NOT FOR PUBLICATION WITHOUT THE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-3595-18
BARBARA ZILBERBERG,
Petitioner-Appellant,
v.
BOARD OF TRUSTEES,
TEACHERS' PENSION AND
ANNUITY FUND,
Respondent-Respondent.
__________________________
Argued May 5, 2021 – Decided June 22, 2021
Before Judges Fuentes, Whipple and Firko.
On appeal from the Board of Trustees of the Teachers'
Pension and Annuity Fund, Department of Treasury.
Stephen B. Hunter argued the cause for appellant
(Detzky Hunter & Defillippo, LLC, attorneys; Stephen
B. Hunter, of counsel and on the brief).
Amy Chung, Deputy Attorney General, argued the
cause for respondent (Gurbir S. Grewal, Attorney
General, attorney; Melissa H. Raksa, Assistant
Attorney General, of counsel; Juliana C. DeAngelis, on
the brief).
PER CURIAM
Barbara Zilberberg appeals from a March 11, 2019 final administrative
determination of the Board of Trustees (Board) of the Teachers' Pension and
Annuity Fund (TPAF), rejecting her request to waive a portion of interest
payment owed on her pension loan. We affirm.
In 2004, Zilberberg, a former school psychologist, applied for a pension
loan from TPAF and received $26,860 on March 31, 2004. TPAF is a tax-
qualified governmental plan under the Internal Revenue Code (IRC), which
regulates how members may borrow and repay money from TPAF. Pension
loans through TPAF are repaid by active employees through payroll deductions,
or by retirees through pension check deductions; IRC and statutory requirements
for repayment maintain TPAF's tax-qualified status. Zilberberg's loan
repayment schedule planned for forty-nine deduction payments of $607.22 each,
totaling $29,753.78, which included the calculated interest rate of 4% per year.
The Division of Pensions and Benefits (Division) administers the public
pension system, Burgos v. State, 222 N.J. 175, 184 (2015), which includes
TPAF, N.J.S.A. 18A:66-1 to -93. Ibid. The pension plans guarantee participants
certain benefits paid upon retirement and are based on the participant's salary
and time spent contributing to the pension system. Id. at 184-85. "The benefits
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2
are paid using revenues received from employee contributions, public employer
([such as] State) contributions, and investment returns." Id. at 185.
Zilberberg retired July 1, 2004, three months after she received her initial
loan payout. As of her retirement date, Zilberberg had made two of the forty-
nine loan payments via payroll deduction; the outstanding principal balance
after the two payments was then $25,973.83. Due to a mistake in billing,
Zilberberg's retirement payments were not deducted from her pension checks
past June 30, 2004. In other words, the Division did not deduct Zilberberg's
loan payments once she had retired. Zilberberg did not inquire about her loan
repayment status between 2004 and 2017.
In September 2017, the Division sent a letter to Zilberberg, notifying her
that an audit of pension loans had revealed the balance due. As a result of not
making loan payments or having them deducted from her pension checks,
Zilberberg still owed the outstanding balance of $25,973.83. However,
Zilberberg owed additional accrued interest of $21,227, for a total of $47,200.83
when combined with the loan principal. The Division informed Zilberberg in
the September 2017 letter that it would begin deducting loan payments from her
monthly retirement allowance to cover the repayment of principal and interest.
A-3595-18
3
Zilberberg contacted the Division after receiving the letter. She contended
the Division was not entitled to the additional accrued interest because of its
failure to recover the balance from her due to its improper billing. Later, she
offered to repay the remaining balance and five years of interest, at 4%, in a
lump sum payment if the Board would waive the interest accrued after the
original five-year term. The Board rejected her offer on November 1, 2018.
On January 14, 2019, Zilberberg appealed the Board's decision and
requested that the matter be transferred to the Office of Administrative Law. In
February, the Board determined that there were no material facts in dispute and
directed the Board Secretary to prepare and issue a final administrative
determination. On March 11, 2020, the Board issued its decision denying
Zilberberg's request to waive the accrued interest assessed on her outstanding
loan obligation. The decision noted that the State had entered into a closing
agreement with the Internal Revenue Service (IRS) under which outstanding
pension loans, plus interest, would be repaid to State-administered retirement
systems, including TPAF, to protect their tax-qualified status.1
1
On March 2, 2018, the State and the Commissioner of the IRS entered into a
closing agreement that required TPAF to repay outstanding pension loans,
including interest, to comply with statutory requirements and to maintain the
pension plans' tax-qualified status.
A-3595-18
4
This appeal followed.
I.
We "have 'a limited role' in the review of [administrative agency]
decisions." In re Stallworth, 208 N.J. 182, 194 (2011) (quoting Henry v.
Rahway State Prison, 81 N.J. 571, 579 (1980)). "[A] 'strong presumption of
reasonableness attaches to the actions of the administrative agencies.'" In re
Carroll, 339 N.J. Super. 429, 437 (App. Div. 2001) (quoting In re Vey, 272 N.J.
Super. 199, 205 (App. Div. 1993)). "In order to reverse an agency's judgment,
an appellate court must find the agency's decision to be 'arbitrary, capricious, or
unreasonable, or [] not supported by substantial credible evidence in the record
as a whole.'" Stallworth, 208 N.J. at 194 (alteration in original) (quoting Henry,
81 N.J. at 579).
To evaluate whether the Board's decision to deny Zilberberg's request for
a waiver of accrued interest – which Zilberberg states was based on the Board's
own inaction – was arbitrary, capricious, and unreasonable, we first examine the
decision in line with Stallworth, 208 N.J. at 194. Initially, we assess whether
the agency followed the law, or rather:
[W]hether the record contains substantial evidence to
support the findings on which the agency based its
action; and [] whether in applying the legislative
policies to the facts, the agency clearly erred in
A-3595-18
5
reaching a conclusion that could not reasonably have
been made on a showing of the relevant factors.
[Ibid. (quoting In re Carter, 191 N.J. 474, 482-83
(2007)).]
Here, the Division informed Zilberberg that the loan disbursement would
need to be repaid with interest for the duration of the loan. The I.R.C., § 72(p),
N.J.S.A. 18A:66-35, N.J.S.A. 18A:66-35.1, and N.J.S.A. 18A:66-63 controlled
the interest obligation, even though it was the Division's fault the payments were
not deducted from Zilberberg's pension checks.
Under the IRC when a pension loan is not repaid within five years of its
distribution, the loan funds are essentially converted to taxable income as a
"deemed distribution." I.R.C. § 72(p)(2)(B) sets forth an exception from a
taxable deemed distribution for a loan from a qualified employer plan, provided
the loan is repaid within five years. I.R.C. § 72(p)(1) ("If during any taxable
year a participant or beneficiary receives, directly or indirectly, any amount as
a loan from a qualified employer plan, such amount shall be treated as having
been received by such individual as a distribution under such plan."). In its
closing agreement with TPAF, the IRS repeats the requirements of I.R.C. §
72(p)(1). The agreement references that there were loan participants who did
not make any repayments to the loan since separation from employment.
A-3595-18
6
Although Zilberberg did not provide her loan agreement for our review, the
provisions of I.R.C. § 72(p)(1) were in effect before Zilberberg's loan
disbursement, and TPAF has a statutory duty to collect interest on distributions.
Repayment of interest to TPAF is crucial to maintain the pension plan's
tax-qualified status. If Zilberberg were to fail to pay the interest associated with
the loan, the pension system and its members could face challenges to their
status. In its November 13, 2018 letter to Zilberberg, the Board explained that
"all loans are subject to . . . I.R.C. [§] 72(p)." The letter also states that "[f]ailure
of the TPAF to comply with [I.R.C. §] 72(p) could result in plan disqualification,
meaning the TPAF could lose its tax-qualified status."
TPAF further explains that Zilberberg must repay the loan obligation with
applicable interest, citing IRS Revenue Procedure 2016-51, § 6.02(1). This
provision sets out the process for correcting failure to follow pension plan rules
– in this case, repayment within five years:
(1) Restoration of benefits. The correction method
should restore the plan to the position it would have
been in had the failure not occurred, including
restoration of current and former participants and
beneficiaries to the benefits and rights they would have
had if the failure had not occurred.
[IRS Rev. Proc. 2016-51, § 6.02(1).]
A-3595-18
7
N.J.S.A. 18A:66-35 details the statutory requirement for members'
repayment to the retirement system:
Any member who has at least [three] years of
service to his credit for which he has contributed as a
member may borrow from the retirement system, an
amount equal to not more than 50% of the amount of
his accumulated deductions, but not less than $50;
provided, that the amount so borrowed, together with
interest thereon, can be repaid by additional deductions
from compensation, not in excess of 25% of the
member's compensation, made at the same time
compensation is paid to the member. The amount so
borrowed, together with interest on any unpaid balance
thereof, shall be repaid to the retirement system in equal
installments by deduction from the compensation of the
member at the time the compensation is paid or in such
lump sum amount to repay the balance of the loan but
such installment shall be at least equal to the member's
rate of contribution to the retirement system and at least
sufficient to repay the amount borrowed with interest
thereon. Not more than two loans may be granted to
any member in any calendar year. Notwithstanding any
other law affecting the salary or compensation of any
person or persons to whom this article applies or shall
apply, the additional deductions required to repay the
loan shall be made.
The rate of interest for a loan requested by a
member . . . shall be 4% per annum on any unpaid
balance thereof. For a loan requested after the effective
date of that act, the rate of interest per annum shall be
a commercially reasonable rate as required by the [IRC]
to be determined by the State Treasurer on that effective
date, and on January 1 of each calendar year thereafter.
An administrative fee in an amount set by the State
Treasurer for each calendar year may be charged for
A-3595-18
8
any loan requested after the effective date . . . . Loans
shall be made to a member from his accumulated
deductions. The interest earned on such loans shall be
treated in the same manner as interest earned from
investments of the retirement system.
[N.J.S.A. 18A:66-35 (emphasis added).]
N.J.S.A. 18A:66-35.1 states, in pertinent part, that:
In the case of any member who retires without
paying the full amount so borrowed, the Division shall
deduct from the retirement benefit payments the same
monthly amount which was deducted from the
compensation of the member immediately preceding
retirement until the balance of the amount borrowed
together with the interest is repaid.
Notably, N.J.S.A. 18A:66-63 is especially applicable here:
If any change or error in records results in a
member or beneficiary receiving from the retirement
system more or less than he would have been entitled
to receive had the records been correct, then on
discovery of the error, the board of trustees shall correct
it and, so far as practicable, adjust the payments in such
a manner that the actuarial equivalent of the benefit to
which he was correctly entitled shall be paid.
[N.J.S.A. 18A:66-63 (emphasis added).]
Zilberberg seeks relief under the "so far as practicable" clause in N.J.S.A.
18A:66-63, arguing it is not practicable to adjust her payments upward.
However, compliance with IRC and IRS requirements is most practicable here,
and the Board's decision was not arbitrary, capricious, or unreasonable. The
A-3595-18
9
Board's decision comported with the IRS requirement that TPAF collect a sum
sufficient to repay the amount borrowed with interest thereon. IRS Rev. Proc.
2016-51, § 6.02(1). Zilberberg's unpaid loan installments militated adjustment
by statute. N.J.S.A. 18A:66-63. Zilberberg received more from the retirement
system than she was entitled to receive, and she is not permitted to benefit from
the Board's billing mistake. The statutes are clear that the Board must correct
its error and adjust Zilberberg's deductions to include the interest that will
maintain TPAF's tax-qualified status.
II.
Zilberberg's remaining arguments lack merit. Zilberberg argues that the
Board's deduction of the principal and balance from her pension payments is
barred by N.J.S.A. 2A:14-1, which addresses the statute of limitations for
actions in breach of contract. However, since the Board has not taken an action
at law against Zilberberg, no statute of limitations is implicated here. Zilberberg
further argues that the doctrine of laches applies to this case, foreclosing the
Board from collecting the loan amount plus interest because the Board sat "on
its rights for thirteen years."
The doctrine of laches applies when there is neglect for an unreasonable
and unexplained length of time, under circumstances permitting diligence, to do
A-3595-18
10
what in law should have been done. More specifically, it is inexcusable delay
in asserting a right. Lavin v. Bd. of Educ. of the City of Hackensack, 90 N.J.
145, 151 (1982) (quoting Hall v. Otterson, 52 N.J. Eq. 522, 535 (Ch. 1894)).
We see no reason to apply the doctrine of laches here. The Board fulfilled its
statutory duty to adjust Zilberberg's pension payments so it would be able to
recoup the loan payments plus interest. See N.J.S.A. 18A:66-35; IRS Rev. Proc.
2016-51, § 6.02(1). There was no civil collections action against Zilberberg, so
no equitable claim can be asserted against the Board to bar such an action.
Last, Zilberberg refers us to Sellers v. Board of Trustees of the Police and
Firemen's Retirement System, 399 N.J. Super. 51 (App. Div. 2008), to support
her argument that an equitable remedy is warranted. In Sellers, we recognized
that the Board has "the authority to apply equitable principals to provide a
remedy when justice so demands, provided the power is used rarely and
sparingly, and does no harm to the overall pension scheme." Id. at 62 (emphasis
added). Zilberberg's circumstances do not reach that standard. Rather, she has
benefited from an interest-free loan for thirteen years, and the Board must take
steps to ensure that her failure to pay interest does not harm the pension scheme.
Affirmed.
A-3595-18
11
BARBARA ZILBERBERG VS. BOARD OF TRUSTEES (TEACHERS' PENSION AND ANNUITY FUND)
Combined Opinion