The Local Take on the
Governor's Benefit Review
Task Force Recommendations
L. Mason Neely
Chair, League Pension and Health Benefits Committee
On May 25, 2005 Acting Governor Codey created a Benefit
Review Task Force by Executive Order #39. The Order directed
the Task Force to examine the current laws, regulations,
procedures and agreements governing the provisions of employee
benefits to state and local workers. On November 21, 2005,
the Benefit Review Task Force reported its findings to
Acting Governor Richard J. Codey. The Task Force did tremendous
work. However, we saw the need for a more thorough review
of the impact of pensions and benefits on local governments.
This report embodies that review and includes our own recommendations
for system reforms.
Executive Summary of League Report The League recognizes
that some elements are common, but there is a definite
and distinct difference between the cost of benefit structure
affecting local government and problems to be addressed
by the state government. The purpose of this report, submitted
by the League of Municipalities and its Affiliated Groups,
is to identify the situation and supplement the work performed
by the Governor’s Task Force. The process of supplementation
is twofold. It is to augment the report prepared by the
State Task Force and includes recommendations believed
to be part of a workable solution to deal with funding
- Governmental units at all levels should cease using funding
gimmicks and recognize a responsibility for sound funding
of contractual obligations. All of the pension systems
are classified as “mature system” and have
substantial assets. Through proper funding and structuring
of payments, the deficit can be eliminated.
- Corrections must be made to the Police and Fire Retirement
System to control costs. PFRS members receive a significant
pension replacement ratio (50 percent after 20 years,
65 percent after 25 years, 70 percent after 30 years of service
regardless of age) plus a majority also receive Social
Security benefits, a cost which is matched by their local
employer. PFRS is the most expensive local pension system
and corrective action must be implemented.
- When the “years of service” (n) over age 55
(n/55) was approved by the Legislature in 2001, specific
assets were earmarked to fully fund the benefit for PERS
and TPAF. The funding was known as the Benefit Enhancement
Fund. The accrued liability associated with n/55 was fully
funded at the time of adoption. The assets in the local
accounting of PERS for n/55 are still held in the Benefit
Enhancement Fund, but the assets allocated to fund the
state’s liability and TPAF have been reallocated
as a method of lowering the state’s contribution
on a temporary basis while increasing the overall accrued
liability to be funded at a future date.
- The eligibility threshold for enrollment in PERS and TPAF
should be increased to reflect the current economy and
be adjusted over time based upon the Consumer Price Index.
Those who qualify for enrollment while working part time
hours should receive prorated annual pension credit in
place of the full year’s credit currently granted.
Those who work part time, unless they are certified individuals
who work two or more part time jobs equal to one full
time job, should receive prorated credit based upon the
they work measured against what would be full time service.
- Proper enforcement of Administrative Rules and Regulations
by the Division of Pensions must be expected and supported.
Pension base should not include uniform pay; holiday
pay and other add ons in direct violation of rules.
- Funding for Health Benefits and Normal Pension Costs has
created an unfunded liability which confronts state and
local governments. Such has been referred to as a “structural
deficit,” which should be recognized by each unit
of government. Such classification would differentiate
between emergent problems by level of government and
long term funding issues. For example:
- The State of New Jersey is confronted with a very large
unfunded liability associated with post retirement health
benefit costs. Such is not the same for local governments.
- The State of New Jersey is confronted with a major cash
flow outlay to fund the Early Retirement Initiatives
provided to state employees for a temporary savings. Some local
governments and Boards of Education have the same issue.
The State of New Jersey is morally obligated to fund the
employer’s normal pension obligation and end the
use of gimmicks to mask the problem.
- Local governments face a long term funding deficit to be
addressed as part of the accrued liabilities for the
costly PFRS. The deficit for local government PERS is low compared
to the other systems.
- Local governments are confronted with a PFRS funding problem
resulting from legislative mandates which increased PFRS
benefits. Legislative action at the cost of local property
tax should stop.
- All levels of government are confronted with rapidly increasing
medical, drug and dental costs which must be contained
through a combination of legislative remedies and individual
responsibility. Caps, co-pays, Medicare refunds, generic
drug use and a moratorium on expanded benefits must be
part of plans.
- The state should not take on additional obligations without
establishing the appropriate reserves to fund the obligations
or determine a revenue source to meet the pay-as-you-go
- Demographic realization mandates that eligibility age requirements
for retirement for all systems must be addressed. This
recognition applies to all pension systems equally and
should be planned and implemented on a prospective basis.
- Proper investment of pension assets in order to maximize
the return on investment is important. The below market
mortgage program offered to PFRS members and the below
market loan program offered to TPAF and PERS members
should be eliminated.
- Early Retirement Initiatives have proven to be a fiscal
fiasco for all levels of government and they should be
A complete copy of this report can be downloaded from
www.njslom.com, or contact Donna Baltz at the League of
at 609-695-3481, ext. 14.
Article published in March 2006, New Jersey Municipalities