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Pension & Health Benefits Reform Legislation
Updated On: Jun 28, 2011

On June 16, 2011, Senate Bill 2937 (S2937), the controversial and comprehensive pensions and health benefits reform legislation, was approved by the Senate Budget and Appropriations Committee by a vote of 9-4.  On June 20, 2011, the Senate passed the legislation by a vote of 24-15; and the Assembly Budget Committee passed its companion measure, Assembly Bill 4133 (A4133), by a vote of 7-5.  On June 23, 2011, the General Assembly passed the legislation by a vote of 46-32, and the Governor will sign it into law on June 28, 2011.  It will become effective immediately.  Summary of the legislation is as follows:

 

The Board of Trustees of the New Jersey Police and Firemen’s Retirement System (PFRS) will be split into two (2) committees — State government and local government—when either committee of the PFRS reaches a targeted funded ratio. The existing PFRS Board of Trustees will remain in operation until the target funded ratio is reached.  PFRS’ targeted funded ratio shall be 75% in FY 2012 increasing in increments over 7 fiscal years until a permanent 80% funding target is reached.  Each PFRS committee shall consist of ten (10) members—five (5) appointed by Governor to represent public employers, five (5) appointed by employees, two (2) members appointed by the president of the union representing the greatest number of law enforcement officers in the state, one (1) member appointed by the president of the union representing the second greatest number of law enforcement officers in the state, one (1) member appointed by the president of the union representing the greatest number of firefighters in the state, and one (1) member appointed by the president of the union representing the second greatest number of firefighters in the state.  Tie votes on any matter will be decided by arbitrator appointed by the New Jersey Public Employment Relations Commission (PERC).  Each committee will have the authority to modify member contribution rates, final compensation calculation, retirement ages, reinstitute or adjust cost-of-living adjustments (COLAs).  PFRS Funds will remain comingled with other pension funds and control over investments remains with the State through State Investment Council.  Each committee may not make any decision that directly or indirectly results in a drop below the targeted ratio of 75% funded value of PFRS over a 30 year period.  PFRS employee contributions will increase to 10% of base salary, and the PFRS special retirement allowance will be reduced to 60% of final average salary at 25 years of service and 65% of final average salary at 30 years of service for all future employees.  COLAs are eliminated for all current retirees and employees except that the PFRS committees may elect to reinstate or modify COLA. No current retiree will have his or her existing pension benefit reduced.  Public employees will be granted contractual “non-forfeitable rights” to pension funding by the government.  Contributions of 3% to 35% to health benefits and requires health benefit contributions to be paid into retirement, and it is made applicable immediately to employees where a collective bargaining agreement (CBA) has expired and to employees in a CBA after it expires.  Payment for medical premiums applies to employees in both the State Health Benefits Program (SHBP) and in other health insurance provided by local governments.  A 4-year phase-in of contributions will be as follows, albeit 1.5% of base salary will remain the floor of mandated employee contributions for health benefits:

 

Year 1 - ¼ amount of contribution required

Year 2 – ½ amount of contribution required

Year 3 - ¾ amount of contribution required

Year 4 – 100% amount of contribution required

 

Family coverage or its equivalent

an employee who earns less than $25,000 shall pay 3% of the cost of coverage;

an employee who earns $25,000 or more but less than $30,000 shall pay 4% of the cost of coverage;

an employee who earns $30,000 or more but less than $35,000 shall pay 5% of the cost of coverage;

an employee who earns $35,000 or more but less than $40,000 shall pay 6% of the cost of coverage;

an employee who earns $40,000 or more but less than $45,000 shall pay 7% of the cost of coverage;

an employee who earns $45,000 or more but less than $50,000 shall pay 9% of the cost of coverage;

an employee who earns $50,000 or more but less than $55,000 shall pay 12% of the cost of coverage;

an employee who earns $55,000 or more but less than $60,000 shall pay 14% of the cost of coverage;

an employee who earns $60,000 or more but less than $65,000 shall pay 17% of the cost of coverage;

an employee who earns $65,000 or more but less than $70,000 shall pay 19% of the cost of coverage;

an employee who earns $70,000 or more but less than $75,000 shall pay 22% of the cost of coverage;

an employee who earns $75,000 or more but less than $80,000 shall pay 23% of the cost of coverage;

an employee who earns $80,000 or more but less than $85,000 shall pay 24% of the cost of coverage;

an employee who earns $85,000 or more but less than $90,000 shall pay 26% of the cost of coverage;

an employee who earns $90,000 or more but less than $95,000 shall pay 28% of the cost of coverage;

an employee who earns $95,000 or more or but less than $100,000 shall pay 29% of the cost of coverage;

an employee who earns $100,000 or more or but less than $110,000 shall pay 32% of the cost of coverage;

an employee who earns $110,000 or more shall pay 35% of the cost of coverage

Individual coverage or its equivalent

an employee who earns less than $20,000 shall pay 4.5% of the cost of coverage;

an employee who earns $20,000 or more but less than $25,000 shall pay 5.5% of the cost of coverage;

an employee who earns $25,000 or more but less than $30,000 shall pay 7.5% of the cost of coverage;

an employee who earns $30,000 or more but less than $35,000 shall pay 10% of the cost of coverage;

an employee who earns $35,000 or more but less than $40,000 shall pay 11% of the cost of coverage;

an employee who earns $40,000 or more but less than $45,000 shall pay 12% of the cost of coverage;

an employee who earns $45,000 or more but less than $50,000 shall pay 14% of the cost of coverage;

an employee who earns $50,000 or more but less than $55,000 shall pay 20% of the cost of coverage;

an employee who earns $55,000 or more but less than $60,000 shall pay 23% of the cost of coverage;

an employee who earns $60,000 or more but less than $65,000 shall pay 27% of the cost of coverage;

an employee who earns $65,000 or more but less than $70,000 shall pay 29% of the cost of coverage;

an employee who earns $70,000 or more but less than $75,000 shall pay 32% of the cost of coverage;

an employee who earns $75,000 or more but less than $80,000 shall pay 33 % of the cost of coverage;

an employee who earns $80,000 or more but less than $95,000 shall pay 34% of the cost of coverage;

an employee who earns $95,000 or more shall pay 35 % of the cost of coverage;

 

Member with child or spouse coverage or its equivalent

an employee who earns less than $25,000 shall pay 3.5% of the cost of coverage;

an employee who earns $25,000 or more but less than $30,000 shall pay 4.5% of the cost of coverage;

an employee who earns $30,000 or more but less than $35,000 shall pay 6% of the cost of coverage;

an employee who earns $35,000 or more but less than $40,000 shall pay 7% of the cost of coverage;

an employee who earns $40,000 or more but less than $45,000 shall pay 8% of the cost of coverage;

an employee who earns $45,000 or more but less than $50,000 shall pay 10% of the cost of coverage;

an employee who earns $50,000 or more but less than $55,000 shall pay 15% of the cost of coverage;

an employee who earns $55,000 or more but less than $60,000 shall pay 17% of the cost of coverage;

an employee who earns $60,000 or more but less than $65,000 shall pay 21% of the cost of coverage;

an employee who earns $65,000 or more but less than $70,000 shall pay 23% of the cost of coverage;

an employee who earns $70,000 or more but less than $75,000 shall pay 26% of the cost of coverage;

an employee who earns $75,000 or more but less than $80,000 shall pay 27% of the cost of coverage;

an employee who earns $80,000 or more but less than $85,000 shall pay 28% of the cost of coverage;

an employee who earns $85,000 or more but less than $100,000 shall pay 30% of the cost of coverage.

an employee who earns $100,000 or more shall pay 35% of the cost of coverage.

 

Base salary will be used to determine what an employee earns for the purposes of this provision.  Percentages of payment required of members paying for benefits into retirement shall be based on annual pension allowance (at reduced percentages as listed above).  “Cost of coverage” means the premium or periodic charges for medical and prescription drug plan coverage, but not for dental, vision, or other health care, provided under the State Health Benefits Program.  Health Benefit premium mandates will sunset after 4th year and collective bargaining resumes.  However, unions that are in contract when the bill becomes effective will still be required to pay a 4 year phase in of health care premium sharing when their current CBA expires and will be subject to negotiating the phase in amounts into their next CBA as if the premium share were part of their prior CBA.  Contributions for health benefits into retirement will be mandated for employees who have less than 20 years of service on the effective date of the legislation.  Employees may purchase service credit toward making the 20 year mark for purposes of the legislation but only if they apply for the purchase before the legislation is enacted and signed into law, which is expected to occur on June 23, 2011.  Collective bargaining groups who are not covered by SHBP are permitted the “local option” of negotiating costs savings below costs identified/established by SHBP and the premium sharing grid listed above. Any cost savings would be reviewed by the Department of Community Affairs and, if verified, would permit bargaining unit to avoid or pay lower premium sharing than required in grid.  The legislation will prohibit existing CBAs to be amended, renegotiated or altered to extend benefit arrangements in effect on effective date and will provide that any such action will be considered a new CBA for purpose of the legislation, thereby triggering premium sharing.  State Health Benefits Plan Design Committee (SHBPD) will be created to review and govern state health benefit costs, and the SHBPD will be afforded the authority to establish, create, modify, or terminate health plans and levels of coverage, to design three (3) levels of coverage in each plan (single, family, children).  The SHBPD will be given sole discretion over co-pays, deductibles, and other related costs.  The SHBPD will be comprised of twelve (12) members—six (6) employer representatives and six (6) employee representatives.  Senate Bill 2959 will provide that effective January 1, 2012, the SHBPD or any public employer that offers health benefit plans to public employees, retirees, and any dependent thereof, offer at least one health benefit plan to plan participants that will include only in-State health care providers and that will be subject to certain requirements, and at least one health benefit plan to plan participants that will include out-of-State health care providers and that will not be subject to certain requirements.  It will establishes complex limitations on the use of out of state specialists and hospitals except that medically necessary specialized care may be performed by an out-of-State specialty or subspecialty health care provider when there is no in-State health care provider reasonably available.  A doctor would be required to certify that no NJ care or treatment is available.  The legislation will not apply to emergency care, primary care, or such other unusual and compelling circumstance determined by the State Health Benefits Commission or the plan administrator or when it is medically necessary for the employee, retiree, or covered dependent to continue current treatment with the out-of-State health care provider, or when the employee, retiree, or covered dependent has been receiving tertiary care from an out-of-State health care provider prior to the enactment of the legislation.  This provision was repealed by a floor amendment to the legislation in the Assembly, and the Senate concurred.


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