LEAGUE ANALYSIS

Note: On January 29th, the General Assembly amended S-17 to provide (1) a ban on dual office holding and (2) remove the exemptions for several professional service contractors. 

While the League endorses some elements of S-17, which for example,  allows  local employers to offer incentives to employees to waive duplicate coverage,  eliminates the 4% interest rate charged on loans and eliminates the use of excess valuation assets to reduce employer payments to the retirement systems,  the bill still does not provide the clarity and modifications we sought (see League analysis below). Therefore, in our opinion, S-17, as amended, does not constitute what we would consider as true reform. However, we do recognize it as a good beginning.    S-17, as amended, was sent to the Senate for concurrence with Assembly amendments.

S-17 – As originally drafted, implements various recommendations of the Joint Legislative Committee on Public Employee Benefits Reform concerning benefits and certain terms and conditions of public office and employment. This is the latest replacement legislation dealing with this issue of pension reform and similar to previous attempts, has created several unintended consequences.

The main aspect of the bill establishes a Defined Contribution Retirement Program within the Division of Pension and Benefits and would apply to professionals such as attorneys and engineers as well as elected and appointed state and local officials. We recognize the efforts in S-17 to address numerous League concerns. However, we remain opposed as there is confusion over the impact of these changes on existing PERS members.  We believe  S-17  needs further modification to specifically identify those local employees who will not be removed from PERS and forced into the Defined Contribution Plan.

We are seeking amendments to ensure key administrative local officials such as managers and other similar employees who are appointed by the governing body, are recognized and not removed from PERS. Although the focus of S-17 is prospective, we believe its adoption, without clarifying amendments would result in certain unintended consequences.  For example, would an employed, local administrative PERS member, who is appointed to a position in another town be considered a “new hire” and therefore required to enroll in the Defined Contribution Plan?  If such event occurs, we are unsure as to this individual’s status as far as retirement system membership.  We would support amendments to clarify this area of ambiguity.

Under Section 3 Item 4, there is established a Defined Contribution Retirement Board who shall be responsible for the administration of the system on a policy basis. Because local government represents by and large 70% of the total workforce thus, theoretically 70% of the participants in the new pension system, I believe local government should have representation on the Board. The League of Municipalities should have a member appointed or two members which would provide some balance.

Starting in Section 6 through Section 14, the new Defined Contribution System will utilize insurance to cover life and disability risk protection to members. The League has suggested this concept be expanded to prospectively and apply also to PERS, TPAF and PFRS. There are significant dollars to be saved by the taxpayers if disability insurance were substituted for the current program which is routinely abused in all of the systems.

Under Section 20, Item b, there is still a potential problem for Tax Assessors who work on a part time basis for many smaller municipalities. Many of those Tax Assessors work full time for a professional revaluation firm and they may actually be principals in a revaluation firm. Therefore, those individuals may not qualify for continued membership in the Defined Benefit System but may be forced, with regards to new hires or future employees, to be part of the Defined Contribution System. The League does not necessarily oppose this concept, but it does have impact on one of our affiliate organizations. Therefore,  there appears to be potential question under Section 20b because Tax Assessors who are full time clearly are exempt and remain in the Defined Benefit System. Tax Assessors that serve on a part time basis with their primary employment with a revaluation firm seem to have a different standard.

Under Section 21, this legislation requires the Division of Pensions to investigate salary claims for retirement in all systems prospectively. The League has pointed out numerous times how the Division of Pensions and the Board of Trustees have allowed the term “credible salaries” to be corrupted and contracts to violate current administrative rules. The League suggests that they not just deal prospectively, but they clean up their house immediately.

Section 28 is a new section which provides sunshine on the actuarial valuation and assumptions used when determining contributions. This is a good section and the League endorses this concept.

Under Section 31 there is a new mandate for the Health Benefit Commission. The League requests clarification as to the meaning and intent of this section. The verbiage sounds good, but we need to determine if it expands coverage unintentionally.

In Section 34 and following, the below interest loans which in the past have been permitted at 4% will be eliminated and they would become market loans. The League supports this improvement. It should also apply to the Police and Fire Retirement System which provides below mortgages for individuals. The below mortgage rates represent $1 billion of the assets that are underperforming. There is no demonstrative proof that police officers should be able to receive mortgages in excess of $400,000 at below interest rates as an inducement for their work, security, or ability to perform. By eliminating the low interest loans of 4% which reflects a little over a billion dollars of assets and eliminating the below mortgage benefit which is a billion dollars, the pension assets would then have $2 billion that would perform at market or above. This would provide property tax relief.

Sections 42 and on deal with limiting the amount of accrued unused sick leave one may receive payment for at the time of retirement. The $15,000 limitation for both civil service communities and non-civil service community is for elected and appointed officials with the exception of those which have been listed before such as the professional license certifications, health officers, tax assessors, tax collectors, etc. This limitation would then apply to Municipal Managers with regards to accumulated but unused, accrued sick time. But,  it would not apply to the rank and file employees which would be governed by the policy established by the local government or their collective bargaining agreement. The sections deal both with accrued but unused sick time as well as that which is referred to as “supplemental compensation” which we assume would apply to bonuses and accrued vacation time. Supplemental compensation is  often in the contracts of school superintendents and sometimes  public safety officers have it their contracts.  Apparently, those type payments would be excluded. The accumulation or accrued  vacation time would apply with the same definitions as those used for unused sick time.

Section 46 provides for the ending of dual health benefit coverage by contributing a portion of the savings back to the employee. The League has requested this in the past. Now this would be applicable only to those other than state government agencies that belong to State Health Benefits. Communities that pulled out of the State Health Benefit System have always enjoyed this privilege.

 n time would apply with the same definitions as those used for unused sick time.

Section 46 provides for the ending of dual health benefit coverage by contributing a portion of the savings back to the employee. The League has requested this in the past. Now this would be applicable only to those other than state government agencies that belong to State Health Benefits. Communities that pulled out of the State Health Benefit System have always enjoyed this privilege.