Governor Christie Signs Into Law Bold, Bipartisan Pension and Health Benefits Reform

photoAlt Trenton, NJ – Today, Governor Chris Christie signed into law landmark pension and health benefit reform, marking months of hard work, negotiation, compromise and ultimately bipartisan support. The fundamental reforms shake up New Jersey’s out-of-date, antiquated and increasingly expensive pension and health benefit systems and bring to an end years of broken promises and fiscal mismanagement by securing the long-term solvency of the pension and benefit systems. At the same time, critical savings for state and local governments are achieved – pension reform alone will provide savings to New Jersey taxpayers of over $120 billion over the next 30 years, and an additional $3.1 billion over the next 10 years from health benefits reform.

“This is a defining moment in New Jersey’s history. At a time when our state, along with dozens of others around the country are facing unprecedented fiscal challenges, a rarity happened. We stopped just talking about doing the big things and actually delivered. By working together, Republicans and Democrats have shown that when we put action before demagoguery and results before partisanship, we can accomplish great things for the people of New Jersey.

“By daring to be bold and take on the risks of addressing the big issues, we are doing what was once unimaginable – saving billions of dollars for taxpayers, fixing these systems in order to save them, and providing real, long-term fiscal stability for future generations of New Jerseyans.

“I want to once again thank Senate President Sweeney, Speaker Oliver, Senate Minority Leader Kean and Assembly Minority Leader DeCroce for their commitment and leadership in tackling these challenges. Every New Jerseyan can share in this victory that came through cooperation, bipartisanship and compromise,” concluded Governor Christie.

The historic bipartisan legislation was sponsored by Senators Stephen M. Sweeney (D-Salem, Cumberland and Gloucester) and Joseph Pennacchio (R-Morris, Passaic) as well as Assemblypersons Louis D. Greenwald (D-Camden), Declan J. O’Scanlon, Jr. (R-Mercer, Monmouth) and cosponsored by Senator Jennifer Beck (R-Mercer, Monmouth).


The Pension Reform Plan: Protecting Retirees and Providing New Jerseyans Over $120 Billion in Taxpayer Savings By 2041

The reforms will ensure long-term solvency, while slowing the rapid growth of government costs, spending and taxes that have overwhelmed taxpayers.

With reform, future retirees are protected and New Jerseyans provided with over $120 billion in taxpayer savings through 2041.

Increasing the Funding Ratio of the Pension System to 88%.
These reforms protect the pension system for retirees, increasing the funded ratio of the combined state and local systems from the current 62% to more than 88% over the next thirty years. By 2041, this will reduce total pension underfunding to $37 billion. Without these critical reforms, the unfunded liability across the pension systems would have skyrocketed to $183 billion, resulting in a massive impact on state and local budgets.

Providing New Jerseyans Over $120 Billion in Taxpayer Savings by 2041. This comprehensive set of reforms means critical savings for state and local governments and real property tax relief for New Jerseyans.

  • $79 Billion in State Contribution Savings: Over the next 30 years, the state pension contribution will be $148 billion, a projected savings of nearly $80 billion. Without reform, the state is projected to contribute $227 billion over the same period.
  • $43 Billion in Local Government Contribution Savings: Over the next 30 years, local government pension contributions will be $70 billion, a projected savings of nearly $43 billion. Without reform, local governments are projected to contribute $113 billion over the same period.

Changes for All New Public Employee Retirement System (PERS) and Teachers Pension and Annuity Fund (TPAF) Employees:

  • Updating the Formula for Retirement Eligibility:
    • Establishing the normal and early retirement age at 65 years.
    • Adjusting the early retirement penalty to 3 percent for each year.
    • Increasing eligibility for early retirement to 30 years of service.

Changes for All New Police and Fire Retirement System (PFRS) Employees:

  • Updating the Formula for “Special Retirement” Eligibility:
    • Changes eligibility for special retirement from 65% with 25 years of service to 65% with 30 years and 60% with 25 years.

Changes for All Active Employees (Judicial Retirement System (JRS), PERS, TPAF, PFRS and SPRS):

  • Employee Contribution Rate:
    • Current
      • PERS/TPAF 5.5%
      • PFRS 8.5%
      • SPRS 7.5%
      • JRS 3.0%
    • Reform Legislation
      • PERS/TPAF 6.5% (+1 additional point phased-in over 7 years to a 7.5% total)
      • PFRS 10.0%
      • SPRS 9.0%
      • JRS 12.0% (increase phased-in over 7 years)

Changes for All Current and Future Retirees:

  • Eliminating Automatic Annual Payment Increases: Eliminates all statutory Cost of Living Adjustments (COLAs).

A New Paradigm for Pension Plan Design:

  • The legislation creates a new Plan Design Committee for each pension plan. The Committees will have new authority to change important plan design features --- such as retirement ages, employee contribution levels, and future cost-of-living adjustments (COLA) --- within a financially prudent framework that mandates an ongoing, stable level of funding for each system.
  • A “Target Fund Ratio” (TFR) will define the boards’ ability to make plan design changes. The TFR is a target ratio of a fund’s actuarial value of assets (AVA) to that fund’s actuarially determined liabilities. In general, only funds that are at or above the TFR will have flexibility to make plan design changes.
    • A “Target Fund Ratio” (TFR) of 75% is established as of the legislation’s effective date, increasing to 80% over seven years.
    • Only funds meeting or exceeding TFR will be eligible to make plan design changes. Funds below TFR may not make changes.
    • Funds above the TFR but below 80% (during the seven-year phase-in period) may make only those changes that do not reduce their funded ratio upon implementation or below the TFR at any time within the succeeding thirty years.
    • Plans above 80% may not make changes that bring their funded ratio below 80% upon implementation or at any time within the succeeding thirty years.
  • In general, pension funds are considered to be adequately funded if their AVA funded ratio is at or above 80% (the federal standard for “at-risk” funds)..
    • At the end of fiscal 2010, the State’s plans’ combined AVA funded level was just 56 percent.
  • The State Investment Council will expand from 13 to 16 members and include more direct public employee stakeholder input.

Changes to Reflect More Realistic and Financially Sound Principles:

  • Amortization methodology is changed from a percentage of pay schedule (which defers the retirement of any unfunded liability) to a level dollar amount each year in order to retire part of the system’s unfunded liability each year and earlier than the previous methodology.
  • Amortization methodology is changed from a 30 year open period (which retires less of the unfunded liability each year and results in a lower funded ratio) to a maximum open period of 20 years (phased-in over 19 years).

The Health Benefit Reform Plan: Transforming the System to Create Choice and Lower Costs for New Jersey Taxpayers

The reforms will modernize the State employee health benefits plans by bringing the system more in line with the private sector and federal government. Today, New Jersey’s unfunded other post-employment Benefits (OPEB) liability for providing health benefits is $71.4 billion. These reforms will substantially lower health benefits costs for local governments, including those at the county, school and municipal levels, representing another major step forward in providing real, long-term property tax relief. New Jersey spends $4.4 billion annually on public employees and retiree health care costs, with the cost of health benefits making up 9% of the State’s budget today.

The reforms will result in $3.1 billion savings for taxpayers over the next 10 years alone, while increasing choice for employees and ensuring affordability.

Cost Sharing Reforms for Active Employees:

  • All public employees will pay a statutorily-established percent of premium (“premium share”), instead of a percentage of salary, for all State Health Benefits Plan (SHBP)/School Employee Health Benefits Plan (SEHBP) and non-SHBP/SEHBP participating plans.
  • The employee’s share will phase in over four years.
  • The premium share requirement will not affect employees until their current contract expires.
  • Premium shares will vary by salary level and coverage, but may not be less than 1.5% of salary (the current standard).
  • Current employees (excepting those with 20 or more years of service as of the effective date) will pay a premium share in retirement based on the date they reach 25 years of service. If they reach 25 years after the effective date, the employee will pay the premium share in effect based on the date s/he reaches 25 years (i.e., if the employee reaches 25 years in year two of the four year phase-in, then the employee, in retirement, will pay the premium share in effect in year two of the phase-in.)

Changes for Current Retirees:

  • There will be no change with respect to premium cost sharing for current retirees.
  • Changes for Local and Education Employees Outside SHBP/SEHBP:
  • If the employer is not participating in the SHBP/SEHBP, then the employer and employee could agree to a different premium share and out-of-pocket cost arrangement that results in the same level of savings as the statutory premium share formula and plan design changes in the SHBP/SEHBP.
  • Savings would have to be certified by Division of Local Government Services and Division of Pensions and Benefits and the local Financial Officer in each local entity.
  • All local employers are required to offer a Section 125 “cafeteria plan” to employees.

Health Plan Design Reforms

  • Joint Employer and Employee Plan Design Committees:
  • For both SHBP and SEHBP, a state-level joint employee-employer Plan Design Committee is established. The employer and employees are equally represented.

Committee Role in Plan Design:

  • The Committees are responsible for providing plans with at least three levels of coverage, featuring varying levels out-of-pocket costs. The Committees have sole discretion to set the amounts for maximums, co-pays, deductibles, and other such participant costs for each plan.
  • The Committees must also provide for a high deductible health plan.
  • All current statutory requirements with respect to plan design will be repealed.
Press Contact:
Michael Drewniak
Kevin Roberts
609-777-2600

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