Pension/Benefits Reform Legislation Passes Both Houses
In an action-packed legislative day with over 225 bills on the roster for a vote the State Legislature passed two critical pieces of legislation the State Budget (S-3000 (Kenny) A-5000 (Greenwald)) and pension and health benefits reform legislation S- 3004 (Scutari) A-5005 (Roberts) on June 21. Both of these bills are now on the Governor’s desk for action.
Both bills are important to all NJPSA members. NJPSA will provide detailed budget information to you early next week. The following report details recent activities in the areas of pension and benefits reform.
Since the Special Legislative Session that took place from last summer into the winter months pension and health benefits reform has been a hot topic in the halls of the State Legislature. A Joint Committee on Employee Benefits Reform met during the course of the Session to explore areas of reform and cost savings in this crucial area. On November 15 2006 the committee issued its report and recommendations for reform which included recommendations for proposed legislation:
- establishing a defined contribution program for legislators and non-career public officials;
- reforming the State Health Benefits Plan;
- addressing pension abuses including increased transparency for superintendent contracts broader pension forfeiture laws limitations on sick leave pay at retirement and the like;
- modifying current Teachers Pension and Annuity Fund (TPAF) and Public Employees’ Retirement System (PERS) rules contribution rates and eligibility requirements; and
- modifying existing laws and regulations concerning health benefits.
As previously reported NJPSA has been actively representing your interests throughout this yearlong process!
In December 2006 before such proposed legislation was acted upon by the Legislature Governor Corzine sent a letter to Senate President Dick Codey and Assembly Speaker Joe Roberts asking that these issues be held in abeyance while the Governor negotiated with the state employees’ unions including the Communication Workers of America (CWA). As a result no pension or health benefits legislation was enacted at that time.
On February 21 2007 the Governor announced that he had reached a tentative agreement with the CWA. He also announced that he had reached an agreement with the NJEA on issues of pension and health benefits reform after months of private negotiations. NJPSA was not a party to those negotiations.
The NJEA-Corzine agreement included an increase in the employee contribution rate for PERS and TPAF members to 5.5% the creation of a defined contribution plan to cover earnings in excess of the Social Security wage cap (currently $97500) for new hires only raising the retirement age to 60 for new hires and for TPAF members the creation of school employees only healthcare commission and the replacement of the Traditional Plan for school employees with a successor plan with equivalent coverage.
On February 22 2007 the Legislature passed S-17 which addressed other issues of employee pension and benefits reform. Governor Corzine signed this legislation now Public Laws of 2007 Chapter 92 on May 9 2007. NJPSA has previously reported on this statute; click here for more information on Chapter 92
The Cap on Pensionable Salary
In recent months NJPSA has lobbied hard to modify the agreement between the NJEA and the Corzine administration on the issue of the proposed cap on pensionable salary ($97500) for future school leaders. Although this change will NOT impact any of current NJPSA members it will impact any new members of the TPAF system after the legislation is signed into law.
Here is how the proposed cap will impact future school leaders; for any salary amount above the Social Security wage cap the excess will be placed in a defined contribution plan (similar to a 401(k) retirement savings plan). That employee will receive a defined benefit pension similar to the current TPAF system based on a final average salary equivalent to the Social Security wage cap in effect on the date of retirement. The Social Security wage cap is set annually by the federal government pursuant to the federal Insurance Contributions Act and generally increases about 3% per year. The current cap is $97500. For the excess salary amount the employee can choose to participate in the defined contribution plan and save 5.5 % of his/her annual salary towards retirement in that account. The state will contribute only 3% of that excess to the individual’s savings account.
NJPSA strongly opposes this change which will disproportionately impact our future members recruitment efforts to school leadership positions and ultimately the quality of our schools. Over the past few months NJPSA has presented our case on this issue to representatives in the Governor’s office the State Treasurer’s office the Senate and Assembly Majority office and to top legislative leaders in both parties.
S-3004 (Scutari) A-5005 (Roberts)
On Friday June 15 2007 pension reform legislation was introduced for public review. S-3004/A-5005 contains the pension and health benefits reform changes that were agreed to by the Corzine administration and the NJEA and CWA as noted above. The bill contains the proposed cap on pensionable salary that NJPSA opposes. It also contains significant changes to how school employees’ health benefits will be administered.
On Monday June 18 2007 the Senate Budget and Appropriations Committee considered S-3004/A-5005. NJPSA Director of Government Relations Debra Bradley and NJPSA Director of Retirement Services Richard Klockner were present and registered to testify on the pensionable salary cap. The Budget Chair Senator Bernard Kenny did not allow testimony on this legislation however and it was voted out of committee without public comment.
In the afternoon Bradley and Klockner opposed the cap before the Assembly Budget Committee. NJPSA was the only education group to testify on this legislation. To review their remarks click here.
Several legislators were interested in learning that only the State of Mississippi has a comparable cap on pensionable salary and that cap is set at $150000! Despite a spirited debate the bill was released from committee and sent to the full Legislature for a vote on June 21. A special thanks to Assemblyman Lou Greenwald for allowing this discussion on a hectic legislative day and to Assemblyman Joe Malone who once again stood up for principals and supervisors by clarifying on the record that our membership was NOT the subject of the recent State Commission of Investigation (SCI) report on pension abuses.
On June 21 the Senate and Assembly favorably voted on the legislation. The bill is on the Governor’s desk and is likely to be signed quickly.
The Bill Provisions
As passed the legislation will impact school employees as follows:
- effective July 1 2007 current (and future) TPAF members will begin contributing 5.5% of their compensation to the pension system;
- future TPAF and PERS members who join the system after July 1 2007 will be subject to a higher “early retirement” age of 60 not the age 55 requirement that exists for current pension system members. Additionally the penalties for early retirement will be modified for these future employees to 1% per year for each year the member lacks of being age 60 but is over age 55. Current penalties of 3% per year for early retirements between the age of 50 to 55 are maintained;
- future TPAF and PERS members who join the system after July 1 2007 will be subject to a cap on their pensionable salary linked to the annual calculation o
f the Social Security wage cap (currently $97500). The employee’s “excess” compensation will be the base for employer/employee contributions into the defined benefit system created in P.L. 2007 Chapter 92 with the state contributing 3% of the employee’s “excess” compensation in to the fund and the employee contributing 5.5% of the “excess” into the savings plan;
- future employees whose compensation exceeds the Social Security wage cap can elect to waive participation in the defined contribution plan but can choose to rejoin the plan at a future date with proper notice;
- future TPAF and PERS members whose compensation exceeds the Social Security wage cap will also experience different rules for life insurance and disability retirement if needed;
- current TPAF and PERS members who retire and then choose to reenroll into these systems will be subject to all the new provisions detailed above for future employees including the cap on pensionable salary and early retirement rules; AND
- current and future TPAF members will no longer be eligible for health coverage under the State Health Benefits Plan after 2008 or at the expiration of a collective agreement; rather these school employees will be eligible for health care plan options to be developed under the newly-created School Employee’ Health Benefits Program (SEHBP) pursuant to the School Employees’ Health Benefits Act. The SEHBP will provide health care benefits for active and retired education employees through PPOs and HMOs overseen by a new School Employees’ Health Benefits Commission effective July 1 2008. The SEHBP will develop health plans for school employees that are “equal to or excess” current service and benefit levels. These plan options will include a PPO that will be a successor plan to the Traditional Plan a PPO similar to NJ PLUS and HMOs with prescription drug benefits provided through the School Employee Prescription Drug Plan or a free-standing employer prescription drug plan or the prescription drug portion of the SEHBP plan. Retirees will similarly receive their prescription drug benefits through the School Retiree Prescription Drug Plan to be developed.
The implementation of this major shift in pension and health benefits law will require time and collaboration. NJPSA will keep you updated of all future developments. We will also continue to advocate on your behalf to ensure a secure retirement and comprehensive health care coverage for our membership.
Submitted by: Debra J. Bradley Esq. NJPSA Director of Government Relations.