In Susan Seago v. Board of Trustees, Teachers’ Pension and Annuity Fund (A-9-23/087786) (May 22, 2024), the Supreme Court of New Jersey held that the Board of Trustees of the Teachers’ Pension and Annuity Fund (TPAF Board) acted arbitrarily, capriciously, and unreasonably when it denied petitioner Susan Seago’s application for an interfund transfer from her expired Public Employees’ Retirement System (PERS) account to her active Teachers’ Pension and Annuity Fund (TPAF) account.
Facts of Seago v. Board of Trustees, Teachers’ Pension and Annuity Fund
The Edison Township Board of Education (Edison BOE) hired Susan Seago as a paraprofessional in 2004, and she became a member of PERS that same year. At the beginning of the 2017-2018 school year, Seago resigned from her position as a paraprofessional and became employed as a teacher by the Edison BOE. By that time, her PERS account had reached “Tier 1” membership status and had vested.
On July 6, 2017, Seago filled out an “Application for Interfund Transfer” to transfer her PERS credits and contributions to her new TPAF account. Pursuant to N.J.A.C. 17:3-7.1(b), a TPAF member seeking to effectuate an interfund transfer from a former PERS account must file an “Application for Interfund Transfer” before the member’s PERS account expires, which occurs two years from the date of the member’s last contribution.
According to the printed instructions on the application, Seago and the Edison BOE were required to complete different portions of the application. Seago completed and signed her section and sent the application to the Edison BOE. Although the Edison BOE enrolled Seago as a TPAF member in September 2017, it did not complete its portion of Seago’s interfund transfer application at that time.
In early March 2019, the Department of the Treasury, Division of Pensions and Benefits (Division) notified Seago that she had not contributed to her PERS account since June 30, 2017. Seago spoke with representatives of the Edison BOE’s human resources department, who assured her that all she needed to do to effectuate her interfund transfer request was to complete “the top portion” of the application, as she had already done. On June 30, 2019, Seago’s membership in PERS ceased pursuant to N.J.S.A. 43:15A-7(e), which provides that membership in PERS “shall cease if [the member] shall discontinue [their] service for more than two consecutive years.”
At that time, and unbeknownst to Seago, the Edison BOE had still not completed its portion of Seago’s interfund transfer application. On August 31, 2020, the Edison BOE realized that it failed to send Seago’s interfund transfer application to the Division on time. The Edison BOE attempted to rectify the situation by completing its portion of the application and submitting it to the Division that same day. Along with the application, the Edison BOE sent a letter admitting its mistake. The Division informed Seago and the Edison BOE that, despite the Edison BOE’s conceded error, Seago’s application for interfund transfer could not be processed because her PERS account had expired.
The Edison BOE challenged the denial of Seago’s interfund transfer application. The TPAF Board again denied the interfund transfer request, and the Appellate Division affirmed.
NJ Supreme Court’s Decision in Seago v. Board of Trustees, Teachers’ Pension and Annuity Fund
The New Jersey Supreme Court reversed. It held that the TPAF Board acted arbitrarily, capriciously, and unreasonably when it denied Seago’s interfund transfer application and directed the TPAF Board to grant Seago’s interfund transfer application as if it were timely filed.
“Under the unique facts of this case, we conclude that equity requires that the TPAF Board grant Seago’s interfund transfer application,” the Court wrote. “Seago’s reasonable and good- faith attempts to ensure that her interfund transfer application was timely filed, coupled with the absence of apparent harm to the pension fund, necessitate this outcome.”
In reaching its decision, the New Jersey Supreme Court acknowledged that equitable principles are rarely applied against governmental entities. However, the Court also noted that it has held that the principle of equitable estoppel “may be invoked” against a governmental entity “where interests of justice, morality and common fairness clearly dictate that course.” Gruber v. Mayor & Twp. Comm. of Raritan, 39 N.J. 1, 13 (1962).
The New Jersey went on to consider several factors, as outlined by the Appellate Division in Sellers v. Board of Trustees, PFRS, 399 N.J. Super. 51 (App. Div. 2008), to determine whether to apply equitable principles in this case. The factors include: “whether the government failed to ‘turn square corners’”; whether the pension member “acted in good faith and reasonably”; the harm a member will suffer; the harm to the pension scheme; and any other relevant factors in the interest of fairness.
In finding that the equitable principles outlined in Sellers applied, the New Jersey Supreme Court found it “evident” that the TPAF Board did not “turn square corners” when considering Seago’s interfund transfer application in light of the reasons provided for the delayed submission. In support, it cited that the TPAF Board did not reasonably and adequately consider the Edison BOE’s admitted responsibility and how the Guidebook, application, and regulations led to the late filing of Seago’s interfund transfer application, through no fault of Seago’s.
The New Jersey Supreme Court also concluded that Seago acted in good faith and took reasonable steps to attempt to ensure that her interfund transfer application was filed. As noted by the Court, Seago completed her portion of the application timely and reasonably believed, based on reassurances by her employer coupled with the instructions in the Guidebook and on the application itself, that it was the Edison BOE’s responsibility to complete and submit her application.
Additionally, the Court determined that Seago would suffer significant harm from the denial of her interfund transfer application. Because she will be unable to transfer her PERS “Tier 1” membership status, she would have to wait five additional years to retire and would ultimately receive a lower monthly pension allowance. Finally, the New Jersey Supreme Court emphasized that it did not hold that it is the employer’s responsibility to file an interfund transfer application on a member’s behalf, or that a member will be entitled to an interfund transfer in every case in which a former employer fails to timely complete an interfund transfer application on the member’s behalf. Rather, under the specific circumstances of the case, it found that as a matter of equity the TPAF Board must grant Seago’s interfund transfer application as if it were timely filed.