September 14, 2010

RE: Governor Unveils New Public Employee Pension and Benefits Reform Agenda

Dear Mayor:

As indicated in our letter of September 9 (http://www.njslom.org/letters/ml090910-Gov-reform.html), Governor Christie continued his new Reform Agenda campaign by unveiling his Public Employee Pension and Benefit Reform concepts at a Town Hall meeting in Gloucester Township earlier today.

The Governor proposes changes that would affect every public worker and retiree. Public employees would be required to contribute 30 percent of the cost of their health benefits, instead of a percentage (1.5%) of their salary. This change would be phased in over the next three or four years.

The Governor also plans to provide more options in health plans so employees can choose the plan that is right for each of them and their family. New Jersey currently offers only 3 health plans to employees compared to 269 offered to federal employees. Under Governor Christie’s reforms, employees would be given more choice to enroll in a basic plan, or pay more to get enhanced coverage and convenience.

The plan would eliminate the NJ DIRECT10 option. And, based on underlying costs, the plan would in some cases modify co-pays. For example: co-pays for primary, specialist and emergency room visits; deductibles for out-of-network providers; coverage percentile for Reasonable and Customary out-of-network services; in-network out-of-pocket maximums could be increased.

For retirees, the Christie Reform Plan would apply the majority of the plan design changes, and increases in options, described above to current and future retirees, including elimination of NJ DIRECT 10. Co-pay changes, in line with the increase in plan options, are subject to change for retirees but contribution levels will remain the same.

Members of the PERS and the TPAF would be required to contribute 8.5% of their salaries to the pension plans. This is the same percentage currently paid by police and fire service employees. Members of the PFRS, however, enjoy a much more generous retirement benefits than there PERS counterparts.

For members of the PERS and the TPAF, the Governor’s proposal would undo the N/55 pension increase granted in 2001 for many employees. It would also increase the retirement age to 65 and penalize workers who retire early. Past service would be credited at N/55. Future service would be credited at N/65.

For PERS and TPAF members with fewer than 25 years of service, the Governor’s plan includes:
Updating the Age for Retirement Eligibility by:

• Establishing the normal and early retirement age at 65
• Increasing eligibility for early retirement from 25 to 30 years of employment
• Adjusting the early retirement penalty to 3 percent for each year.

 
A Fairer Calculation of Retirement Benefits: This change will require the use of an employee’s average annual salary over the highest 5 years, rather than highest 3 years, when calculating their final retirement payout.

For PFRS & SPRS members with fewer than 25 years of service, the plan includes:
Updating the Age for “Special Retirement” Eligibility:

• Changes eligibility for special retirement from 65% with 25 years of service to 65% with 30 years and 60% with 25 years.

A Fairer Calculation of Retirement Benefits: This change will require the use of an employee’s average annual salary over the highest 3 years, rather than the highest year, when calculating their final retirement payout.

For all Current and Future Retirees, the Reform Agenda includes eliminating of all future annual future Cost of Living Adjustments.

The Governor also intends to adjust the anticipated rate of return used by the Pension Fund from 8.25% to 7.5% to reflect a more realistic picture of today’s investment climate; and move the amortization methodology from a percentage of pay schedule (which defers the retirement of any Unfunded Liability) to a level dollar amount each year in order to retire part of our Unfunded Liability earlier.

The Agenda would also address the growing abuse of accidental disability expenses, by better defining the standards for qualification. The Governor plans on making PFRS and SPRS earnings tests match those used in PERS and TPAF: specifically, PFRS and SPRS members would not be able to earn more than the difference between the disability allowance and the projected salary that they would have earned had they remained in police/firefighter employment.

The Governor’s plan makes no distinction between the extent of the unfunded liabilities with regards to local, as opposed to State, employees in the PERS and PFRS.

In anticipation of the Governor’s announcement, Senate President Sweeney issued a Press Release (http://www.njsendems.com/release.asp?rid=3552), indicating that the Senate would not consider these proposals until the State treasurer makes a payment into the pension system.

We will provide you with additional details and with links, once this information is posted on the Governor’s website. If you have any questions, don’t hesitate to call. You contact either Jon Moran at jmoran@njslom.com, Mike Cerra at mcerra@njslom.com or Lori Buckelew at lbuckelew@njslom.com.

Sept. 14, 2010 Pension Fact Sheet
Sept. 14, 2010 Benefit Fact Sheet

Very truly yours,

William G. Dressel, Jr.
Executive Director