The Intricacies of Collecting Retirement Benefits While Continuing To Work In Law Enforcement

Most recently, the New Jersey Supreme Court heard argument and deceided the case of Hemsey v. Police and Firemen's Retirement System, A-15 September 2008 Term, on Certification from the Appellate Division, 393 NJ Super 254 (App. Div. 2007).

Hemsey was hired as a police officer by the City of Trenton in 1973.  In 1998, he retired and began receiving retirement benefits from PFRS.  Most of his employment with the city was spent as a police dispatcher.  In the same year that he retired, Hemsey entered into a consulting contract with the City of Trenton in which he worked directly under the Department's commanding officer and evaluated and worked with police and fire communication center personnel.  In 1999, Hemsey was appointed to the position of Director of Communications.  This was a newly created civilian position of employment.

Thereafter, PFRS requested information from the City regarding Hemsey'e employment and called Hemsey before the board to answer questions regarding the same.  In October 2002, PFRS informed Hemsey that he was required to re-enroll in the reitement system due to the fact that the functions he was performing as a retiree were essentially the same duties that he was performing prior to retirement.  As a result of the ruling, Hemsey's retirement benefits were cancelled  retroactively to January 1, 1999.  Hemsey appealed and the case was sent to the Office of Administrative Law as a contested case. 

The OAL concluded that the retirement benefits were properly cancelled, with  the Appellate Division affirming the decision.  However, the Supreme Court for the State of New Jersey reversed the Appellate Division and held that the retirement benefits were improperly cancelled because there was insufficient evidence to conclude that the duties of the two positions were the same and the position of civilian director of communications started six (6) months after Hemsey retired from employment with the police department. 

New Jersey law dictates that an individual who retires and then accepts employment in a PFRS covered position will lose retirement benefits and be required to re-enroll in PFRS, N.J.S.A. 43:16A-3.1.  Hemsey successfully argued that his new position of employment did not meet the statutory requirements that mandated re-enrollment in PFRS.  After a review of all of the credible evidence including testimony and the consulting contract itself, the Supreme Court agreed with Hemsey.

To simplify this case for retirees collecting a PFRS pension and still performing duties in a law enforcement capacity, you must be very careful that your new duties are not substantially the same or similar to the duties for which you are collecting the pension.  Furthermore, the duties associated with the new position of employment must not meet the statutory definition of a PFRS covered position.  Each case is different and will be evaluated on a case by case basis with a thorough evaluation of the facts.  Its always advisable to research and evaluate the facts before you accept re-employment.  It is much easier to draft an employment agreement that falls outside the statutory requirements of PFRS than to have your pension benefits cancelled, whereby you are left with no choice but to appeal the issue before the Office of Administrative Law. 

 

New PFRS Eligibility Requirements

In a letter dated December 15, 2008, Wendy Jamison, Secretary for the Police and Firemen's  Retirement System (PFRS),  explained that PFRS has recently adopted amendments to the New Jersey Administrative Code that addresses training requirements for Police Officers and Firefighters and the potential affect of the same to pension eligibility for some members of PFRS.

In her letter, Ms. Jamison explained that in order for a member of PFRS to meet the eligibility criteria for the pension system, he or she must work in a title that meets the definition of "police officer" or "firefighter" and meet specific minimal training requirements.  The training requirements for eligibility in PFRS is that each member of the retirement system must complete the basic training course for Police Officers as prescribed by the New Jersey Police Training Commission, and Firefighters must receive Firefighter 1 certification through the New Jersey Department of Community Affairs, Division of Fire Safety.  What is important to note is that N.J.A.C. 17:4-2.4 mandates that should pension members not pass and/or receive said certification within eighteen (18) months after the final adoption of the new regulation, they will be dis-enrolled and removed as an active member of PFRS.

In essence, PFRS members that do not have the required training as specified under N.J.A.C. 17:4-2.4, have until June 30, 2010, to complete the required training.  If any active member of the retirement system not be fully trained by July 1, 2010, they will be removed as an active member of PFRS

in closing, Ms. Jamison notes that certain federal, state, or county training may be substituted for the training required under N.J.A.C. 17:4-2.4, so long as the same is approved by the New Jersey Police Training Commission and the PFRS Board of Trustees.  However for Firefighters, no other training other than Firefighter 1 certification through the New Jersey Department of Community Affairs, Division of Fire Safety, will be accepted.  It should also be noted that while the letter is silent regarding Corrections Officers; common sense dictates that completion of the Corrections Officers Training Academy (COTA) will satisfy the requirements of N.J.A.C. 17:4-2.4.  However at this time we are contacting the Board of trustees to obtain clarification to ensure Corrections personnel are protected and covered.

The reason that we are bringing this to the attention of our readers is to ensure that all Public Safety Officers are made aware of the new regulation and that their training certification is up to date for purposes of qualifying as a member of the Police and Firemen's Retirement System.  PFRS is regarded as the "gem" of the public employment retirement systems in the State of New Jersey.  For obvious reasons, the retirement system garners great benefits for its membership in comparison to the other large public employment retirement systems provided by the state of New Jersey.  over the years, PFRS and the New Jersey State Legislature has been lobbied by administrators and non public safety officer groups to obtain membership in the retirement system.  With the passage of the new regulation, there should no longer be a question as to which employees have the right and ability to claim membership in PFRS.

Extension of Effective Date for New IRS Regulations

 After much concern regarding the new Treasury Regulations promulgated by the Internal Revenue Service (“IRS”) and their potential impact on members of government pension plans, the IRS and the Treasury intend to extend the date by which a governmental plan must comply with final regulations on distributions from a pension plan upon attainment of normal retirement age. Under the extension, the new Treasury Regulations will be effective for a governmental plan for plan years beginning on or after January 1, 2011.     

As described in two previous blog entries, the IRS modified Treasury Regulation §1.401(a)-1 to provide an exception to the rule that pension benefits be paid only after retirement by permitting a pension plan to commence payment of retirement benefits to a participant after the participant has attained normal retirement age even if the participant has not yet had a severance from employment with the employer maintaining the plan. 

 

The new regulations also require a pension plan’s normal retirement age to be an age that is not earlier than the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed.  In the case of a retirement plan where substantially all of the participants are qualified public safety officers, a normal retirement age of age 50 or later is deemed not be earlier than the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed. 

 

Notice 2007-69, which provided temporary relief for certain plans that may have to change their definitions of normal retirement age to satisfy the new regulations, indicated that the new regulations do not contain a safe harbor or other guidance with respect to a normal retirement age conditioned on the completion of a stated number of years of service.  The notice requested comments on whether and how a pension plan with a normal retirement age conditioned on the completion of a stated number of years of service satisfies the requirement in §1.401(a)-1 that a pension plan be maintained primarily to provide for the payment of definitely determinable benefits after retirement or attainment of normal retirement age and how such a plan satisfies the pre-ERISA vesting rules. 

 

Based upon this, in Notice 2008-98, the IRS indicated its intention to amend the new regulations to change the effective date for governmental plan to plan years beginning on or after January 1, 2011.  Moreover, the notice provided that government plan sponsors may rely on this notice with respect to extension until such time as the new regulations are so amended. 

 

Although the implementation of the new regulations has been delayed, it is critical to keep apprised of the comments regarding whether a pension plan with a normal retirement age conditioned on the completion of a stated number of years of service satisfies the new regulations. Clearly, the resolution of this issue could drastically impact many public safety officers not only in New Jersey, but across the country. Periodic updates to this website regarding these regulations will be posted as more information becomes available.    

New IRS Regulations and Impact on PFRS Retirement System

              Recently, there has been much concern over new Department of Treasury regulations promulgated by the Internal Revenue Service (“IRS”) and their effect upon State legislated pension systems for public employees. This entry summarizes the new regulations and their potential impact on the members of the Police and Firemen’s Retirement System (“PFRS”). After conducting research and for the reasons set forth in detail below, it our belief the new Treasury Regulations will not alter the ability of a PFRS member to retire under any existing PFRS law, including the special retirement provision allowing retirement prior to attaining the age of 50. 

 

By way of background, the New Jersey State PBA reported that the IRS adopted regulations that would prohibit any public safety officer in a state legislated pension system from retiring before the age of 50. As most public safety officers are aware, there is currently no minimum retirement age for a member of PFRS to qualify for a pension. In fact, all that is needed to qualify for a PFRS pension is twenty-five (25) years of service and retirement credits paid into the system. Specifically, N.J.S.A. 43:16A-11.1, entitled “Special Retirement; resignation with 25 years of creditable service; allowance; death benefit”, provides in pertinent part:

 

Should a member resign after having established 25 years of creditable service, he may elect “special retirement,” provided, that such election is communicated by such member to the retirement system by filing a written application, duly attested, stating at what time subsequent

to the execution and filing thereof he desires to be retired…

 

[N.J.S.A. 43:16A-11.1(a).]   

   

Treasury Regulation §1.401(a)-1 was recently modified. The modifications require qualified pension plans to revise the definition of normal retirement age to an age that is not earlier than the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed. In addition, the regulations provide that a normal retirement age of at least 62 is deemed to be not earlier than the typical retirement age for the industry in which the covered workforce is employed. Thus, a plan satisfies this provision if its normal retirement age is age 62, or if its normal retirement age is the later than age 62 or another specified date, such as the later of age 62 or the fifth anniversary of plan participation. This is known as the “safe harbor” provision. 

For retirement plans that set a retirement age between age 55 and 62, it is generally expected that the employer will make a good faith determination of the typical retirement age for the industry in which the covered workforce is employed. In most instances, the employer will be given deference in setting the retirement age. However, this assumes that the determination is reasonable under the facts and circumstances of the particular situation.

 

Alternatively, a normal retirement age that is lower than age 55 is presumed to be earlier than the earliest age that is reasonably representative of the typical retirement age for the industry of the relevant covered workforce absent facts and circumstances that demonstrate otherwise.  

 

Significantly, for our purposes, in the case of a retirement plan where substantially all of the participants in the plan are qualified public safety officers, a normal retirement age of age 50 or later is deemed not to be earlier than the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed.  Specifically, the new regulation will provide the following once in effect:

 

Age 50 safe harbor for qualified public safety employees. A normal retirement age under a plan that is age 50 or later is deemed to be not earlier than the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed if substantially all of the participants in the plan are qualified public safety employees (within the meaning of section 72(t)(10)(B)).

 

Under §72(t)(10)(B), a qualified public safety employee means any employee of a State or political subdivision of a State who provides police protection, firefighting services, or emergency medical services for any area within the jurisdiction of such State or political subdivision. The definition clearly encompasses the members of PFRS.

 

          Non-government plans are required to adopt these modifications for the first plan year beginning after June 30, 2008. Government plans, such as PFRS, are not subject to the new regulation until plan years beginning on or after January 1, 2009. For PFRS and other State plans, this would mean the regulation would not take effect until July 1, 2009. Consequently, members retiring in the short-term need not be concerned.

 

          It has become the concern of many labor organizations that these new regulations will preempt the “special retirement” provision of PFRS, which allows members to conceivably retire prior to attaining the age of 50. At this juncture, I am of the opinion that the regulations will not preempt the “special retirement” provision of the PFRS. Moreover, I do not believe these regulations will affect a PFRS member’s ability to retire after establishing twenty-five (25) years of creditable service, even though the member may not have reached the age of 50.     

    

          Under the wording of the regulations, a normal retirement age of 50 or above is required for a plan in which substantially all of the participants are qualified public safety officers/employees. In addition to the “special retirement” provision, N.J.S.A. 43:16A-5 states in pertinent part:

 

Any member in service who has attained age 55 years may retire on a service retirement allowance upon filing a written and duly executed application to the retirement system, setting forth at what time, not less than one month subsequent to the filing thereof, he desires to be retired. Any member in service who attains age 65 years shall be retired on a service retirement allowance forthwith on the first day of the next calendar month, except that a member hired prior to January 1, 1987 may remain a member of the system until the member attains age 68 years or 25 years of creditable service, whichever comes first.

[N.J.S.A. 43:16A-5(1).]

 

          It is our position that N.J.S.A. 43:16A-5 sets the normal retirement age for PFRS at 55 because this is when a member can apply and receive retirement benefits. In addition, the statute sets the mandatory retirement age at 65. Since the normal retirement age is 55, which satisfies the regulations requirements for plans covering qualified public safety officers, PFRS would remain unaffected by the new regulations because it is compliant with same. Furthermore, I believe the “special retirement” provision, which allows members to retire prior to attaining the age of 50 after obtaining twenty-five (25) years of service, is indeed just that, a “special” provision that falls outside of the purview of these regulations. These regulations address the normal retirement ages, whereas N.J.S.A. 43:16A-11.1 specifically deals with the special situation of a member establishing twenty-five (25) years of service. 

 

          Undoubtedly, many labor organizations across the State will be keeping a close watch upon these regulations. In fact, a letter authored by Frederick Beaver, Director of the State Department of Treasury, has been posted on the State PBA website. In this letter Mr. Beaver concurs with our conclusion that the regulations will not affect PFRS members’ retirement ability upon completion of twenty-five (25) years of service. 

 

          Our office will be keeping you up to date on this important topic. Periodic updates will be posted regarding the various issues surrounding these regulations as more information becomes available.                  

IRS Code Threatens to Raise Minimum Retirement Age to 50

 On its website, www.njspba.com, The New Jersey State PBA has reported that the Internal Revenue Service (IRS) has adopted regulations that would prohibit any public safety officer in a state legislated pension system from retiring before the age of 50. The regulation in its current form is slated to go into effect on January 1, 2009.

As all public safety officers throughout the State of New Jersey are aware, there is currently no minimum retirement age for a member of the Police and Firemen’s Retirement System to qualify for a pension. All that is needed to qualify for a PFRS pension is twenty five (25) years of service and retirement credits paid into the system. Based on the new regulations the State of New Jersey would be required to amend its pension laws or face the potential of being non compliant with the Federal tax code and regulations. The State PBA reports that this particular regulation has caught New Jersey politicians and the New Jersey Division of Pensions off guard and the State is not prepared to address the IRS regulations should they be enacted in 2009.

The New Jersey State PBA appears to have engaged in an extensive lobbying effort and has requested that the regulation be delayed indefinitely in order to seek a change in language impacting public safety employees. A formal request to delay the rule has already been made but the IRS has not yet acted upon it. 

The PBA goes on to further state that if the IRS rejects its request to delay the enactment of the regulation they will be seeking either federal legislation to overrule the IRS Regulation or a legal remedy challenging the regulations as a violation of PFRS member’s constitutional rights.

The Publishers of the New Jersey Public Safety Officers Law Blog are currently looking into this regulation and the legalities of the same. We will report more on this topic in the immediate future.