TRENTON—After spending most of the day hammering out the details, the state Assembly approved three bills reforming New Jersey’s pension and health benefits system on Monday. Gov. Chris Christie signed the bills into law Monday night.
“The passage of today’s set of bills is a solid start to reforming our pension system and I applaud the Senate and Assembly Leadership and the entire bipartisan efforts of the legislature for taking this necessary first step,” Christie said. “I will continue to work with stakeholders, the legislative leadership, and members of both parties to bring about additional reforms to fix the system in a responsible, fair and fiscally sound manner for New Jersey taxpayers.”
The main point of contention in the Assembly debate was a provision to allow current workers with less than ten years’ service to opt out of the pension system to join a 401(k)-style plan. Some assembly members feared that this would leave the pension system – already facing a $46 billion gap – liable to even greater shortfalls.
The bill passed after an amendment removed the controversial component, and the Senate passed the revised measure.
“This change was sound public policy that won’t cause more problems down the road,” said Assembly Speaker Sheila Oliver (D-Essex). “Allowing workers to opt-out of the pension system would have caused shortfalls that threatened the system’s sustainability. That would have cost taxpayers even more money, so we did the right thing in removing it.”
The bills, which were fiercely opposed by labor unions, will not have a significant immediate impact on the state’s finances. A provision to require employees to contribute to their health benefits is expected to net a $314 million annual savings for local government.
The new laws will:
- Require all public employees to pay at least 1.5 percent of their salary toward health benefits after the expiration of a current contract;
- Require all newly-hired employees to pay at least 1.5 percent of their base pension toward health benefits upon retirement;
- Require that any changes negotiated by the state — such as higher co-pays — with its employees be applied to every government entity participating in state health benefits programs;
- Prohibit multiple coverage in state health benefits programs;
- Require new state workers to work at least 35 hours per week to qualify for health benefits; and
- Require new local and school employees to work at least 25 hours per week to quality for health benefits.
- Limit sick leave payouts for all new local and school employees to $15,000, just as it already is for state employees;
- Prohibit local government and school employees to carry over only one year of vacation time year-to-year; and
- Eliminate the ineffective sick leave injury program.
- Limit pension system enrollment to new full-time employees who work at least 35 hours per week for the state or 32 hours for local government and schools;
- Require all workers with more than one public job to receive a pension for only one job, with only the highest-salaried position counting toward a pension;
- Allow new employees earning at least $5,000 annually to enroll in a 401(k)-style plan;
- Change the equation used to calculate pensions for new employees by dividing the number of years worked by 60, rather than 55, thus reversing for new workers the 9 percent benefit enhancement enacted in 2001;
- Base pensions for new public workers and teachers on the five highest salary years, rather than the highest three;
- Base pensions for new police and firefighters on the three highest salary years rather than the highest single year;
- Impose a pensionable salary cap for new employees of the Police and Firemen’s Retirement System and the State Police Retirement System. Salary earned under the cap — the base salary equivalent to the maximum wage contribution base for Social Security, or for 2010, $106,800 — would be counted toward PFRS or SPRS membership. Salary over the cap could be included in a 401(k)-type program;
- Repeal 2003 legislation that allowed a police or firefighter to retire at any age with 25 years of service credit on a special retirement allowance of 70 percent of final compensation, if the retirement system reached a funded level of 104 percent; and
- Eliminate the non-forfeitable right to pension benefits after five years in the system for new employees.
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