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June 24, 2011

Re:      Proposed Pension Changes, S-2937/A-4133

Dear Mayor:

S-2937/A-4133 will make various changes to pension and health care benefits for public employees.  We anticipate that Governor Christie will sign this bill into law on Monday.  This letter will detail the pension changes.  A separate letter detailing the health benefit changes will be forthcoming.

The bill impacts Public Employees’ Retirement System (PERS), Police and Firemen’s Retirement System (PFRS), Teachers’ Pension Annuity Fund (TPAF), State Police Retirement System (SPRS), Defined Contribution Retirement Program (DCRP), Alternate Benefit Program (ABP) and Judicial Retirement System (JRS). 

The bill increases the contribution rate for all employees as follows:

  • PERS employees will have an immediate 1% employee contribution from 5.5% to 6.5% and an additional 1% increase phased in over 7 years in equal amount.  In other words, the total increase will be 5.5% to 7.5% over an eight year period.
  • PFRS employees will have an immediate 1.5% employee contribution from 8.5% to 10%

The bill also prohibits the State and any other public employer from “skipping” its required pension payments by establishing a new contractual right to employees.  If the State or other public employer does not make its payment, employees will be able to sue in Superior Court.  The bill defines the annual required contribution as the amount equal to annual normal contribution plus annual unfunded accrued liability. 

For new PERS and TPAF employees the retirement age is raised to 65 years and they will be required to have 30 years of creditable service for an early retirement.  For new PFRS employees regular pension will be 60% of salary at 25 years and 65% at 30 years.  These changes do not impact current employees.

Automatic annual retirement COLAs for all pension plans are eliminated.  However, they can be restored by the Governance Committee, once that system becomes autonomous as described below.

Currently in the PERS and PFRS there are municipal, county and state employees in the system.  S-2937/A-4133 will separate the system so there is a Local PERS and State PERS as well as a Local PFRS and a State PFRS.  The State system will include only state employees, while the local system will include all other non-state employees. 

Once the system reaches the Target Fund Ratio it will become autonomous.  The bill defines “Target Funded Ratio” as a ratio of the actuarial value of assets to the actuarially determined accrued liabilities expressed as a percentage that shall be for the State part of each system, and the local part of each system, if any, 75% in SFY 2010 and increased each FY thereafter by equal increments for 7 years, until the ratio reaches 80% at which it shall remain for all subsequent fiscal years.   In year one the target fund ratio is 75% and will increase over 7 years until reaching 80%.

Pension funded ratio, based on NJ Department of Treasury analysis and issued by Senate President Sweeney on www.njbenefitreform.com :

Fund

Before Reform

After Reform

State PERS

52.2%

58.3%

Local PERS

69.1%

77.5%

State PFRS

51.1%

61.2%

Local PFRS

71.5%

83.2%

TPAF

57.6%

70.2%

SPRS

69.0%

79.8%

JRS

53.1%

58.9%

Once the fund reaches the Target Fund Ratio funding the Governance Committee of the fund will be authorized to:

    • Hire their own actuaries and consultants
    • Modify member contribution rate
    • Determine the n/x for future accruals
    • Determine formula for calculation of final average salary
    • Determine the retirement age
    • Determine the normal and early retirement ages/benefits
    • Determine disability benefits
    • Determine whether a COLA shall be provided to retirees in years during which the system is above target fund ratio funding
    • Priority consideration shall be given to COLA’s

The Governance Committee will be prohibited from making changes to the number of years of creditable service required for vesting.  In addition, the Governance Committees will be prohibited from making any change that the pension system actuary determines, through a written report, will place the fund below the Target Fund Ratio funding within the following 30 years.  The Local PFRS Governance Committee will be required to keep a record of all its proceedings, which shall be opened to public inspection.

The Governance Committee will be as follows:

  • Each pension fund will have a new 8 or 10 member Governance Committee
  • Term on Governance Committee is 3 years
  • Governance Committee members will not be appointed until Target Fund Ratio is met
  • Local PERS Governance Committee is 8 members (4 management and 4 labor),  majority vote is 5
  • Local PFRS Governance Committee is 10 members (5 management and 5 labor), majority vote is 6
  • Governance Committees will contain equal number of employee and employer representatives
  • Governor will appoint management members to the Governance Committee
  • Unions will directly select employee representatives
  • Members of Governance Committee select chairperson, among the members, who shall serve a 1 year term
  • No member can serve more than 1 year term as chairperson until all the members of the Governance Committee has served a term as chairperson
  • Chairperson will alternate between employer representatives and employee representatives
  • Majority vote of Governance Committee is necessary to implement change
  • Final action of the Governance Committee is made by the adoption of regulation
  • Regulations must specify the effective date of the modifications and the system members, including beneficiaries and retirees, when the modification applies
  • Regulation of the Governance Committee is considered part of the plan document for the retirement system
  • Governance Committee members have the same duty and responsibility to the retirement system as the Board of Trustees
  • Impasses will be resolved through a form of super-conciliation

The Super Conciliator Impasse Process will be used when the Governance Committee fails to render a decision because it has not received a majority vote after 60 days pass the initial consideration the board/committee shall use a Super Conciliator, who is randomly selected from a list developed by NJ PERC.  The Super Conciliator shall promptly schedule investigatory proceedings.  Investigating and acquiring all relevant information regarding failure to render a decision and discussing with the members their differences.  The Super Conciliator can require a 24 hour per day negotiations and institute any other non-binding procedure.  If there is a failure to resolve the dispute the Super Conciliator shall issue a final report, providing the committee a copy of the report immediately.  The report will be available to the public within 10 days.

Finally, the bill will repeal N.J.S.A. 43:15A-47.2, which permitted a member of PERS to be eligible to retire while holding public office to which he was elected and receiving the full salary for that office if his retirement allowance is not based solely on his service in the public office to which he was elected, and no contributions shall be required of the member covering that service.  The bill will also repeal N.J.S.A. 43:16A-5.1, which permitted a member of PFRS to be eligible to retire while holding public office to which the member was elected and receiving the full salary for that office if the member's retirement allowance is not based solely on service in the public office to which the member was elected, and no contributions shall be required of the member covering that service.

We will continue to provide you guidance as it becomes available.  If you have any questions or need additional information please do not hesitate to contact Lori Buckelew at 609-695-3481 x112 or lbuckelew@njslom.com.

Very truly yours,

William G. Dressel, Jr.
Executive Director

 

 

 

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