Bill > A2461

Introduced Session

Sections 1-7: These sections implement Recommendation 1 of the Joint Legislative Committee on Public Employee Benefits Reform set forth in the final report dated December 1, 2006. The committee recommended "the enactment of legislation to limit eligibility for defined benefit plans to full-time employees", with all new part-time employees, new elected officials and new full-time appointed officials having membership in a defined contribution pension plan. The bill shifts the basis for membership in the Teachers Pension and Annuity Fund (TPAF) and the Public Employees Retirement System (PERS) from the amount of compensation to the number of hours worked weekly. After its effective date, any person in public employment for which the hours of work are fixed at fewer than 35 per week for State employees or 32 for political subdivision employees is ineligible to become a new member of PERS and at fewer than 32 hours per week is ineligible to become a new member of TPAF. When determining eligibility, hours during which a person does not work due to the persons participation in a voluntary or mandatory furlough program will not be deducted in determining if a persons hours of work are fixed at fewer than 35 or 32 per week, as appropriate, for the purpose of eligibility. Persons ineligible for TPAF or PERS because the hours of work are fewer than required for PERS or TPAF membership may be eligible for enrollment in the Defined Contribution Retirement Program, whose membership compensation threshold the bill increases to $5,000 from $1,500. Sections 8-13: These sections implement Recommendation 3 of the Joint Legislative Committee on Public Employee Benefits Reform set forth in the final report dated December 1, 2006 to reduce the benefits formula for new members of the Public Employees Retirement System (PERS) and the Teachers Annuity and Pension Fund (TPAF) by changing from 1/55 to 1/60 the multiplier of the number of years of service in the calculation of a members retirement allowance. The committee noted that this recommendation is consistent with other recommendations aimed at reducing the long-term costs of the defined benefit retirement systems to ensure their fiscal stability and the fiscal stability of the State and local public employers funding those costs. In 2001, legislation enhanced the PERS and TPAF benefits for members and retirees by 9% with a change of the multiplier from 1/60 to 1/55. Veterans and disability benefits were similarly enhanced. These sections return the multiplier for PERS and TPAF to 1/60 and the other benefits to their pre-2001 level, except for veterans and disability benefits, for persons who become members of PERS or TPAF after the bill is enacted. Sections 7, 14-19, and 22-23: These sections implement Recommendation 4 of the Joint Legislative Committee on Public Employee Benefits Reform set forth in the final report dated December 1, 2006. The committee recommended "a cap on pensionable salary at the Social Security maximum wage contribution limit under the Federal Insurance Contributions Act (FICA). ... Employees with annual compensation in excess of the Social Security maximum would be eligible for membership in the defined contribution program .. with regard to only that excess compensation. The legislation should apply prospectively to all new employees who become members of the State-administered retirement system, except the Judicial Retirement System (JRS), after the enactment of legislation." The committee stated that it "believes that this proposal should help control escalating retirement system costs." P.L.2007, c.103 implemented this recommendation for the Public Employees Retirement System (PERS) and the Teachers Pension and Annuity Fund (TPAF). This bill imposes a maximum compensation upon which contributions will be made for Police and Firemens Retirement System (PFRS) and State Police Retirement System (SPRS) purposes for police officers, firefighters, and State Police officers who become members of those systems on or after the bills effective date. The maximum amount will be the amount of base salary equivalent to the annual maximum wage contribution base for Social Security, pursuant to the federal Insurance Contributions Act. For 2010, that amount is $106,800. A new member for whom this annual maximum will be reached in any year will become a participant of the Defined Contribution Retirement Program (DCRP) with regard to the remaining compensation, unless the member irrevocably elects to waive the participation. For the amount of compensation over the maximum compensation, 5.5% will be deducted as a contribution for the purposes of the DCRP. When a PFRS or SPRS member also becomes a participant in the DCRP, the life insurance and disability benefit provisions of that program will be available for that participant. Sections 20-23: These sections implement Recommendation 5 of the Joint Legislative Committee on Public Employee Benefits Reform set forth in the final report dated December 1, 2006. The committee recommended "the enactment of legislation to change the pension benefits calculation from the three highest paid years to the five highest paid years or from the single highest paid year to the three highest paid years, as appropriate." The committee recommended that the legislation apply to new employees who become members of the State-administered retirement systems, except the Judicial Retirement System, after the enactment of the legislation. The committee stated that "its recommendation is consistent with other recommendations aimed at reducing the long-term costs of the defined benefit retirement systems to ensure their fiscal stability and the fiscal stability of the State and local public employers funding those costs." This bill changes the definition of compensation to be used to calculate retirement benefits for members of the Public Employees Retirement System (PERS), Teachers Pension and Annuity Fund (TPAF), Police and Firemens Retirement System (PFRS), and State Police Retirement System (SPRS), who become members after the bills effective date, as well as to calculate, in certain cases, pension benefits for surviving family members, when available, and death benefit payments to beneficiaries. The bill provides that a member of the TPAF or PERS who is enrolled in the retirement system after the enactment date, would have the members retirement allowance calculated using the average annual compensation for the last five years of service or for any five fiscal years of membership providing the largest possible benefit to the member or the members beneficiary. A member enrolled in the systems before the effective date would continue to have the members allowance calculated in the manner provided by existing law using the average annual compensation for the last three years of service or for any three fiscal years of membership providing the largest possible benefit to the member or the members beneficiary. The bill also changes the provisions of the PFRS and SPRS to provide that a member who is enrolled in one of these retirement systems after the effective date would have the members retirement allowance calculated using the average annual compensation received by the member during any three fiscal years of membership providing the largest possible benefit. A member of the system before the effective date would continue to have the members allowance calculated in the manner provided by existing law using the compensation in the final year of service. The bill would affect the calculation of a family members pension benefit, when such a benefit is available, and the amount of a death benefit to a beneficiary whenever current law provides for the use of final compensation or final salary, as those terms are redefined by the bill, for the purpose of that calculation. In some instances, the current law provides that the calculations for benefits be based on the compensation or salary received in the last year of service or at the time of death; in these instances, there would be no change as a result of this bill. Sections 24-28: These sections implement Recommendation 6 of the Joint Legislative Committee on Public Employee Benefits Reform set forth in the final report dated December 1, 2006. The committee recommended "the enactment of legislation to require the designation of one position per employee for both the PERS or TPAF" and that the "legislation should apply to new full-time employees who become members of PERS or TPAF after the bills enactment and who must select one job for defined benefit credit." The committee noted that "although a person holding multiple positions does contribute to the retirement system for each position, the potential for abuse and the difficulty in preventing it make the one-position requirement a necessary reform." For the purposes of the Public Employees Retirement System and the Teachers Pension and Annuity Fund, this bill provides that a person shall be eligible for membership in the retirement system based upon only one position and requires the retirement system to designate the position providing the higher or highest compensation for the person with such concurrent positions as the basis for eligibility for membership and the compensation base for contributions and pensions calculations. A member who leaves a designated position or acquires a different or additional position will receive a new designation by the retirement system, if appropriate. These provisions will not apply to a person who on the effective date of the bill is a member of the retirement system and holds more than one office, position, or employment covered by the retirement system with one or more employers, while the member continues to hold without a break in service more than one of those offices, positions, or employment. Under the bill, contributions would be deducted only from the members compensation for the position designated, and for the purpose of calculating the members retirement benefit, only that compensation would be considered. Service in a position other than the one designated will not be deemed creditable service for the purposes of the retirement system. Section 29: This section implements Recommendation 7 of the Joint Legislative Committee on Public Employee Benefits Reform set forth in the final report dated December 1, 2006. The committee recommended "the repeal on a prospective basis for new employees of N.J.S.A.43:3C-9.5 ... because the Legislature should not be permanently and inextricably bound by an action of a prior session of the Legislature." The bill would remove public employees who become members after the bills effective date of the Teachers Pension and Annuity Fund, the Judicial Retirement System, the Prison Officers Pension Fund, the Public Employees Retirement System, the Consolidated Police and Firemens Pension Fund, the Police and Firemens Retirement System, and the State Police Retirement System from the law that provides vested members with a non-forfeitable right to receive benefits, as provided under the laws governing the retirement system or fund, upon the attainment of five years of service credit in the retirement system or fund. Section 30: This section implements Recommendation 9 of the Joint Legislative Committee on Public Employee Benefits Reform set forth in the final report dated December 1, 2006. The committee recommended that legislation be enacted "to give all non-vested employees the option of entering into a defined contribution program ... and should apply to all current and future public employees." This bill permits a person who commences service in a position that makes the person eligible to be a member of the Teachers Pension and Annuity Fund, the Judicial Retirement System, the Public Employees Retirement System, the Police and Firemens Retirement System, or the State Police Retirement System, or a person already enrolled but with less than 10 years of service credit, to choose either to be enrolled in the relevant retirement system or enrolled in the Defined Contribution Retirement Program established pursuant to N.J.S.A.43:15C-1 et al. with regard to that particular position by irrevocably waiving all rights and benefits which would otherwise be provided by the relevant retirement system. In addition, this bill would permit a person commencing service, or with less than 10 years of service credit, to choose to withdraw entirely from enrollment in any State-administered retirement system. In this regard, the bill exceeds the recommendation, but serves the recommendations goal by providing a person with the flexibility to choose a course most consistent with his or her personal situation and financial goals while also reducing the costs to public employers. Section 31: This bill implements Recommendation 12 of the Joint Legislative Committee on Public Employee Benefits Reform set forth in the final report dated December 1, 2006. The committee recommended "the enactment of legislation to close the PERS Prosecutors Part ... prospectively to new members." The committee recommended "an end to special benefits within the Public Employees Retirement System for selected groups of public employees and officials. ... This recommendation would standardize pension benefits for public employees with similar job functions." This bill closes the Prosecutors Part of the Public Employees Retirement System (PERS) to new members. The Prosecutors Part was added to PERS in 2001. With the enactment of this bill, all prosecutors taking office after the bills effective date will be enrolled in the "regular" PERS system, except that a county prosecutor who is appointed by the Governor with the advice and consent of the Senate will be enrolled in the Defined Contribution Retirement System. "Prosecutor" is defined in the law as a county prosecutor, first assistant prosecutor or assistant prosecutor; the Director of the Division of Criminal Justice in the Department of Law and Public Safety; an assistant director, deputy director, assistant attorney general or deputy attorney general in that department and assigned to that division; or a criminal investigator in the Division of Criminal Justice in the Department of Law and Public Safety who is not eligible for enrollment in the Police and Firemens Retirement System. Section 32-34: These section implement Recommendation 14 of the Joint Legislative Committee on Public Employee Benefits Reform set forth in the final report dated December 1, 2006. The committee recommended "the enactment of legislation to repeal this prospective benefit enhancement, and the corresponding benefit enhancement fund, effective immediately. This recommendation would result in significant cost savings for the State and local public employers." The bill eliminates the provision in the PFRS that would permit a member of the Police and Firemens Retirement System to retire, at any age after 25 years of service credit, on a special retirement allowance of 70% of final compensation after the retirement system reaches a funded level of 104%. Sections 35-38: These sections provide that, with regard to any provision of this bill made applicable to a person who becomes a member of a State-administered retirement system on or after the bills effective date, that provision would not apply to a person who at the time of enrollment in the retirement system on or after that effective date transfers service credit, as permitted, from another State-administered retirement system or fund of which the person was a member immediately prior to the effective and continuously thereafter, but would apply to a former member of the retirement system who has been granted a retirement allowance and is reenrolled in the retirement system on or after that effective date after becoming employed again in a position that makes the person eligible to be a member of the retirement system. These sections are in line with recent prior enactments in this regard. Section 39: This section of the bill requires the State, beginning July 1, 2011, to make in full the annual employers contribution, as computed by the actuaries, to the Teachers Pension and Annuity Fund, the Judicial Retirement System, the Prison Officers Pension Fund, the Public Employees Retirement System, the Consolidated Police and Firemens Pension Fund, the Police and Firemens Retirement System, and the State Police Retirement System. The State would be in compliance with this requirement provided the State makes a payment, to each State-administered retirement system or fund, of at least 1/7th of the full contribution, as computed by the actuaries, in the State fiscal year commencing July 1, 2011 and makes a payment in each subsequent fiscal year that increases by at least an additional 1/7th until payment of the full contribution is made in the seventh fiscal year and thereafter. This phase-in is for the purpose of allowing the State to make gradual adjustments to the annual appropriations act.

AI Summary

Committee Categories

Alex DeCroce (R)*,  Sheila Oliver (D)*, 

Substituted by S2 (on 03/22/2010)