Governor Signs Pension and Benefit Legislation into Law June 28

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The Governor signed legislation A-4133/S-2959 (Greenwald/Sweeney) which makes dramatic changes to pension and health benefit costs for public school employees and other state workers June 28. The legislation eliminates the right of public employees to negotiate health benefits through collective bargaining and requires premium sharing by employees on a sliding scale based upon income. The legislation also increases pension contributions by one percent plus additional sevenths for each year following enactment of the bill. In addition the bill eliminates cost of living adjustments for current and future retirees. The legislation is effective immediately.

The bill which has been called the anti collective bargaining bill remains largely the same as originally proposed except for elimination of a provision that would have banned out-of-state healthcare for in-state residents except in certain circumstances.

Health Benefit Changes

Called “the deepest cut in state and local costs in memory” by the New York Times the bill will require over the next four years that employees pay up to 35% of their healthcare premiums based upon their income. The contribution amount is phased in over a period of four years after the end of the current collective bargaining agreement.

The Senate Majority Office released a chart last week which details the percentage that employees will pay based on their income threshold (broken into $5000 increments). The chart is broken into family single and single plus one contribution scenarios. The actual amount that employees will pay will fluctuate based upon the cost of the insurance plan they currently have [i.e. School Employees Health Benefits Plan (SEHBP) or a local choice]. Under the legislation the State is required to develop lower cost alternatives to the current state health benefits plan although this will take time to implement.

The legislation does contain a sunset in regard to mandatory health benefit premium payments which allows groups to collectively bargain benefits after 2014 or after three years of paying the ramped up statutory percentage of premium (as outlined in the chart) whichever is later.

Out of State Health Care

Thanks to an amendment in the Assembly on June 24 which was approved by the Senate on June 27 the provision which precluded use of out-of-state health care was eliminated. Current employees and retirees in the School Employees Health Benefits Plan (SEHBP) or State Health Benefits Plan (SHBP) can continue to utilize out of state providers for health care regardless of where they live. The original bill precluded use of out of state providers if an individual lived in state for tertiary services (specialized care performed by specialists working in an inpatient or outpatient facility for special investigation and treatment of certain diseases). The excised provision only permitted out-of-state provider use for “medically necessary” tertiary health care services when there was no New Jersey provider reasonably available to treat the particular condition.

Health Benefits In Retirement

In addition the bill eliminates for those with less than 20 years of service free health benefits in retirement (currently upon attaining 25 years or more of service individuals qualify for free health benefits). Those with 20 years or more of service will continue to qualify for free health benefits upon retirement. Specifically the provision allows individuals with 20 or more years service credit in state pension systems on the effective date of the bill (the day Governor Christie signs it into law) to continue to earn the right to qualify to receive free medical benefits in retirement.

Pension Changes

Finally the bill seeks to increase pension contributions by one percent effective July 1 2011 and tacks on an additional seventh (approximately 0.143) every year for seven years (e.g. Year 1 – 6.643% Year 2 – 6.786% Year 3 – 6.929% Year 4 – 7.072% Year 5 – 7.215% Year 6 – 7.358% Year 7 – 7.5%). The amount by year seven will top off at 7.5%.

Changes are also made to the governance of each retirement fund which includes the establishment of appointed not elected boards to address funding levels and future changes to the respective pension systems.

Moreover the bill eliminates cost of living adjustments for current and future retirees until the respective fund in this case the Teachers’ Pension and Annuity Fund (TPAF) reaches 80 percent funding and the new board established under the bill agrees to reinstate COLA. COLA is currently based on 60 percent of the Consumer Price Index and becomes operative for a retiree two years after retirement. COLA provides a needed pension adjustment for retirees over time. It seeks to ensure that the purchasing power of a pension is not eroded by inflation.

Further the bill creates a new tier of the pension formula for new members of the pension systems who join their respective funds after the effective date of the legislation. This tier will include an increase in the retirement age to age 65 and makes other changes in the retirement formula for new members only.

Finally the State once again pledges to increase its pension contributions to legally required levels.

It is effective immediately.

NJPSA Government Relations Director Debra Bradley and NJPSA Director of Retirement Services Richard Klockner testified in opposition to throughout the legislative process.

The Signing

The Governor signed the bill June 28 in a special ceremony at the War Memorial joined by Senate President Stephen Sweeney (D-3). Also joining the governor in support were Lt. Gov. Kim Guadagno state Senate Minority Leader Tom Kean Jr. (R-21) of Westfield Assembly Minority Leader Alex DeCroce (R-26) of Parsippany state Sen. Joe Kyrillos (R-13) of Middletown Assemblyman Declan O'Scanlon (R-12) of Little Silver Hoboken Mayor Dawn Zimmer Orange Mayor Eldridge Hawkins Jr. Camden Mayor Dana Redd Perth Amboy Mayor Wilda Diaz (four Democrats in a row) Assemblyman Gary Chiusano (R-24) of Franklin and numerous recognizable Republican mayors. of West Deptford.

“When no one would stand up for this when no one else stood out and had the politicial courage to say this needed to be done he had the courage five years ago to come forward with ideas” Christie said in specific recognition of Sweeney.

“I am a Johnny Come Lately in this fight compared to the Senate Presdient” the governor added. “He stood his ground. He made the compromises he needed to make but he never compromised his political principles. That is an act of political courage. When you look back people will conclude… Senator Sweeney was able to erode just a little bit the cynicism people have about people in public life.”

But other legislative leaders were far from laudatory of the event citing what they see as a crushing defeat for public sector labor and collective bargaining rights and a governor in the throes of heady political designs.

“Governor Christie’s union busting bill signing today represents a dark day for New Jersey” said Assemblyman Joe Cryan (D-20) of Union Twp. “Today the majority of Democrats in the General Assembly are forced to sit idly by again while the Governor reaps the benefits of his divide and conquer strategy to achieve national prominence at the expense of New Jersey’s residents.”