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September 14, 2012

Re: “Base Salary” Litigation Update                                                                                               

Dear Mayor:

Public employee unions have a filed number of court cases regarding the calculation of employee health benefit contributions, pursuant to P.L. 2011, c. 78. This law requires public employees to contribute a percentage of their base salary towards the costs of their health benefits. That percentage is calculated using a sliding scale, which is based on the employee’s base salary and cost of coverage.  The calculation requires consideration of an employee’s base salary, the type of coverage (single, family, etc.), and the cost of coverage (premium).  For participants in the State Health Benefits Program, the “cost of coverage” is defined as the premium or periodic charges for medical and prescription plan coverage, but not for dental, vision or other health care. The costs of insurance for those other services are included for participants in any other health benefits plan. The legislation provides that “base salary” shall be used to determine what an employee earns for the purposes of determining the amount of health care contributions.

As you may know, there has been ongoing controversy regarding what constitutes “base salary” for the purpose of calculating medical benefit contributions.  The same issue existed with P.L. 2010, c. 2 (the predecessor to P.L. 2011, c. 78), which required a uniform 1.5% deduction of the employee’s base salary, as opposed to a sliding scale. The debate has centered on whether health benefit deductions should be taken from an employee’s pure “base salary” or the “base salary” reported for pension purposes. The pensionable salary includes forms of compensation such as longevity pay, educational incentives, night differential, and other similar earnings. The Division of Local Government Services (DLGS) and the Division of Pension and Benefits (DPB) previously issued a Local Finance Notice and published Frequently Asked Questions which directed employers to use the pensionable salary as the base salary. (LFN 2011-20R at http://www.state.nj.us/dca/divisions/dlgs/lfns/11/2011-20R.doc.)  Some unions have challenged this directive.

One of these challenges was recently decided in Passaic County Superior Court. The Honorable Anthony Graiziano, S.C.J., found that under the 2011 law, “base salary” should not include any economic incentives or additional amounts that might be included for pension purposes. An appeal is expected. This ruling is similar to a ruling arising out of the City of Paterson, wherein the Superior Court found that base salary under the 2010 law did not include additional items of compensation and thus was not based on an employee’s pensionable salary but base salary only. The Paterson case has been appealed to the Appellate Division, which has issued a stay of the Superior Court’s order, pending oral argument and its decision on the merits of the appeal. The League has been granted the right to intervene in this case, as an Amicus.

As always we will continue to monitor these cases and provide updates as they become available. In the interim, League Labor Relations Counsel, Brian Kronick, Esq., advises that municipalities should continue to comply with the requirements spelled out in LFN 2011-20R. We would, further, suggest that you review this with your own Labor Relations Attorney.

For more information, contact League Staff Attorney Matt Weng, Esq., at 609-695-3481, ext. 137 or mweng@njslom.com

Very truly yours,

William G. Dressel, Jr.
Executive Director

 

 

 

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