Div.1978). That court, speaking through Judge Michels, held that "the Legislature has not vested (local school boards with) the power to establish supplemental retirement benefits plans or programs for its teachers." Id. at 73, 390 A.2d at 1196. Rather, the court noted, the Legislature had preempted the field by providing a comprehensive plan of retirement benefits "meticulous in detail." Id. Moreover, the Appellate Division concluded that the plan here at issue would impair the actuarial integrity of TPAF contrary to the mandate of Jacobs v. New Jersey Highway Auth., 54 N.J. 393, 255 A.2d 266 (1969). We granted the Association's petition for certification. We now affirm.

I

Local boards of education are creations of the State and, as such, may exercise only those powers granted to them by the Legislature either expressly or by necessary or fair implication. See, e. g., Wagner v. Mayor & Municipal Council of Newark, 24 N.J. 467, 474, 132 A.2d 794 (1957); Botkin v Borough of Westwood, 52 N.J.Super. 416, 427, 145 A.2d 618 (App.Div.), app. dism., 28 N.J. 218, 146 A.2d 121 (1958); Belvidere Bd. of Ed. v. Bosco, 138 N.J.Super. 368, 376, 351 A.2d 36 (Law Div.1975). We must therefore determine whether local boards have been delegated the authority to make payments to employees which are unrelated to services rendered for the sole purpose of inducing early retirement.

The trial court held that authorization for the plan could be found in two statutory provisions: N.J.S.A. 18A:27-4 (a local board may set the "terms and tenure of employment, * * * salaries and time and mode of payment thereof * * *") and N.J.S.A. 34:13A-5.3 (public employers and their employees may negotiate concerning "terms and conditions of employment"). We disagree.

N.J.S.A. 18A:27-4 does not confer upon local boards an unlimited power to negotiate all types of financial benefits for their teaching employees. Rather, the statute's use of the word "salaries" indicates that the Legislature intended to grant boards the power to set the "time and mode of payment" only of compensation which bears some relation to the rendition of past or present services. Under the ERR plan here at issue, payments are geared to age, not service. Moreover, the sums to which instructors are entitled decrease as length of service increases. It is thus clear that the parties to this contract intended to reward early retirement rather than the amount and quality of the work that a particular teacher had performed. As such, these payments are not authorized by N.J.S.A. 18A:27-4. Compare Maywood Educ. Ass'n v. Maywood Bd. of Ed., 131 N.J.Super. 551, 330 A.2d 636 (Ch.Div.1974); Camden v. Dicks, 135 N.J.Super. 559, 343 A.2d 808 (Law Div.1975); N.J. Civil Service Ass'n v. Mayor and City of Camden, 135 N.J.Super. 308, 343 A.2d 154 (Law Div.1975).

Nor are the payments called for by the ERR plan authorized by the Employer-Employee Relations Act, N.J.S.A. 34:13A-1 Et seq. That statute does not enlarge the areas in which the Board has been delegated the responsibility to act. Rather, it merely recognizes the right of public employee representatives to negotiate with the Board over matters which, in the absence of negotiation, could have been set unilaterally by the Board. See State Supervisory Employees, supra, 78 N.J. at 79, 393 A.2d 233. Cf. N.J. State PBA Local No. 42 v. N.J. State Health Benefits Comm., 153 N.J.Super. 152, 379 A.2d 285 (App.Div.1977). As such, the provisions of the Employer-Employee Relations Act do not operate to confer authority upon the Board to agree to compensation schemes which bear no relation to the amount and quality of the services which its teaching employees have rendered.

We therefore conclude that the Board has not been delegated the power to agree to or make the payments called for by the ERR plan here at issue. These payments, being unrelated to service, do not constitute "compensation" or "customary fringe benefits" with respect to which negotiation is permissible. See Bd. of Educ. of Englewood v. Englewood Teachers Ass'n, 64 N.J. 1, 6-7, 311 A.2d 729 (1973). Consequently, Article VI of the...