                                NOT FOR PUBLICATION WITHOUT THE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.




                                                         SUPERIOR COURT OF NEW JERSEY
                                                         APPELLATE DIVISION
                                                         DOCKET NO. A-4501-17T2

DR. ELIZABETH A. NASTUS,

          Petitioner-Appellant,

v.

BOARD OF TRUSTEES, TEACHERS'
PENSION AND ANNUITY FUND,

     Respondent-Respondent.
_______________________________

                    Argued July 8, 2019 – Decided July 12, 2019

                    Before Judges Yannotti and Haas.

                    On appeal from the Board of Trustees of the Teachers'
                    Pension and Annuity Fund, Agency Docket No. 1-10-
                    150545.

                    Beth Lynn Finkelstein argued the cause for appellant.

                    Jeffrey D. Padgett, Deputy Attorney General, argued
                    the cause for respondent (Gurbir S. Grewal, Attorney
                    General, attorney; Melissa H. Raksa, Assistant
                    Attorney General, of counsel; Jeffrey D. Padgett, on the
                    brief).

PER CURIAM
      Petitioner Dr. Elizabeth Nastus appeals from the final administrative

decision of the Board of Trustees of the Teachers' Pension and Annuity Fund

(Board) determining that she was not entitled to pension credit for all of the

annual salary and cumulative, merit-based salary increases she earned during

the years she was employed by her district as a superintendent under a sharing-

agreement with neighboring districts. We reverse.

      The material facts are not in dispute. In 2002, the Clinton Township

Board of Education (Clinton) appointed petitioner as its superintendent . At

some point during her tenure, Clinton entered into a superintendent-sharing

arrangement with the Lebanon Borough Board of Education (Lebanon). Under

this arrangement, Clinton agreed to have petitioner provide superintendent

services to Lebanon as part of a series of "government consolidation and shared

services" initiatives developed by the New Jersey Legislature. See N.J. Ass'n

of Sch. Bus. Officials v. Davy, 409 N.J. Super. 467, 472-73 (App. Div. 2009);

see also N.J.S.A. 18A:17-24.1 (permitting the boards of education of two or

more school districts to share the same superintendent). In June 2007, Clinton

and petitioner entered into an amended employment contract that stated she

would be paid an additional $17,236 in annual salary for performing these shared

duties during the 2007-2008 school year.


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                                       2
      In July 2008, petitioner left Clinton and became the superintendent for the

Delaware Regional High School District (Delaware Valley). In 2010, Delaware

Valley agreed to provide shared-superintendent services to the nearby

Frenchtown School District (Frenchtown). Pursuant to an amended employment

contract, Delaware Valley agreed to pay petitioner $10,000 each year for

performing these shared duties as part of her annual salary.

      Petitioner's Delaware Valley contract also provided that she would earn a

3% automatic salary increase, plus a possible 2% merit-based salary increase

each year. Delaware Valley granted the merit-based salary increase to petitioner

for the years at issue in this appeal. The annual merit-based increases were

added onto petitioner's annual salary, including her salary for performing

shared-superintendent services, and all her other raises. In other words, the

merit-based salary increases were "cumulative and permanent increase[s] in

salary [and were] unlike a one-time bonus payment."

      Petitioner retired in July 2013 after twenty-eight years of combined

service as a teacher and superintendent. The Board initially gave petitioner

pension credit for all of the compensation she earned while employed by Clinton

and Delaware Valley, including the salary she was paid for performing shared-




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                                       3
superintendent services, and the merit-based salary increases she received from

Delaware Valley.

      The Board's determination was based upon the governing statute on

creditable pension compensation, N.J.S.A. 18A:66-2(d)(1). In pertinent part,

that statute defines "compensation" as

            the contractual salary, for services as a teacher [1] as
            defined in this article, which is in accordance with
            established salary policies of the 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 or
            additional remuneration for performing temporary or
            extracurricular duties beyond the regular school day or
            the regular school year.

Based upon N.J.S.A. 18A:66-2(d)(1), the Board determined that petitioner was

entitled to a monthly pension benefit of $6935.53, which was calculated on the

basis of her three highest salary years: $190,815.96 in 2007-2008; $203,104.95

in 2010-2011; and $206,062.90 in 2011-2012.

      About a year later, however, the Board changed its mind and ruled that

the compensation petitioner "received as a result of both the Clinton . . . and the

Delaware Valley . . . Shared Services agreements [was] a form of 'Extra



1
 A superintendent like petitioner is included within the definition of "teacher."
N.J.S.A. 18A:66-2(p).
                                                                           A-4501-17T2
                                         4
Compensation' [that was] not eligible as creditable compensation for pension

. . . purposes." In altering its position, the Board relied on a regulation it had

promulgated, N.J.A.C. 17:3-4.1, which narrowed the statutory definition of

"compensation" used in N.J.S.A. 18A:66-2(d)(1) to exclude what the Board

deemed to be "extra compensation." As used in the Board's regulation, the term

"extra compensation" included "[p]ay for extra work, duty or service beyond the

normal work day, work year for the position, or normal duty assignment[,]"

N.J.A.C. 17:3-4.1(a)(1)(ii); "bonuses[,]" N.J.A.C. 17:3-4.1(a)(1)(iii); and

"[c]ompensation paid for additional services performed during a normal duty

assignment, which are not included in base salary."              N.J.A.C. 17:3-

4.1(a)(1)(xix).

      The Board ruled that the annual salary Clinton and Delaware Valley paid

petitioner for performing shared-superintendent duties for Lebanon and

Frenchtown, respectively, was not creditable compensation because the Board

deemed these contractual services to be "extra work" not included in her "base

salary." The Board also found that the 2% cumulative, merit-based salary

increases petitioner annually earned at Delaware Valley were actually "bonuses"

that also could not be included in the compensation used to calculate her

pension. Thus, the Board also excluded these "bonuses," together with the


                                                                          A-4501-17T2
                                        5
excess portion of the automatic 3% increases attributable to the share -services

portion of her salary at Delaware Valley, from the pension calculation.

      As a result of these exclusions, the Board recalculated petitioner's three

highest salary years to be $180,250 for 2007-2008; $185,657.50 for 2010-2011;

and $191,227.23 for 2011-2012. The Board also reduced petitioner's monthly

pension benefit to $6440.23, which was $495.30 less than the Board originally

granted her.

      Petitioner appealed the Board's determination and the matter was

transmitted to the Office of Administrative Law as a contested case. Petitioner

moved for summary disposition. On February 2, 2018, the Administrative Law

Judge (ALJ) issued her initial decision. After stating her factual findings and

discussing the law, the ALJ recommended that petitioner receive pension credit

for all of the compensation she earned for Clinton and Delaware Valley,

including her salary for performing shared-superintendent services in both

districts, and the merit-based salary increases she earned while working for

Delaware Valley.

      The Board filed exceptions to the initial decision and, on May 3, 2018, it

rendered a final decision rejecting the ALJ's conclusions of law. Relying on the

more narrow definition of "compensation" set forth in its regulation, N.J.A.C.


                                                                          A-4501-17T2
                                       6
17:3-4.1, the Board determined that petitioner was not entitled to the pension

credit for the salary she earned performing shared-superintendent duties or for

her merit-based salary increases. This appeal followed.

      On appeal, petitioner argues that the Board misapplied N.J.S.A. 18A:66-

2(d)(1), the statute that governs the issue of whether additional compensation is

subject to pension credit. In response, the Board contends that we should defer

to its administrative expertise, and maintains that it correctly applied its

implementing regulation, N.J.A.C. 17:3-4.1.

      Our role in reviewing an administrative agency's final decision is limited.

In re Stallworth, 208 N.J. 182, 194 (2011). Thus, we will only reverse the

agency's action if it was "arbitrary, capricious, or unreasonable, or [] not

supported by substantial credible evidence in the record as a whole." Ibid.

(alteration in original) (quoting Henry v. Rahway State Prison, 81 N.J. 571, 579-

80 (1980)).

      Here, the agency resolved the matter by summary decision pursuant to

N.J.A.C. 1:1-12.5. "Because an agency's determination on summary decision is

a legal determination, our review is de novo." L.A. v. Bd. of Educ. of City of

Trenton, 221 N.J. 192, 204 (2015). In conducting this de novo review, we are

"not bound by [the] agency's interpretation of a statute or its determination of a


                                                                          A-4501-17T2
                                        7
strictly legal issue[.]" Ardan v. Bd. of Review, 444 N.J. Super. 576, 584 (App.

Div. 2016) (second alteration in original) (quoting Lavezzi v. State, 219 N.J.

163, 172 (2014)).     In addition, while we give deference to an agency's

interpretation of its governing statutory scheme, ibid., we are mindful of the

well-settled rule that "[a]dministrative regulations cannot alter the terms of a

legislative enactment nor can they frustrate the policy embodied in [a] statute."

N.J. Ass'n of Realtors v. N.J. Dep't of Envtl. Prot., 367 N.J. Super. 154, 159-60

(App. Div. 2004) (alterations in original) (quoting In re Freshwater Wetlands

Prot. Act Rules, N.J.A.C. 7:7A-1.1 et seq., 238 N.J. Super. 516, 526 (App. Div.

1989)).

      Applying these principles, we are constrained to reverse the Board's

determination that petitioner was not entitled to pension credit for the

compensation she earned for her shared-superintendent duties and for her merit-

based salary increases.

      The starting point for our analysis is N.J.S.A. 18A:66-2(d)(1).           As

discussed above, that statute plainly provides that compensation is creditable for

pension purposes if it is "contractual salary" paid by the employer "in

accordance with [its] established salary policies." N.J.S.A. 18A:66-2(d)(1).

However, creditable compensation does "not include individual salary


                                                                          A-4501-17T2
                                        8
adjustments which are granted primarily in anticipation of the member's

retirement    or   additional   remuneration    for   performing    temporary     or

extracurricular duties beyond the regular school day or the regular school year."

Ibid.

        Applying that statutory definition, it is clear that all of the compensation

Clinton and Delaware Valley paid petitioner during the three years in question,

including the monies she earned performing shared-superintendent duties and

her merit-based annual salary increases, was creditable for pension purposes.

Petitioner's contracts with Clinton and Delaware Valley specified the sums she

would earn for performing these duties and, because these two districts'

obligations to make these payments were specifically set forth in the contracts,

the payments each district made to her were plainly made "in accordance with

[the] established salary policies" of her employers. Ibid.

        None of petitioner's shared-superintendent services were "temporary" or

"extracurricular" in nature; indeed, they continued throughout the school years

in question. Ibid. In addition, nothing in this record indicates that any of the

payments, including the salary increases that petitioner earned based on merit

under her Delaware Valley contract, were "granted primarily in anticipation of

[her] retirement[.]" Ibid. Under these circumstances, all of this compensation


                                                                            A-4501-17T2
                                          9
should have been included in the Board's calculation of petitioner's monthly

pension benefit.

      The Board based its contrary decision on N.J.A.C. 17:3-4.1(a), which

purports to limit a member's compensation to his or her "base salary," which the

Board determined only included the compensation petitioner earned for the

superintendent duties she performed for Clinton and Delaware Valley, and not

for the shared services these two employers required her to perform for Lebanon

and Frenchtown. The Board also found that any additional monies petitioner

received for discharging her responsibilities to the latter two districts was "extra

pay for extra work" and, thus, outside the definition of creditable compensation

under N.J.A.C. 17:3-4.1(a)(ii). Finally, the Board pointed to N.J.A.C. 17:3-

4(a)(iii) to exclude the merit-based salary increases petitioner received from

Delaware Valley from her pension benefit calculation.

      The flaw in the Board's reasoning on this legal issue is obvious. Unlike

N.J.A.C. 17:3-4.1(a), N.J.S.A. 18A:66-2(d)(1) does not limit the term

"contractual salary" to a member's "base salary," and does not exclude "bonuses"

from the pension calculation. Instead, all contractual payments set forth in a

member's employment agreement including, as here, a member's work under a




                                                                            A-4501-17T2
                                        10
shared-services arrangement and salary increases earned through merit,

constitute creditable compensation.

      In Siri v. Board of Trustees of the Teachers' Pension & Annuity Fund, 262

N.J. Super. 147 (App. Div. 1993), we interpreted the same statute and a similar

provision of the same regulation. We held:

            The statute prevails over the regulation. "[I]n the
            execution of its rule-making power a state agency may
            not go beyond declared statutory policy." In re Increase
            in Fees by N.J. St. Bd. of Dentistry, 166 N.J. Super.
            219, 233 (App. Div. 1979) [rev’d on other grounds, 84
            N.J. 582 (1980)]. "Administrative regulations, of
            course, cannot alter the terms of a legislative enactment
            or frustrate the policy embodied in the statute." N.J.
            State Chamb. Commerce v. N.J. Elec. Law Enforce.
            Comm., 82 N.J. 57, 82 (1980).

            [Id. at 152 (first alteration in original).]

We again follow our decision in Siri here and conclude, as a matter of law, that

the salary Clinton and Delaware Valley paid petitioner under her contracts for

shared-superintendent services, including the merit-based salary increases she

earned while working for Delaware Valley, were creditable for pension purposes

under N.J.S.A. 18A:66-2(d)(1), irrespective of the Board's more limited

regulatory definition of "compensation" under its regulation.

      Moreover, we are also satisfied that even if the Board's regulation could

be considered, petitioner would still be entitled to have her pension calculated

                                                                        A-4501-17T2
                                        11
on the basis of these payments. Clinton and Delaware Valley required petitioner

to provide the shared-superintendent duties to Lebanon and Frenchtown,

respectively. This was not "extra work" or "additional services performed

during a normal duty assignment." Rather, petitioner's obligations were part and

parcel of the normal contractual duties the two districts assigned her during her

regular work day and work year. Thus, neither N.J.A.C. 17:3-4.1(a)(1)(ii) nor

(xix) is applicable to petitioner's circumstances.

      In addition, the annual 2% merit-based salary increases petitioner earned

from Delaware Valley each year cannot reasonably be characterized as

"bonuses" and excluded from her creditable compensation under N.J.A.C. 17:3-

4.1(a)(1)(iii). It is undisputed that these salary increases were cumulative with

petitioner's salary and with her previous automatic and merit-based salary

increases under her contract. Thus, these were not one-time "bonus" payments

made in addition to, but not included in, petitioner's regular salary as mandated

by her employment contracts with the districts. Therefore, even considering the

Board's regulation, we are satisfied that these payments should have been

included in the calculation of petitioner's pension benefit.

      In so ruling, we reject the Board's contention that "[t]his matter is

essentially controlled by" our decision in Francois v. Board of Trustees, 415 N.J.


                                                                          A-4501-17T2
                                       12
Super. 335 (App. Div. 2010), because that case is readily distinguishable from

the matter at hand. In Francois, the petitioner was an employee of the New

Jersey Economic Development Authority (NJEDA), and served on a "mobility

assignment" for a two-year period as director of the real estate department of the

Port Authority of New York and New Jersey (Port Authority). Id. at 338. The

petitioner earned approximately $30,000 more working almost exclusively for

the Port Authority during this period than he had at the NJEDA, and the Port

Authority funded his entire salary. Id. at 341. At the end of the two years, the

petitioner retired from the NJEDA, and continued to work at the Port Authority.

Id. at 343-44.

      Under these circumstances, we held that the $30,000 the petitioner

received over and above his regular NJEDA salary was not creditable for

pension purposes. Id. at 356-58. We reasoned that the Port Authority position

was not covered by a New Jersey pension program, and we determined that "it

[was] clear that limitations must be imposed upon practices which might

artificially boost pension benefits or be inconsistent with the employer's

payment of 'compensation.'" Id. at 357. Nevertheless, we ruled that based upon

the equity of the situation, where the two employers told the petitioner his time

at the Port Authority would count toward his pension, the lesser salary he would


                                                                          A-4501-17T2
                                       13
have received had he remained at the NJEDA for these two years was creditable.

Id. at 356-58.

      The factual circumstances in Francois are in no way similar to those

presented here. In the present case, petitioner was employed first by Clinton,

and later by Delaware Valley. It was these two employers who contracted with

Lebanon and Frenchtown, respectively, to provide shared-superintendent

services. Thus, petitioner never changed employers; she remained under the

control and supervision of Clinton and Delaware Valley. Petitioner remained in

the same pension system when providing shared services to the other districts,

and was paid the salary she and her employers agreed upon in her employment

contracts. As already noted, there is no indication that either petitioner or her

employers entered into the shared services agreements with the neighboring

districts to artificially boost petitioner's salary for pension purposes. Therefore,

the Francois decision is simply inapplicable to the case at hand.

      In sum, petitioner's entire salaries, including the contractual payments she

received while assigned by her employers to perform shared-superintendent

duties, and her merit-based cumulative salary increases while working for

Delaware Valley, were creditable for pension purposes under the clear terms of

N.J.S.A. 18A:66-2(d)(1).      Accordingly, we reverse the Board's contrary


                                                                            A-4501-17T2
                                        14
determination and remand so that the Board may reinstate petitioner's pension

at the original amount, retroactive to the date it was incorrectly reduced.

      Reversed and remanded. We do not retain jurisdiction.




                                                                          A-4501-17T2
                                       15
