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Major Pension-Health Benefits Reform Bill Unveiled

TRENTON, June 15, 2011—Legislative panels will begin hearings on public employee pension and health benefits reform legislation this week, with the Senate Budget and Appropriations Committee set to discuss the proposal tomorrow, while the Assembly Budget Committee will address the bill on Monday.  The Senate Majority Office released the draft legislation to the news media yesterday.

The proposal is designed to ensure the pension funds’ integrity by increasing active employees’ pension contribution levels, changing retirement benefit levels and eligibility, and ensuring that the state and other public entities pay the employers’ contributions to the programs annually.  It would also increase employees’ and retirees’ contributions to health coverage,

Implementation of the reforms, particularly in the area of health benefits, is integral to the proposed 2011-2012 state budget, which anticipates hundreds of millions of dollars in savings through changes in the state-run health insurance program.

For School Districts   The majority of school district employees belong to the Teachers Pension and Annuity Fund, for which the state pays the employers’ annual contribution.  State support is critical to the viability of the system.  (The state government has consistently not met its annual financial responsibilities to the TPAF and the other state-run pension systems.)

For local school boards, immediate financial impact would not result from the legislation’s pension reform provisions, but rather from the health benefits changes, which would increase contributions to health insurance premiums for most employees, based on a sliding scale determined by income.

Until last year, employee contribution to health insurance premiums was exclusively a matter of negotiations.  In May 2010, however, a new law required all public employees to contribute a minimum of 1.5%-of-salary to health insurance costs when their existing collective bargaining agreements expired.  The minimum contribution is not negotiable, although a school board and a union may agree to additional contributions.

Largely as a result of the statute, employees in 238 school districts now contribute to the cost of their basic health coverage, compared to 49 districts in 2009-2010.  The current number will increase on July 1 when teacher contracts expire in 222 districts, activating the mandatory contribution toward premium for those employees.

Higher contribution levels by district staff would help local school boards in dealing with health benefit costs, which continue to increase much more rapidly than the rate of inflation.

High Hurdle  At issue in Trenton has been combining pension reform with health benefits reform in a single piece of legislation.  Last week, Governor Christie and Senate President Stephen Sweeney agreed on the components of pension and health benefits reform.  Public employee unions, however, have balked at implementing further health benefits changes through legislation, rather than at the bargaining table, and have been urging the Legislature to consider pension and health benefit reforms through separate bills.  Assembly Speaker Sheila Oliver indicated support for the union position, and proposed a compromise provision—agreed to by Sweeney and included in the bill released yesterday—that would implement the health benefits changes through legislation, but would also make those terms subject to negotiations after four years.

Governor Christie has not yet indicated if he would support that provision.

According to news reports, a large number of Democratic Senators and Assembly representatives support the determination of health benefits changes through negotiations rather than legislation.  Nonetheless, Sweeney reportedly felt that enough Senate Democrats would join Republicans in supporting the bill released yesterday to ensure its approval in the upper house.  (However, a news account posted this morning indicates that some GOP legislators are questioning a provision of the bill that would restrict use of out-of-state health care providers.)

At the same time, Oliver has indicated that, even though an Assembly panel will conduct a hearing on the proposal at her behest, she will not post the bill for an Assembly vote unless a majority of the Democrats in the house indicate their support for the measure.  That has not happened yet.

The New Jersey School Boards Association is a federation of 587 local boards of education and includes 62 charter school associate members. NJSBA advocates the interests of school districts, trains local school board members, and provides resources for the advancement of public education.