NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-4460-07T14460-07T1
NEW JERSEY EDUCATION ASSOCIATION,
FRED AUG, JACQUI GREADINGTON,
MARTHA LIEBMAN, DIANE SWAIM, and
SUSAN WINTERMUTE,
Plaintiffs-Appellants,
v.
STATE OF NEW JERSEY, JOHN
McCORMAC, former Treasurer of
the State Of New Jersey,
Individually and Officially,
BRADLEY ABELOW, former Treasurer
of the State Of New Jersey,
Individually and Officially, THE
NEW JERSEY STATE SENATE, as a
body politic of the State of New
Jersey, and THE NEW JERSEY STATE
GENERAL ASSEMBLY, as a body
politic of the State of New Jersey,
Defendants-Respondents.
Argued December 15, 2009 - Decided
Before Judges Parrillo, Lihotz and Ashrafi.
On appeal from Superior Court of New Jersey, Law
Division, Mercer County, Docket No. L-81-04.
Kenneth I. Nowak argued the cause for appellants (Zazzali, Fagella, Nowak, Kleinbaum & Friedman, attorneys; Mr. Nowak, on the brief).
Theodore VanItallie argued the cause for respondents, State of New Jersey and the former Treasurers (Anne Milgram, Attorney General, attorney; Nancy Kaplen, Assistant Attorney General, of counsel; Richard Evert, Deputy Attorney General, on the brief).
Leon J. Sokol argued the cause for respondent, New Jersey Senate and New Jersey General Assembly (Sokol, Behot and Fiorenzo, attorneys; Mr. Sokol, of counsel; Steven Siegel, on the brief).
The opinion of the court was delivered by
PARRILLO, J.A.D.
Plaintiffs, the New Jersey Education Association (NJEA) and certain of its active and retired members, brought this action to redress shortfalls in the State's statutorily-mandated contributions to the Teachers' Pension and Annuity Fund (TPAF) for fiscal years (FY) 2004 through 2007. The Law Division ruled, as a matter of law, that the State was contractually obligated to plaintiffs for full funding of TPAF, but that, as a matter of fact, plaintiffs failed to show that the Legislature's funding gaps substantially impaired TPAF's ability to pay benefits for the next thirty years, so as to violate the Contract Clauses of the State and Federal constitutions. Accordingly, the Law Division dismissed the complaint, and plaintiffs now appeal. We affirm, finding that TPAF members, although entitled by law to the receipt of vested benefits upon retirement, possess no constitutionally-protected contract right to the particular level, manner or method of State funding provided in the statute.
Since its inception in 1919, TPAF has had the purpose of funding retirement benefits to public education workers. Upon retirement, benefits paid are based upon the retiree's final average salary and total years of service, rather than upon contribution or return on investments. See N.J.S.A. 18A:66-44.
TPAF is governed by a statutory scheme enacted in 1967 known as the "Teachers' Pension and Annuity Fund Law." L. 1967, c. 271; N.J.S.A. 18A:66-1 to -93, -3 (hereinafter TPAF Act). TPAF subsumed prior state pension funds for education workers and subjected them to this statutory regime. N.J.S.A. 18A:66-3 to -93. TPAF is governed by a seven-member board of trustees, N.J.S.A. 18A:66-56, with the Attorney General serving as its "legal adviser." N.J.S.A. 18A:66-57. Its "technical advisor" is an actuary selected by a committee consisting of the Treasurer, directors of three Treasury divisions (Pensions and Benefits, Investment, and the Office of Management and Budget), and members of the boards of trustees of TPAF and the other State pension systems. N.J.S.A. 18A:66-57; N.J.S.A. 43:4B-1. The day-to-day administration of TPAF is carried out by the Division of Pensions and Benefits. N.J.S.A. 18A:66-57. As of June 30, 2006, the date of the most recent data available in this matter, TPAF had 140,831 active contributing members. In FY 2006, TPAF paid pensions totaling $2,075,424,405 to 62,212 service retirees; $57,324,718 to 2,447 disability retirees; and $78,099,815 to 3,955 beneficiaries and dependents.
TPAF is comprised of eight separate operating funds. N.J.S.A. 18A:66-16. Its funding comes from three sources: (1) contributions from employee wages; (2) contributions from the general revenue of the State; and (3) the return earned by these contributions when invested in the fund. N.J.S.A. 18A:66-18. As to the former, for FY 2004-2007, active TPAF members were required to contribute 5% of their compensation to TPAF. The employee contribution rate may be reduced in the event TPAF has assets in excess of its liabilities. N.J.S.A. 18A:66-18(b).
The State's contributions, as employer, are credited to TPAF's main fund — the "contingent reserve" fund. N.J.S.A. 18A:66-18. The TPAF Act defines the amounts to be contributed and, as a basis for computing those amounts, mandates that they be determined annually, using the "tables [mortality, service, compensation or salary experience] recommended by the actuary which the board of trustees adopts," and the presumed "regular interest" rate of return on plan assets as set by the Treasurer. N.J.S.A. 18A:66-2(j), (i), -18.
For purposes of determining the State's contribution to the pension fund, the actuary is required to use the actuarial value of assets rather than the market value. This method is designed to minimize the effect of market volatility. The actuarial value is defined as:
The value of the assets to be used in the computation of the contributions provided for under this section for valuation periods shall be the value of the assets for the preceding valuation period increased by the regular interest rate, plus the net cash flow for the valuation period (the difference between the benefits and expenses paid by the system and the contributions to the system) increased by one half of the regular interest rate, plus 20% of the difference between this expected value and the full market value of the assets as of the end of the valuation period.
[N.J.S.A. 18A:66-18(b).]
There are three components to the State's annual statutory contribution: a "normal contribution"; an "accrued liability contribution"; and an "additional formula normal contribution" (AFNC). TPAF's actuary computes these three components on an annual basis. N.J.S.A. 18A:66-18.
The "normal contribution" or cost component represents the pension costs of the service rendered in a given valuation year by the active TPAF member, that is the pension benefits members will accrue due to their service during the upcoming fiscal year. N.J.S.A. 18A:66-18(a); L. 1994, c. 62,