NJPSA Testifies Before the Joint Legislative Committee on Public Employee Benefits Reform At Clifton High School

Last night Debra Bradley NJPSA Director of Government Relations testified on your behalf before the Joint Legislative Committee on Public Employee Benefits Reform at Clifton High School. This Joint Committee is charged with seeking cost savings for the State in public employee pensions and benefits and addressing abuses of these systems. Keep visiting our website to update yourself on the issues discussed last night by NJPSA and other public employee stakeholders. You need to keep abreast of these issues and stay alert to future NJPSA Action Alerts in the pensions/benefits area. To preserve your benefits NJPSA needs your active support!

Below is the full testimony offered by NJPSA.

The New Jersey Principals and Supervisors Association wishes to thank the Joint Committee on Public Employee Benefits Reform for the opportunity to provide testimony on behalf of 7500 active and retired school principals and supervisors. The issue of public employee pensions and health benefits is of great concern to our members.

Since the establishment of the Teachers Pension and Annuity Fund in 1919 and its subsequent reorganization in 1955 the TPAF has enjoyed a long history of managing employee and employer pension contributions to provide secure retirement benefits to educators in New Jersey. Its tradition is based on financial security and stability through mandated contributions and wisely managed investments. Our members have come to rely on the New Jersey Retirement System as a secure vehicle to grow their yearly pension contributions to produce a secure retirement. They also have an expectation that New Jersey will honor its commitment to public employees.

Recent discussions have examined the structure of Defined Benefit Plans versus Defined Contribution Plans. We have no interest and will not support replacing the current defined benefits plan with a defined contribution structure for our members. Defined Benefit Plans continue to be the overwhelming principal plan design for public employee pensions. Recent estimates found ninety percent of state and local public employees nationwide participate in a defined benefit plan. The National Association of State Retirement Administrators has published some key facts regarding state and local government defined benefit retirement plans which include the following:

• Public Pension Plans are in Good Financial Condition – As a group state and local pension systems across the country have nearly 90 cents for each dollar they owe in liabilities. These assets are professionally managed and invested on a long-term basis using sound investment policies. $2.8 trillion in real assets held by these plans are an important source of liquidity and stability for the nation’s financial markets.
• The Bulk of Public Pension Funding is not Shouldered by Taxpayers. – On a national basis employer (taxpayer) contributions to state and local pension systems make up only one-fourth of all public pension revenue. Earnings from investments and employee contributions comprise the remainder. In 2004 investment earnings accounted for 77 percent of all public pension revenue while employer contributions were 15 percent.
• Public Retirement Plans Attract and Retain the Workforce That Provides Essential Public Services. – There are more than 20 million working and retired state and local government employees in the U.S. Active public employees comprise more than 10 percent of the nation’s workforce. Retention of experienced and trained personnel is critical to the continuous and reliable delivery of public services. This is especially true in the education field.
• State and Local Pension Plans are an Integral Component of National State and Local Economies. – Public plans distribute more than $130 billion annually (an amount greater than the total economic output of 22 states) in benefits to over 6 million retirees beneficiaries and the disabled. These payments are steady and continuous and provide a strong economic stimulus to local economies throughout the nation.
• State and Local Plans are Subject to Comprehensive Oversight. – While private sector plans are subject solely to federal regulation state and local government plans are creatures of state statute regulation and case law. State/local government plans must comply with a vast landscape of state and local requirements as well as industry accounting standards. These plans are accountable to the legislative and executive branches of the state; independent boards of trustees that include employee representatives and/or ex-officio publicly elected officials; and ultimately the taxpaying public.
• State and Local Pension Funds Earn Competitive Investment Returns. – For the 3- 5- and 10-year periods ending 12/31/05 public pension funds generated strong investment returns of 13.3% 5.1% and 8.6% closely tracking returns generated by corporate pension plans.

While defined benefit plans of public employees across the country differ slightly in terms of retirement age service contribution vesting and formula requirements the standard for determining benefits like New Jersey is based upon Years of Service x Formula Multiplier x Final Average Salary.

The New Jersey Principals and Supervisors Association does not support altering the current pension plan structure for new hires. We oppose a tiered system for the following reasons:

• The prospect of a secure pension and health benefits upon retirement continues to be a major factor in drawing highly qualified college graduates into the educational profession. Recent estimates continue to draw attention to the significant pay advantages similarly qualified college graduates receive in private sector professions.
• Other potential costs cannot be ignored. Testimony before this committee by the Actuary of the Teachers’ Pension Annuity Fund cautioned against closing the current TPAF system to new members at the risk of accelerating the amortization of the unfunded accrued liability and increasing employer contributions in a defined contribution plan.
• We are concerned that defined contribution plans may have very negative impacts upon employees in terms of longevity the potential for low investment returns and factors that lead to the depletion of personal accounts.

Public employee pensions and benefits in New Jersey have received much undue criticism of late. Reports that highlighted abuses and generous perks of a few individuals cast a cloud on all the thousands of dedicated public employees who seek a secure pension and health benefits after a career of public service. The New Jersey Principals and Supervisors Association will support changes that permanently end manipulation of the pension systems through boosting and tacking. Our organization also supports greater oversight by the Division of Pensions and Benefits to examine any forms of questionable compensation in determining retirement benefits.

Clearly the failure by the State to fully fund the pension system has compounded the current situation. History has shown that avoiding the state’s pension system contribution has been an attractive budget balancing tool by administration after administration. We commend the Legislature and Governor Corzine for enacting a budget that will provide
$1.2 billion into the New Jersey Retirement System this year. We urge a continuation of this effort. The State’s pension contribution the statutory contributions of employees and anticipated higher investment returns through the recent portfolio diversification should produce additional growth in assets and long-term stability for all parties involved.

Quality affordable health care will always be a major priority for employees and retirees. New Jersey can be proud of its role as a leading provider of comprehensive health coverage for public sector employees. A superior level of wellness should be the goal of every state in this nation.

Today active education employees negotiate health benefits individually with local school districts. Bargaining decisions dictate whether to negotiate for wages and/or benefits. Normally if a unit decides to place a priority on health benefits they must be willing to accept lower pay increases. Decisions about what is best for employees should be made at the local level. School boards still maintain the managerial prerogative to select the plan provider that meets the negotiated benefit level or enroll in the State Health Benefits Program to provide health benefits.

Our members are pleased to participate in the State Health Benefits Program. Created in 1961 the SHBP has remained true to its mission to deliver quality health care in an efficient and cost effective manner. Currently approximately 350000 employees and retirees expect the SHBP to remain true to its vision to be proactive in establishing the standard for top quality benefits through innovative approaches and a commitment to member satisfaction.

Since 1987 local employees who retire from school districts with 25 or more years of service or retire on disability receive State paid post retirement healthcare. Any reforms to the current health benefit program should not burden the employee and retiree.

Fortunately the State Health Benefits Program realizes overall favorable premium cost projections and below the industry benchmark rate hikes which benefit state and local employers employees and retirees. However the number of local employers leaving the State Health Benefits Program concerns us. In the past year employer withdrawals resulted in 16000 fewer covered persons in the program. Data indicates that those leaving take lower loss ratios out of the plan. Migration by public employers out of the State Health Benefits Program must be addressed to preserve its integrity and security. NJPSA supports some modifications to the SHBP to make it more responsive and competitive. We maintain that minor structural design changes would produce favorable cost savings.

The State Health Benefits Program must expand its efforts to promote the use of generic drugs. It must consider bulk purchasing of drugs. Incentives such as reducing the co-pay cost for the use of generic drugs would in itself lead to higher generic usage. Participants that use medication need education on this issue not legislation. NJPSA believes that the decision to use cheaper generic alternatives should be promoted but it is ultimately a medical decision between the patient and his/her doctor.

The use of mail-order should continue to be encouraged and promoted in SHBP publications and made more attractive through incentive-based co-pay differentials. Additionally efforts should be made to reduce the time it takes to process and receive prescriptions through the mail. Mail order wait time for newly filled prescriptions now requires 10 to 14 business days. If needed sooner priority shipping adds an additional $10 – $15 to the member’s cost.

The Benefits Review Task Force called attention to the medical plans provided in the State Health Benefits Plan and raised the issue of creating a Preferred Provider Organization (PPO). While we support the creation of a PPO with a nationwide network we oppose any attempt to end the Traditional Plan. The 2005 State Health Benefits Report indicated that approximately 78% of TPAF retirees select the Traditional Plan and 14% select NJ PLUS. There is a clear reason for that selection trend. The NJ PLUS out-of-network issues force out-of-state retirees to select the more expensive Traditional Plan. Outside of New Jersey the NJ PLUS network is limited to Florida and limited areas of New York and Pennsylvania. Once again to support cost savings through member selection we call for the creation of a plan with nation-wide access. The potential for savings is real. Division of Pensions statistics on New Jersey retirees living in other states show there are more than 18000 retirees residing in the five states of Pennsylvania North Carolina New York Virginia and South Carolina alone. Concerns regarding health status differentials and higher experience trends could be minimized by offering a medical plan with nationwide direct access to doctors without referrals. We believe many participants would seriously consider the less costly plan if educated on the benefits offered through a comprehensive user friendly Traditional Plan alternative.

NJPSA strongly opposes the elimination of the duplication of coverage feature. Health benefits are earned separately and independently and should not be limited as a result of dependent eligibility. Such a restriction amounts to a marriage penalty for an eligible employee/retiree and spouse. Elimination of the coordination of benefits provision for dual enrolled SHBP participants would result in a financial loss to the employee/retiree. It is extremely rare that alternate coverage is the basis for denial of secondary insurance. NJPSA would consider supporting the voluntary surrender of coverage in return for in-lieu-of benefit payments.

In closing as a representative of 7500 members in the New Jersey Retirement System the New Jersey Principals and Supervisors Association thanks you for your consideration of our views. We urge you to keep the promises made to public employees and retirees to continue the progress on funding state pension obligations to maintain the level of pensions and benefits that attract and retain career employees and to take action to halt abuses and preserve the integrity of the system. Thank you for listening to the stakeholders on the critical issues of pensions and health benefits for public employees and retirees in New Jersey.

Submitted by:
Debra J. Bradley Esq. NJPSA Director of Government Relations
Richard Klockner NJPSA Director of Retirement