New Jersey-2014-A2121-Introduced

An Act concerning the funding of the State's public employee pension systems and amending P.L.1997, c.113 and P.L.2010, c.1.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. Section 5 of P.L.1997, c.113 (C.43:3C-9.5) is amended to read as follows:

5. a. For purposes of this section, a "non-forfeitable right to receive benefits" means that the benefits program, for any employee for whom the right has attached, cannot be reduced. The provisions of this section shall not apply to post-retirement medical benefits which are provided pursuant to law.

b. Vested members of the Teachers' Pension and Annuity Fund, the Judicial Retirement System, the Prison Officers' Pension Fund, the Public Employees' Retirement System, the Consolidated Police and Firemen's Pension Fund, the Police and Firemen's Retirement System, and the State Police Retirement System, upon the attainment of five years of service credit in the retirement system or fund or on the date of enactment of this bill, whichever is later, shall have a non-forfeitable right to receive benefits as provided under the laws governing the retirement system or fund upon the attainment of five years of service credit in the retirement system or fund or on the effective date of this act, whichever is later. This subsection shall not be applicable to a person who becomes a member of these systems or funds on or after the effective date of P.L.2010, c.1, except that such person shall not include a person who at the time of enrollment in the retirement system or fund on or after that effective date transfers service credit, as permitted, from another State-administered retirement system or fund of which the person was a member immediately prior to the effective date and continuously thereafter, but shall include a former member of the retirement system or fund who has been granted a retirement allowance and is reenrolled in the retirement system or fund on or after that effective date after becoming employed again in a position that makes the person eligible to be a member of the retirement system.

c. (1) Members of the Teachers' Pension and Annuity Fund, the Judicial Retirement System, the Prison Officers' Pension Fund, the Public Employees' Retirement System, the Consolidated Police and Firemen's Pension Fund, the Police and Firemen's Retirement System, and the State Police Retirement System shall have a contractual right to the systematic funding of the retirement systems and funds by the State and other public employers that ensures their financial soundness and integrity. The State and all other applicable employers shall make their annual normal contribution to each system or fund as determined by the applicable board of trustees in consultation with the system's or fund's actuary. The State and all other applicable employers shall also make their annual unfunded accrued liability contribution to each system or fund as determined by the applicable board in consultation with the system's or fund's actuary, pursuant to standard actuarial practices authorized by law[, unless: (1) there is no existing unfunded accrued liability contribution due to the system or fund at the close of the valuation period applicable to the upcoming fiscal year; or (2) there are excess valuation assets in excess of the actuarial accrued liability of the system or fund at the close of the valuation period applicable to the upcoming fiscal year]. The annual normal contribution plus the annual unfunded accrued liability contribution shall together be the annual required contribution[, provided, however, that for the State, section 38 of P.L.2010, c.1 (C.43:3C-14) shall apply with regard to the State's annual required contribution]. The amount of the State's annually required contributions shall be included in all annual appropriations acts as a dedicated line item.

(2) Each member of the Teachers' Pension and Annuity Fund, the Judicial Retirement System, the Prison Officers' Pension Fund, the Public Employees' Retirement System, the Consolidated Police and Firemen's Pension Fund, the Police and Firemen's Retirement System, and the State Police Retirement System shall have a contractual right to the annual required contribution amount being made by the member's employer or by any other public entity. The contractual right to the annual required contribution means that the employer or other public entity shall make the annual required contribution on a timely basis to help ensure that the retirement system is securely funded and that the retirement benefits to which the members are entitled by statute and in consideration for their public service and in compensation for their work will be paid upon retirement. The failure of the State or any other public employer to make the annually required contribution shall be deemed to be an impairment of the contractual right of each employee. The Superior Court, Law Division shall have jurisdiction over any action brought by a member of any system or fund or any board of trustees to enforce the contractual right set forth in this subsection. The State and other public employers shall submit to the jurisdiction of the Superior Court, Law Division and shall not assert sovereign immunity in such an action. If a member or board prevails in litigation to enforce the contractual right set forth in this subsection, the court may award that party their reasonable attorney's fees.

d. This act shall not be construed to preclude forfeiture, suspension or reduction in benefits for dishonorable service.

e. Except as expressly provided herein and only to the extent so expressly provided, nothing in this act shall be deemed to (1) limit the right of the State to alter, modify or amend such retirement systems and funds, or (2) create in any member a right in the corpus or management of a retirement system or pension fund. The rights reserved to the State in this subsection shall not diminish the contractual rights of employees established by subsections a., b., and c. of this section.

(cf: P.L.2011, c.78, s.26)

2. Section 38 of P.L.2010, c.1 (C.43:3C-14) is amended to read as follows:

38. a. Commencing July 1, 2011 and thereafter, the contribution required, by law, to be made by the State to the Teachers' Pension and Annuity Fund, established pursuant to N.J.S.18A:66-1 et seq., the Judicial Retirement System, established pursuant to P.L.1973, c.140 (C.43:6A-1 et seq.), the Prison Officers' Pension Fund, established pursuant to P.L.1941, c.220 (C.43:7-7 et seq.), the Public Employees' Retirement System, established pursuant to P.L.1954, c.84 (C.43:15A-1 et seq.), the Consolidated Police and Firemen's Pension Fund, established pursuant to R.S.43:16-1 et seq., the Police and Firemen's Retirement System, established pursuant to P.L.1944, c.255 (C.43:16A-1 et seq.), and the State Police Retirement System, established pursuant to P.L.1965, c.89 (C.53:5A-1 et seq.), shall be made in full each year to each system or fund in the manner and at the time provided by law. The contribution shall be computed by actuaries for each system or fund based on an annual valuation of the assets and liabilities of the system or fund pursuant to consistent and generally accepted actuarial standards and shall include the normal contribution and the [unfunded] accrued liability contribution. [The State with regard to its obligations funded through the annual appropriations act shall be in compliance with this requirement provided the State makes a payment, to each State-administered retirement system or fund, of at least 1/7th of the full contribution, as computed by the actuaries, in the State fiscal year commencing July 1, 2011 and a payment in each subsequent fiscal year that increases by at least an additional 1/7th until payment of the full contribution is made in the seventh fiscal year and thereafter.]

b. In addition to the full payment of the normal contributions and the accrued liability contributions to the Teachers' Pension and Annuity Fund, the Judicial Retirement System, the Prison Officers' Pension Fund, the Public Employees' Retirement System, the Consolidated Police and Firemen's Pension Fund, the Police and Firemen's Retirement System, and the State Police Retirement System, pursuant to subsection a. of this section, the State shall pay $300,000,000 to accelerate the payment of the unfunded actuarial accrued liabilities of those funds and systems, to be allocated among them in proportion to the number of active members in each fund or system with an unfunded actuarial accrued liability, each year until the year in which all those funds and systems are actuarially fully funded.

(cf: P.L.2010, c.1, s.38)

3. This act shall take effect immediately.

STATEMENT

This bill requires that the State responsibly fulfill its obligations and make the full normal and accrued liability contribution payments to the Teachers' Pension and Annuity Fund (TPAF), the Judicial Retirement System (JRS), the Prison Officers' Pension Fund (POPF), the Public Employees' Retirement System (PERS), the Consolidated Police and Firemen's Pension Fund (CPFPF), the Police and Firemen's Retirement System (PFRS), and the State Police Retirement System (SPRS). The bill also states that the members of those retirement systems and funds have a contractual right to the systematic funding of the retirement systems and funds by the State and other public employers to ensure their financial soundness and integrity.

The statutes governing the various State-administered retirement systems require that the public employers make contributions to those systems in which their employees are enrolled. Unlike the employee contributions which are made at a percentage of compensation rate fixed by statute, the amount of those employer contributions varies from year to year and is computed by actuaries based on an annual valuation of the assets and liabilities of the system pursuant to consistent and generally accepted actuarial standards. The contribution computed by actuaries for each system includes the normal contribution and the accrued liability contribution. The latter is a partial payment of the unfunded actuarial accrued liability. The State, as an employer with employees in TPAF, JRS, POPF, PERS, CPFPF, PFRS, and SPRS, is supposed to make the appropriate contributions each year. In addition, under current law, the State makes the employer contribution to TPAF instead of each individual school district making such contributions.

In the past, the State has not always paid new monies into the retirement systems for its annual required normal contribution and accrued liability contribution. The use of excess assets and assets in the Benefit Enhancement Fund to offset a normal contribution or unfunded accrued liability contribution did not increase the amount of funds upon which interest is earned. Failure to make full employer contributions results in an increase in that employer's accrued liability contribution. The combination of the lack of employer contributions and low or negative investment returns in recent years on the accumulated monies in the pension funds has resulted in a significant increase in the amount of the State's contribution obligation. In recognition of that increase, P.L.2010, c.10 provides that beginning in State fiscal year 2012, the State will be deemed to be meeting its full contribution obligation if payment of 1/7th of the computed amount is paid that year, and if an additional 1/7th is paid each succeeding year until the State is making its full contribution. This bill eliminates that phase-in arrangement and requires the State to make full payments.

In addition, to accelerate the diminution and eventual full payoff of the current unfunded actuarial accrued liabilities of TPAF, JRS, POPF, PERS, CPFPF, PFRS, and SPRS, the bill requires the State to pay $300,000,000, to be allocated among those funds and systems in proportion to the number of the active members in each fund or system with an unfunded actuarial accrued liability, each year until the year in which all those funds and systems are actuarially fully funded.