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April 21, 2010

Re:      Division of Pension and Benefits Further Guidance on Pension Reforms

Dear Mayor:

Recently the Division of Pensions and Benefits sent Certifying Officers guidance on Frequently Asked Questions regarding P.L. 2010, c. 2.   A copy of the guidance letter has been posted to the League’s website under Pension Reforms.

This guidance letter addresses some of the questions raised on the implementation of changes to health benefits program.  The questions address the 1.5% contribution, multiple coverage, reduction in waiver amount and eligibility.

Below please find the Division of Pension and Benefits guidance on recurring questions we are receiving:

Q. Is the 1.5% of base pay contribution in addition to previously negotiated premium contributions?
A. No. The 1.5% contribution is intended to be a floor, or minimum, contribution that an employee will make toward medical and/or prescription drug plan coverage. If another contribution arrangement has been negotiated, the higher of the two will prevail. All employees must contribute an amount equivalent to at least 1.5% of the employee's base pay. Any premium contributions for dental or vision care are in addition to the 1.5% contribution.

Q. A local unit is currently in contract negotiations. Employees currently contribute 15% of dependent premium - how would 1.5% be applied?
A. If the 15% of dependent premium is greater than 1.5% of the employee's base salary, then no additional contribution is required of that employee.

Q. On what salary is the calculation of the 1.5% contribution based?
A. The calculation 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 of 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 would need to be adjusted accordingly.

Q. Our union contract expired last year and has not been settled. Will these employees be required to contribute the 1.5% contribution after May 21st?
A. If the contract is not ratified by May 21st, those employees will be required to pay the 1.5% contribution for health coverage. If the contract is ratified before May 21st, those employees will not be required to pay the 1.5% contribution until the expiration of the contract.

Q. Are elected officials who are eligible for health benefits coverage subject to the 1.5% contributions? If they waive their salary, do they still pay?
A. Yes, current elected or appointed officials will be subject to the 1.5% contribution. In addition, they do not need to meet the minimum work hours of 35 hours per week provided they remain in the elected or appointed position continuously* after May 21st. Officials who are elected or appointed after May 21st must work a minimum of 35 hours per week to be eligible for health benefit coverage. If an elected or appointed official waives their salary, their contribution is based on the annual base salary of the position they hold.
*Continuously means that the employee maintains eligible coverage at the employer at which he/she was employed on May 21st.

Q. Is the 1.5% contribution paid before or after taxes?
A. If the employer offers an Internal Revenue Code Section 125 plan, then the employer could deduct the contribution from the employees' salary on a pre-tax basis. Employers who do not offer a Section 125 plan should seek guidance from their financial advisor on the implications of offering a plan to their employees.

Q. Will non-SHBP/SEHBP participating employers be required to follow the 1.5% minimum contribution?
A. Yes. Chapter 2 stipulates that employees of non-participating employers must pay a minimum of 1.5% of annual base salary as a health benefits contribution.

Q. A labor contract expired last year and is still in negotiations. Will those employees be required the pay the 1.5% contribution?
A. If the contract is not ratified on or before May 21st, the covered employees will be required to contribute a minimum of 1.5% of their annual base salary effective May 22nd. If the contract is ratified on or before May 21st, the covered employees would not be subject to the minimum contribution until the expiration of that contract.

Q. A labor contract is set to expire prior to May 21st but we wish to extend the contract for one year. Will those employees be required the pay the 1.5% contribution?
A. The 1.5% withholding will not apply during the term of any extended contract that was agreed upon prior to May 22, 2010. It would apply to any extension agreed upon on or after May 22, 2010.

Q. We have employees who are not affiliated with a labor group. When do they start paying the 1.5% contribution?
A. Employees with no labor affiliation should begin the 1.5% contribution when the labor organization they are most closely aligned begins paying the contribution. For example, a police chief would begin paying the health contribution at the same time that the employees in the union representing rank and file officers begin paying the contribution. Where there is no clear relationship between the non-aligned employee and a labor organization, the non-aligned employee should begin paying the 1.5% minimum contribution in the first full payroll cycle after May 21st.

Q. Our organization does not have any employees represented by labor groups. When do they begin the health contribution?
A. If the employer has no employees represented by a labor organization, their employees would begin paying the contribution effective May 21st.

A complete copy of the FAQ is available at www.state.nj.us/treasury/pensions/chapter2-faq.shtml

We will continue to keep you up to date on the guidance received by the State on implementing the pension reforms.  If you have any questions or need additional information please contact Lori Buckelew at lbuckelew@njslom.com or 609-695-3481 x112.

Very truly yours,

William G. Dressel, Jr.


Executive Director

 

 

 

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