Employers' Pensions and Benefits Administration Manual (EPBAM)
Winter 2003
   

 

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Workers' Compensation:
Consequences for Pension Reporting,
Contributions and Health Benefits


 

"Permanent" vs. "Temporary" Workers' Compensation Awards

 
 

When Employer Obligations End under Workers' Compensation Awards

 
 

Pension Reporting and Contributions

 
 

Workers' Compensation Awards "With Pay"

 
 

Employer Augmented Workers' Compensation Awards

 
 

Workers' Compensation Awards "Without Pay"

 
 

Contributory Group Life Insurance Payments: (PERS & TPAF Only)

 
 

Health Benefits Considerations for Workers' Compensation

 

Workers' Compensation is a rapidly evolving and often confusing issue affecting pension administrators. Fact Sheet 45 offers an excellent discussion to provide you with a basic understanding Workers' Compensation issues.

New Jersey Administrative Code (NJAC 17:1-4.39) covers employer obligations under Workers' Compensation awards.

"Permanent" vs. "Temporary" Workers' Compensation Awards

For pension purposes, there is no distinction between temporary and permanent Workers' Compensation awards.

Recent court rulings have held that an employee who receives Workers' Compensation benefits must be retained on payroll. The employer may be responsible for remitting pension contributions on behalf of the employee.

When Employer Obligations End under Workers' Compensation Awards

The following are circumstances under which an employer's obligation to pay pension contributions will cease:

  • The employee voluntarily resigns from employment for reasons other than the inability to perform the functions of the former position; or

  • The employee is terminated by the employer for reasons unrelated to the Workers' Compensation award; or

  • The employee has sufficient service credit to be eligible to receive a disability retirement allowance.

If the employer ceases remitting contributions because the employee has voluntarily resigned from employment or the employee was terminated for reasons unrelated to the Workers' Compensation award, the employer must notify the Division of Pensions and Benefits by correcting the Quarterly Report of Contributions (ROC). In accordance with normal policy, if the correction covers prior period adjustments, a detailed letter should be sent to the Audit/Billing Section under seperate cover and you should attach appropriate supporting documentation, such as the workers' compensation award, letter of resignation, and/or termination agreement.

Specific issues that pertain to NJ State-administered pension system reporting and contributions are addressed below.

Pension Reporting and Contributions

Workers' Compensation awards may result in awards of lump sum payments or in periodic payments:

  • Lump sum payments for medical expenses and/or "damages" are not considered pensionable, therefore, are not reported to the Division of Pensions and Benefits.

  • Only "periodic" payments intended to replace lost wages are pensionable. Often, a portion of these awards are paid in a lump sum to cover wages lost over a specified period of time in the past. In this case the employer would report the pensionable portion of these payments in the same manner as with a "retroactive salary increase." Unless otherwise stated in the award, the salary used for remitting and reporting to the Division is the salary the member received immediately before the receipt of Workers' Compensation benefits.

Workers' Compensation Awards "with Pay" versus "without Pay"

Workers' Compensation Awards "with Pay"

If an employer keeps an employee on regular payroll and the insurance company pays the employing location (not the member), then the employee is responsible for all deductions, including the continuation of loans and arrears. It is as though the member is still active in all respects for pension purposes.

Full contributions/repayments would be remitted monthly, and full service credit, salary, contributions and other deductions would be reported quarterly on the ROC.

If a periodic Workers' Compensation award "with pay" is for only a percentage of the member's regular salary, the member still contributes the normal amount of pension deductions and is reported at full base salary on the ROC.

Employer Augmented Workers' Compensation Awards

Some employers augment a Workers' Compensation award that is for less than the full base salary. When an employer augments or compensates for the remaining portion of the member's full salary, then the member is treated as "with pay": the member's full contributions and regular deductions are withheld from the employer's salary payment and the member is reported for full salary and deductions on the ROC.

For example, an insurance company pays a Workers' Compensation award of 70% of base salary directly to the member.The employer elects to augment the award amount by the remaining 30% of base salary. The employer would deduct pension contributions and repayments (loans, etc.) for 100% of salary from the 30% check.

Workers' Compensation Awards "without Pay"

The employer is responsible for paying the member's normal pension contributions and mandatory back deductions if the only payment the employee is receiving is a check directly from the insurance company. This is considered Workers' Compensation "without pay".

Full contributions would be remitted monthly, and full service credit, pensionable salary, and contributions would be reported quarterly on the ROC.

The employer is not responsible for voluntary payments such as loans, arrears, and SACT contributions.

If the periodic Workers' Compensation award "without pay" is for a percentage of the member's regular salary, the employer will still remit the full monthly pension contributions on behalf of the member and report the full base salary on the ROC.

Contributory Group Life Insurance Payments (PERS & TPAF Only)

If a Workers' Compensation award is "with pay", the PERS or TPAF member is considered to be active in all respects for pension purposes. Contributory Group Life Insurance deductions from the member's salary will continue as normal.

For the duration covered by the award of Workers' Compensation "without pay", the PERS member is considered "inactive" for purposes of group life insurance coverage. The employer is obligated to inform the employee of the requirement that group life insurance premiums must be remitted to continue coverage.

The member must then make arrangements to pre-pay the regular premium for contributory insurance. Payments may be sent directly to the Division, or the employer may elect to allow the member to pay the location, who would then forward the premium to the Division through regular monthly TEPS transmittals and report these premiums in the usual way on the ROC.

The key is that it is the PERS member's responsibility to remit payments in advance (either by direct payment or by payments made through the employer), or face the termination of contributory insurance coverage. Premium payments must to be remitted with a Personal Life Insurance Remittance form.

TPAF members who are receiving Workers' Compensation "without pay", or on approved leave of absence for medical reasons, continue to be covered by contributory life insurance. The TPAF contributory insurance premium is paid for by the State and is not required of the member.

Health Benefits and Workers' Compensation

When an employee has a Workers' Compensation award pending, or who is receiving an award of periodic benefits under Workers' Compensation or the Second Injury Fund, the employee is considered active in all respects for health benefits coverage. Health benefits coverage will continue in force for the employee and all eligible dependents covered under the employee's coverage level selection. If the employee shares in the cost of health benefit premiums, an employee receiving Workers' Compensation "without pay" must pay the employer in advance for his or her share of the premiums. If the Workers' Compensation award is "with pay", the premium share may continue to be deducted from the employee's paycheck.

 

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Last Updated: August 4, 2003