Ch. 78 UPDATE FOR MEMBERS WITH LESS THAN 20 YEARS OF SERVICE

Ch. 78 UPDATE FOR MEMBERS WITH LESS THAN 20 YEARS OF SERVICE

 

Thank you to Belleville Locals 29 and 229 for bringing to the forefront a discussion on the implementation of Chapter 78 as it relates to retiree health benefit contributions and the issue of contract impairment.

The NJ FMBA has received an opinion from DCA which states that members who were covered by a collective negotiations agreement at the time of Chapter 78 implementation, 6/28/2011, and reached 20 years of service in a retirement system during the term of that agreement, are exempt from paying for health care in retirement as it relates to the Chapter 78 grid.

This is an important finding by your State Union and we are proud of the hard work by all those involved in providing this opinion. We will have a full report at the August meeting and a copy of the opinion will be available to any Local needing it for clarification.

Below is a summary from our Chief State Counsel which will be printed in our July Bulletin.

Eddie

RETIREES WITH LESS THAN 20 YEARS OF SERVICE IN A RETIREMENT SYSTEM AS OF JUNE 28, 2011 ARE EXEMPT FROM MAKING HEALTH BENEFIT CONTRIBUTIONS UNDER CHAPTER 78 IF A BARGAINING AGREEMENT WAS IN PLACE

The NJ FMBA has been diligently researching the issue of retiree health benefit contribution obligations under Chapter 78 for firefighters/fire officers who had less than 20 years of creditable service in the PFRS pension fund as of June 28, 2011 but were covered by a collective negotiations agreement in force on that date and whether these employees will be subject to health benefit contributions under Chapter 78 in retirement if they reached 20 years of service in PFRS prior to the expiration of their contract.    The answer to this question is no, these firefighters/fire officers will not be subject to retiree health benefit contributions under Chapter 78.

Chapter 78 states that retirees who accrue 25 years of service on or after June 28, 2011 or on or after the expiration of a collective negotiations agreement that was in effect on June 28, 2011, and retire after that date, will be required to contribute a percentage of the cost of healthcare benefit premiums in retirement, based on their retirement benefit.  Thus, it is clear from the language in this section of Chapter 78 that the 25 years of service threshold must be obtained either as of June 28, 2011 (if no collective negotiations agreement was in effect), or prior to the expiration of a collective negotiations agreement in effect as of June 28, 2011.  The statute exempts from this obligation those members who had 20 years of service in a retirement system on or after June 28, 2011 or on or after the expiration of a collective negotiations agreement that was in effect on June 28, 2011, and retire after that date.  N.J.S.A. 52:14-17.28d(b)(3).

The Department of Community Affairs, Division of Local Government Services, issued a Local Finance Notice, LFN 2011-20R, on November 23, 2011 (“Notice”).  The Notice is intended to provide guidance to local government units who provide healthcare coverage to their employees.   Section I of the Notice defines “effective date” as follows:

Effective date is June 28, 2011.  The law is effective on that date for employees not under a CNA, and upon contract expiration for employees with a CNA.  

Section IV of the Notice sets forth the obligations for retiree health benefit contributions under Chapter 78.  It states as follows:

N.J.S.A. 52:14-17.38 (for SHBP members) and 40A:10-23 (for all other local units) allows employers to assume payment obligations for health care benefits in retirement when various eligibility criteria are met.  They are often referred to as “Chapter 88” or “Chapter 44” and include so-called “62/15” (age/years of service) health care retirement benefits.

Chapter 78 requires, with some important exceptions, all public employees, that retire after the effective date and receive employer paid health benefits, to make a health benefits contribution, paid to their employer as a deduction from their retirement benefit.  A key exception is, in the absence of a local unit requirement to make a contribution that the c.78 requirement for retiree health insurance contributions does not apply to employees that have 20 years or more of service in a state or local retirement system as of the effective date and meet the eligibility requirements of the employer pursuant to N.J.S.A. 40A:10-23, (i.e., 62/15 or 25 yrs)(b3).

Thus, the contribution requirement affects most employees with less than 20 years of service as of the effective date.  When these employees retire, they shall have deducted from their retirement allowance the health benefit contribution, using the retirement allowance as if it were the base salary (b1).

Thus, local unit employees that receive retirement health care paid for by their employers (as per N.J.S.A. 40A:10-23 or other similar law) are exempt from the health benefits contribution required by c.78 if:

1)They are covered or connected to a CNA; and,

2)They reach the age/years of service requirements (at least 62/15, pursuant to an approved local policy) for the benefit no later than the expiration of a contract that was in force on the effective date; or,

3)In the absence of a CNA, they reached the required age/years of service requirements (at least 62/15, pursuant to an approved local policy) for the benefit prior to the effective date; or

4)They had 20 or more years of creditable service in one or more State or locally-administered retirement systems on the effective date.

Regardless of CNA status, the amount paid by a retiree, not grandfathered by the foregoing, is based on the benefit in effect at the time the employee becomes eligible for the benefit, provided that the retiree pays at a minimum the contribution required by Chapter 78.  As these can vary case-by-case, local officials should be sure to diligently maintain records of benefits in effect when employees reach retirement benefit eligibility.

It is possible there are some local units that have plans or practices that are not consistent with N.J.S.A. 40A:10-23 or have other practices that are not consistent with the law.  In these cases, local unit legal advisors should carefully review the law to determine how it should be applied locally and take the opportunity to bring their plans into compliance with this statute.

The Local Finance Notice confirms that the effective date for those with a collective negotiations agreement in force as of June 28, 2011 is upon expiration of the CNA.  It states that if aretiree was covered by a collective negotiations agreement, and had 20 or more years of creditable service in one or more State or locally-administered retirement systems on the “effective date”, the retiree is exempt from health benefit contributions required by Chapter 78.

The NJFMBA communicated with the Department of Community Affairs who confirmed that “The Division’s Local Finance Notice 2011-20R at Section IV (p. 9) advises that P.L. 2011, c.78 permits municipal employees with 20 or more years of service credit by the effective date to be exempt from the retiree healthcare contributions required by Chapter 78.  See N.J.S.A. 40A:10-21.1b(3) or 52:14-17.28d(b)(3).  As such, unless their collective negotiated agreement says otherwise …individuals [reaching 20 years of service in a retirement system prior to the expiration of the contract in force as of June 28, 2011] would be exempt from contributing toward post-retirement health benefits pursuant to the Chapter 78 grid.”

Anyone in this situation who is contemplating retirement is urged to confirm their retiree health benefit contribution obligation status with their public employer prior to filing for retirement.

PLEASE DO NOT REPLY TO THIS E-MAIL ADDRESS. ANY QUESTIONS PLEASE CALL THE STATE OFFICE.

Eddie Donnelly, President NJ FMBA
http://www.njfmba.org/