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Posted on: March 13, 2020

Action Needed: Senate Advancing PFRS 20 & Out Legislation

Please contact your Senator and urge them to oppose S-1017.

On Monday, the Senate Budget Committee is scheduled to consider S-1017 which permits a PFRS employee who is enrolled before or after the bill’s effective date to retire, regardless of age, upon attaining 20 or more years of service credit and would allow that employee to receive a retirement allowance equal to 50% of the member’s final compensation. 

As previously reported, the public safety unions are pushing this legislation in response to what they believe is a misinterpretation of the 1999 law. The public safety unions have argued that the minimum increase cost incurred by this legislation will be off-set by the healthcare savings.

The League, along with the New Jersey Association of Counties, view this legislation as an enhancement of benefit at a time we can least afford it. The benefit provided in S-1017 will impact the pension fund liability leading to increase costs. Before enhanced benefits are even considered we all have the responsibility to ensure that the pension fund is stable. 

While a 74% funding ratio for the local Police and Fire System (PFRS) is on the right track, the fund is not yet stable enough to consider enhanced benefits. 

This legislation does not account for the impact of the recent market downturn or the reduction of the assumed rate of return on the pension fund.  

In addition, we question how healthcare benefits savings will offset the increase pension liability cost as not all municipalities and counties provide healthcare benefits in retirement. Furthermore, there is the simple accounting issue that the state will fund the liability the municipality or county pays for healthcare benefits if provided, in retirement.

In the previous legislative term, the non-partisan Office of Legislative Services (OLS) provided an objective fiscal impact analysis on the then Assembly companion bill, A-6024.

While the public safety unions claim that the bill will not increase any costs, the OLS analysis noted that the bill "...will have a significant, indeterminate fiscal impact, likely in the hundreds of millions of dollars, on both the State and local portions of the PFRS pension funds and the unfunded liability costs that would be charged to the State and local government entities to fund the unfunded liability created by the bill.”   

In addition, the analysis stated that “the bill will increase the annual actuarially determined (required) contribution to the PFRS in order to fund the actuarial liability created by the bill.  As such, the early retirement allowances created by this bill and paid out of the pension fund are funded over time by increased State and local public employer normal contributions and unfunded liability contributions.”

Funded by property taxpayer dollars, county and municipal governments across the State will spend $1.038 billion in 2020 to subsidize the PFRS, while PFRS members will contribute approximately $348.439 million to the defined benefit plan.  

In other words, property taxpayers will finance over 70% of PFRS in 2020, while PFRS members will pay 30%. Since these additional costs will be borne by taxpayers, the League opposes this legislation.  

Contact: Lori Buckelew, Senior Legislative Analyst, lbuckelew@njlm.org, 609-695-3481 x112.


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