Q and A on Pension and Benefits Legislation

Q: What are these bills?
They are a package of three bills and a proposed constitutional amendment that seek to change pensions and benefits for current and new active and retired public employees, including NJEA members. The first, S-2, deals with changes to the pension system; the second, S-3, deals with changes to state health benefits; and the third, S-4, deals with an assortment of other issues, including sick leave buyouts and disability retirements.

Q: Who is behind them?
They are being promoted by Sen. Stephen Sweeney (D-Gloucester), and supported by Gov. Chris Christie.

Q: What would the pension bill do?
It seeks sweeping changes in the pension system:
• requiring new school employees to work at least 32 hours per week to qualify for a defined benefit pension;
• changing the benefit formula for new employees from N/55 to N/60 (where N=number of years of service);
• changing the final average salary calculation for new employees from three to five highest years;
• allowing only one job per new employee for pension purposes;
• repealing the “non-forfeitable right” to pension benefits for all new employees;
• allowing new employees or employees with less than 10 years of service credit to choose the state’s Defined Contribution Plan (DCP) plan in place of the current defined benefit plans (PERS and TPAF)

Q: What is the definition of a “new employee”?
A “new” employee is defined as an employee who begins service after the effective date of the legislation, should it be enacted. Provisions in all the bills affecting new employees could also affect current employees if they leave the system and return after a break in service. In most situations, a break in service is considered two years or more, with no contributions to the pension system.

Q: Who is affected by the pension changes?
The bill would apply to all new employees. School employees already enrolled in the pension system would not see their pensions changed. Current school employees who have a break in service (see question above) would be treated as new employees when they returned to work.

Q: How would the 32-hour requirement affect new employees?
Some NJEA members work fewer than 32 hours. In addition, some elementary-level specialists (music, art, counselors, child study team members, etc.) are shared with other districts. The bill is unclear how they would be treated. But any new employee working less than 32 hours per week and earning more than $5,000 would only be eligible for a defined contribution plan.

Q: How would the change from N/55 to N/60 affect new employees?
Currently, pensions are calculated by taking a member’s final average salary, multiplying it by the number of years worked and dividing it by 55. Changing 55 to 60 in that formula would result in an 8.33% decrease in new employees’ pensions.

Q: How would changing the calculation of final average salary (FAS) from three years to five years affect new employees?
Currently, FAS is calculated by averaging a member’s three highest salary years. This bill would change that to five years for new employees. The exact impact would be different for each member, but preliminary estimates indicate it would decrease pensions by about 2% on average.

Q: How would the “one job for a pension” rule affect new employees?
Some school employees hold more than one part-time position instead of a single full-time position. Those employees would only be able to collect a pension for one of those jobs, denying them the ability to earn the equivalent of a full-time pension for working the equivalent of a full-time job.

Q: What is the impact of repealing the “non-forfeitable right” to pensions for new employees?
The “non-forfeitable right” comes from a law which ensures that once an employee participates in the pension system for five years, his or her pension benefits cannot be reduced. Changing that law would pose a serious threat to new employees’ pensions because the state would be able to change those pensions at any time in the future.

Q: What is the impact of allowing new members and members with fewer than 10 years in the pension system to opt in to the defined contribution retirement plan (DCRP)?
This change would be harmful to both current and future members of TPAF and PERS, and potentially very harmful to those employees who choose not to participate in PERS or TPAF. If a number of newer employees elect to go into the DCRP, it would further weaken TPAF and PERS, as less money would be coming in to pay required benefits. Also, those employees who choose the DCRP would not be eligible for post-retirement health benefits. Additionally, they would have no protection if the value of their investments dropped.

Q: What is the impact of mandatory state funding of the pension systems?
Theoretically, mandating that the state fully fund the pension systems is a good idea which would significantly strengthen those systems. In practice, however, the state is already required to fully fund the systems, but regularly ignores that requirement. It is unclear why that would change with a new law. Further, the law would allow the state to phase in funding very slowly, over seven years. That means there would be at least six more years of underfunding by the state, which would make the current funding situation even worse.

Q: What would the health benefits bill do?
It seeks sweeping changes for new and current active members in districts that participate in the School Employees’ Health Benefits Program (SEHBP), as well as future retirees who are not already enrolled in PERS or TPAF and who will receive post-retirement medical benefits through the SEHBP. Among the changes are:
• mandatory premium sharing (1.5% of salary) for all current active members in the SEHBP;
• mandatory premium sharing (1.5% of pension) for new members of the pension system who retire after a minimum of 25 years of service;
• 25-hour minimum work week for new members to participate in SEHBP;
• changes to SHBP would automatically apply to SEHBP;
• limits on health insurance waivers;
• no opportunity for duplicate coverage or coordination of benefits within state health insurance plans.

Q: How would mandatory premium sharing affect current members enrolled in the SEHBP?
The legislation mandates that all employees enrolled in the SEHBP pay 1.5% of base salary toward their health insurance premium. It would apply only at the end of a current collective bargaining agreement. It would NOT be subject to collective bargaining, but would simply be imposed. It would be in addition to any other premium sharing the parties negotiated.

Q: How would mandatory premium sharing in the SEHBP affect future retirees?
Current NJEA retirees in the SEHBP do not pay any portion of their health insurance premium. Active employees have also been promised a premium-free medical benefit in retirement. This legislation would end that promise for new employees. They would be required to pay 1.5% of their pension toward the cost of their medical insurance.

Q: How would the minimum work-week requirement affect new employees?
Currently, active employees must work at least 20 hours per week to quality for coverage under the SEHBP. That number can be negotiated higher in collective bargaining. This bill would set that number at a minimum of 25 hours for new employees to be eligible for health benefits.

Q: How would changes in the SHBP affect the SEHBP?
Under the legislation, changes to the SHBP (such as deductibles, coverage or plan offerings) negotiated by state workers would be automatically applied to all participants in all state health plans, including SEHBP. That would result in most changes to the SEHBP being controlled by negotiations with state workers, in which NJEA members have no voice.

Q: How would the change in the health insurance waiver affect employees?
Currently, boards of education have the right to offer employees a monetary incentive of up to 50% of the board’s savings if the employee chooses to waive health insurance coverage. Under the bill, that incentive would be capped at 25% of savings or $5,000, whichever is lower. Interestingly, this provision could end up costing boards more money if lower incentives cause fewer employees to decline health insurance coverage.

Q: What is coordination of benefits, and what is the impact of losing that ability?
Currently, people who are covered under two different state plans (e.g. a member whose spouse is covered under his or her own job) can coordinate the benefits of both plans, which can lower out-of-pocket expenses for those members. This provision would prevent anyone from being covered under more than one state plan. It would affect both active and retired members who are currently eligible for coverage under more than one state plan.

Q: What does the third bill do?
The third bill proposes a number of changes to employee benefits, including:
• limits on sick-leave buyouts for new employees at retirement;
• limits on accumulation of vacation for new employees; and
• termination of the disability retirement program for new employees.

Q: What impact would the limit on sick leave buyouts have on new employees?
The legislation proposes a $15,000 limit on sick leave buyouts for new employees, which could occur only at retirement. Currently that level is set in local negotiations, and while most contracts set it at or below $15,000, some set the amount higher.

Q: What impact would the limit on vacation leave accumulation have on new members?
Currently, employers can negotiate rules for how 12-month employees are allowed to accumulate vacation time. Under this proposal, new employees would be limited to rolling over only one year’s worth of accumulated vacation, with very few exceptions.

Q: How would the termination of disability retirements affect members?
For new employees, the disability retirement program would be replaced by disability insurance. While in some cases members would benefit, since members currently do not qualify for disability retirement coverage until 10 years of service, in most cases the level of benefit would not be as good.

1. Pension Bill

Defined Benefit Pension for Full Time Employees Only
The bill requires that all new* employees must be considered full time to become members of the TPAF and PERS. Full time is defined as 35 hours per week for State employees or 32 hours per week for school employees.

Part time employees would be eligible for enrollment in the Defined Contribution Retirement Program if their salary exceeded $5,000. No pension is available to employees earning less than $5,000.

Impact on members:
• Many new ESP members would be adversely impacted due to the 32 hour weekly requirement.
• Many specialists at the elementary level (music, art, counselors, child study team members, etc.) are shared with other districts. The bill may adversely affect new members hired under that scenario as it does not address how these members would be treated.

Change the Benefit Formula to 1/60
The bill reduces the benefits formula for new members PERS and TPAF from n/55 to n/60.

Impact on members:
• New members would see an 8.3% decrease in their pensions.

Change Final Average Salary Calculation
The bill changes the calculation for Final Average Salary (FAS) for new members from an average of the member’s three highest years to an average of the member’s five highest years.

Impact on members:
• Most new members would have their pensions reduced. The amount of the reduction could vary greatly based on the individual's salary guide.

Designate One Job for One Pension
The bill allows one position per employee for pension purposes for new members in both TPAF and PERS.

Impact on members:
• This would have an adverse effect on new members participating in PERS who hold more than one part-time job.
• This would prevent current part-time members from using any future part time jobs toward their pension calculation.

*NOTE: Provisions in all the bills affecting NEW employees would also affect CURRENT employees if they leave the system and return after a break in service.

Repeal of Non-Forfeitable Right
The bill would take away from new employees the non-forfeitable right to receive benefits once they accumulate 5 years of service. A “non-forfeitable right” means that the benefits program cannot be reduced for employees once they reach 5 years of service.

Impact on members:
• This severely limits the security of members in their pension benefits.
• This would give the State the right to alter, modify or amend any retirement systems and funds prospectively at any time in the future at its discretion.

Allow Opt-In to Defined Contribution Plan
The bill permits a new member who is eligible for TPAF and PERS, or a member already enrolled but with less than 10 years of service credit, to choose the Defined Contribution Retirement Program (DCRP) in place of TPAF or PERS, or to withdraw entirely from any state-administered pension system. If that selection is made, a member irrevocably waives all rights and benefits which would otherwise be provided by TPAF/PERS.

Impact on members:
• This bill jeopardizes the security of the members who do not fully understand the tremendous advantages of the DB plans.
• Districts could have an incentive to coerce employees to choose (or transfer to) the DCRP if it cost them a lower percentage of payroll, especially as PERS costs escalate.

Mandatory Funding of Pension Systems by the State
The bill requires that the State, beginning July 1, 2011, makes in full the annual employer’s contribution, as computed by the actuaries, to TPAF and PERS. The State would be allowed to phase in its obligation by making at least 1/7th of the full contribution in the first year and an additional 1/7th per year until payment of the full contribution is made in the seventh fiscal year and each year after.

Impact on members:
• Forcing the state to put the full contribution into the pension funds would be a good for the funds, if the contributions were actually made as promised.
• As the required payment grows, the state may look to make further cuts in benefits.
• While a positive proposal, it would codify six more years of under-funding of the pension systems until full funding is reached in the seventh year.

2. Health Benefits Bill

Mandatory Premium Sharing – Active Employees
The bill requires all active employees of the State, local governments, county colleges, and boards of education to contribute 1.5% of base salary toward the cost of health care coverage under the School Employees’ Health Benefits Program (SEHBP). This amount will be in addition to any other amount that may be required through the local collective bargaining process. The provision would begin with the expiration of existing contracts.

Impact on members:
• This bill would only affect those members participating in the SEHBP. Members covered under private insurance programs would not be affected.
• This would have a devastating effect on members participating in the SEHBP who would be required, without bargaining, to contribute 1.5% of their salary toward the health benefit premium.
• This would have a devastating effect on the SEHBP. Members participating in the SEHBP would look to remove their district from the SEHBP, leaving private carriers as the only alternative for premium free benefits.

Mandatory Premium Sharing - Retirees
The bill requires new employees (not already employed) to pay 1.5% of their pension benefit in retirement toward post-retirement medical benefits.

Impact on members:
• This would impact future members.
• Eliminates, for future members, the guarantee of premium-free post-retirement medical benefit.

Full Time Employee Definition for Health Insurance
This bill limits new members' enrollment in the SEHBP to those working 25 or more per week. Currently a member must work at least 20 hours to be eligible for health insurance. The number of hours can be negotiated higher.

Impact on members:
• This would impact future members participating in the SEHBP.
• For a member to qualify for post-retirement medical benefits, they must be eligible for benefits at the time of retirement. This recommendation would certainly affect some members trying to qualify for this important benefit.

Consistent Benefits for All Public Employees
The bill requires that changes – including deductibles, coverage or plan offerings -- in health care benefits negotiated by state employees in the SHBP be imposed, without local negotiation, on members in the SEHBP as well.

Impact on members:
• This would impact both active and retired members participating in the SEHBP.
• State employees over the years have negotiated changes to the SHBP that have not been unilaterally applied to local employers
• This would greatly diminish the ability of the SEHBC to control changes to school employees. Most changes to the SEHBP would be controlled by state union negotiations.

Flexibility in SEHBP plan offerings
The bill provides boards of education with the ability to limit, through collective bargaining, the choice of plans offered through the SEHBP. This bill would allow employers to negotiate a single plan in the SEHBP or SHBP, instead of allowing members the ability to choose any of the plans in the program.

Impact on members:
• This would impact active members participating in the SEHBP.
• Current law allows employers the ability to negotiate a single plan, but they must give the employee the ability to buy up to the other plans.

Waiver on health insurance
The bill limits the monetary incentive for employees electing to waive coverage to 25% of the amount saved by the employer and caps the waiver at 25% or $5,000, whichever is less.

Impact on members:
• This would impact active members participating in the SEHBP.
• Many employees participating in the SEHBP receive an incentive greater than 25% and/or $5,000.

No Duplicate Coverage
The bill prohibits individuals from being covered under more than one SHBP and/or SEHBP plan, eliminating coordination of benefits within the plans.

Impact on members:
• This would impact active and retired members participating in the SEHBP who are eligible for coverage under more than one plan.

3. Miscellaneous Bill

Limit Accumulated Sick Leave Compensation to $15,000
The bill limits new employees’ compensation for accumulated unused sick leave to a maximum of $15,000, which can only be paid at retirement.

Impact on members:
• Some teacher and ESP contracts currently have negotiated sick leave buy-outs greater than $15,000

Limit Accumulated Vacation Leave to One Year
The bill would limit new employees' vacation leave carry-over to one year, unless that vacation leave that could not be used because of an emergency declared by the governor in which case it might accumulate subject to certain limits.

Impact on members:
• This would primarily affect 12-month employees who may lose accumulated vacation days should they be unable to use them.

Termination of State Sick Leave Injury Program/ Disability Retirements
The bill terminates the sick leave injury program for state employees who are injured or who become ill directly as a result of state employment after the bill’s effective date or after the expiration of current collective negotiation agreements. It also eliminates accidental and ordinary disability retirement for newPERS and TPAF members. Those members will be eligible for disability insurance coverage similar to that provided by the State currently to individuals enrolled in the Defined Contribution Retirement Program.

Impact on members:
• Positive - TPAF/PERS ordinary disability requires 10 years of NJ service credit to qualify. An insurance policy typically has a much lower waiting period, usually one year, for eligibility
• Negative –Disability insurance, by design, is catastrophic insurance and frequently provides only short-term payments for an employee to transition to another career, at which time benefits (pension contributions and PRM benefits) are terminated

Recent political developments affecting BCEA members

1. Sen. Sweeney’s pension/benefit reform agenda:

On Jan. 25, Senate President Steve Sweeney issued a statement announcing his intention to seek “swift action” on a package of changes to pensions and benefits. While no specific bills have yet been introduced, we expect that to happen quickly, perhaps as early as next week.

The statement provides an outline of what to expect: “Among the concepts...the Senate must revisit include
• rolling-back a nine-percent increase legislatively enacted in 2001 which resulted in a significant increase in the pension fund's unfunded liability,
• increasing the number of ‘high salary’ years used to calculate pension benefits from the average of three years to the average of at least five years,
• requiring all part-time employees to enroll into a defined contribution plan instead of the pension system and
• allowing all current non-vested public employees to opt into a defined contribution retirement plan.”

NJEA has a long history of fighting for and protecting the integrity and security of our members’ pensions and benefits. We intend to do so as this round of proposals is considered and debated. Our overriding objective is to protect the security of our members’ pensions and benefits. We must not allow an unstable, unsustainable system to threaten the pensions and benefits of all members. We will be reviewing all of the specific proposals as they become available, and we are exploring additional reform options in order to determine what steps are possible and/or necessary in order to create a better, more secure system for all of our members. We may not agree with every proposed reform, and we may choose to fight any or all of the proposals. Ultimately, however, we must be part of a common-sense, proactive approach to securing the pensions and benefits our members rely on in their retirement years.

2. Gov. Christie’s education transition report

Last Friday, the Christie administration released a number of reports from its transition team. Of greatest interest to our members were two reports. One dealt with pensions and benefits. Many of those issues are addressed above. The other dealt with educational issues. That report touched on a number of hot-button issues, from collective bargaining to tenure to vouchers, and beyond. It is important to remember that these reports are recommendations, not law or policy. However, we expect that the administration will move to enact many of the recommendations, and individual legislators may also move to introduce legislation based on the recommendations. We are preparing to act accordingly.

Following is a summary of the most critical proposals raised in the reports, as well as NJEA’s initial response.

Collective Bargaining
The report recommends that the state impose a salary freeze on school employees in 2010-2011, that the collective bargaining law be rolled back to again give boards the right to impose a settlement and that the state attempt to use regional, rather than local, salary guides. NJEA remains firmly committed to the principle of collective bargaining. Negotiated contracts are legally binding and cannot be unilaterally changed by either the local board of education or the state. All parties to a contract must honor its terms and conditions. NJEA believes that contract imposition is antithetical to the process of collective bargaining and we oppose changing the collective bargaining law to allow that practice. Collective bargaining, including for salary guides, should continue to take place at the local level.

Tenure
The report recommends lengthening the probationary period prior to tenure from three years to five years and streamlining the tenure dismissal process.

NJEA firmly maintains that tenure is a necessary due-process requirement which protects teachers from arbitrary, capricious or politically motivated firings. The current three-year probationary period, in which a teacher does not earn tenure protection until the first day of the fourth year of employment, provides sufficient time for administrators to evaluate new teachers and determine whether tenure should be granted.

Vouchers/School Choice
The report recommends that the administration support the so-called “scholarship” voucher program which has been introduced, and defeated, previously in the legislature.

NJEA remains firmly opposed to using public funds to subsidize private school tuition costs. The proposed voucher bill would divert up to $360 million from the state treasury during the trial period alone. Public funds should be used to support accountable public schools, not to subsidize private, for-profit or sectarian schools.

Charter Schools
The report recommends expansion of New Jersey’s charter school program by immediately opening 5-10 new charter schools for the 2010-2011 school year, and by making certain entities eligible to open multiple charter schools. It also recommends rescinding the charters of several low-performing charter schools.

NJEA is not opposed to high quality public charter schools as one component of an innovative, progressive system of public education. Charter schools should be held to very high standards. However, rushing the application process in order to meet an unrealistically short timeline of opening 5-10 new charter schools this year would not allow for adequate review by the Department of Education and planning by the charter school operator. That is not the way to maintain high standards.

Other issues
The transition team’s education report deals with a number of other issues, including regionalization and shared services and removing or reducing some of the regulations currently governing public schools. It also delves into areas including teacher evaluation, standardized testing, certification, special education, professional development and NJEA Convention attendance.

Each of these areas is important to our members and our schools and each will be studied in depth. It is our belief right now that most of these issues, if they are raised, will come later, after some of the other issues addressed earlier in this communication. NJEA will continue to prepare for these issues, and will monitor their development so that we are prepared to participate productively when discussions occur.

3. Gov. Christie’s executive order regarding “pay-to-play”

On his first full day in office, Gov. Christie issued a series of executive orders. Of the most interest to NJEA and its members was one which attempts to bring unions under the state’s pay-to-play restrictions.

NJEA’s attorneys are reviewing the order to determine if it is applicable to NJEA. While we are awaiting a final opinion, it appears likely that the executive order will not be able to prevent NJEA and its members from exercising our rights to engage in the political process.

We will pursue any necessary action to ensure our members’ rights are protected with regard to this issue.