Management Reforms

Management Reforms Committee oversees and works with the Civil Service Reform Committee, Arbitration Reform Committee, Pension and Health Benefits Study Committee, and Unfunded Mandates.

Current Legislation Transfer of PFRS to Labor-Management Board (S-5)

This legislation would fundamentally shift control of the Police and Fire Retirement System (PFRS) from balanced labor-management control to a union-dominated (7-5) decision-making structure.

The League, along with the NJ Conference of Mayors and the NJ Association of Counties oppose this bill as it creates a system where taxpayers are responsible for funding 70% of the system, but are a minority on the board which governs decisions. As a result, those in control of the system contribute just 30%. Other important factors leading to the League's decision:

  • PFRS is a defined benefit plan. Retirement pay is calculated on a formula, using factors like length of employment and salary history; not on the return of the funds’ investments, like a 401K;
  • In any shortfall in a return from investments, the employers (in this case municipalities, counties and their property taxpayers) must make up the difference;
  • Public safety unions would have control of the over $23 billion pension system with the ability to determine investments, enhance any benefits, modify any benefit as an alternative to increasing a member’s contribution rate or reinstate cost of living adjustments for existing retiree benefits; and
  • Employers with a minority seat at the table will have an uphill battle in preventing run-away costs that will ultimately be passed on to the taxpayers.

The board should be comprised of an equal number of labor and management representatives, and include one independent member for an uneven number of members. If the board composition is to remain in favor of labor, then we strongly believe that the plan should be changed from a defined benefit to a defined contribution plan, with a flat contribution rate from the employer property taxpayers.

Ultimately, the League shares the same objective as the public safety unions, that is, to secure the local PFRS system. But, the system created in S-5 does not provide adequate safeguards for New Jersey’s property taxpayers.

Valuation Reports Released - Comparing Local Pensions to State Pensions

On April 23, 2015, valuation reports (as of July 1, 2014) for PERS and PFRS were released. At this time, the fund ratio for the Local PERS was 73.5% compared to 43.8% for the State PERS. The Local PFRS fund ratio is 76.3% compared to 47.2% for the State PFRS.
The Local PERS ratio decreased by 0.5% from 2013, while the State PERS decreased by 4.3%. While, the Local PFRS ratio decreased by 0.6% from 2013, while the State PFRS decreased by 3.6%.

Roadmap Reports

The Pension and Health Benefit Study Commission is a non-partisan study commission that was formed under by Governor Christie’s Executive Order 161 to develop recommendations for creating a sustainable retirement and health benefits system. Click for more information on this commission and/or to read their published reports.

As a result of the creation of the Pension and Health Benefit Study Commission the League created the following task forces, comprised of elected and professional to investigate specific areas related to the reform proposal:

Freezing the Pension Plan with concessions to explore the pros and cons of freezing the pension plan and creating a cash balance plan as well as the impact of this proposal on new, mid-career and end of career employees.

Transfer the fund assets and liabilities to local governments, in some fashion, to manage to explore the pros and cons of transferring the local pension fund assets and liabilities to local governments to manage. 

Create a structure to manage the local pension funds similar to the JIF/MEL model to explore the pros and cons of creating a structure to manage the local pension funds similar to the JIF/MEL model.

Suggested reforms to the Health Benefits program to explore the impact of uniform health benefits for all public employees regardless of their employer as well as the impact that uniform health benefits would have on Health Insurance Funds and self-insured health benefits plans.  In addition, this subcommittee will explore the pros and cons of the suggested programs of increased wellness programs, value-based insurance design, the creation of patient-centered “medical homes”, referenced based pricing programs and medical malpractice reform.

Property Tax Impact to provide the impact on property taxes, using a sampling representative of local governments, on the proposals in the Roadmap Report and the proposals put forth by the League.

Impact on Property Taxes When Implementing an Element of Pension and Benefits “Roadmap” Report

One of the recommendations of Governor Christie’s “Roadmap to Resolution” report is to have local boards of education assume the cost of local education retiree health benefits, which is currently a state obligation, as well as the new retirement plan for local (K-12) education employees. NJLM partnered with the New Jersey School Boards Association (NJSBA) to assess the impact such a cost transfer would have on both municipal and school district taxpayers. Raphael J. Caprio, Ph.D., Director of Bloustein Center for Local Government Research, Rutgers University was hired to provide a policy-neutral analysis and provide answers to the potential (and estimated) impacts. Click here to read this report in its entirety: Cost Allocation Estimates of Pension Liability for each 1% of Payroll Contribution Converting from a School District Basis to a Municipality Basis (PDF).

League Leadership Urges Pension Study Group to Recognize Strength of Local Pension Funding

In 2014, the League's officers, working closely with their counterparts at the New Jersey Association of Counties, submitted a statement to the State's Pension and Health Benefit Study Commission, urging them to not, in any way, weaken the vitality of the local plans. Click here to read a copy of this letter in PDF.

Governor Christie, Senate President Sweeney and former Speaker Sheila Oliver, as well as other state policy-makers, deserve credit for the bipartisan pension and benefit reforms that were enacted in 2010 and 2011. Coupled with the consistent payments made by responsible local governing bodies, these reforms are delivering on the promises made by their advocates. The actuaries who have studied the systems have confirmed these facts.

At the risk of delving too far into the weeds, it is important to note that when analyzing the fiscal health of the public employee pension and benefit systems, experts always make a distinction between local commitments for local employees and retirees, and the state government’s responsibility to provide funding for current and retired State employee benefits. In fact, one of the 2011 reforms included the separation of the systems: one for the State and another for the locals.  According to the latest valuation reports, the local government PERS and the local PFRS are actuarially sound, in large part due to the fact that municipalities and counties have made full employer contributions as required under the law for over a decade. The local PERS is currently funded (comparing assets to liabilities) at 73.9% and the local PFRS is currently funded at 76.9%.   The State PERS, on the other hand, is currently funded at 48.1%, and State PFRS is a little better, at 50.8%.

These numbers matter, because they are used to determine the annual responsibility of the municipality or county – the amount that each unit of government is expected to pay into the system.

We recognize and appreciate the underlying State’s funding crisis, and we commend the Governor and the Commission for their attention to these issues. Our concern, however, is the Commission may propose solutions for the State system that could result in new problems—and higher costs---for the local property taxpayer. That is an unintended consequence that no one wants and should be avoided.  

Over the past six years, local officials deserve credit for making the tough decisions in tough times. We have pruned budgets, pursued savings, engaged in tough negotiations, reduced the workforce, shared services, cut spending, applied best practices, emptied reserve accounts and deferred investments. We did this as property values declined, tax appeals increased, development and economic activity stalled, employment slumped and property tax relief funding was diverted to the State budget.

Through all that, and an unprecedented series of natural disasters, local governments have continued to balance their budgets and deliver essential services, while funding numerous state-mandated responsibilities and meeting all their public employee pension funding obligations.

With this in mind, the League of Municipalities respectfully requests that the New Jersey Pension and Health Benefit Study Commission recognize that the local pension systems are healthy, and that municipalities and counties have met their obligations as employers. We are committed to advocating for legislation, regulations and policy directives that empower local governments to operate more effectively and efficiently.    The League remains dedicated to advancing innovative programs and initiatives that enhance the level of service provided and save valuable taxpayer dollars.

We understand the State’s budget problems and we are anxious to help in any way we can. But we cannot help in any way that shifts new burdens to our property taxpayers and our dedicated public servants.