Local Implications of Health Care & Pension Reform Bill

probably won’t be felt for a few years.

“Property owners will start to see some of the benefits in 2013,” said Mayor David Stahl. “It will be an incremental impact on operational budgets as we start repairing the financial infrastructure that is so detrimental to every municipality in the state.”

The governor has touted the reforms as providing $120 billion over the next 30 years in savings to New Jersey taxpayers through pension reform and an additional $3.1 billion over the next 10 years from health benefits reform.

On the local level, the impacts on municipal coffers will be a bit less dramatic immediately due to the configuration of contracts and pensions.

East Brunswick Chief Financial Officer Lou Neely said that the changes won’t affect employees until their contracts come up for renewal. In East Brunswick, contracts with the Policeman’s Benevolent Association, the superior Officer’s Association, the Municipal Employees Association, the Professional Managers Association, and the group that handles crossing guards, don’t expire until 2013.

”If you are under a contract, the contract cannot be abrogated," said Neely, meaning that the health care premium rates stipulated by the bill will not be implemented immediately for public employees under contract.”

However, when those contracts expire, new contracts will have to comply with the new law.

Employees who are not aligned — meaning those not in a collective bargaining unit or union — will begin paying the health care premiums stipulated by the bill immediately.

“Its definitely a good thing,” said Mayor Stahl. “When I went over our budget to our residents, I mentioned that our healthcare and benefits pension was 7 to 8 percent of our budget. We have structural problems in state of New Jersey that affect every municipality. "

Neely said the pension reforms have more of a budgetary impact on the state level. "It's not such a boon to local government," said Neely.

Neely noted that, while the state had given municipalities a "pension holiday" for years — allowing towns to skip paying contributions into employees' pensions, pension payments by municipalities had been phased back in starting under former Gov. Jon Corzine. Municipalities playing "catch up" have turned the corner, said Neely.

"Local governments have been making payments. They were beginning to see the light at the end of the tunnel. The real impact is at the state level."

While those payments have finally reached 100 percent of a municipality’s required contribution, the state’s required payments won’t even begin until next year.

“Their bill will keep going up for the next three years, but other than state, the locals should see the bill flat or go down a small amount in 2010 and drop more in 2013,” he said.

Neely also noted that the state had been making good investments of assets in the pension fund system — an important fact given that 50 percent of the state pension funds' income is return on investment from its assets. Neely credited the state's investment in international investment and hedge funds.

Last week, the New Jersey League of Municipalities sent out a memo detailing the implications and varying rates for the new health care premium rates to be paid by public employees. (To view an online version of the memo, click here.)

The memo noted that the rates have a four-year phase in period.

The bill requires that all local government employers participate in a Section 125 plan. This allows employees to make the required premium payments for health care prior to the withholding of taxes. 

All employees will be required to contribute a percentage of their health care premium or 1.5 percent of base salary whichever is greater. The percentage will be based on the employee’s base salary on a sliding scale. The percentage will be phased-in over four years as follows:

• 1st year – ¼ of the percentage
• 2nd year – ½ of the percentage
• 3rd year – ¾ of the percentage
• 4th year – 4/4 of the percentage

The employee contribution, based on cost of coverage, according to the NJ League of Municipalities, is as follows:

Individual Coverage

Salary Range

Year 1

Year 2

Year 3

Year 4

less than 20,000

1.13%

2.25%

3.38%

4.5%

20,000-24,999.99

1.38%

2.75%

4.13%

5.5%

25,000-29,999.99

1.88%

3.75%

5.63%

7.5%

30,000-34,999.99

2.50%

5.00%

7.50%

10.0%

35,000-39,999.99

2.75%

5.50%

8.25%

11.0%

40,000-44,999.99

3.00%

6.00%

9.00%

12.0%

45,000-49,999.99

3.50%

7.00%

10.50%

14.0%

50,000-54,999.99

5.00%

10.00%

15.00%

20.0%

55,000-59,999.99

5.75%

11.50%

17.25%

23.0%

60,000-64,999.99

6.75%

13.50%

20.25%

27.0%

65,000-69,999.99

7.25%

14.50%

21.75%

29.0%

70,000-74,999.99

8.00%

16.00%

24.00%

32.0%

75,000-79,999.99

8.25%

16.50%

24.75%

33.0%

80,000-94,999.99

8.50%

17.00%

25.50%

34.0%

95,000 and over

8.75%

17.50%

26.25%

35.0%

Member/Spouse or Member/Child Coverage 

Salary Range

Year 1

Year 2

Year 3

Year 4

less than 25,000

0.88%

1.75%

2.63%

3.5%

25,000-29,999.99

1.13%

2.25%

3.38%

4.5%

30,000-34,999.99

1.50%

3.00%

4.50%

6.0%

35,000-39,999.99

1.75%

3.50%

5.25%

7.0%

40,000-44,999.99

2.00%

4.00%

6.00%

8.0%

45,000-49,999.99

2.50%

5.00%

7.50%

10.0%

50,000-54,999.99

3.75%

7.50%

11.25%

15.0%

55,000-59,999.99

4.25%

8.50%

12.75%

17.0%

60,000-64,999.99

5.25%

10.50%

15.75%

21.0%

65,000-69,999.99

5.75%

11.50%

17.25%

23.0%

70,000-74,999.99

6.50%

13.00%

19.50%

26.0%

75,000-79,999.99

6.75%

13.50%

20.25%

27.0%

80,000-84,999.99

7.00%

14.00%

21.00%

28.0%

85,000-99,999.99

7.50%

15.00%

22.50%

30.0%

100,000 and over

8.75%

17.50%

26.25%

35.0%

Family Coverage 

Salary Range

Year 1

Year 2

Year 3

Year 4

less than 25,000

0.75%

1.50%

2.25%

3%

25,000-29,999.99

1.00%

2.00%

3.00%

4%

30,000-34,999.99

1.25%

2.50%

3.75%

5%

35,000-39,999.99

1.50%

3.00%

4.50%

6%

40,000-44,999.99

1.75%

3.50%

5.25%

7%

45,000-49,999.99

2.25%

4.50%

6.75%

9%

50,000-54,999.99

3.00%

6.00%

9.00%

12%

55,000-59,999.99

3.50%

7.00%

10.50%

14%

60,000-64,999.99

4.25%

8.50%

12.75%

17%

65,000-69,999.99

4.75%

9.50%

14.25%

19%

70,000-74,999.99

5.50%

11.00%

16.50%

22%

75,000-79,999.99

5.75%

11.50%

17.25%

23%

80,000-84,999.99

6.00%

12.00%

18.00%

24%

85,000-89,999.99

6.50%

13.00%

19.50%

26%

90,000-94,999.99

7.00%

14.00%

21.00%

28%

95,000-99,999.99

7.25%

14.50%

21.75%

29%

100,000-109,999.99

8.00%

16.00%

24.00%

32%

110,000 and over

8.75%

17.50%

26.25%

35%

If the municipality provides health benefits in retirement, employees will be required to contribute in retirement.  However, current retirees and current employees with 20 years of service on the effective date of the bill will not be affected when they retire.

Retirement contributions will be based on retirement allowance, but in no circumstances less than 1.5 percent of monthly retirement allowance. The amounts will be deducted from the retiree’s benefits and paid to the retiree’s former employer.  Retirement contributions apply to surviving spouse and employee’s dependents in the same manner as to the retiree at time of death.

The bill, A-4133, will require teachers, school employees and state and local government workers to pay an additional 1 percent of their salaries toward their pensions as of July 1, and an additional 1 percent phased in over the next seven years for a total of 7.5 percent.

Police and firefighters will pay an additional 1.5 percent of their salaries toward their pensions for a total of 10 percent, as of July 1.  The bill moves the retirement age for new teachers and non-uniformed employees from 60-years-old to 65. To be eligible for early retirement, the employees now have to work 30 years instead of 25.

Automatic cost-of-living adjustment (COLA) for retired police, firefighters, teachers, state and local government employees in New Jersey's six pension systems was eliminated by the legislation until the state’s pension funds are at least 80 percent funded. Based on state estimates, that could take as long as 30 years.

(Some of the only good news in the reforms, from the perspective of public workers, is that they require the state to make its annual payment into the pension system or unions could sue to force the state to make its payments. The state has been withholding payments to the pension system for years — Gov. Christie withheld a $3 billion payment from the pension fund last year — and the system is underfunded by approximately $54 billion.)

The overall impact of the increased pension and health care contributions is estimated to range from $1,142 for a public employee making $25,000 per year, to $6,058 for an employee earning $65,000, according to the Communications Workers of America (CWA).

- Davy James contributed to this article.