Impact of Pension and Healthcare Bills on Local Government Bargaining

1. Impact of Pension and Healthcare Bills on Local Government Bargaining March 31, 2010 Steven P. Weissman

2. The Bargaining Environment • Witnessing the most severe and sustained attack on public sector collective bargaining since the enactment of EERA in 1968. • Constant attacks by Governor Christie, Senate President Sweeney, Star Ledger, 101.5, etc. on public worker compensation and benefits as the reason for high property taxes and the State’s financial problems • Employers are of the view that they can unilaterally reduce compensation and hours of work through furloughs and converting full-time to part-time positions. • Calls to curtail collective bargaining rights – Ledger, Law Journal, Christie. • Recent pension and healthcare legislation fundamentally intrudes on the collective bargaining process.

3. How Do the New Laws Affect Bargaining? • Negotiability Test – A subject is a mandatory subject of negotiations if it: 1. Intimately and directly impacts terms and conditions of employment; 2. Is not preempted by statute or regulation; and 3. Negotiations would not significantly interfere with the determination of governmental policy • Effect of New Laws on Negotiability • No impact on parts 1 and 3 of the test • But laws preempt negotiations (part 2) – For example, the 1.5% of base salary contribution to healthcare benefits creates a floor.

4. Healthcare Benefits – Local Gov’t in SHBP – S.3 • Upon expiration of an agreement, employees pay 1.5%. • While unions and employers may negotiate an employee healthcare contribution in addition to the 1.5% floor, that additional contribution does not take effect until there is in place a binding collective negotiations agreement. • Be prepared for this interpretation to be challenged. • Section 5 language provides: • “Upon expiration of any applicable collective negotiations agreement in force on the effective date of the act, employees of an employer other than the State shall pay 1.5% of base salary, through the withholding of the contribution of health benefits coverage provided under the [SHBP], notwithstanding any other amount that may be required additionally pursuant to this paragraph by means of a binding collective negotiations agreement or the modification of payment obligations.”

5. Healthcare Benefits – Local Gov’t Not in the SHBP – S.3 • S.3 provides that upon expiration of an agreement, employees pay 1.5%. • Section 14 language provides: • “Upon expiration of any applicable collective negotiations agreement in force on the effective date of the act, employees of an employer other than the State shall pay 1.5% of base salary, through the withholding of the contribution of health benefits coverage provided under the [SHBP], notwithstanding any other amount that may be required additionally pursuant to subsection a of this section for such coverage. This subsection shall apply also when the heath care benefits coverage is provided through an insurance fund or joint insurance fund or in any other manner.” [Subsection a provides that any employer entering into a contract pursuant to this sub-article is hereby authorized to pay part or all of the premium charges for the contracts.]

6. Link between State and Local Gov’t Contracts – S.3 • Section 8 provides that all changes to the SHBP that are based on provisions in a collective negotiations agreement between the State and Unions representing State employees will be made applicable by the SHBC to participating employers and their employees “at the same time and in the same manner as to State employees.” • Appears that changes negotiated between State and State Unions go into effect immediately at local level, even if there is a agreement in effect.

7. Health Benefits Coverage – Part-time Employees – S.3 • To receive SHBP benefits must be full-time as established by resolution and cannot go below 25 hours per week. • Under section 9, the SHBP full-time employee means “a full-time appointive or elective officer whose hours of work are fixed at 35 or more per week, a full-time employee of the State, or a full-time employee of an employer other than the State who appears on the regular payroll and receives a salary or wages for an average of the number of hours per week as prescribed by the governing body of the participating employer which number of hours worked shall be considered full-time, determined by resolution and not less than 25.”

8. Choice of Plans under the SHBP – S.3 • Pursuant to section 7, the availability of plans within the SHBP may be limited for employees of a participating employer other than the State pursuant to a binding collective negotiations agreement between the employer and its employees or pursuant to the application by the employer, in its sole discretion, of the terms of any collective negotiations agreement binding on the employer to employees for whom there is no majority representative for collective negotiations purpose. • Presumably, this permits negotiations over which SHBP plans will be offered to employees – NJ Direct 10, NJ Direct 15, HMOs.

9. S.3’s Impact on Post-Retirement Medical Benefits • Non SHBP Employers: Pursuant to section 15, any employee who becomes a member of a retirement system after the effective date of the act shall pay 1.5% of the retiree’s monthly retirement allowance, including any future cost-of-living adjustments . . . for health care benefits coverage provided under N.J.S.A. 40A:1-22, notwithstanding any other amount that may be required additionally by the employer or through a collective negotiations agreement for such coverage. • SHBP Employers: Pursuant to section 5, any employee who becomes a member of a retirement system after the effective date of the act shall pay 1.5% of the retiree’s monthly retirement allowance, including any future cost-of-living adjustments . . . for health care benefits coverage provided under N.J.S.A. 52:14-17.25, notwithstanding any other amount that may be required additionally by the employer or through a collective negotiations agreement for such coverage or the determination of payment obligations.

10. Impact of PRM Provisions on Bargaining • Sections 5 and 15 impose a minimum contribution for PRM benefits on new employees, but not current employees. • However, employers and unions can negotiate contributions for current employees who prospectively qualify for PRM benefits. For example, a contract may provide that employees who attain 25 years of service after July 1, 2010 will pay 1.5% of their retirement benefit for PRM. • However, an employee who attained 25 years of service on January 1, 2010 and who under a current contract will not contribute to PRM upon retirement, cannot be required to contribute based on a new contract.

11. Waiver of SHBP Benefits and Duplicate Coverage • Prior to the enactment of S.3 an employee could waive coverage under the SHBP, provided the employee is eligible for other coverage. Based upon such a waiver, the employer could pay the employee up to 50% of the amount saved by the employer. The employer had sole discretion to establish this amount. • Under S.3 the 50% cap is reduced to 25% or $5,000, whichever is less, for waivers filed after the effective date of the legislation. • Multiple coverage as an employee, dependent or retiree in the SHBP is prohibited.

12. S.4 Changes to Various Benefits • Supplemental compensation for unused sick leave capped at $15,000 for new employees. Applies during the term of a current contract. • Limits carryover of vacation leave to one year unless leave could not be used due to emergency declared by Governor. Only applies to employees who are hired after bill’s effective date and after expiration of current agreement. • Eliminates SLI for State workers after expiration of current agreements. • Eliminates accidental and ordinary disability retirement benefits for new employees. New employees will be provided with disability insurance coverage similar to the coverage provided to persons in the defined contribution plan.

13. S.2 – Key Changes to Pension System • 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 PERS. (Section 3). • For new employees benefits will be calculated based on n/60, rather than n/55 – a 9% benefit reduction. (Section 11) • For new employees benefits will be based on the five highest paid years rather than the three highest paid years. (Section 21). • Repeals the “non-forfeitable right” to pension benefits for new employees. (Section 29). • PERS employees must designate one job for one pension. The position with the highest compensation will be used. Does not impact current employees with multiple jobs.

14. S.2 – Key Changes Cont’d • Beginning July 1, 2011, the State shall make the required contribution (the normal contribution and the unfunded liability contribution) in full each year to each system based on annual computation by actuary. State must make 1/7 of the contribution the first year and another 1/7 each following year until payment of the full contribution is made on July 1, 2018. (S-1, which was not passed would present this to the voters as a constitutional amendment.) • As passed, S.2 removes opt out provision, which would have permitted employees with fewer than 10 years of service to opt into the defined contribution system, irrevocably waiving all rights to transfer back into the defined benefit system.

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

16. Pension Facts – Normal Cost • Normal cost for 224,000 local government employees - $248 million - $1,107 per worker or 3.37% of pay • Normal cost for 95,300 state workers - $224 million - $2,354 per worker or 4.8% of pay • Normal cost for 156,087 teachers - $668 million - $4,281 per worker or 7.09% of pay • Normal cost for 33,300 police and fire - $475 million - $14,264 per worker or about 18% of pay

17. Pension Facts – Race and Sex • 75% of PERS members are women and/or minorities • 76% of TPAF members are women. • 90% of PFRS (Police and Fire) members are male. • 96% of SPRS members (State Troopers) are male and 80% are white. • 75% of members of Judicial pension system are male and 88% are white.

18. How the Governor Proposes to Make Up the $10 billion Budget Gap • $848 million – homeowner rebates reduced • $340 million – municipal aid reduced • $175 million – higher ed. reduced • $3 billion – no state pension contributions • $1.6 billion – reduction in school aid ($1 billion lost in stimulus money and $.6 billion in growth eliminated) • $1.16 billion – anticipated growth in homeowner rebates

19. Christie’s “Tool Kit” for Undermining Collective Bargaining • No collective negotiations agreement, inclusive of benefits, can exceed the 2.5% cap on property tax increases. (Can exceed the cap through a referendum). • Legislation to permit furloughs. • Executive branch will select interest arbitrators for counties and municipalities, who must take into account impact of property taxes. • In school districts eliminate “non-imposition.”

20. Civil Service Opt Out • A.2580 permits counties and municipalities to withdraw from civil service by adopting an ordinance. • Employees with permanent status in a title on the date of the rescission retain career rights as long as they remain in the title. • Rescission takes effect 6 months after following adoption of ordinance. • Once a county or municipality votes on rescinding the adoption of civil service, it must wait 5 years before voting again.

21. Civil Service Opt OutRamifications • Arbitrate all discipline provided contracts permit • Layoffs pursuant to contractual seniority provisions • If meet minimum qualifications for position seniority likely prevails • Management has prerogative to determine qualifications • Promotions pursuant to contractual provisions • If qualifications substantially equal seniority likely prevails • Management prerogative to determine qualifications • Other Issues • Benefit Floors • Vacation Leave • Sick Leave • Out of title work

22. Furloughs Post May 16, 2009 PERC Decision • Non-civil service jurisdictions • Interim relief granted against Maplewood • Must negotiate over furloughs • Cannot unilaterally impose either during term of contract or after expiration • If negotiate, can get enforceable no-layoff and no additional furlough days agreement • Cannot replace full-time positions with part-time positions • Civil service jurisdictions • Interim relief denied due to appellate decision on temporary furlough rule • Furlough rule repealed in November 2009 • Cases pending before PERC • Full Commission has never ruled on this issue