June 29, 2011
Re: Guidance on Implementation on Pension and Health Benefit Reforms
The Division of Pensions and Benefits has released initial implementation guidance on the pensions, State Health Benefits Program (SHBP) and School Employees’ Health Benefits Program (SEHBP) elements of the law on its website at www.nj.gov/treasury/pensions/reform-2011.shtml. Important implementation details on the employee health benefit premium sharing is posted on the Pensions website FAQ page at www.nj.gov/treasury/pensions/reform-hb-qa.shtml. The Pensions site contains links to the law and Certifying Officer Letters that will be issued over the coming weeks. The site will up updated regularly.
Highlights of the Notices:
- The initial pension contribution increase will take effect with the first payroll check to be paid on or after October 1, 2011. For PERS employees it is 1% and for PFRS employees it is 1.5%
- The PERS contribution rate will increase 0.14% each year with the first payroll in July, for the next 7 years, until the 7.5% contribution rate is reached in July 2018.
- A new PERS Tier 5 membership is created for employees enrolled in PERS on or after June 28, 2011. Tier 5 employees will have a retirement age of 65 years and early retirement will be available to members with at least 30 years of creditable service.
- A new PFRS Tier 3 membership is created for employees enrolled in PFRS on or after June 28, 2011. The benefit calculation for Tier 3 employees changed to 60% of final compensation for 25 years of service plus 1 percent of final compensation for each year of creditable service over 25 years but not to exceed 30 years. The maximum Tier 3 benefit is therefore 65% of final compensation.
- Cost of Living Adjustments (COLA) are suspended for all current and future retirees in all retirement systems. No further COLA increases will be granted, however, the provision does not reduce any benefit for COLA increases that were made in prior years. COLAs can be reactivated by the pension committees when they become established and when the retirement system’s 30 year “projected funded level” does not indicate that the fund will fall below the “target fund level.” Reactivation of the COLA is to be given priority consideration.
Health Benefit Issues
- All new employees hired on or after June 28, 2011 shall contribute at the highest level (year 4).
- The calculation for health care premium cost sharing is based on the employee’s base contractual salary. In most instances, that means the salary on which pension contributions are based. However, for employees hired after July 2007 for whom pensionable salary is limited to the salary on which Social Security contributions are based, the employee’s total base salary would be used.
- As an employee receives salary increases during the year, the amount of contribution will be adjusted upwards accordingly.
- If a collective bargaining contract was not ratified prior to June 28, 2011, those employees will be required to contribute towards health benefits in accordance with the premium cost sharing of S-2937.
- For employees in the SHBP, current plans will stay in effect until such time the State Health Benefits Design Committee is formed, meet and decide upon plan design changes. New plans are anticipated to be available during the Open Enrollment in the Fall of 2011 with an effective date of coverage of January 1, 2012.
Over the next few weeks, the Division of Local Government Services will be issuing supplemental guidance for local units that are not members of the SHBP, to address differences between the state plans and local options and circumstances.
As a reminder, we are offering two seminars to quickly orient you on implementing the new pensions and health benefits law. The seminar panelists are Florence Sheppard, Acting Director, Division of Pensions and Benefits and Marc Pfeiffer, Deputy Director, Division of Local Government Services. The seminars are scheduled for 8:30 a.m. to 12:00 noon on Friday, July 22, 2011 at the Meyner Reception Center at PNC Bank Arts Center and Wednesday, July 27, 2011 at the Conference Center at Mercer. The sessions will be identical. To register for either seminar visit: www.njslom.org/seminar-documents/2011-july-22-27-pensions.html.
For more information on the Pension and Health Benefit reforms please see our Dear Mayor letters of June 24th regarding the proposed Pension Changes and proposed Health Benefit Changes.
We will continue to provide you guidance as it becomes available. If you have any questions or need additional information on these reforms please contact Lori Buckelew at firstname.lastname@example.org or 609-695-3481 x112.
Very truly yours,
William G. Dressel, Jr.