Testimony of Bill Dressel, Executive Director
New Jersey State League of Municipalities
Before the Senate State Government, Wagering, Tourism and Historic Preservation Committee
February 18, 2010
Re: Pension Reform – S-2, S-3, S-4 and SCR-1
Mr. Chairman and Members of the Committee:
Thank you for allowing me to testify today. My name is Bill Dressel and I am the Executive Director of the New Jersey State League of Municipalities. The New Jersey League of Municipalities has expressed strong support for the vast majority of the provisions in the bi-partisan public employee pensions and health benefits reform bills before your committee today. As noted in the State Commission of Investigation Report: The Beat Goes On: Waste and Abuse in Local Government Employee Compensation and Benefits, the League has been on the forefront of benefit and pension reform for some time.
In 2006, in response to Governor Codey’s Benefit Review Task Force (EO #39), the League of Municipalities issued the “Correction of Pension Errors (COPE) Report”. The purpose of this report was to fill in the gaps of the Governor’s Task Force report and to offer workable solutions to the problem of skyrocketing pension and benefit costs. While some of the issues raised in the COPE report have been addressed by the Legislature some have not. We have attached a copy of the COPE report for your review.
At this time, the League has taken a general position of support of S-2, S-3, S-4 and SCR-1 as they are similar in nature. However, we believe for true pension reform, the final legislation should ensure consistent benefits provisions in ALL pension systems – PERS, TPAF and PFRS. For example, in S-2 the pension calculation has been changed to the highest 5 years for PERS and TPAF and 3 highest years for PFRS. PFRS is the most expensive pension system in New Jersey. In order to curb pension cost and have true reform we must address the most expensive portion of the municipality’s pension bill. The high cost of PFRS negatively impacts the property taxpayers of this State.
We ask that municipalities be held harmless with the legislative changes brought about in S-2, S-3, S-4 and SCR-1. We strongly believe that the final legislation must include language rendering the benefits not subject to the collective bargaining/arbitration process. This will provide relief for one of the highest mandated cost that municipalities have no control over and provide true property tax relief to our overburdened residents. All provisions should be immediate and effective for all participants – PERS, TPAF and PFRS. Having this in the final legislation prevents a challenge either through arbitration or subject to PERC. Further, it ensures that all the provisions are uniformly provided through out the State. Lastly, it saves local government the cost of bargaining over these concessions that the State is imposing.
On a more technical note, S- 2 repeals the benefit enhancement for PFRS, which permits PFRS members to retire with 75% maximum compensation if the retirement fund reaches 104% funding level. The PFRS after the passage of the bills will have a limit on the salary that can be part of the pension base. They place the limit at the Social Security taxable limit which is just now $106,800 but which will grow over time. This will cap the employer costs into the future. For the many PFRS members that earn over the $106,800 the remaining compensation will become part of the Defined Contribution Retirement Program (DCRP). Thus they will be in two systems and the employer will need to contribute to both. That should be corrected as they always have the private market open to them for a saving plan that would not require the employer to match. We suggest that PFRS members can put the remainder in the IRC 457 plan tax sheltered. That will serve them very much like the DCRP at no cost to the employer.
The League in concept agrees with the “one job for one pension” provisions in S-2. But we are concerned of the unintended negative consequences that it could have on shared services and ultimately the local taxpayers. State law limits certain municipal appointments to individuals holding State certifications such as certified Tax Collectors, Chief Financial Officers or Municipal Clerks. Consequently, there can be a high demand for a limited number of qualified applicants. Due to their size and characteristics, many smaller municipalities do not need these certified officials on a full time basis but rather on a part-time basis.
We thank you and commend Senators Sweeney, Kean, Scutari, O’Toole, Buono, Doherty and Whelan for the proposals put forward today and we will continue to work with all interested parties on reforming the Pension Systems.