Bill > A3796

Introduced Session

This bill amends the various statutes governing the Teachers Pension and Annuity Fund (TPAF), the Public Employees Retirement System (PERS), the Judicial Retirement System (JRS), the Police and Firemens Retirement System (PFRS), the State Police Retirement System (SPRS), the Alternate Benefits Program (ABP), and the Defined Contribution Retirement Program (DCRP). The bill makes a series of reforms to the States retirement systems to provide for the future stability of those systems by adjusting pension benefits to a more sustainable level. For example, to strengthen the financial stability of the retirement systems, the bill increases employee contribution rates in TPAF, PERS, JRS and SPRS to a uniform 8.5% of salary, which matches the PFRS employee contribution rate, and provides that the additional employee contributions are not be used to offset employer contributions. The bill also makes changes to the retirement systems to address the abuse and so-called gaming of a system whereby an individual is able to accrue a pension benefit substantially greater than the standard pension benefit. Current law provides that members of TPAF and PERS contribute 5.5% of salary toward pension benefits and are eligible for a deferred, early or service retirement benefit calculated using 1/55 multiplied by years of service, then multiplied by average compensation. The bill increases the TPAF and PERS employee contribution rate, including for members in the legislative part, the workers compensation judges part and the prosecutors part of the PERS, to 8.5% of compensation and specifies that the additional 3% for TPAF members and regular PERS members, as well as the increases of the special parts of PERS, will not be used to reduce the statutorily required employer normal contribution. P.L.2001, c.133 provided a 9% increase in TPAF and PERS benefits by substituting 1/55 for 1/60 in the benefit calculation. This bill rolls back that increase and further provides that for service credit accrued after the 120th day after its effective date, 1/65 will be used in benefit calculations for early, deferred and service retirements, It provides for a proportional reduction in the calculation of future service for veteran benefits using 1/60 instead of 1/55. The bill changes average compensation to the average of five years instead of three years, except that members with more than 25 years of service or who have attained age 60 on the 120th day after its effective date retain the 3-year average. A TPAF or PERS member with 25 or more years of service now may retire with an early retirement benefit at age 55 or older with no reduction in benefit, or if a person become a member after November 1, 2008 there is a reduction in benefit if the person is not yet age 62. The bill provides that for members with fewer than 25 years of creditable service, on or after the 120th day after the effective date of the bill, the number of years of service credit required for early retirement changes to 30 from 25 with a reduction of ¼% for each month the member lacks of being age 65. Members with 25 or more years of creditable service on the 120th day after the effective date of the bill continue to be eligible for early retirement at age 55 with no reduction. Service retirement is currently available to TPAF and PERS members with fewer than 25 years of service at age 60, or age 62 if a member since November 1, 2008. Under the bill, service retirement will be available (1) at age 60 to members with 25 or more years of service or age 60 on the 120th day after the bills effective date, (2) at age 62 to members enrolled since November 1, 2008 with 25 or more years of service or age 62 on that day, or (3) at age 65 to members with fewer than 25 years and under age 65 on that day. Age 65 becomes the new normal retirement age to reflect increased life expectancy and an individuals longer productive work life. The bill makes some similar changes to the JRS. The employee contribution rate is currently 3% of compensation. The bill increases that rate to 8.5% for the total salary of new JRS members and for any future increases in salary for current members, with the additional 5.5% not being used to reduce the statutorily required employer normal contribution. The increase in the contribution rate for members of the JRS is implemented in a manner to conform to a prohibition in the State Constitution against the reduction in the compensation of a judge during the judges term of appointment. With regard to the two State-administered defined contribution systems, ABP and DCRP, the bill provides that normal retirement age is 65, that cash surrender upon separation from service will be applicable prior to age 65, and that an ABP or DCRP member receiving a cash distribution or annuity option using employee contribution funds upon separation from service will not be considered retired from those defined contribution systems. The bill also modifies provisions related to the selection of ABP providers. Members of PFRS and SPRS with 25 years of service credit currently may retire on a benefit of 65% of highest year salary with an additional 1% for each year beyond 25 but not more than 30 for a maximum benefit of 70%. For PFRS and SPRS members with fewer than 25 years of creditable service on the 120th day after its effective date, the bill redefines final compensation as the average compensation received for three highest years and decreases the special retirement allowance from 65% to 60% of salary with the additional 1% for each year of service credit over 25 up to 30 years, for a maximum benefit of 65%. Under current law, the three year average is applicable only to those employees who became members after May 21, 2010. Applications for accidental disability pensions have been growing at a pace that suggests an attempt to abuse these benefits. The bill standardizes disability retirement benefits among all of the defined benefit retirement systems, TPAF, PERS, PFRS and SPRS, and provides the same level of disability benefit for those with 10 or more years in a retirement system, including an earnings test. The bill establishes a work-related disability benefit for a member regardless of years of service if the member is totally and permanently disabled as a direct result of an accident or occupational exposure and receives an award of permanent disability under the workers compensation laws. The bill also clarifies the law with respect to retirees returning to public employment. It strengthens criteria for determining a bona fide retirement and provides that a retirement is bona fide if the retiree terminates all public employment for a period of not less than six months while receiving a retirement allowance. If a retirement is not bona fide, the retirement will be cancelled or suspended and the retiree will be reenrolled or enrolled in the retirement system which covers the position in which the retiree is employed. If a retirement is bona fide, a pubic employer may hire a retiree without a reenrollment requirement. The bill requires public employers to notify the Division of Pensions and Benefits when they hire a retiree. With regard to the benefits of all retirees, current and future, and their beneficiaries, the bill provides that there will be no future cost-of-living adjustment (COLA) to pension benefits. Eliminating the annual COLA will help ensure the sustainability of the retirement systems. While automatic future increases are eliminated, current monthly benefits are not reduced by this change. For TPAF, JRS, PERS, PFRS and SPRS, the bill changes the amortization methodology from a percentage of pay schedules to a level dollar amount each year and will result in the earlier retirement of the unfunded liability of the pension systems. Currently, member contributions to those retirement system are credited and annuitized at an interest rate that exceeds current market rates. The bill also provides that member contributions to these systems will be credited with 4% interest. Sections 94 through 103 of the bill contain a number of changes to the law that are necessary to maintain the qualified plan status of the retirements systems under the federal Internal Revenue Code. Sections 104 and 105 contain provisions for compliance with Statements Nos. 43 and 45 of the Governmental Accounting Standards Board, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions (GASB 43/45) and to bring the defined contribution plans into compliance with U.S. Department of Treasury regulations affecting administration of plans administered under section 403(b) of the Internal Revenue Code. Modifications pertaining to the Supplemental Annuity Collective Trust are found in sections 106 through 113.

Committee Categories

Gary Chiusano (R)*,  Declan O'Scanlon (R), 

Introduced, Referred to Assembly State Government Committee (on 02/10/2011)