Impact of Pension Impact of Pension and Healthcare Bills and Healthcare Bills on Local Government on Local Government

Bargaining Bargaining

March 31, 2010 March 31, 2010

Steven P. WeissmanSteven P. Weissman

The Bargaining The Bargaining Environment Environment

• Witnessing the most severe and sustained attack on Witnessing the most severe and sustained attack on public sector collective bargaining since the public sector collective bargaining since the enactment of EERA in 1968.enactment of EERA in 1968.

• Constant attacks by Governor Christie, Senate Constant attacks by Governor Christie, Senate President Sweeney, Star Ledger, 101.5, etc. on public President Sweeney, Star Ledger, 101.5, etc. on public worker compensation and benefits as the reason for worker compensation and benefits as the reason for high property taxes and the State’s financial problemshigh property taxes and the State’s financial problems

• Employers are of the view that they can unilaterally Employers are of the view that they can unilaterally reduce compensation and hours of work through reduce compensation and hours of work through furloughs and converting full-time to part-time furloughs and converting full-time to part-time positions.positions.

• Calls to curtail collective bargaining rights – Ledger, Calls to curtail collective bargaining rights – Ledger, Law Journal, Christie.Law Journal, Christie.

• Recent pension and healthcare legislation Recent pension and healthcare legislation fundamentally intrudes on the collective bargaining fundamentally intrudes on the collective bargaining process. process.

How Do the New Laws How Do the New Laws Affect Bargaining?Affect Bargaining?

• Negotiability Test – A subject is a Negotiability Test – A subject is a mandatory subject of negotiations if it:mandatory subject of negotiations if it:1.1. Intimately and directly impacts terms and Intimately and directly impacts terms and

conditions of employment;conditions of employment;2.2. Is not preempted by statute or regulation; Is not preempted by statute or regulation;

and and 3.3. Negotiations would not significantly Negotiations would not significantly

interfere with the determination of interfere with the determination of governmental policy governmental policy

• Effect of New Laws on Negotiability Effect of New Laws on Negotiability – No impact on parts 1 and 3 of the testNo impact on parts 1 and 3 of the test– But laws preempt negotiations (part 2) – For But laws preempt negotiations (part 2) – For

example, the 1.5% of base salary contribution to example, the 1.5% of base salary contribution to healthcare benefits creates a floor. healthcare benefits creates a floor.

Healthcare Benefits – Local Healthcare Benefits – Local Gov’t in SHBP – S.3Gov’t in SHBP – S.3

• Upon expiration of an agreement, employees pay 1.5%.Upon expiration of an agreement, employees pay 1.5%.– While unions and employers may negotiate an employee While unions and employers may negotiate an employee

healthcare contribution in addition to the 1.5% floor, that healthcare contribution in addition to the 1.5% floor, that additional contribution does not take effect until there is in additional contribution does not take effect until there is in place a binding collective negotiations agreement. place a binding collective negotiations agreement.

– Be prepared for this interpretation to be challenged.Be prepared for this interpretation to be challenged.

• Section 5 language provides:Section 5 language provides:– ““Upon expiration of any applicable collective negotiations Upon expiration of any applicable collective negotiations

agreement in force on the effective date of the act, employees agreement in force on the effective date of the act, employees of an employer other than the State shall pay 1.5% of base of an employer other than the State shall pay 1.5% of base salary, through the withholding of the contribution of health salary, through the withholding of the contribution of health benefits coverage provided under the [SHBP], benefits coverage provided under the [SHBP], notwithstanding notwithstanding any other amount that may be required additionally pursuant any other amount that may be required additionally pursuant to this paragraph by means of a binding collective negotiations to this paragraph by means of a binding collective negotiations agreement or agreement or the modification of payment obligationsthe modification of payment obligations..””

Healthcare Benefits – Local Healthcare Benefits – Local Gov’t Not in the SHBP – S.3Gov’t Not in the SHBP – S.3

• S.3 provides that upon expiration of an agreement, S.3 provides that upon expiration of an agreement, employees pay 1.5%. employees pay 1.5%.

• Section 14 language provides:Section 14 language provides:– ““Upon expiration of any applicable collective negotiations Upon expiration of any applicable collective negotiations

agreement in force on the effective date of the act, agreement in force on the effective date of the act, employees of an employer other than the State shall pay employees of an employer other than the State shall pay 1.5% of base salary, through the withholding of the 1.5% of base salary, through the withholding of the contribution of health benefits coverage provided under the contribution of health benefits coverage provided under the [SHBP], [SHBP], notwithstanding any other amount that may be notwithstanding any other amount that may be required additionally pursuant to subsection a of this required additionally pursuant to subsection a of this section for such coverage. This subsection shall apply also section for such coverage. This subsection shall apply also when the heath care benefits coverage is provided through when the heath care benefits coverage is provided through an insurance fund or joint insurance fund or in any other an insurance fund or joint insurance fund or in any other manner.manner.””

[Subsection a provides that any employer entering into a [Subsection a provides that any employer entering into a contract pursuant to this sub-article is hereby authorized to contract pursuant to this sub-article is hereby authorized to pay part or all of the premium charges for the contracts.] pay part or all of the premium charges for the contracts.]

Link between State and Link between State and Local Gov’t Contracts – S.3Local Gov’t Contracts – S.3

• Section 8 provides that all changes to the SHBP Section 8 provides that all changes to the SHBP that are based on provisions in a collective that are based on provisions in a collective negotiations agreement between the State and negotiations agreement between the State and Unions representing State employees will be Unions representing State employees will be made applicable by the SHBC to participating made applicable by the SHBC to participating employers and their employees “at the same employers and their employees “at the same time and in the same manner as to State time and in the same manner as to State employees.” employees.”

• Appears that changes negotiated between State Appears that changes negotiated between State and State Unions go into effect immediately at and State Unions go into effect immediately at local level, even if there is a agreement in effect.local level, even if there is a agreement in effect.

Health Benefits Coverage – Health Benefits Coverage – Part-time Employees – S.3Part-time Employees – S.3

• To receive SHBP benefits must be full-time as To receive SHBP benefits must be full-time as established by resolution and cannot go below 25 established by resolution and cannot go below 25 hours per week.hours per week.

• Under section 9, the SHBP full-time employee Under section 9, the SHBP full-time employee means “a full-time appointive or elective officer means “a full-time appointive or elective officer whose hours of work are fixed at 35 or more per whose hours of work are fixed at 35 or more per week, a full-time employee of the State, or a full-week, a full-time employee of the State, or a full-time employee of an employer other than the State time employee of an employer other than the State who appears on the regular payroll and receives a who appears on the regular payroll and receives a salary or wages for an average of the number of salary or wages for an average of the number of hours per week as prescribed by the governing body hours per week as prescribed by the governing body of the participating employer of the participating employer which number of hours which number of hours worked shall be considered full-time, determined by worked shall be considered full-time, determined by resolution and not less than 25resolution and not less than 25.”.”

Choice of Plans under the Choice of Plans under the SHBP – S.3SHBP – S.3

• Pursuant to section 7, the availability of plans Pursuant to section 7, the availability of plans within the SHBP may be limited for employees of within the SHBP may be limited for employees of a participating employer other than the State a participating employer other than the State pursuant to a binding collective negotiations pursuant to a binding collective negotiations agreement between the employer and its agreement between the employer and its employees or pursuant to the application by the employees or pursuant to the application by the employer, in its sole discretion, of the terms of employer, in its sole discretion, of the terms of any collective negotiations agreement binding on any collective negotiations agreement binding on the employer to employees for whom there is no the employer to employees for whom there is no majority representative for collective negotiations majority representative for collective negotiations purpose. purpose.

• Presumably, this permits negotiations over which Presumably, this permits negotiations over which SHBP plans will be offered to employees – NJ SHBP plans will be offered to employees – NJ Direct 10, NJ Direct 15, HMOs. Direct 10, NJ Direct 15, HMOs.

S.3’s Impact on Post-S.3’s Impact on Post-Retirement Medical Retirement Medical

BenefitsBenefits• Non SHBP EmployersNon SHBP Employers: Pursuant to section 15, any : Pursuant to section 15, any

employee who employee who becomes a member of a retirement system becomes a member of a retirement system after the effective date of the actafter the effective date of the act shall pay 1.5% of the shall pay 1.5% of the retiree’s monthly retirement allowance, including any future retiree’s monthly retirement allowance, including any future cost-of-living adjustments . . . for health care benefits cost-of-living adjustments . . . for health care benefits coverage provided under N.J.S.A. 40A:1-22, coverage provided under N.J.S.A. 40A:1-22, notwithstanding notwithstanding any other amount that may be required additionally by the any other amount that may be required additionally by the employer or through a collective negotiations agreement for employer or through a collective negotiations agreement for such coveragesuch coverage..

• SHBP EmployersSHBP Employers: Pursuant to section 5, any employee who : Pursuant to section 5, any employee who becomes a member of a retirement system after the effective becomes a member of a retirement system after the effective date of the act shall pay 1.5% of the retiree’s monthly date of the act shall pay 1.5% of the retiree’s monthly retirement allowance, including any future cost-of-living retirement allowance, including any future cost-of-living adjustments . . . for health care benefits coverage provided adjustments . . . for health care benefits coverage provided under N.J.S.A. 52:14-17.25, under N.J.S.A. 52:14-17.25, notwithstanding any other notwithstanding any other amount that may be required additionally by the employer or amount that may be required additionally by the employer or through a collective negotiations agreement for such through a collective negotiations agreement for such coverage or the determination of payment obligationscoverage or the determination of payment obligations..

Impact of PRM Provisions Impact of PRM Provisions on Bargaining on Bargaining

• Sections 5 and 15 impose a minimum contribution for Sections 5 and 15 impose a minimum contribution for PRM benefits on new employees, but not current PRM benefits on new employees, but not current employees. employees.

• However, employers and unions can negotiate However, employers and unions can negotiate contributions for current employees who prospectively contributions for current employees who prospectively qualify for PRM benefits. For example, a contract may qualify for PRM benefits. For example, a contract may provide that employees who attain 25 years of service provide that employees who attain 25 years of service after July 1, 2010 will pay 1.5% of their retirement after July 1, 2010 will pay 1.5% of their retirement benefit for PRM. benefit for PRM.

• However, an employee who attained 25 years of service However, an employee who attained 25 years of service on January 1, 2010 and who under a current contract on January 1, 2010 and who under a current contract will not contribute to PRM upon retirement, cannot be will not contribute to PRM upon retirement, cannot be required to contribute based on a new contract. required to contribute based on a new contract.

Waiver of SHBP Benefits Waiver of SHBP Benefits and Duplicate Coverageand Duplicate Coverage

• Prior to the enactment of S.3 an employee Prior to the enactment of S.3 an employee could waive coverage under the SHBP, could waive coverage under the SHBP, provided the employee is eligible for other provided the employee is eligible for other coverage. Based upon such a waiver, the coverage. Based upon such a waiver, the employer could pay the employee up to 50% of employer could pay the employee up to 50% of the amount saved by the employer. The the amount saved by the employer. The employer had sole discretion to establish this employer had sole discretion to establish this amount.amount.– Under S.3 the 50% cap is reduced to 25% or Under S.3 the 50% cap is reduced to 25% or

$5,000, whichever is less, for waivers filed after the $5,000, whichever is less, for waivers filed after the effective date of the legislation. effective date of the legislation.

• Multiple coverage as an employee, dependent Multiple coverage as an employee, dependent or retiree in the SHBP is prohibited. or retiree in the SHBP is prohibited.

S.4 Changes to Various S.4 Changes to Various BenefitsBenefits

• Supplemental compensation for unused sick leave Supplemental compensation for unused sick leave capped at $15,000 for new employees. capped at $15,000 for new employees. Applies Applies during the term of a current contractduring the term of a current contract. .

• Limits carryover of vacation leave to one year Limits carryover of vacation leave to one year unless leave could not be used due to emergency unless leave could not be used due to emergency declared by Governor. Only applies to employees declared by Governor. Only applies to employees who are hired after bill’s effective date and who are hired after bill’s effective date and after after expiration of current agreement. expiration of current agreement.

• Eliminates SLI for State workers after expiration of Eliminates SLI for State workers after expiration of current agreements.current agreements.

• Eliminates accidental and ordinary disability Eliminates accidental and ordinary disability retirement benefits for new employees. New retirement benefits for new employees. New employees will be provided with disability insurance employees will be provided with disability insurance coverage similar to the coverage provided to coverage similar to the coverage provided to persons in the defined contribution plan.persons in the defined contribution plan.

S.2 – Key Changes to S.2 – Key Changes to Pension SystemPension System

• Employees must work at least 32 hours a week in local Employees must work at least 32 hours a week in local gov’t and 35 in State gov’t to be able to participate in gov’t and 35 in State gov’t to be able to participate in PERS. (Section 3).PERS. (Section 3).

• For new employees benefits will be calculated based on For new employees benefits will be calculated based on n/60, rather than n/55 – a 9% benefit reduction. (Section n/60, rather than n/55 – a 9% benefit reduction. (Section 11)11)

• For new employees benefits will be based on the five For new employees benefits will be based on the five highest paid years rather than the three highest paid highest paid years rather than the three highest paid years. (Section 21).years. (Section 21).

• Repeals the “non-forfeitable right” to pension benefits for Repeals the “non-forfeitable right” to pension benefits for new employees. (Section 29).new employees. (Section 29).

• PERS employees must designate one job for one pension. PERS employees must designate one job for one pension. The position with the highest compensation will be used. The position with the highest compensation will be used. Does not impact current employees with multiple jobs. Does not impact current employees with multiple jobs.

S.2 – Key Changes Cont’d S.2 – Key Changes Cont’d • Beginning July 1, 2011, the State shall make the Beginning July 1, 2011, the State shall make the

required contribution (the normal contribution and required contribution (the normal contribution and the unfunded liability contribution) in full each year the unfunded liability contribution) in full each year to each system based on annual computation by to each system based on annual computation by actuary. State must make 1/7 of the contribution actuary. State must make 1/7 of the contribution the first year and another 1/7 each following year the first year and another 1/7 each following year until payment of the full contribution is made on July until payment of the full contribution is made on July 1, 2018. (S-1, which was not passed would present 1, 2018. (S-1, which was not passed would present this to the voters as a constitutional amendment.)this to the voters as a constitutional amendment.)

• As passed, S.2 removes opt out provision, which As passed, S.2 removes opt out provision, which would have permitted employees with fewer than 10 would have permitted employees with fewer than 10 years of service to opt into the defined contribution years of service to opt into the defined contribution system, irrevocably waiving all rights to transfer system, irrevocably waiving all rights to transfer back into the defined benefit system.back into the defined benefit system.

Some Pension Facts – Some Pension Facts – Average Pension for Average Pension for

Workers with 25 years Workers with 25 years • Local government worker - $31,533Local government worker - $31,533• State worker - $35,412.State worker - $35,412.• Teachers - $41,933Teachers - $41,933• Local Police and Fire - $70,972 Local Police and Fire - $70,972 • State Trooper - $79,109State Trooper - $79,109• Judge - $99,785 after 10 years of Judge - $99,785 after 10 years of

serviceservice

Pension Facts – Normal Pension Facts – Normal CostCost

• Normal cost for 224,000 local government Normal cost for 224,000 local government employees - $248 million - $1,107 per employees - $248 million - $1,107 per worker or 3.37% of payworker or 3.37% of pay

• Normal cost for 95,300 state workers - $224 Normal cost for 95,300 state workers - $224 million - $2,354 per worker or 4.8% of paymillion - $2,354 per worker or 4.8% of pay

• Normal cost for 156,087 teachers - $668 Normal cost for 156,087 teachers - $668 million - $4,281 per worker or 7.09% of paymillion - $4,281 per worker or 7.09% of pay

• Normal cost for 33,300 police and fire - Normal cost for 33,300 police and fire - $475 million - $14,264 per worker or about $475 million - $14,264 per worker or about 18% of pay18% of pay

Pension Facts – Race and Pension Facts – Race and SexSex

• 75% of PERS members are women 75% of PERS members are women and/or minorities and/or minorities

• 76% of TPAF members are women.76% of TPAF members are women.• 90% of PFRS (Police and Fire) 90% of PFRS (Police and Fire)

members are male.members are male.• 96% of SPRS members (State 96% of SPRS members (State

Troopers) are male and 80% are white.Troopers) are male and 80% are white.• 75% of members of Judicial pension 75% of members of Judicial pension

system are male and 88% are white.system are male and 88% are white.

How the Governor Proposes How the Governor Proposes to Make Up the $10 billion to Make Up the $10 billion

Budget GapBudget Gap• $848 million – homeowner rebates reduced$848 million – homeowner rebates reduced• $340 million – municipal aid reduced$340 million – municipal aid reduced• $175 million – higher ed. reduced$175 million – higher ed. reduced• $3 billion – no state pension contributions $3 billion – no state pension contributions • $1.6 billion – reduction in school aid ($1 $1.6 billion – reduction in school aid ($1

billion lost in stimulus money and $.6 billion billion lost in stimulus money and $.6 billion in growth eliminated)in growth eliminated)

• $1.16 billion – anticipated growth in $1.16 billion – anticipated growth in homeowner rebateshomeowner rebates

Christie’s “Tool Kit” for Christie’s “Tool Kit” for Undermining Collective Undermining Collective

Bargaining Bargaining • No collective negotiations agreement, No collective negotiations agreement,

inclusive of benefits, can exceed the 2.5% inclusive of benefits, can exceed the 2.5% cap on property tax increases. (Can cap on property tax increases. (Can exceed the cap through a referendum). exceed the cap through a referendum).

• Legislation to permit furloughs.Legislation to permit furloughs.• Executive branch will select interest Executive branch will select interest

arbitrators for counties and arbitrators for counties and municipalities, who must take into municipalities, who must take into account impact of property taxes. account impact of property taxes.

• In school districts eliminate “non-In school districts eliminate “non-imposition.” imposition.”

Civil Service Opt OutCivil Service Opt Out

• A.2580 permits counties and municipalities A.2580 permits counties and municipalities to withdraw from civil service by adopting to withdraw from civil service by adopting an ordinance.an ordinance.

• Employees with permanent status in a title Employees with permanent status in a title on the date of the rescission retain career on the date of the rescission retain career rights as long as they remain in the title.rights as long as they remain in the title.

• Rescission takes effect 6 months after Rescission takes effect 6 months after following adoption of ordinance. following adoption of ordinance.

• Once a county or municipality votes on Once a county or municipality votes on rescinding the adoption of civil service, it rescinding the adoption of civil service, it must wait 5 years before voting again. must wait 5 years before voting again.

Civil Service Opt OutCivil Service Opt OutRamificationsRamifications

• Arbitrate all discipline provided contracts permit Arbitrate all discipline provided contracts permit • Layoffs pursuant to contractual seniority provisionsLayoffs pursuant to contractual seniority provisions

– If meet minimum qualifications for position seniority likely If meet minimum qualifications for position seniority likely prevailsprevails

– Management has prerogative to determine qualificationsManagement has prerogative to determine qualifications

• Promotions pursuant to contractual provisionsPromotions pursuant to contractual provisions– If qualifications substantially equal seniority likely prevailsIf qualifications substantially equal seniority likely prevails– Management prerogative to determine qualifications Management prerogative to determine qualifications

• Other IssuesOther Issues– Benefit FloorsBenefit Floors

• Vacation LeaveVacation Leave• Sick LeaveSick Leave

– Out of title work Out of title work

Furloughs Post May 16, Furloughs Post May 16, 2009 PERC Decision 2009 PERC Decision

• Non-civil service jurisdictionsNon-civil service jurisdictions– Interim relief granted against MaplewoodInterim relief granted against Maplewood– Must negotiate over furloughsMust negotiate over furloughs– Cannot unilaterally impose either during term of contract Cannot unilaterally impose either during term of contract

or after expirationor after expiration– If negotiate, can get enforceable no-layoff and no If negotiate, can get enforceable no-layoff and no

additional furlough days agreement additional furlough days agreement – Cannot replace full-time positions with part-time positionsCannot replace full-time positions with part-time positions

• Civil service jurisdictions Civil service jurisdictions – Interim relief denied due to appellate decision on Interim relief denied due to appellate decision on

temporary furlough ruletemporary furlough rule– Furlough rule repealed in November 2009Furlough rule repealed in November 2009– Cases pending before PERCCases pending before PERC– Full Commission has never ruled on this issueFull Commission has never ruled on this issue