Proposal for Changes in Pension and Health Benefits Systems

1. Proposal for Changes in Pension and Health Benefits Systems October 13, 2006

2. Key Issues Driving Need for Change • Pension system is seen as “broken” in the eyes of the media and the taxpayers • Too many opportunities for “abuse” by those with the ability/contacts to “work the system” • Systems have been subverted from original intent of delivering security to career service employees • Cost of delivering benefits is a major impediment to property tax relief efforts

3. Key Areas of Focus • Pension System Reform • Eliminate concerns about “gaming” • Ensure delivery of benefits to those who have provided career service to the public • Pension System Restructuring • Provide equitable benefits with changes to reflect changes in the benefits environment • Develop alternative benefit systems for non-career service employees • Make sure benefits are not available to “non” employees”

4. Pension Reform • Changes in eligibility eliminates all opportunities for abuse! • To enter any retirement system, require Full Time (35 hour per week) employment • Non FT employees, as well as elected and appointed officials to be provided benefits under a defined contribution plan. • Special language would be needed to ensure continued coverage for certain “consolidated” positions.

5. Pension Reform • If you cannot enter the system, there is no opportunity for abuse. • Those currently in system could maintain membership as long as their employment continues • Opportunities for “tacking, padding and boosting” disappear.

6. Specific Reforms • DB eligibility limited to Full-Time Employees working a minimum of 35 hours per week • Others, including less than FT, elected and appointed officials eligible to participate only in a Defined Contribution Plan with their contribution matched by the employer • Certain positions, such as professional services, excluded form participating in any retirement plan • Special language needed to consider certain positions affected by consolidation, e.g. tax assessors, code inspectors, etc.

7. Restructuring • Changes needed to bring systems into line with what’s happening in the marketplace • DB plan is still the best type of program for career service employees • Public workforce is far less mobile than that of the public sector; less affected by industry consolidations, mergers, etc. • Encourages reliable delivery of services to the taxpaying public

8. Specific RecommendationsPERS Change accrual rate from N/55 to N/60 • Correct change made in 2001 without adequate financial analysis • Change early retirement age to 62, consistent with Social Security • Retirements prior to age 62 subject to a 3% per year reduction in benefits • Change compensation basis from 3 to 5 years or from 1 to 3 years where applicable • Eliminate Prosecutor Part benefit • Eliminate Special Benefit for WC Judges

9. Specific Recommendations PFRS • Eliminate the provision which allows for retirement with 50% benefit at 20 years service • Limit pension compensation to base salary; eliminate longevity pay inclusion • Change pension determination from final year’s pay to three year average • Eliminate “future change” to 70%/75% if fund balance reaches 104%; maintain current levels of 65% at 25 years and 70% at 30 years

10. Specific RecommendationJudicial Retirement System • Eliminate DB eligibility and provide a DC benefit on the same basis as other appointed officials

11. Other Recommendations • Cap payout for accrued sick/leave time at maximum of $15,000 for Local employers; same provision as State • Repeal law which permits State to utilize excess assets in lieu of contributions to the retirement systems • Change OD and AD provision in PERS and TPAF to an insured LTD benefit

12. Other Recommendations • Establish an appeals process for those who feel they have been treated unfairly, i.e. DB v. DC eligibility • Limit application of purchased service to pensions only; such purchases not to be applied for health benefit eligibility • Pension system loan interest rates to be set equal to the Prime Rate; fees to be established loan applications to cover administrative expense

13. Health Benefits • Consider closure of the SHBP to Local employers to be phased in within three years • Employee/Retiree contributions toward health benefits to be mandatory but dealt with at the bargaining table • Development of an alternative program for low income participants to be considered

14. Health Benefits • Eliminate Traditional and Current POS Plan • Issue RFP for PPO Plan with national network coverage