The New Jersey Pension/Health Benefits Reform and its Impact on Public Employers
March 30, 2010
The New Jersey Legislature recently passed a series of bills, collectively known as the “Pension/Health Benefits Reform Legislation,” which will significantly impact public employers and employees alike. The Pension/Health Benefits Reform Legislation was introduced to address the rising cost of taxpayer funded pension and healthcare benefit costs. Our firm’s labor attorneys have reviewed the legislation and have prepared this summary to keep our clients and colleagues informed of the new developments. Please take note that these changes will take affect on or about May 21, 2010.
While we provide our summary of this legislation herein, we caution that many aspects of these bills are likely to be subject to various interpretations and/or litigation; the bills may also require regulations to further clarify their intent.
Senate Bill 2/Assembly Bill 2461 makes several changes that impact local government and school full-time public employees’ participation in the various pension programs. This legislation, which impacts only new employees (those hired on or after May 21, 2010, the effective date of this legislation):
- Limits enrollment in PERS and TPAF to:
- State employees working 35 hours per week.
- Local government and school employees working 32 hours per week.
- Employees working less than these hours prior to the law going into effect would continue in PERS or TPAF as long as they remain continuously employed.
- Part-time employees (as defined above) that no longer qualify for PERS and TPAF will be eligible for participation in the Defined Contribution Retirement Plan.
- Increases compensation requirement to $5,000 (currently $1,500) to join the Defined Contribution Retirement Program.
- Changes pension calculations to highest 5 years for PERS and TPAF (currently 3 years).
- Changes pension calculation to highest 3 years for PFRS and SPRS (currently 1 year).
- Designates one job for one pension for PERS and TPAF
- The position with the highest compensation would be used.
- Legislation would not affect an active employee who is enrolled in retirement system, has more than one job with more than one employer and continues to hold those positions without a break in service on the effective date of the bill.
- For Union Employees: All such employees (actives and new hires), after the bill’s effective date and after the expiration of any applicable binding collective negotiations agreement, shall pay 1.5% of their base salary towards the cost of health care coverage. This 1.5% contribution is in addition to any other health care contribution required by an applicable collective negotiations agreement.
- For Non-Union County and Municipal Employees: All such employees (actives and new hires), beginning on or about May 21, 2010, shall pay 1.5% of their base salary towards the cost of health care coverage. This 1.5% contribution is required to be made in addition to any other health care contribution already required of employees.
- For Non-Union State Employees: All such employees (actives and new hires), after the bill’s effective date, shall continue to pay 1.5% of base salary toward the cost of health care coverage, and in addition, shall pay an amount consistent with the terms of any collective negotiations agreement deemed applicable to the employees by the State Health Benefits Commission.
- For Non-Union Employees of an Independent State authority, board, commission, corporation, agency or organization: All such employees (actives and new hires), after the bill’s effective date, shall continue to pay 1.5% of base salary toward the cost of health care coverage, and in addition, shall pay an amount consistent with the terms of any collective negotiations agreement that the employer deems applicable to the employees.
- New Employees must pay at least 1.5% of their base pension toward health benefits when they retire.
- Requires that all changes made to SHBP and SEHBP for State employees also be applied to employees of local governments that are in the SHBP or SEHBP.
- Changes enrollment requirements for SHBP:
- For new employees, they must be:
- A full-time appointed or elected officer of the State or local government working more than 35 hours per week;
- A full-time employee of the state; or
- A full-time employee of a local or school government working more than 25 hours per week (governing body can make the minimum hour requirement higher than 25 hours)
- A full-time employee of a local or school government working more than 25 hours per week (governing body can make the minimum hour requirement higher than 25 hours)
- For active employees (on effective date of legislation), the employee must be:
- An appointed or elected officer;
- An employee of the state; or
- An employee of a local or state government on the effective date of the legislation and working continuously
- For new employees, they must be:
- Current financial incentive to waive SHBP coverage would be limited to 25% of the cost or $5,000, whichever is less.
- Limits sick leave payout to $15,000.
- Limits carry forward of vacation leave for only one successive year.
- Eliminates accidental and ordinary disability retirement for those enrolled in TPAF and PERS. These new employees will be eligible for disability insurance coverage under the Defined Contribution Retirement Program.