Pension & Benefits Package Signed Into Law March 22

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On Monday March 22 the full Assembly voted on several of pension and benefits bills S-2/A-2461 S-3/A-2460 and S-4/A-2459 within the pension and benefit reform package. The Governor signed the bills the same evening.

As detailed below the pension reform legislation generally affects only NEW employees (i.e. those hired after May 21 2010 (the effective date of all three bills)). However the health benefits reform legislation impacts current employees at the end of the current collective bargaining agreement or on May 21 2010 if no collective bargaining agreement is in effect. The legislation does not impact any current retirees.

The synopsis of each bill below provides information on the bill provisions and effective date of each piece of legislation.

P.L.2010 c.1 (A-2461/S-2) – Pension Reforms Proposed

A majority of proposed changes in P.L.2010 c.1 (A-2461/S-2) only apply to new employees (defined as school employees hired and enrolled in the Teachers Pension and Annuity Fund (TPAF) or Public Employees Retirement System (PERS) after May 21 2010 (the effective date of the bill)). That said the bill does impact current employees in two ways.

Non-forfeitable Right

Prior to enactment of this bill employees had a “non-forfeitable right” to receive benefits once they accumulated five (5) years of service. This meant that the pension benefits in place when the employee reached the five (5) year service mark could not be changed. This protection is a critical provision in our system of pension laws.

Eliminating this provision will open the door to the State to modify the retirement benefits that have been negotiated with public employees at any time. With the state’s track record of failing to fund the system and demonizing public employees for pensions they have legitimately earned this provision is a dangerous one for all members of public pension systems. Governor Chris Christie has announced his intention to seek further pension reforms.

However both the Senate and Assembly have expressed that this is the only pensions and benefit reform measures they are willing to consider. Legislation would be required to effectuate any changes.

Part Time Employees

P.L.2010 c.1 (A-2461/S-2) requires that all new employees must be full time employees to become members of the TPAF and/or Public Employees Retirement System (PERS). Full time is defined as 32 hours per week for school employees and 35 hours per week for state employees.

Part time employees working less than those mandatory thresholds ARE eligible for enrollment in the Defined Contribution Retirement Program a 401(K) type program IF their annual salary exceeds $5000. NO pension is available for employees who do not meet these eligibility criteria.

Current employees who leave the pension system and return after a break in service of more than two (2) years will be impacted by these changes. Please note that a board approved maternity leave is not considered a break in service.

Additional Changes for New Employees (those hired after May 21 2010)

The new law contains the following changes to the pension system for new employees:

Changes in Calculation of Retirement Formula
The law reduces the benefits formula for NEW members of TPAF and PERS from n/55 to n/60 an 8.3% decrease in their pensions from the current formula.

Additionally the law changes the calculation of Final Average Salary (FAS) for new members from an average of a member’s three highest years to an average of the member’s five highest years of salary. This change will translate to reduced pensions for future NJPSA members.

One Job for One Pension
The new public law provides that NEW members of the TPAF and PERS must select one position to base their pension on. This reform would eliminate the ability of employees to use multiple positions to increase their final pension package. Without amendment it will significantly limit current part-time employees from basing their pension upon a future position.

Mandatory State Funding
One positive note in the legislation is the requirement that the State beginning July 1 2011 make its full annual employer contributions to the TPAF and PERS systems. In light of current fiscal difficulties the State is given a phase-in option to pay this obligation over 7 years. NJPSA did express its concern about the extended nature of this repayment schedule during hearings on this bill package.

P.L.2010 c.2 (A-2460/S-3) -Health Benefit Reforms

P.L.2010 c.2 (A-2460/S-3) bypasses the existing collective bargaining process for ALL school employees regardless of whether they are in the state or local plan and makes the following changes:

  • ACTIVE employees in the School Employees Health Benefit Plan (SEHBP) and local plans will be required to contribute 1.5% of their salary “toward their benefits” upon the expiration of their current collective bargaining contract or the effective date of this bill (May 21 2010) where no contract is in place. These costs would be “on top” of any contributions folks make to their health benefits today.
  • New members of the pension system (those enrolled after the effective date of the enacted bill) would be required to pay 1.5% of their pensions upon retirement including cost of living adjustments toward the cost of their health insurance. Effectively this eliminates the option of premium-free medical benefits for future employees upon 25 years of service.
  • Eligibility criteria for SEHBP health benefits will be limited to full time employees defined as employees working a minimum of 25 hours a week.
  • The new law also eliminates dual coverage and the coordination of benefits between insurance plans under the SEHBP and the State Health Benefits Plan (SHBP) for those members who are entitled to coverage under more than one state plan.
  • Finally the new law mandates that any changes negotiated by state unions in the State Health Benefits Plan is imposed on school employees.

The new law is effective May 21 2010 or at the end of the existing collective bargaining agreement whichever is later.

P.L.2010 c.3 (A-2459/S-4) – Sick and Vacation Leave as well as TPAF/PERS Disability Retirement for NEW School Employees

P.L.2010 c.3 (A-2459 / S-4) caps sick leave payments at retirement for NEW board of education employees at $15000. The bill grandfathers any existing contract provisions as of the effective date of the legislation.

The new law also limits the carryover of vacation leave for new board of education employees to one year after the leave is accrued with exceptions for leave not used due to the declarations of a state emergency.

Further the new law replaces the ordinary and accidental disability program under TPAF and PERS with purchased private disability insurance for NEW employees. The law also adds a six month waiting period for benefits to begin.

The new law is effective May 21 2010 or at the end of an existing collective bargaining agreement whichever is later.