Governor Christie Signs S2937 Into Law: What Does It Mean For Public Employers

On June 28, 2011, Governor Christie signed S2937 into law. This sweeping legislation will require public employees to contribute a percentage of their health care premium based on a sliding scale that is determined by the employee’s salary. This contribution will set the floor upon which future negotiations will be based. The legislation also makes changes to the pension systems of all public employees, the most significant change is the increase of contributions that will automatically be deducted from every employee’s paycheck. The major provisions of the law are highlighted below, specifically those of which will affect public employers and employees in their bargaining obligations. Health Benefit Contribution Changes

• Contribution rates will increase for all active employees. Employees’ contribution will shift from a percentage of salary to a percentage of the premium for medical and prescription drug coverage for employees in State Health Benefits Plan (SHBP) and the cost of medical, prescription, dental, vision and other benefits for employees not in SHBP. The increased percentage will be based on a sliding scale.
  • The contribution will be phased in over a 4 year period:
    • 1st yr. in which contribution is effective – ¼ of the contribution amount
    • 2nd yr in which contribution is effective – ½ of the contribution amount
    • 3rd yr in which contribution is effective – ¾ of the contribution amount
  • 1.5% base salary floor – if the contribution for any employee is less than 1.5% of the employee’s base salary, then the employee must contribute 1.5% of base salary for health insurance until contribution surpasses 1.5% of base salary.

• Contribution commences on the bill’s effective date for unionized employees whose collective negotiations agreement has expired.
• Contribution commences upon the expiration of a collective negotiations agreement for agreements still in effect as of the bill’s effective date.
  • Implementation of the contributions shall begin when necessary administrative actions occur; contributions shall not be applied retroactively to the legislation’s effective date.

• Requires all employers to participate in Section 125 “cafeteria plans” permitting employees to make contributions prior to the withholding of taxes.

Negotiations Obligations

• Public employers who do not participate in the SHBP or the SEHBP may agree to different employee contribution rates that result in same level of savings as the premium share formula set forth in the legislation. Savings would have to be certified by Department of Education or Department of Community Affairs to be accepted.
• The provisions concerning health benefit contributions expire four years after the effective date of the legislation. However, if the phase-in is not complete by that date, it must continue until the phase-in occurs.
• Once contribution levels have been phased in to reach the full amount, in successor negotiations the contributions for health care benefits will be as if the full premium share was included in the prior contract and will be subject to negotiations.

Retirees’ Health Benefits

• Current retirees not impacted.
• Active employees with 25 years or more of service are grandfathered at the terms for retiree health benefits when they achieved 25 years of service.
• Active employees who have 20 years or more of service, but less than 25 years, on the effective date of the legislation are grandfathered at the 1.5% contribution rate.
• Active employees with less than 20 years of service on the effective date of the legislations will be required to contribute a percentage of the cost of health care benefits in retirement based on the new sliding scale.

Out-of-State Providers Effective January 1, 2012, medically necessary tertiary services may be performed by out-of-state providers when there is no in-State health care provider reasonably available to treat the condition as determined by carrier and State Health Benefits Commission or plan administrator. This requirement does not apply to:

• Emergency care
• Primary care
• Employee, retiree or covered dependent who has principal residence outside State or attends school outside State.
• Such other unusual occurrences as determined by State Health Benefits Commission or plan administrator.
• Also when medically necessary to continue treatment with out-of-state provider:
  • In cases of pregnancy up to 6 weeks after delivery
  • Post-operative care up to 6 months following the surgical procedure
  • Oncological treatment – up to 1 year following first date of treatment
  • Psychiatric treatment – up to 1 year following first date of treatment

Pension Changes

• New committees established for all pension funds when the funds reach the “target ratio”.
• PFRS will contribute an additional 1.5% of their salaries towards pensions to total 10%.
• TPAF and PERS increased to 6.5% of salary for first year and then an additional 1% to be phased-in over 7 years. This will total 2% of salary additional payment to pension.
• New PFRS and TPAF members:
  • Retirement age is raised to 65
  • Early retirement at 30 years of service
• New PERS members:
  • 60% of salary at 25 years
  • 65% of salary at 30 years
  • An additional 1% added to years above 25 but below 30
• Automatic cost-of-living adjustments are eliminated, but may be reactivated by the committees when committees are established once funds reach “target ratio”.
• State or any public employer is prohibited from skipping its required pension payments.
• Employees given the right to sue in Superior Court if pension payments are not made.

In addition to our clients, we have been working with the New Jersey League of Municipalities and the New Jersey Association of Counties on the interpretation and implementation of this legislation. If you have any questions about the impact of this legislation, please contact Joseph M. Hannon, Esq. at 973-535-7105.