newjerseynewsroom.com

Assembly Budget Committee to review proposal on Monday

BY TOM HESTER SR.

NEWJERSEYNEWSROOM.COM

In a new twist to the controversial plan to make 500,000 New Jersey public employees pay more for their pension and health insurance, Assembly Speaker Sheila Y. Oliver (D-Essex) announced on Tuesday that the lower house’s Budget Committee will meet Monday to consider the so-called compromise legislation to bring about the payment increases that has been introduced in the Senate.

Last week, Oliver said she would introduce her own version of the legislation but aides said on Tuesday that she will have the version sponsored by Senate President Stephen M. Sweeney (D-Gloucester) considered. The Sweeney version is a compromise struck with Gov. Chris Christie. Oliver’s aides stressed that they expect the proposal to be amended in the Assembly.

The Senate Budget and Appropriations Committee is set to meet Thursday on the legislation.

Oliver and Assemblyman Lou Greenwald (D-Camden), the Assembly Budget Committee chairman, consider the Monday hearing important enough that the scheduled Assembly voting session has been canceled.

“I continue to work to bring everyone together on a plan that protects taxpayers and worker rights, and I am yet not committing to putting the bill up for a full Assembly vote as we continue discussions,” Oliver said on Tuesday. “I expect the bill very well may be amended as we move forward, but we will get this important public debate started and begin the legislative process for the benefit of our taxpayers and public workers alike.”

Greenwald (D-Camden) said he intends to sponsor the bill in the Assembly.

“This compromise bill protects both taxpayers and future collective bargaining rights and is the right thing to do to steer New Jersey through this economic crisis,” Greenwald said. “Without question, this is an emotional debate, but the bottom line is we need to protect New Jersey taxpayers. This bill will be a major step toward accomplishing that goal.”

Sweeney has come under vocal criticism from public employee union leaders. On Tuesday, the senator issued what was described as a breakdown of what the legislation provides:

These changes will save local governments $35 million in the first year, and $497 million in the seventh year. They will save the State $72 million in the first year and $514 million in the seventh year.

In addition, these changes allow all pension systems to reach an 80 percent funding ratio, which is the Government Accountability Office standard for a healthy pension system. For example:

With these changes, the state Public Employees Retirement System will reach 80 percent funding before 2040. Without them, the PERS will be below 50 percent funding in 2040.

With these changes, The Police and Fire retirement fund will reach 80 percent funding in 2041. Without them, TPAF will be below 50 percent funding in 2041.

With these changes, PFRS Local would reach 80 percent funding immediately and stay well funded. Without them, PFRS Local would fall to approximately 60 percent funding by 2041.

Without these changes, New Jersey’s pension funds may run dry by 2018.

Additional sacrifice by employees is required:

PERS: additional 1 percent employee contribution immediately; additional 1 percent phased in over 7 years (total of 2 percent increase). The governor’s original proposal called for an immediate 3 percent increase for these employees.

TPAF: additional 1 percent immediately; additional 1 percent phased in over 7 years (total of 2 percent increase). The governor’s original proposal called for an immediate 3 percent increase for these employees.

SPRS: additional 1.5 percent immediately

PFRS: additional 1.5 percent immediately

JRS: additional 9 percent employee contribution, phased in over 7 years

Automatic annual retirement COLAs for all pension plans are eliminated. However, they can be restored by new pension management boards when fund reaches “target fund ratio”, or on an ad hoc basis.

For new PERS and TPAF employees, the retirement age is raised to 65 years, with early retirement penalties adjusted accordingly. Thirty years will be required for early retirement for those new employees. Current employees would not be affected by this change.

For new PFRS employees, regular pension would be 65 percent of salary at 30 years, 60 percent at 25 years. Current law is 65 percent of salary at 25 years, but current employees would not be affected by this change.

Note that the governor’s original proposal made similar changes to current employees, and also reduced the pension calculation for current PERS and TPAF employees to 65 percent.

The state would no longer be able to skip its required pension payments. The bill contains language providing a new contractual right to employees for the state to make its actuarially-required payment.

The contractual right will include the 1/7 per year phase-in. From that point on it could not be altered.

If the state doesn’t make its payment, employees will be able to sue and have grounds in court to force the state to make payments.

A healthy pension fund will allow employees more of a role in pension governance. Politics will be removed from financial decisions.

Each pension fund will have a new 8- or 10-member governance committee. It will contain an equal number of employee and employer representatives.

Impasses will be resolved through a form of superconciliation.

Unions will directly select employee representatives. This will allow unions currently unrepresented on the state pension boards, such as the Fraternal Order of Police and Professional Firefighters Association, to be represented.

In any year where the pension fund is at or above the “target funded ratio” (defined in a subsequent bullet), the committee will be authorized to:

Hire their own actuaries and consultants

Determine N/X for future accruals

Determine employee contribution rates

Determine formula for calculation of final average salary

Determine retirement age

Determine normal and early retirement ages/benefits

Determine disability benefits

Determine whether a COLA shall be provided to retirees in years during which the system is above the TFR. The committee would be able to revise how a COLA is calculated

The committee would be precluded from making any change that the pension system actuary determines will place the fund back below the TFR within the following 30 years.

In year one, the target fund ratio (TFR) = 75 percent and TFR will increase over 7 years until reaching 80 percent.

PFRS Local, SPRS, and PERS Local will all have the option of adopting the new governance system immediately, as they will all have a greater than 75 percent funded ratio when the law goes into effect.

This new system creates an incentive to make smart funding decisions. Irresponsible decisions mean lost control of the board and the ability to provide a COLA or restore reductions made pursuant to this act.

HEALTH CARE

Current retirees will not be impacted. Current employees with 25 years of service on the effective date of the act will not be affected when they retire.

All government employees will pay a percent of premium for SHBP and non-SHBP plans. It would be phased in over four years, and include a sliding scale based upon income. The grid would not impact employees currently in a collective bargaining agreement, until that agreement expires.

The premium share would be “smoothed” for employees close to, but not yet at, 25 years of service. An employee with 24 years of service on the effective date of the act would only pay 1/5th of the required premium share in retirement; an employee with 23 years of service on the effective date would pay 2/5th of the required premium share in retirement; and so on.

Under this new grid, employees under the most-expensive family coverage would pay 5-6 percent of their salaries towards their health coverage. This matches the national average for workers with employer sponsored family coverage.

The requirement for use of the premium grid sunsets in four years after the effective date. For any contract that expires over the next four years, the subsequent contract will require use of the new premium grid. After that point, the premium grid could be altered through contract negotiations.

For SHBP and SEHBP, state-level joint employee-employer committees will be established.

The two committees will include half employee and half employer representation. Employer reps will be chosen by the Governor, and employee reps will be chosen directly by unions.

The boards will be responsible for designing health plans offered through the SHBP and SEHBP. They would work with participating insurers to develop the plans. This includes co-pays, deductibles, network, out-of-network reimbursement rates, etc. The committees could not rescind health coverage mandates, such as mammograms.

The committees would be required to work with insurers to develop at least 3 plans for each level of coverage (individual, family, and individual +1), differentiated by out of pocket costs to the employee.

The boards would be required to develop a health savings account, high-deductible plan. Entry into this plan would be totally optional for employees.

Out-of-pocket costs currently dictated in statute would be eliminated so that the board could develop these costs.

A form of super-conciliation would be used to solve impasses.

At the local level, if the employer is not participating in the SHBP/SEHBP, then the employer and employee could agree to a different premium share and out-of-pocket cost arrangement that results in the same level of savings as the statutory premium share formula and plan design changes. Savings would have to be certified by the state.

All local government employers would be required to participate in a Section 125 “cafeteria plan.” This will allow employees to make required premium payments for health care prior to withholding of taxes.

The state would be required to conduct an annual study of the risk impact of employers moving in and out of SHBP and private plans, long term sustainability of SHBP/SEHBP, and impact of the changes under the law.